Silicon Valley Bank collapses

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Muse

Lifer
Jul 11, 2001
37,241
7,969
136
I suppose for as long as this remains isolated to SVB, it will probably only affect rich people.
The interviews of Silicone Valley people who were impacted last night on TV news suggests that it's not just rich people. Many are small businesses, start-ups, etc. They didn't seem panicked but it was anything but plain that they wouldn't be mostly wiped out. They didn't seem to know what to make of what's happening other than that they weren't able to pull out their money yesterday morning upon hearing of the problems.
 
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Muse

Lifer
Jul 11, 2001
37,241
7,969
136
My closest experience was back in 2008 when I was a Washington Mutual customer. It didn't quite make it to an FDIC takeover, but it was close. I believe the FDIC facilitated the buyout by Chase. I was impressed by the whole operation. One day is was Wamu, then next day is was Chase without a single interruption in services.
Yeah, that's me. My checks actually still say Wamu! I was unaware that Wamu almost defaulted before reading your post! :oops:
 

Exterous

Super Moderator
Jun 20, 2006
20,341
3,412
126
To some extent, maybe a rather large one, SV investors killed their own bank. The bank absolutely did not do everything right but would have survived if not for a $40B outflow.

At the end of 2022 they had $173B in total assets so that $42B was 24% of their total deposits withdrawn in a single day!

It had to do with raising the threshold of oversight for systemically important institutions from $50B to $250B. SVB (~$220B) would have had additional regs/oversight under the old version that they didn't as of the Trump de-regulations. It would have required additional stress tests and capital requirements but here we are.

What specifically in the tougher $250B regulatory category would have stopped this from happening? While I'm not an expert it doesn't appear that anything in the 2022 stress test seems to cover this situation. The Fed stress tests typically (always?) include rises in unemployment combined with decreases in real estate prices along with other assets like stocks and bonds. Inflation either gradually increased or rapidly decreased in the scenarios. However - in this case overall unemployment remains ahistorically low and inflation is ahistorically high - and got there very quickly resulting in a rapid rise of interest rates. SVB was protected from stock\short term bond volatility by their Treasury and other stable but long duration assets but those, in this specific case, took a beating from interest rate rises to combat historic inflation numbers. And the stress tests certainly don't model losing 24% of your deposits in a single day.

I think that this means that even if SVB was subjected to the larger requirements they would have been required to have 7% of liquid assets (cash & stock) compared to deposits on hand to absorb immediate losses or withdrawals. Which would have been ~$12B - or half what was withdrawn in a single day. So even then they would have failed.

Also related - Barney Frank (author of the act) says himself that the $50Bn threshold was too low. It was overly onerous on smaller banks and actually encouraged mergers and acquisitions - giving us more 'too big to fail' banks. Now was $250bn too high? It's not that much higher than Frank proposed raising the limit to adjusted for inflation and its not creating absolute chaos in the banking sector - at least yet
 

pcgeek11

Lifer
Jun 12, 2005
21,191
4,350
136
$250k per person, period. It doesn’t matter if you split it among multiple accounts at the same bank.




The FDIC covers

  • Checking accounts
  • Negotiable Order of Withdrawal (NOW) accounts
  • Savings accounts
  • Money Market Deposit Accounts (MMDAs)
  • Time deposits such as certificates of deposit (CDs)
  • Cashier's checks, money orders, and other official items issued by a bank
COVERAGE LIMITS

The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.


The FDIC provides separate coverage for deposits held in different account ownership categories.

Depositors may qualify for coverage over $250,000 if they have funds in different ownership categories and all FDIC requirements are met.

All deposits that an account holder has in the same ownership category at the same bank are added together and insured up to the standard insurance amount.
 
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conehead433

Diamond Member
Dec 4, 2002
5,564
889
126
Bank stocks may be hit hard on Monday. Hopefully it won't become a Black Monday in the overall market.
 

BonzaiDuck

Lifer
Jun 30, 2004
15,679
1,423
126
I have concluded that MAGA GOP, aka "The Trumpers", have certain cerebral handicaps: unable to see the world as a statistical manifestation, unable to see the difference between a judicial determination and the Truth, unable to remember enough 20th century history, and unable to cross-verify facts, and actually make decisions based on quantitative appraisals -- measurement -- of the facts. For that particular topic -- the list goes on. Specific to this SVB failure, I add the inability to recognize sources of multiple causation. In fact, those people seem unable to see accurately the true causes of anything.

So I have some evidence that some Trumpers are in a panic to withdraw money from their bank accounts, some choosing to buy gold with it. If there was ever a Lemming horde capable of creating and then fulfilling its own prophecy, seek to find it within the Trumpers.

Adjusting the interest rate was always a tool used by the FED to moderate inflation. There was a time in the 1970s and 80s when interest rates exceeded 10%. But now, they've never been much lower, and the increases enacted by the Fed are incremental. Yet, the chicken-littles are concluding that this single cause -- inflationary changes in interest rates -- are going to cause all the banks to fail. "It's the BIG GOV-MINT, fouling everything up!" they will say. "And don' trus' them experts! They're all part of the deep-state plot to ruin our lives and enslave our cheel-drun!"

There are many advantages to having modest means. For me, right now and at my septuagenarian age, I feel comforted that my liquid assets total less than $250,000, or otherwise -- that I have the assets distributed among two or more banks.

I'm going to sit here, fix a nice warm dinner, wrap up in a blankie to ward off the California cold spell, and watch the Chicken-Littles on TV get all worked up about pending doom. Then -- switch to a streaming channel with some war or horror movie to assuage my stress.
 
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Dec 10, 2005
23,686
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The interviews of Silicone Valley people who were impacted last night on TV news suggests that it's not just rich people. Many are small businesses, start-ups, etc. They didn't seem panicked but it was anything but plain that they wouldn't be mostly wiped out. They didn't seem to know what to make of what's happening other than that they weren't able to pull out their money yesterday morning upon hearing of the problems.
Those groups will probably be okay, even without full FDIC coverage. The people that are going to get hosed are the bond and share holders, since they'll get paid out last in any liquidation process. After the FDIC-insured payouts are covered, the underinsured accounts will be covered, and as noted, another bank may willingly come in to underwrite, since they'll get a ton of new customers and there are likely enough assets to more than cover (just not enough on hand to cover the bank run).
 
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BonzaiDuck

Lifer
Jun 30, 2004
15,679
1,423
126
The latest factoid: There are about 5,000 banks and just as many credit-unions in the US. Check again, but there hasn't been a year when at least one of those institutions didn't fail. More specifically, there were no bank failures in 2005, and no bank failures in 2006, and then, they were saying "See? Great regulation! No failures!" And in 2007 -- "Ka-Blooey!"
 

pcgeek11

Lifer
Jun 12, 2005
21,191
4,350
136
The only smart thing is to make sure you spread out the money between different FDIC Insured institutions.

"The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. "
 

Puffnstuff

Lifer
Mar 9, 2005
16,001
4,778
136


The FDIC covers

  • Checking accounts
  • Negotiable Order of Withdrawal (NOW) accounts
  • Savings accounts
  • Money Market Deposit Accounts (MMDAs)
  • Time deposits such as certificates of deposit (CDs)
  • Cashier's checks, money orders, and other official items issued by a bank
COVERAGE LIMITS

The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.


The FDIC provides separate coverage for deposits held in different account ownership categories.

Depositors may qualify for coverage over $250,000 if they have funds in different ownership categories and all FDIC requirements are met.

All deposits that an account holder has in the same ownership category at the same bank are added together and insured up to the standard insurance amount.

I watched an interview on CNN from a company that caught wind of what was happening and began quietly moving their money out of SVB in small amounts so they didn't trigger their auto limiter on withdrawals. They managed to get their remaining amount under the 250k limit that the FDIC insures.
 
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Thump553

Lifer
Jun 2, 2000
12,606
2,325
126
The New York Times top left front page article right now.

This link should get you past the paywall for 14 days, i.e. until March 25, 2023:


Good article. I got quite a few chuckles out of the amazingly brainless (and self serving) comments from crypto people in the article-like-blaming the collapse on "fiat" currency and it would never have happened in a pure crypto economy..

Always trying to lure more suckers in.
 

Muse

Lifer
Jul 11, 2001
37,241
7,969
136
The only smart thing is to make sure you spread out the money between different FDIC Insured institutions.

"The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. "
My premium savings account at Etrade is supposedly FDIC insured "up to $500,000" but I am not confident. $250k has been the standard for a number of years.
 
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zinfamous

No Lifer
Jul 12, 2006
110,439
28,990
146
The question is why would you want that much money sitting in a bank account yielding basically nothing?

I know nothing about this bank's general activity, but it sounds like it's the primary bank for VC, and probably acts as the primary escrow for startup funding? It would seem normal (not for personal accounts), for funders to hold tens of millions at a time while funding deals clear, no? Could definitely expose metric assloads of money to severe runaway risk like this while it waits to clear.
 

Muse

Lifer
Jul 11, 2001
37,241
7,969
136
The New York Times top left front page article right now.

This link should get you past the paywall for 14 days, i.e. until March 25, 2023:

What looks to me a good comment to that article:

Missing my cat
Silicon Valley5h ago
The blame rests with Greg Becker and Mike Descheneaux, former CEO and former President of SVB. They failed Finance 101. They allowed deposits to be invested into long-dated treasuries, which lost value when interest rates rose. Instead of holding the treasuries to maturity, they sold them and created a hole in the balance sheet. This sparked the bank run by their VC herd. And before Becker and Descheneaux gambled the bank, they cashed out of SVB stock. SVB’s culture is partly to blame, as their mistakes were treated like learning opportunities. No one was held to account when rates rose 4-5 years ago and Descheneaux wrongly stated that SVB was spring-loaded for rising rates. Rising rates hurt SVB then. I was agog when they served the same slop when rates started rising in this cycle. SVB was spring-loaded for rising rates, they claimed. Wrong. Their failed treasury management had already sown the seeds for SVB’s demise.

156 Recommend

Another:

Vinny
Boston5h ago
There needs to be a lot more transparency and real time data on the asset quality of banks. Why do we have to wait for an announcement from the CEO about losses? Time and again, executives have shown that they will sell stock and insulate themselves from the results of their bad decisions. All banks that take public deposits must show their books on their websites. The data their executives see should be the same we see. No more bailouts and no more golden parachutes for these charlatans.
2 Replies100 Recommend
 
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Muse

Lifer
Jul 11, 2001
37,241
7,969
136
This have anything to do with it? (2018)

A comment to NYTimes article:


Joe
PA6h ago
Very simple really. The GOP’s ultimately successful campaign to reduce regulations on “smaller” banks is the direct cause. Took 3 years but they finally got the bill passed —. With disastrous results. The GOP is more Libertarian than anything else — just remove all regulation and let’s the cards fall where they may.
7 Replies117 Recommend
 

Zorba

Lifer
Oct 22, 1999
14,286
9,696
136
I know nothing about this bank's general activity, but it sounds like it's the primary bank for VC, and probably acts as the primary escrow for startup funding? It would seem normal (not for personal accounts), for funders to hold tens of millions at a time while funding deals clear, no? Could definitely expose metric assloads of money to severe runaway risk like this while it waits to clear.
Yeah, I guess for corporate/escrow accounts it makes more sense.