Silicon Valley Bank SIVB - $270 to $30 in 48 hours

[FIREd_2015]

The contagion appears to be spreading. There is a run on First Republic Bank in California. If the Feds don't do something this could get ugly pretty fast.

https://offgridsurvival.com/banking-crisis-spreads-run-on-first-republic-bank-in-california/

 

[jldavid47]

"...Although the FDIC insures bank deposits up to $250,000, a provision in federal banking law may give them the authority to protect the uninsured deposits as well if they conclude that failing to do so would pose a systemic risk to the broader financial system, the people said. In that event, uninsured deposits could be backstopped by an insurance fund, paid into regularly by U.S. banks..."

https://www.washingtonpost.com/us-policy/2023/03/12/silicon-valley-bank-deposits/

"May" != "Does" and the failure of SVB by itself does not pose a systemic risk. What is posing a systemic risk is the threat of multiple bank runs. It would take one executive order to stop that in its tracks.

 

[jazz4cash]

I re-scanned the thread and did not see a link to this from seeking alpha. A contributor posted his thesis for shorting SVB stock in Dec ‘22. Pretty good call.

https://seekingalpha.com/article/4565388-svb-financial-blow-up-risk

 

[pb4uski]

I was wondering that. I thought it’s been 250K for a long time. The government makes this same mistake over and over and over. They set a number and fail to add inflation indexing. So 10 or 15 or 20 years later, we’re still only allowed to put $2,000 in our IRAs as was the case for many years.

Come back to earth. IRA contributions have increased many times.

...Individual IRA and Roth IRA accounts offer another way to save for retirement. Your total contributions to traditional or Roth IRAs are limited to $6,500 in 2023—a $500 increase from 2022. Taxpayers who are 50 and older can make an additional $1,000 catch-up contribution. ...

... The maximum amount allowed as an IRA contribution was $1,500 from 1975 to 1981, $2,000 from 1982 to 2001, $3,000 from 2002 to 2004, $4,000 from 2005 to 2007, $5,000 from 2008 to 2012, $5,500 from 2013 to 2018, and $6,000 from 2019 to 2022. Starting in 2023, the maximum amount allowed is $6,500. ...

 

[Freedom56]

HSBC is rumored to be buying SVBC UK operations.

https://news.sky.com/story/hsbc-eme...te-knight-for-silicon-valley-bank-uk-12832521

 

[explanade]

The contagion appears to be spreading. There is a run on First Republic Bank in California. If the Feds don't do something this could get ugly pretty fast.

https://offgridsurvival.com/banking-crisis-spreads-run-on-first-republic-bank-in-california/

Ugh, they just sent out this email and yes my mothers trust has over 250k in deposits.

To Our Valued Clients,

In light of recent industry events, the last few days have caused uncertainty in the financial markets. We want to take a moment to reinforce the safety and stability of First Republic, reflected in the continued strength of our capital, liquidity and operations.

Our capital remains strong. Our capital levels are significantly higher than the regulatory requirements for being considered well capitalized.
Our liquidity remains strong. In addition to our well-diversified deposit base, we continue to have access to over $60 billion of available, unused borrowing capacity at the Federal Home Loan Bank and the Federal Reserve Bank.
We are here to fully serve you. We stand ready to process transactions and wires, fund loans, answer questions and serve your overall financial needs — as we do every day.
For almost 40 years, we have operated a simple, straightforward business model centered on taking extraordinary care of our clients. We have successfully navigated various macroeconomic and interest rate environments, and today we have among the industry’s highest rates of client satisfaction and retention.

We are here to help you accomplish your financial objectives and provide you with extraordinary service at all times. Please feel free to reach out to your First Republic banker or wealth manager if we may be of service.

It’s a privilege to serve you,

 

[braumeister]

Apparently there is a lot of angst out there. I got an email from First Tech credit union, where I have a tiny account and a credit card, that contained condolences to their "close friends and associates at SVB" along with much reassurance, including these snippets:

• First Tech is the nation’s eighth largest credit union with assets of $16.7 billion.
• First Tech is very well-capitalized with more than $1.4 billion in equity. This capital, combined with more than $2.0 billion of available liquidity, serves to protect our members while providing First Tech with the capacity to absorb severe shocks in U.S. or global markets.

 

[Freedom56]

Below is a link to the stress test results for the 33 banks that participated.

In summary:

"The 2022 stress test shows that large banks have sufficient capital to absorb more than $600 billion in losses and continue lending to households and businesses under stressful conditions. In large part, this is due to the substantial buildup of capital since the 2007–09 financial crisis"


https://www.federalreserve.gov/publications/files/2022-dfast-results-20220623.pdf

 

[bmcgonig]

"May" != "Does" and the failure of SVB by itself does not pose a systemic risk. What is posing a systemic risk is the threat of multiple bank runs. It would take one executive order to stop that in its tracks.

How would that work exactly? What would the executive order do?

Unless you backstop the other banks nothing will stop a run.

 

[bmcgonig]

Larry Summers is now coming out for a backstop for all banks incl SVB.

 

[luckydude]

I guess if you need a lot of cash flow that could be a problem but for many of "us" it's easy (a few mouse clicks) to get 2 or 3 million or more in FDIC coverage at one place by buying brokered CD's through a firm like Schwab or Fidelity. Just keep your spending cash (under 250) in a FDIC checking account and everything else in laddered CD's (all under 250) at a bunch of different banks. Depends on how liquid you need to be.

Agreed that it's easy for retail investors to do laddered CDs to get around the $250k limit.

But it's much harder for companies (such as those tech firms that make up more than 90% of SVB's deposits) which need lots of short term cashflows for payroll and operations to deal with that. Maybe it's time to revisit the FDIC limit for corporate accounts vs. retail accounts and have different limits for different kinds of accounts.

 

[bmcgonig]

https://www.reuters.com/business/fi...uyer-industry-frets-about-fallout-2023-03-12/


U.S. authorities are considering safeguarding all uninsured deposits at SVB, weighing an intervention to prevent what they fear would be panic in the country's financial system, the Washington Post reported, citing three people with knowledge of the matter.

 

[Freedom56]

Agreed that it's easy for retail investors to do laddered CDs to get around the $250k limit.

But it's much harder for companies (such as those tech firms that make up more than 90% of SVB's deposits) which need lots of short term cashflows for payroll and operations to deal with that. Maybe it's time to revisit the FDIC limit for corporate accounts vs. retail accounts and have different limits for different kinds of accounts.

It's not that hard to do. Companies can set up Corporate-Entity Treasury Direct account linked to their business banking account and just buy 4 week T-Bills every week continuously for funds in excess of FDIC limits. Our company did that.

 

[Texas Proud]

I saw a report that some California-based celebrities face losing hundreds of millions of dollars so my guess is that there will be a lot of political pressure to bail out all depositors.

I keep reading about 'bailouts' etc... but there are two types of bailouts...



First, making sure all deposits are returned..


Second, is getting the shareholders recovered...


I think that most are talking about the first... if so, then start saying so as I do not see that as a bailout... I see that as making the depositors whole.. and I said before that in most bank failures the depositors do not lose money without a bailout... it just takes time to sell the bank and the assets etc. and then distributing them...


The last I heard (yesterday) they were saying that they might get uninsured depositors 50 to 75% of their money tomorrow.. with a possibility of a full return...

 

[Texas Proud]

Since the "Golden Period" thread started, I, for the life of me, was trying to figure out why all of a sudden, these big banks are offering so many CDs and bonds. I see why now, they're shoring up their capital base to make up for the losses on their HTM bond portfolios. It wasn't making any sense with these depositors getting 0.2% interest on their deposits, and then paying up to 5% on CDs.

They use CDs to better match assets with liabilities... in addition a more traditional bank will have more retail customer accounts at that .2% rate that they know are sticky...


It was the hedge funds etc. that took out 42 billion in deposits in one day, not Jane and Joe sixpack...

 

[Toocold]

https://www.reuters.com/business/fi...uyer-industry-frets-about-fallout-2023-03-12/


U.S. authorities are considering safeguarding all uninsured deposits at SVB, weighing an intervention to prevent what they fear would be panic in the country's financial system, the Washington Post reported, citing three people with knowledge of the matter.

I am sure they are calculating the value of the $225B in assets vs the $175B in deposits. Theoretically, if they can get a consortium of banks or mega bank to buy these assets at a higher price point than 23% discount, only equity holders will be impacted.

From a purchaser's perspective, as long as they can hedge interest rates risks, they may turn a profit from this.

 

[Freedom56]

I keep reading about 'bailouts' etc... but there are two types of bailouts...



First, making sure all deposits are returned..


Second, is getting the shareholders recovered...


I think that most are talking about the first... if so, then start saying so as I do not see that as a bailout... I see that as making the depositors whole.. and I said before that in most bank failures the depositors do not lose money without a bailout... it just takes time to sell the bank and the assets etc. and then distributing them...


The last I heard (yesterday) they were saying that they might get uninsured depositors 50 to 75% of their money tomorrow.. with a possibility of a full return...

During the last financial crisis, IndyMac Bank account holders with deposits in excess of FDIC limits only received 50 cents on the dollar. SVB account holders are expected to receive more than 50 cents on the dollar.

There is some buzz about the treasury calling the debt held by SVB Financial at par, but that would be the equivalent of a tax payer funded bailout.

On another note, PNC bank said no to buying SVB Financial

"The FDIC is conducting an auction for SVB this weekend, with final bids due Sunday, according to a report from Bloomberg News. The regulators shuttered SVB on Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis — and the second-largest ever."

https://www.cnbc.com/2023/03/12/pnc...egulators-struggle-to-find-rescue-buyers.html

 

[Texas Proud]

It's anathema to capitalism for wealthy people to lose money, no doubt in my mind the uninsured depositors will be made whole, just a matter of timing, arm twisting, cajoling and finding the right institution(s) to assume SVB assets and liabilities. We've seen this scenario played out too many times before. Although SVB might not be too big to fail, it's still too big to let fail.

Tell that to all the people who invested in Enron and Theranos.... and I am sure there are many others out there where they lost money... oh yea, Madoff....


Heck, more come to mind... investors in big banks in the 2008 crash... GM holders... yep, wealthy people lose money all the time...

 

[Spock]

I am sure they are calculating the value of the $225B in assets vs the $175B in deposits. Theoretically, if they can get a consortium of banks or mega bank to buy these assets at a higher price point than 23% discount, only equity holders will be impacted.

From a purchaser's perspective, as long as they can hedge interest rates risks, they may turn a profit from this.

But that isn't that $225B a mix of assets some of which are underwater hold to maturity and haven't recognized the losses yet? And $225B was also before the $42B ran out the door. I think I read that 40% of the assets are startups. If that is accurate, there is a lot less than $225B in assets left and lower still at mark-to-market.

 

[Texas Proud]

During the last financial crisis, IndyMac Bank account holders with deposits in excess of FDIC limits only received 50 cents on the dollar. SVB account holders are expected to receive more than 50 cents on the dollar.

There is some buzz about the treasury calling the debt held by SVB Financial at par, but that would be the equivalent of a tax payer funded bailout.

On another note, PNC bank said no to buying SVB Financial

"The FDIC is conducting an auction for SVB this weekend, with final bids due Sunday, according to a report from Bloomberg News. The regulators shuttered SVB on Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis — and the second-largest ever."

https://www.cnbc.com/2023/03/12/pnc...egulators-struggle-to-find-rescue-buyers.html

Good to know... do you know of others? one thing that they can do is hold the Treasuries till maturity and give the uninsured depositors their money over time... IIRC they have enough assets if not sold...


Another problem is that there are a lot of people who do not want a big bank to buy SVB... they are already concerned with 'concentration'... as an example when I was in banking 40 years ago there were 15,000 plus banks... I saw during this time with SVB there are now 4,000.... back then the biggest bank had $100 bill in deposits, now it is a couple of trillion...

 

[Freedom56]

Where people choose to park their money won't matter to the two thirds of the population in this country that live paycheck to paycheck and have little savings. But to those who have uninsured funds sitting in banks that have escaped regulation, it's a matter of time before they start losing deposits to larger regulated banks. No temporary intervention will prevent that over the long run.

 

[Quattro73]

One point I’d really like to make - Just because SVB did not go through the “big bank stress test” does not = unregulated.

At their size and being publicly traded, they had annual Safety And Soundness Exams by their primary federal regulator and the state banking regulatory agency. They would be rated on a CAMELS system - Capital, Asset Quality, Management, Earnings, Liquidity, Sensitivity to market risk.
They would have Asset Liability Management stress testing.

They would have annual audits from an outside auditor for their 10Ks.

They would have SOX audits being public.

They have FDICIA controls.

I can keep going.
There were plenty of folks looking at this and any bank.

 

[Quattro73]

They shut down Signature Bank

 

[Spock]

Good to know... do you know of others? one thing that they can do is hold the Treasuries till maturity and give the uninsured depositors their money over time... IIRC they have enough assets if not sold...


Another problem is that there are a lot of people who do not want a big bank to buy SVB... they are already concerned with 'concentration'... as an example when I was in banking 40 years ago there were 15,000 plus banks... I saw during this time with SVB there are now 4,000.... back then the biggest bank had $100 bill in deposits, now it is a couple of trillion...

This shows frequency and not the size of the haircut.
"A table from JPM's Michael Cemablest below shows historical haircuts on uninsured depositors in previous bank crises."

 

[Marc]

So the government stepped in to guarantee deposits; does that mean that the 8,000+ employees will continue to earn their average $250K salaries or is the bank still closed and all employees just around for 45 days?