2023 bank failures

[Guest]

3 minutes ago, DalTxHornFan said:

I was hearing something from a financial services-connected friend in DC about some emergency legislation being discussed to deal with the insurance cap with respect to this situation.  That sounds like a long-shot to me.

But who knows?  If this is truly going to be a systemic issue, it might make sense to cut it off before it goes further.

You can’t make it big enough and backdate it to effectively deal with SVB. And this shouldn’t be a systemic issue. This isn’t 2008. If there were ever a black swan event for a single bank, this is it. 

[DalTxHornFan 3,097]

We used the fiction of "regulatory goodwill" for decades to allow S&Ls to stay in business.  The gubmint does what it wants to.

[Brew 3,049]

52 minutes ago, Chopper said:

They (the Fed) tried to find a buyer but hadn't been able to line one up before Friday.

Roku, per the article I read, had 25% of their cash on hand at SVB. Also according to the article I read while it's a problem for them, they're able to deal.

However, the FDIC coverage limits of $250k per eligible account are an incentive for people or businesses with a lot of cash on hand to spread it around among several or many banks. The incentive is the solution. That seems rare but it's the fact in this circumstance.

What's rare is for businesses with a lot of cash on hand to put all into one bank. But that's the way it was done in Silicon Valley, which used political muscle to ensure that the bank of their choice could gamble it away while the VC crowd mandated the funds go to the very same bank.

 

They will be okay isn’t really a solution just for the record. You’re in charge of Roku or any of these different affected companies, how are you managing cash and access to it differently since these guys were idiots for having so much cash in one bank.

I have a number of clients with 8 figure cash accounts, I’m curious what this looks like. A few of them with limited Daily Cash needs sweep everything they can out to other banks and pay a premium for that, but their access is pretty limited so they still carry balances over FDIC limits in operating accounts. A few have pledged securities for account balances but again that is a pretty limited solution.

[DalTxHornFan 3,097]

6 minutes ago, Porterhouse said:

You can’t make it big enough and backdate it to effectively deal with SVB. And this shouldn’t be a systemic issue. This isn’t 2008. If there were ever a black swan event for a single bank, this is it. 

HTM on bond portfolios is a very questionable classification right now.  I could see some sort of regulatory action to allow those to be counted as assets without discount, maybe with a fed repurchase facility if a bank has a liquidity issue.

Edited March 12, 2023 by DalTxHornFan

[Guest]

15 minutes ago, Sawbonz said:

Of course it was a bailout. The fact that it was eventually repaid with interest, while great, is irrelevant as to whether it was a bailout
 

Common misconception. It was not. Most banks that received TARP did NOT need it. It was designed to capitalize banks to acquire institutions that would otherwise fail. Many CEOs tried to refuse funding. Dimon famously was rejected. AIG?  GM?  Bailouts. TARP was most certainly not. 

15 minutes ago, Dahobbs said:

You're so fucking dense that you never even understood what points I was making on that thread. You continued to argue against facts despite being providing a multitude of sources (e.g., percentage of new capacity that is new renewable).and here, you continued to insist that Ackman's plan that requires a federal guarantee of all deposits above the FDIC insured amount is somehow not a bailout. And yes, TARP was a bailout. Just lik look it would be a bailout of you if you needed an emergency loan in order to continue to exist and I provided you a half million dollars. You seem to have the misapprehension that merely because said loan may ultimately end up profitable for me, that it wasn't a bailout. The question isn't the result, but whether I incurred a liability that I didn't need to otherwise incur in order to save your butt.

1. I understood. I ceased arguing after 3/4 posts because I realized you’re the mayor of Retardville. 
2. TARP - see above. At least you have an argument given the Treasury source of funding. 
3. SVB / Ackman - here you have no argument. The FDIC receives zero federal / taxpayer funding. 

Edited March 12, 2023 by Porterhouse

[Sawbonz 27,542]

If SVB was a safe risk wouldn’t they have gotten enough loans last week to stay afloat?

[Sawbonz 27,542]

1 minute ago, Porterhouse said:

to acquire institutions that would otherwise fail

So, to bail them out?

[Guest]

4 minutes ago, DalTxHornFan said:

HTM on bond portfolios is a very questionable classification right now.

Hadn’t been for years but indeed. Someone above said SVB was in need of gray hairs with some semblance of risk management perspective from more normalized interest rate environments. I continue to be astounded by the incompetence of what was thought to be a great bank. 

[Guest]

2 minutes ago, Sawbonz said:

If SVB was a safe risk wouldn’t they have gotten enough loans last week to stay afloat?

They were raising capital in some form. Probably not loans. And anyone who got a look behind the curtain bailed. That’s what sent them into a quick, 24-hour downward spiral exacerbated by Thiel. 

1 minute ago, Sawbonz said:

So, to bail them out?

Good question. None of TARP funding was used in the manner really intended. I’m not even sure BAC effected its ML deal or JPM its BS deal with TARP funding. Both were very much forced marriages perpetuated by the government. While a good question the answer is no. The banks that didn’t receive TARP that were overextended in mortgages / real estate failed, and received no bailout. 

[Dahobbs 17,527]

1 minute ago, Porterhouse said:

Common misconception. It was not. Most banks that received TARP did NOT need it. It was designed to capitalize banks to acquire institutions that would otherwise fail. Many CEOs tried to refuse funding. Dimon famously was rejected. AIG?  GM?  Bailouts. TARP was most certainly not. 

1. I understood. I ceased arguing after 3/4 posts because you’re the mayor of Retardville. 
2. TARP - see above. At least you have an argument given the Treasury source of funding. 
3. SVB / Ackman - here you have no argument. The FDIC received zero federal / taxpayer funding. 

1. No you didn't. You could never address the facts or even admit to reality. You kept thinking I was talking about what should be and not what is. You thought I was expressing an opinion rather than summarizing what had actually happened. 

2. Of course I do. It was a bailout. You just have a different personal opinion about what the word "bailout" means than the rest of the fucking country. 

3. Is Ackman asking for a government guarantee of deposits above the FDIC insured amount when he, you know, asks for a "government guarantee" above those limits or not?  What does the word "government" mean to you? As an aside, do you know what the FDIC would do if it ran out of its own money? Do you know the federal government's obligation at that point? 

[Keef 764]

1 hour ago, TwiceHorn said:

So, is that kind of thing regarded like a preference in bankruptcy, or a reorganization bonus?

It stinks to high heaven, but a reorg bonus does make a certain amount of sense.

Optically it looks horrible, but (having zero insight) I bet its just unfortunate timing.  There's a really important deadline on March 15 for incentive compensation for tax purposes, so pretty much everyone has in their bonus plan that cash incentive compensation has to be paid out by March 15th of the year following the year in which it was earned.

[52-80 19,147]

8 hours ago, longhornmatt said:

Yes, what would the world come to if VCs had to think twice about giving a blank check, with no oversight or controls, to a 22 year old who they don’t trust to even learn the most basic things about finance or management?  We can’t survive without Jin Yang having easy access to millions!

Yes, im sure all componentry powering your phone, the board software, and all the web services transmitting packets of your garbage to our screens, were developed by guys in Topeka Kansas bootstrapped with their rent money. 
 

On the other hand, without SV/VC, we wouldve never had to suffer Chopper posting twitter screenshots of Paul Krugman (lol) so that would be a huge plus. 

[52-80 19,147]

8 hours ago, Chopper said:

I am far from a savvy investor but when I put my money in a bank and when I invested it with a financial advisor, the first question I asked was about the insurance on the account, and how that impacted my investment. It's why I have multiple banks, multiple investment vehicles and multiple accounts. For someone with 10x or 100x millions more than I, if they didn't understand the risks, or weren't willing to take the time to find out, then hiring a financial advisor or company controller should have been step 1.  Limiting your risk is only as complicated as you want to make it.

This clearly intelligent guy is comparing his having an IRA with Fidelity and 529 with Schwab (the “investments”), to a corporate treasury. Because they are the same. 

And it is incumbent for a startup to have 1 different bank account for every 25 employees’ monthly payroll, and a separate one for the Azure bills, and another one for Carbon Black, because cash security is their job, not the regulators. 

Now that we’re here, lets enjoy the schadenfreude of the common employees of these companies possibly not getting paid, as the actual effect of inaccessibility to funds, consequent to the their employers careless act of…….depositing money in a bank account.

But we’ll dress it up as “VC comeuppance”. Thats the ticket. Nimwit.   

 

 

 

[ChiTownDoc 21,144]

[SL Xpress 7,513]

10 hours ago, Nivek said:

I am doing a shit job of multitasking.   I suppose what I am poorly trying to illustrate is how the retail investor is the one who will get nothing from the securities they hold, while the account holders (including the businesses and individuals) who exceeded the insurance coverage will get priority even though they also failed in the stewardship of their money.  Ultimately those individuals and organizations are likely higher net worth than the retail investor.    In other words, it looks like the richer members of society and the poorer members of society will have unequal outcomes yet again.  

I will say I think it's unrealistic to expect equal outcomes for richer and poorer members of society. That's not how it works. That's not about America, or late stage capitalism. That's about human hierarchies inherited from the dawn of time. 

What is entirely realistic is that the pendulum swings from the extreme it's at right now for the sake of societal welfare, if nothing else. It's not functional to have this much acrimony between the wealthy and the not so wealthy. Bad things happen. Really bad things. And I'm not referring to raising taxes. 

I guess my position is that I feel like a shareholder has a different level of due diligence in principle than a depositor, while understanding an individual buying stocks in SVB could certainly be in a different financial position than the company Roku with $487 million in deposits. I don't really have any concerns about a ripple effect regarding shareholders losing the value of their stocks, while I have a lot of concerns about depositors being seen losing the uninsured money in their accounts that were used for liquidity purposes. 

I feel like your objections are on moral grounds as much as anything else. In addition, you and I see different levels of danger in depositors being seen to lose their money. You feel like it's a good lesson for the economy, whereas I see it as a bad one. That's my take, in any case. I appreciate your responses nonetheless.

[SL Xpress 7,513]

11 hours ago, Dbeasy said:

I find it interesting that people think they’ve made sure their wealth is safe. The only investments that are truly safe are $250k or less in a bank with FDIC, or holding treasuries directly with the federal government and not via a brokerage.

Someone more knowledgeable on the inner workings of the financial system can describe why funds invested in safe assets at a brokerage are not necessarily safe. 

Well, safe is relative, but I'd say the SVB collapse shows that treasuries held directly with the federal government are not necessarily safe, either. HIgher interest rates can collapse the liquidity value of those treasuries, and inflation can make the interest worthless. At the interest rates SVB was earning, for example, it's not that much different than burying the money in a hole in the backyard. 

Probably the safest investments I have are property. The value can go up and down, but in the meantime they earn rent and even if the building loses its value, the land underneath is worth something. Which is part of why we all get so many calls asking if we're wanting to sell our home. There's a ton of money chasing real estate, even now with the market overall in a bit of a downturn. I'm not saying it's a good path for everyone, but it's worked for me. 

[SL Xpress 7,513]

2 hours ago, 52-80 said:

This clearly intelligent guy is comparing his having an IRA with Fidelity and 529 with Schwab (the “investments”), to a corporate treasury. Because they are the same. 

And it is incumbent for a startup to have 1 different bank account for every 25 employees’ monthly payroll, and a separate one for the Azure bills, and another one for Carbon Black, because cash security is their job, not the regulators. 

Now that we’re here, lets enjoy the schadenfreude of the common employees of these companies possibly not getting paid, as the actual effect of inaccessibility to funds, consequent to the their employers careless act of…….depositing money in a bank account.

But we’ll dress it up as “VC comeuppance”. Thats the ticket. Nimwit.   

 

 

 

I still wish we weren't going the "nimwit" route, but there hasn't been a single thing you've posted that I've disagreed with. It's just a different perspective. I think I get a little shocked the perspective is not more widely shared, but I find that is true on a regular basis. 

The mobs want to see heads roll, is what I see. 

I do agree with Krugman it doesn't look like another Lehman, but first, Lehman wasn't a Lehman until it happened. The feds willingly let it go under. Second, that's a pretty high bar. SVB may not cause the potential collapse of the entire global financial system. Okay. I can go with that. But there's still a lot of room for damage to be done that can be avoided if the depositors are made whole. Then enact stifling bureaucratic rules and oversight to prevent it from happening again, if it's politically important enough. It looks like a good place to start would be encouraging deposits of less than $250k for institutions below some threshold. Don't know what that should be, but less than 5% seems like a recipe for disaster at this point.

[SL Xpress 7,513]

10 hours ago, TwiceHorn said:

Is guaranteeing deposits really the same as a bailout?

 

I don't know the answer to that.

I know the market looks for signals as to where to put its money. So, for example, for the housing crisis, a big part of it was the federal government's implied guarantee of Freddie Mac and Fannie Mae loans. These were quasi private entities with a perceived safety net. They were also very sensitive to government emphasis to increase home ownership for political reasons come hell or high water. There was no explicit guarantee of those assets, but the market behaved in a way that said they believed they were. And in 2008 the federal government showed the market it was right.

This is the danger in my opinion of making the depositors whole. It sends a message to the market that the federal government will bail out any depositor no matter how risky their actions are. I'm not saying that's true. I'm simply saying that's the message that's sent. If the government lets depositors be paid pennies on the dollar - which I'm convinced is not going to happen, but let's say hypothetically speaking - the message is then be careful where you deposit your assets over $250k, and do better diligence or you could lose it all. 

So to me, it then becomes which side of the equation do you stand on? Is it healthier for the economy overall to send the message that depositors need to be extra careful with their money or they could lose it all? Or is it healthier for the economy to send the message that if a bank has significant safe underlying assets but they've faced a run at a time when those assets are not worth much (it could be argued long term T-bill paying somewhere around 1.5% interest were never going to be worth much ever again in the liquid market, but that's a different discussion) the depositors won't suffer long term damage?

To me the most interesting part is that they had so little financial acumen at that bank that the only place they knew to invest their depositors money to earn a return was in long term T-bills. They were obviously amazing at generating huge deposits, but horrific in knowing what to do with that money. That's different from other bank failures I've read about, where a central part of the problem was making risky loans that eventually had to be written off. For SVB, the assets weren't worthless because they invested with too much risk. They were worthless (for the practical purpose of covering a bank run) because they were too safe. 

[SL Xpress 7,513]

10 hours ago, atomheartbevo said:

It’s more like “fuck the stupid”.

 

And I would say that's a dangerous conceit, since one side of the coin always thinks the other side is stupid. Sometimes it's better to acknowledge we're all capable of being stupid, but how can we help? Rather than blaming the victim for what they should have done differently. 

And sometimes it's just better to let the victim suffer as a lesson to future victims. But there are all kinds of consequences for that as well. 

[Neonmoon 38,129]

1 hour ago, SL Xpress said:

Well, safe is relative, but I'd say the SVB collapse shows that treasuries held directly with the federal government are not necessarily safe, either. HIgher interest rates can collapse the liquidity value of those treasuries, and inflation can make the interest worthless. At the interest rates SVB was earning, for example, it's not that much different than burying the money in a hole in the backyard. 

The nuance is liquidity. If a person invested 1 million dollars of their own money in US treasuries, expecting to be paid back at maturity. That investment is the safest investment in the world (assuming the US doesn’t default because reasons). If a bank uses someone’s else money to buy long duration US treasuries, and interest rates rise, it devalues the investment, and said person wants their money back. Problems arise. 

[SL Xpress 7,513]

4 minutes ago, Neonmoon said:

The nuance is liquidity. If a person invested 1 million dollars of their own money in US treasuries, expecting to be paid back at maturity. That investment is the safest investment in the world (assuming the US doesn’t default because reasons). If a bank uses someone’s else money to buy long duration US treasuries, and interest rates rise, it devalues the investment, and said person wants their money back. Problems arise. 

I don't agree with your distinction, although I appreciate it. 

A long term investment in T-bills by an individual investor can still be exposed to liquidity risk. Especially with higher inflation. Just because it's an extremely safe investment doesn't make it risk free. 

And a T-bill is still the safest investment for institutional buyers, which is why so many of them invest a portion of their portfolio into them. What they don't do is invest the humongous percentage of their assets in the lowest interest bearing bond on the planet (because of its safety). I think of institutional investors like pension funds or insurance companies, and what would happen to them if they put all their assets into T-bills. It would be a monumental disaster. Imagine having annuity obligations and you've locked yourself in to long term T-bill maturity rates with the vast majority of your assets. You'd lock yourself into a ponzi scheme using new investors to pay out interest because you were never going to have enough to cover your obligations with T-bills.

That isn't exactly the situation that SVB was in because the interest amount they owed to those depositors was so low. But what they had done is locked themselves into an inevitable death as interest rates continued to rise. I guess they might have been able to grow out of it if their situation had stayed hidden, but it didn't stay hidden precisely because they were trying to raise capital to deal with it. And their incompetence was so severe it appears unlikely they had the institutional wisdom to solve it even with an infusion of capital. 

Mostly based on everything I've read, I'm glad they failed when they did instead of being allowed to raise more money and fuck that up, too. 

[Neonmoon 38,129]

8 minutes ago, SL Xpress said:

I don't agree with your distinction, although I appreciate it. 

A long term investment in T-bills by an individual investor can still be exposed to liquidity risk. Especially with higher inflation. Just because it's an extremely safe investment doesn't make it risk free. 

And a T-bill is still the safest investment for institutional buyers, which is why so many of them invest a portion of their portfolio into them. What they don't do is invest the humongous percentage of their assets in the lowest interest bearing bond on the planet (because of its safety). I think of institutional investors like pension funds or insurance companies, and what would happen to them if they put all their assets into T-bills. It would be a monumental disaster. Imagine having annuity obligations and you've locked yourself in to long term T-bill maturity rates with the vast majority of your assets. You'd lock yourself into a ponzi scheme using new investors to pay out interest because you were never going to have enough to cover your obligations with T-bills.

That isn't exactly the situation that SVB was in because the interest amount they owed to those depositors was so low. But what they had done is locked themselves into an inevitable death as interest rates continued to rise. I guess they might have been able to grow out of it if their situation had stayed hidden, but it didn't stay hidden precisely because they were trying to raise capital to deal with it. And their incompetence was so severe it appears unlikely they had the institutional wisdom to solve it even with an infusion of capital. 

Mostly based on everything I've read, I'm glad they failed when they did instead of being allowed to raise more money and fuck that up, too. 

A T-Bill is not a long term investment. 

[SL Xpress 7,513]

27 minutes ago, Neonmoon said:

"...expecting to be paid back at maturity." 

You're right. That screams short term investment to me. What was I thinking. 

[Neonmoon 38,129]

3 minutes ago, SL Xpress said:

You're right. That screams short term investment to me. What was I thinking. 

That doesn’t prove what you think it proves. 

[SL Xpress 7,513]

2 minutes ago, Neonmoon said:

That doesn’t prove what you think it proves. 

I don't know what you're trying to say. How about being less cryptic.

Edited March 12, 2023 by SL Xpress

[Neonmoon 38,129]

36 minutes ago, Neonmoon said:

The nuance is liquidity. If a person invested 1 million dollars of their own money in US treasuries, expecting to be paid back at maturity. That investment is the safest investment in the world (assuming the US doesn’t default because reasons). If a bank uses someone’s else money to buy long duration US treasuries, and interest rates rise, it devalues the investment, and said person wants their money back. Problems arise. 

 

20 minutes ago, SL Xpress said:

I don't agree with your distinction, although I appreciate it. 

A long term investment in T-bills by an individual investor can still be exposed to liquidity risk. Especially with higher inflation. Just because it's an extremely safe investment doesn't make it risk free. 

And a T-bill is still the safest investment for institutional buyers, which is why so many of them invest a portion of their portfolio into them. What they don't do is invest the humongous percentage of their assets in the lowest interest bearing bond on the planet (because of its safety). I think of institutional investors like pension funds or insurance companies, and what would happen to them if they put all their assets into T-bills. It would be a monumental disaster. Imagine having annuity obligations and you've locked yourself in to long term T-bill maturity rates with the vast majority of your assets. You'd lock yourself into a ponzi scheme using new investors to pay out interest because you were never going to have enough to cover your obligations with T-bills.

That isn't exactly the situation that SVB was in because the interest amount they owed to those depositors was so low. But what they had done is locked themselves into an inevitable death as interest rates continued to rise. I guess they might have been able to grow out of it if their situation had stayed hidden, but it didn't stay hidden precisely because they were trying to raise capital to deal with it. And their incompetence was so severe it appears unlikely they had the institutional wisdom to solve it even with an infusion of capital. 

Mostly based on everything I've read, I'm glad they failed when they did instead of being allowed to raise more money and fuck that up, too. 

A T-Bill is a short term investment, anywhere from 4 weeks to one year. A Treasury Note is up to 10 years, and Treasury Bonds are 20-30 years. SVB didn’t buy T-Bills, that wouldn’t have caused their current problem. They bought T-Notes aka 10 year bonds which is a long term investment. 

It doesn’t matter if you buy T-Bills, T-Notes, or T-Bonds, if you hold them to maturity, you will most likely be paid for your investment. I say most likely because they are the safest investment in the world, I didn’t say risk free, although they literally are referred to as “risk-free”, but that’s because they are the safest, not because they are actually risk free. There is always some risk with any investment, if there wasn’t, it would just be called free money. 

Like I originally stated the issue was liquidity. Long Term investors and pension funds don’t invest in long term notes or bond with money that they may need before that maturity date, like SVB, which was dumb. Of course, it was dumber the way the communicated it to the market, causing the run, with a little help from powerful VCs

 

[SL Xpress 7,513]

13 minutes ago, Neonmoon said:

 

A T-Bill is a short term investment, anywhere from 4 weeks to one year. A Treasury Note is up to 10 years, and Treasury Bonds are 20-30 years. SVB didn’t buy T-Bills, that wouldn’t have caused their current problem. They bought T-Notes aka 10 year bonds which is a long term investment. 

It doesn’t matter if you buy T-Bills, T-Notes, or T-Bonds, if you hold them to maturity, you will most likely be paid for your investment. I say most likely because they are the safest investment in the world, I didn’t say risk free, although they literally are referred to as “risk-free”, but that’s because they are the safest, not because they are actually risk free. There is always some risk with any investment, if there wasn’t, it would just be called free money. 

Like I originally stated the issue was liquidity. Long Term investors and pension funds don’t invest in long term notes or bond with money that they may need before that maturity date, like SVB, which was dumb. Of course, it was dumber the way the communicated it to the market, causing the run, with a little help from powerful VCs

 

Gotcha. 

Thank you for actually explaining what you meant. 

Based on this post, I'm not sure what we're disagreeing about, really. 

[Sawbonz 27,542]

1 hour ago, SL Xpress said:

A long term investment in T-bills by an individual investor can still be exposed to liquidity risk

What? An individual is a fool if they put money they require to be liquid in such an investment

 

eta their exposure was not T-bills either as later pointed out

Edited March 12, 2023 by Sawbonz

[wackawacka 177]

Quote

Janet Yellen said on Sunday that the US government was working closely with banking regulators to help depositors at Silicon Valley Bank but dismissed the idea of a bailout. Speaking with CBS on Sunday, the treasury secretary sought to assure US customers of the failed tech lender that policies were being discussed to stem the fallout from the sudden collapse this week. The Federal Deposit Insurance Corporate (FDIC) took control of the bank on Friday morning. “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said.

- FT

Not sure why people are advocating for bail out unless they were caught on the wrong side the trade.

[wackawacka 177]

While I am not concerned about depositors mostly if not full whole, this is the short-term issue.

Quote

Once with SVB, the bank would then push you to take a "growth equity loan", even if you had no revenue or near-term prospect of it. The loan is very attractive (i.e. interest only for a year after starting to draw down cash), followed by an P&I amortization over 30 months or so. 

- You had to keep at least 85% of your funds at SVB.

- Many startups (thousands) may not be able to meet payroll for 3/15 given that most PEOs require the payroll to be funded at least 24 hours (more often 48 hours) in advance

Loan docs from VCs are circulating to fund payroll in many circles to help with short-term issue but that assumes you are on good terms with your VC or they are vultures when many are.

[Neonmoon 38,129]

Now this is a fun fact 

 

[Bateshorn 9,927]

So, explain this to me like I’m a golden retriever: SVB basically invested it’s depositors money (or at least the portion it didn’t loan out) in relatively safe investments that it couldn’t turn back into cash money honey quickly, or at all if the guaranteed interest in those investments was so low they were untradeable at a reasonable discount at current market prices, so some poorly chosen words started a run and they couldn’t recapitalize quickly enough to staunch the flow?  
 

So it wasn’t so much that the money was in Karen’s house, it was more I don’t have it today because nobody will pay me for the safe thing I stored your money in?

[Bert Orange 1,120]

NM

Edited March 12, 2023 by Bert Orange

[Hermanator 7,032]

I don't see how anyone could feel comfortable thinking this is a one off event and not part of the overall slide that began pre-covid but really hit the throttle with covid. Given the rollback of regulations on banking over the last 25 years and the events that have occurred. 

But who knows? Just smoke the hopium. 

[Hermanator 7,032]

1 minute ago, Bateshorn said:

 So it wasn’t so much that the money was in Karen’s house, it was more I don’t have it today because nobody will pay me for the safe thing I stored your money in?

The main issue is the eggs were put into a single basket that allowed rising interest rates to kill it. Guess out of greed. Maybe out of laziness. But something that shouldn't happen. 

[Neonmoon 38,129]

SVB didn’t hedge it’s massive bond position. Other banks do this. It’s simple risk management 

[DefinitelyNotHollywoodColt 12,301]

Are there not publicly accessible statements that would have shown they put all of their eggs in one basket without hedging against that position?

They made this bet awhile ago, right?

[Guest]

8 hours ago, Dahobbs said:

1. No you didn't. You could never address the facts or even admit to reality. You kept thinking I was talking about what should be and not what is. You thought I was expressing an opinion rather than summarizing what had actually happened. 

2. Of course I do. It was a bailout. You just have a different personal opinion about what the word "bailout" means than the rest of the fucking country. 

3. Is Ackman asking for a government guarantee of deposits above the FDIC insured amount when he, you know, asks for a "government guarantee" above those limits or not?  What does the word "government" mean to you? As an aside, do you know what the FDIC would do if it ran out of its own money? Do you know the federal government's obligation at that point? 

1. Fantasy. I don’t doubt (most of) your purported facts.  I doubt your ridiculous predictions. 
2. This country is filled with morons. It wasn’t a bailout in the most basic sense of the word. They were forced to take it, didn’t need it, and other banks failed. 
3. FDIC = government. Are you suggesting the FDIC would run out of funds through SVB?  That is laughable. And yes, if they do start to approach running low on funds, I know exactly what happens. Apparently you do not. 

[Jackson P. Neighbors 136]

I didn't know this separate thread existed until this morning so I'm copying/pasting my post from last night on Markets are Falling thread here, apologies. I'd enjoy discussion on the talking points. Smart folks abound here. There are so many nuances to this situation. A real shame...

 

Correct, this was a liquidity failure due to a deposit run, plain and simple. If the deposit volume on Tuesday would have remained stable, this is a perfectly solvent bank, albeit certainly needing a relatively manageable capital raise for regulatory compliance purposes. Many of the posts above accurately identify issues that contributed to the failure, but none of them individually caused it.

TL/DR me if I'm getting a little/really wonky here but after taking a few minutes to peek at their call report, this is how I view a few of these issues:

 

- Outsized Treasuries position and long portfolio duration / funding mismatch:

Just to be precise, "Treasuries" were not a large part of the portfolio (14% of assets vs comparable peer banks 23%). They had a greater proportion of Agency MBS (55% vs 36%). Overall though you could call it more of a bond bank, loans 33% of assets, securities 58%. However, the size of the security position doesn't particularly matter here. Most of the position was HTM which doesn't flow to AOCI and although the AFS portion does, it only affects the stated total equity position rather than the regulatory capital position that must be maintained. There is a big difference between equity and regulatory capital. This is why you hear that most banks are in the same boat when it comes to unrealized AOCI losses. It is absolutely true, and there are a bunch with a worse AOCI position than SVB had. Right now there are dozens of banks nationwide which report a negative equity position and, while they are probably getting a stern taking-to from regulators during an exam, they are most likely perfectly solvent.

The reportedly long duration of the portfolio (I have not looked at the IRR/sensitivity financial data, just going off what is in media) simply impacts the size of the unrealized loss in AOCI. Longer duration = greater downside risk when rates rise, finance 101. So yes, the $1.8B loss on the sale of securities -may- have been larger than with a shorter tenor portfolio, but again, this was not a major contributor to failure at all.

- Failure to raise capital

CNN had an article out yesterday headlined: Silicon Valley Bank collapses after failing to raise capital. This is misleading at best or flat out wrong. SVB attempted to raise $2.2B to plug the $1.8B from the loss on securities. The bank's capital position was generally fine prior to the loss, leverage capital 8% vs peer 8.76%, and risk-based capital ratios were higher than peer because of the higher proportion of securities vs loans on balance sheet. They had almost $17.5B capital prior to the $1.8B loss, so yeah, the loss certainly made an impact but they would still be considered "Adequately Capitalized" (versus "Well Capitalized") by regulators without raising additional capital. Adequately Capitalized banks absent other major issues are not getting closed, period.

- Customer base is niche

This did not cause it but I think when it's all said and done, this will be seen as a major contributor to what historians 50 years from now will deem the most efficient bank run in the history of western civilization. I'm being a little facetious there but also not really. What we saw yesterday should not happen. $42B deposit outflow and resultant -$958M cash position in one day is worthy of Congressional investigation in my opinion, and I have zero axes to grind. Previous posters showed the data on deposit size % which is spot on. Prudential regulators are going to have to reassess the entire playbook on liquidity management after this. Bank failures occur mostly due to liquidity, but it happens over weeks and months and quarters which gives the bank and regulators time to find buyers for assets, etc. Technology, an astute and influential client base, and a huge average relationship balance meant that this could happen with unprecedented speed.

 

I really dislike the "perfect storm" label when describing root causes of major disasters but here I have no other choice to label this as such. What a mess, and the ashes sifting will last for years to come. So many bad decisions - why announce capital raise right after the security sale filing? Why do it on the day of SG announcement, why were so many tech titans calling for withdrawals? I'm a simple outside observer with no answers but I hope they start coming.

[Sawbonz 27,542]

5 minutes ago, Porterhouse said:

FDIC = government. Are you suggesting the FDIC would run out of funds through SVB?  That is laughable

Remind us why the government can’t run out of funds

[Chopper 17,230]

7 hours ago, 52-80 said:

This clearly intelligent guy is comparing his having an IRA with Fidelity and 529 with Schwab (the “investments”), to a corporate treasury. Because they are the same. 

And it is incumbent for a startup to have 1 different bank account for every 25 employees’ monthly payroll, and a separate one for the Azure bills, and another one for Carbon Black, because cash security is their job, not the regulators. 

Now that we’re here, lets enjoy the schadenfreude of the common employees of these companies possibly not getting paid, as the actual effect of inaccessibility to funds, consequent to the their employers careless act of…….depositing money in a bank account.

But we’ll dress it up as “VC comeuppance”. Thats the ticket. Nimwit.  

Now you're being pedantic. Diversification is not that difficult of a concept to understand. There are no guarantees in life.

Also the government should not be doing anything to encourage greater numbers of banks considered too big to fail.

[Henry Hill 3,156]

 

[Chopper 17,230]

Matt Levine's description of what went wrong

[Trey3216 15,345]

14 hours ago, TwiceHorn said:

Question for the savvy.  It appears that SVB was too loaded up on low-interest bonds with I think I saw a 3-year average maturity.  So their choice was to hold them returning low interest, to maturity, or sell out of them and take a bath.

The plan was to sell out, take a bath, and make up the difference by selling new stock.

Why, though?

I understand, I think, that those bonds would be marked to market and put a hit on the balance sheet, but why make that real?  Why not just do the capital raise?

They tried to do a capital raise and there weren’t really any takers.   They were likely going to take a bath even holding the 3 year notes to maturity because they very well may have bought them over par value.  
 

they needed the cash and selling the bonds was the only way at that very moment.  They took a bath on the sale, and that scared large depositors who then wanted to pull their cash which caused a liquidity crunch on the bank.  

[Dahobbs 17,527]

Just now, Porterhouse said:

1. Fantasy. I don’t doubt (most of) your purported facts.  I doubt your ridiculous predictions. 
2. This country is filled with morons. It wasn’t a bailout in the most basic sense of the word. They were forced to take it, didn’t need it, and other banks failed. 
3. FDIC = government. Are you suggesting the FDIC would run out of funds through SVB?  That is laughable. And yes, if they do start to approach running low on funds, I know exactly what happens. Apparently you do not. 

1. The only prediction I made in that thread was that I thought replacing 80% of fossil fuel use in transportation was possible in 50 years. I really don't know why you think that is outlandish. 50 years is a long time. That basically means replacing use in consumer and light commercial usage, which is totally doable and already happening. 

2. You're focused on a few specific entities and ignoring everything else. That is an incredibly myopic view of TARP. I mean, fuck, you already admitted the GM bailout was in fact a bailout. That was part of TARP!

3. No, I'm not suggesting it would. I'm saying FDIC is backstopped by the full faith and credit of the US government. I'm saying that if it runs out of its own funds, one of its backstops is funds directly from the US Treasury. At any rate, none of this really matters. An FDIC guarantee over what it has been paid premiums for would in fact be a bailout regardless of whether the funds at risk come from the public purse or not. You've attached a condition to the term "bailout" that isn't required. 

[Dahobbs 17,527]

7 minutes ago, Chopper said:

Matt Levine's description of what went wrong

Matt Levine is great. 

[Trey3216 15,345]

12 hours ago, Dahobbs said:

His hypothetical was holding them to maturity...

I know.   And when they bought a lot of those maturities, rates were near zero, meaning they paid over par value for the bonds.  So if they bought a bond at 102 and they get 100 back at maturity, they’re still losing money on the principal value.   They were coupon hunting for their treasury ladder and they got burned because they sold them at 95 cents on the dollar and paid 102.   

[Guest]

14 minutes ago, Sawbonz said:

Remind us why the government can’t run out of funds

Because SVB is limited to $195b of deposits. FDIC has significant resources to fund that many times over. Is this a serious fucking statement. 

[Guest]

10 minutes ago, Dahobbs said:

1. The only prediction I made in that thread was that I thought replacing 80% of fossil fuel use in transportation was possible in 50 years. I really don't know why you think that is outlandish. 50 years is a long time. That basically means replacing use in consumer and light commercial usage, which is totally doable and already happening. 

2. You're focused on a few specific entities and ignoring everything else. That is an incredibly myopic view of TARP. I mean, fuck, you already admitted the GM bailout was in fact a bailout. That was part of TARP!

3. No, I'm not suggesting it would. I'm saying FDIC is backstopped by the full faith and credit of the US government. I'm saying that if it runs out of its own funds, one of its backstops is funds directly from the US Treasury. At any rate, none of this really matters. An FDIC guarantee over what it has been paid premiums for would in fact be a bailout regardless of whether the funds at risk come from the public purse or not. You've attached a condition to the term "bailout" that isn't required. 

2. A few entities?  I’m talking about ALL of them, with the exception of apparently GM, which occurred years after TARP was authorized. 
3. You presume that “one of its backstops” will be the way things happen. That didn’t happen in ‘08-‘11. And it wouldn’t happen here. It’s not a fucking bailout. You won’t answer this question - neither you nor @Sawbonz - what happens as the FDIC realizes it needs to replenish funds?

[52-80 19,147]

5 hours ago, SL Xpress said:

I guess my position is that I feel like a shareholder has a different level of due diligence in principle than a depositor, while understanding an individual buying stocks in SVB could certainly be in a different financial position than the company Roku with $487 million in deposits. I don't really have any concerns about a ripple effect regarding shareholders losing the value of their stocks, while I have a lot of concerns about depositors being seen losing the uninsured money in their accounts that were used for liquidity purposes. 

I anticipated there would be a lot of populist handwringing against the bailout, as if they’re “sticking it” to Peter Thiel and Vinod Khosla and Marc Andreesen. Against the reality of virtually nobody talking about or advocating for them, but instead the deposits of companies supporting their employees and operations. 
 

There is a potential ripple effect from this, which is mainstream learning that their deposits are “unsafe”, causing a run on all the other banks in the US. Think retirees with decent amount of cash, yanking it from their regional banks. 
 

People are ignorant enough on things (see first paragraph), that they would be equally ignorant about fractional reserves to pull off the second paragraph.