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

[Gumby]

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?

Newslink >>> https://www.cnbc.com/2023/03/12/regulators-unveil-plan-to-stem-damage-from-svb-collapse.html

The Treasury Department is providing up to $25 billion from its Exchange Stabilization Fund as a backstop for the funding program.

 

[Spock]

Now to wait and see if it's a wide enough firebreak.

https://home.treasury.gov/news/press-releases/jy1337

After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

 

[Marc]

Gumby, that was article that I read. It talks about one year loans; to whom? Is SVB receiving the loan? If so, they would be in business at least another year.

I am confused (but that is normal).

edited to add: Article did talk about "unwinding" SVB so I guess they are closing and their depositors have some window to get all their money moved.

 

[gromit]

From a Federal Reserve Press Release:

"To support American businesses and households, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.
The Federal Reserve is prepared to address any liquidity pressures that may arise.
The financing will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress"....


So other banks can pledge treasuries or some other securities as collateral at par for loans up to 1 year in duration.

 

[Texas Proud]

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."

Do you have a link? If I am reading the table correctly it means only 6% of the banks closed from 2009 to 2013 had any deposits lost... but we do not know what percent was lost and which banks...


The worst seems to be 92 to 07... I wonder how much was in 07...



But it still shows that most (except for that one date range) depositors are made whole eventually...

 

[MichaelB]

From a Federal Reserve Press Release:

"To support American businesses and households, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.
The Federal Reserve is prepared to address any liquidity pressures that may arise.
The financing will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress"....


So other banks can pledge treasuries at par for loans up to 1 year.

Thanks for this uodate

 

[yhoomajor]

As usual.. Rich have deep connections. They spoke loud enough to force US Government to bail out their buddies.

In one para: "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."

And then in another para: "The Treasury Department is providing up to $25 billion from its Exchange Stabilization Fund as a backstop for the funding program."

 

[Freedom56]

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...

The problem is that large well capitalized banks like JP Morgan are under stringent regulations but SVB Financial and the vast majority of poorly capitalized banks with low levels of liquidity are not. There is no effective way of regulating over 4000 banks let alone 15000. I was looking for CDs at Fidelity and came across a CD from "Bank Bird in Hand". Seriously? Is this what the banking industry has come down to?

Like it or not, this event will shift capital to larger banks over the long run despite any short term intervention.

 

[Montecfo]

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.

Sorry. No US banks have escaped regulation. Banking in the US is heavily regulated.

[MOD EDIT]

 

[yhoomajor]

Another thing that most readers are missing about SVB assets: not all assets at SVB are treasuries. Most that were .. are already sold ($18B, at a loss of $1.8B).

A good chunk of what is left on their books: is likely to be loans to serial fund raisers (aka VCs), CMBS, Loan to companies that no one else would loan to (read fine wineries where rich and elite hang out on weekends). You can't sell that stuff at PAR. You will be lucky to get 70 cents / dollar for that.

Hence the US treasury coming in.. and doling out money for back-stopping.

 

[Toocold]

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.

That's correct. It would be the remaining deposit left vs remaining assets to be analyzed. If deposit > remaining value, tax payers will pay. If the reverse, tax payers will not be on the hook.

 

[Toocold]

They shut down Signature Bank

#3. Wow.

If I were to guess, a bunch of people holding crypto wanted to cash out using the last gateway.

If there is a 4th shutdown, then it is spreading beyond tech.

 

[Spock]

Do you have a link?

https://am.jpmorgan.com/content/dam...he-market/silicon-valley-bank-failure-amv.pdf

 

[Texas Proud]

My memory is failing me...


What was that investment company that used leverage to buy long term treasuries run by a bunch of know it alls that failed 20 or so years ago... it was 'bailed out' by a loan and IIRC they did recover it all eventually...



But I could be wrong...

 

[yhoomajor]

Why am I not surprised that PNC backed out from buying SVB's assets after they took a look at their so-called assets. Looks like PNC is not interested in getting burdened with Loans to "fine" wineries on west coast and Commercial real estate on west coast

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

As usual.. US government (aka tax payers) will bail out the rich. Sorry folks, but most depositors at SVB are not typical small business that you have in mind (like corner shop mom & pop Pizza shop). Nope - they are serial fund raisers who sell vaporware to unsuspecting gullible on wall street (aka Main street).
------

"PNC Financial Group
decided against bidding on Silicon Valley Bank
as regulators struggled to find a buyer for the failed bank’s assets over the weekend, according to a source familiar with the matter.

The Pittsburgh, Penn.-based bank sent an initial notice of interest to the Federal Deposit Insurance Corp for a deal for SVB and held brief and preliminary discussions with the agency, the source said."

 

[Quattro73]

Sorry. No US banks have escaped regulation. Banking in the US is heavily regulated.

Please, can we keep this fact based?

Correct Montecfo.

Unregulated, is laughable.

Not saying th regulation worked. But this bank had tons of regulation and supposed oversight.

 

[Montecfo]

I was looking for CDs at Fidelity and came across a CD from "Bank Bird in Hand". Seriously? Is this what the banking industry has come down to?

In your headlong rush to demonize banks, you seem to have missed that Bank Bird-In-Hand is simply named for a town in Pennsylvania. You know, geography.

Do you think the name conveys unusual risk somehow?

What is the purpose of all this, saying banks are unregulated and attacking a bank for the Amish/Mennonite community for which it is named?

 

[Montecfo]

My memory is failing me...


What was that investment company that used leverage to buy long term treasuries run by a bunch of know it alls that failed 20 or so years ago... it was 'bailed out' by a loan and IIRC they did recover it all eventually...



But I could be wrong...

Long-term Capital Management.

As immortalized in the book, "When Genius Failed: The Rise and Fall of Long-term Capital Management".

 

[Gumby]

My memory is failing me...


What was that investment company that used leverage to buy long term treasuries run by a bunch of know it alls that failed 20 or so years ago... it was 'bailed out' by a loan and IIRC they did recover it all eventually...



But I could be wrong...

Are you thinking of Long Term Capital Management in 1998?

 

[tulak]

I didn’t see this part mentioned above from the Federal Reserve press release:

Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

So it sounds like if there are not enough funds to cover depositors, then other banks will make up the difference?

I didn’t realize that’s how it works.

 

[Kork13]

Another bank has gone belly up, though no explanation yet as to how/why. Signature Bank of New York.

Fed, Treasury, and FDIC statement (linked below) also stated that everyone (except shareholders & some debt holders) will be made whole.

https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm

 

[Toocold]

I didn’t see this part mentioned above from the Federal Reserve press release:



So it sounds like if there are not enough funds to cover depositors, then other banks will make up the difference?

I didn’t realize that’s how it works.

Think (simplistically) of it as: Assets (Loans & Bonds) - Depositors (Liability) = Equity. If Assets < Deposits, then Equity gets wiped. If that is the case, the federal government will make up the difference or depositors will lose their money. In this case, the fed announced that they will backstop it.

 

[yhoomajor]

"Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks"

In other words, losses at SVB (and other ones like it) will be socialized to depositors all over america. Most banks don't run charity. They pass the expenses over to their customers. Next time people complain why banks give them 0.1% interest on their deposits, and charge fees for this and that.. you know why.

 

[Quattro73]

I didn’t see this part mentioned above from the Federal Reserve press release:



So it sounds like if there are not enough funds to cover depositors, then other banks will make up the difference?

I didn’t realize that’s how it works.

Yes, the FDIC insurance fund is funded by an annual assessment on all banks.

 

[Quattro73]

"Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks"

In other words, losses at SVB (and other ones like it) will be socialized to depositors all over america. Most banks don't run charity. They pass the expenses over to their customers. Next time people complain why banks give them 0.1% interest on their deposits, and charge fees for this and that.. you know why.

And so does EVERY business in EVERY industry. They all pass along their costs to the consumer or else they cease to operate.