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

[audreyh1]

The billions put into First Republic are "deposits" to keep FR's ratio in the green. I understand that if the sell their Hold to Maturity portfolio, it the gets marked to market, and that creates a cascading collapse.

I'm sure just about every bank in the country has losses in their HTM portfolio. If a nationwide run on banks materializes, a real SHTF will occur, as I see it.

The crazy thing is that with a nationwide run on banks - the money has to go somewhere - probably just to other banks. So you end up with a big sloshing around?

I guess the regular folks now think a bunch of banks are failing and have forgotten about FDIC insurance. We’ve already had two posters report family members wanting to take cash out because “banks are falling” so I can only imagine how it’s being treated on nightly news.

 

[disneysteve]

The crazy thing is that with a nationwide run on banks - the money has to go somewhere - probably just to other banks. So you end up with a big sloshing around?
.

Not necessarily. Keep in mind that most people are broke. They don’t have millions. They have thousands at best. If all the money you have is a few thousand in a bank account paying 0.01% like most have, it may seem a lot safer to cash that out and just hide it in the house.

 

[Freedom56]

It appears that the San Francisco Fed was doing their job but nobody heeded their warnings.

"Just over a year before Silicon Valley Bank’s collapse threatened a generation of technology startups and their backers, the Federal Reserve Bank of San Francisco appointed a more senior team of examiners to assess the firm. They started calling out problem after problem."

"As the upgraded crew took over, it fired off a series of formal warnings to the bank’s leaders, pressing them to fix serious weaknesses in operations..."

"Then late last year they flagged a critical problem: The bank needed to improve how it tracked interest-rate risks..."


https://finance.yahoo.com/news/fed-alarms-svb-began-more-130702270.html

 

[Freedom56]

Not necessarily. Keep in mind that most people are broke. They don’t have millions. They have thousands at best. If all the money you have is a few thousand in a bank account paying 0.01% like most have, it may seem a lot safer to cash that out and just hide it in the house.

It's not just individuals but a lot of businesses have uninsured deposits at some point in time as a normal course of running operations (i.e. depositing payroll, receipt of large payments from customers, or deposits for large payments to suppliers). Many leave their working capital in accounts in excess of FDIC limits. This is normal and not completely unreasonable. These are not interest bearing accounts and banks normally invest balances in very short term paper to earn interest income and maintain liquidity. What a business does not want is disruption to operations that impact employees, suppliers, and customers as a result of a poorly managed bank. So the genie is out of the bottle and many will not risk their operations to bank mismanagement and move their business to larger banks that are under more strict supervision.

 

[pb4uski]

I think at the end of the day that we'll find out that internally SVB was aware of the interest rate risk that it was taking... while I wasn't in banking, monitoring asset-liability matching was something that we routinely measured periodically when I worked in life insurance and that was 25 years ago... so I think SVB executives had to know. I suspect that they ignored the warning signs and chose not to do anything about them as it would impact profitability.

I seem to recall reading somewhere that they had interest rate hedges in place in 2022 but allowed them to expire.

 

[NW-Bound]

... I think SVB executives had to know. I suspect that they ignored the warning signs and chose not to do anything about them as it would impact profitability.

I seem to recall reading somewhere that they had interest rate hedges in place in 2022 but allowed them to expire.

Yes, I think they were optimistic that they could pull it off, as they survived the dot-com implosion and the Great Recession. No luck this time.

 

[MichaelB]

So, there have been numerous posts about banks offering a cash bonus for new accounts with large deposits. I wonder how much the reward is for $30B over at First Republic.

 

[Marc]

I wonder if additional banks willl be closed once the market closes today.

 

[REWahoo]

So, there have been numerous posts about banks offering a cash bonus for new accounts with large deposits. I wonder how much the reward is for $30B over at First Republic.

30,000 toasters.

 

[Car-Guy]

I wonder if additional banks willl be closed once the market closes today.

I think that is a worry of a lot of folks... I certainly hope not but I wouldn't bet on it..

 

[marko]

I wonder if additional banks willl be closed once the market closes today.

Just throwing this out here: should those of us with Fidelity, T. Rowe, Vanguard etc have reason to worry? Why or why not?

 

[Montecfo]

It's not just individuals but a lot of businesses have uninsured deposits at some point in time as a normal course of running operations (i.e. depositing payroll, receipt of large payments from customers, or deposits for large payments to suppliers). Many leave their working capital in accounts in excess of FDIC limits. This is normal and not completely unreasonable. These are not interest bearing accounts and banks normally invest balances in very short term paper to earn interest income and maintain liquidity. What a business does not want is disruption to operations that impact employees, suppliers, and customers as a result of a poorly managed bank. So the genie is out of the bottle and many will not risk their operations to bank mismanagement and move their business to larger banks that are under more strict supervision.

There is no way around this. Even relatively small businesses will have working capital needs far in excess of 250k.

They must "risk their operations" as things stand.

 

[audreyh1]

Generally, during uncertain times, equity markets sell off on Fridays because people worry about something unexpected happening over the weekend and don’t want to be exposed.

 

[FREE866]

Just throwing this out here: should those of us with Fidelity, T. Rowe, Vanguard etc have reason to worry? Why or why not?

I've looked into this and from what I understand your segregated assets are not available to general creditors and are protected against creditors' claims in the unlikely event that a broker-dealer becomes insolvent.

 

[disneysteve]

There is no way around this. Even relatively small businesses will have working capital needs far in excess of 250k.

Definitely. This also speaks to the problem of them never inflation-indexing the 250K number when they set it in 2008. Back then that covered about 85% of deposits. Today it only covers about 55%.

 

[Freedom56]

There is no way around this. Even relatively small businesses will have working capital needs far in excess of 250k.

They must "risk their operations" as things stand.

But a large bank like Citi, JP Morgan, Bank of America, or Wells Fargo have a lot of liquidity that the average community or regional bank does not have. It's not by accident that hundreds of billions are likely to flow into the large banks. Very few people and businesses are loyal to any particular bank. They do business with a bank because they have to. When their money is at risk, they move it elsewhere. One way to these regional banks get out of their self inflicted mess is to come clean with their capital including cash, liquidity, and loan quality data. Another option is for the FDIC to increase the protection to $750K per depositor ($1.5M for joint or business accounts).

 

[Another Reader]

So, there have been numerous posts about banks offering a cash bonus for new accounts with large deposits. I wonder how much the reward is for $30B over at First Republic.

Offering 4.95 percent on 7 month CD's today if you walk in the door here in the Bay Area. $25k minimum.

I remember Countrywide opening several small offices here to sell CD's in 2008. Bought a number of them over the few months they were open. Bank of America took over when they failed. Paid faithfully and got the principal back, no problem.

 

[disneysteve]

Another option is for the FDIC to increase the protection to $750K per depositor ($1.5M for joint or business accounts).

The limit was last increased in 2008 during that banking crisis. It’s pretty reasonable to expect that the current crisis will spur another increase. The government loves to be reactive rather than proactive. It takes a crisis for action to happen.

 

[MichaelB]

I don’t think a limit of $1M would have led to a different outcome for Silicon Valley Bank. That bank lost $40B in one day.

Personal accounts have a much lower risk profile and are easier to insure, and less costly. Business deposit accounts are much riskier, mostly because they are far more “flighty”. Perhaps what we need is a separate deposit insurance program for business.

 

[Chuckanut]

30,000 toasters.

What? No toaster ovens!!! Then don’t count me in.

I wonder, could the FDIC limit their support of uninsured deposits so as to teach them a lesson but not totally abandoning the banking system to the justice of the free market? For example, could they say they will insure 70% of a depositor’s money above the 250,000 limit. The remaining 30% is the depositor’s tuition in the school of hard knocks.

 

[Spock]

What? No toaster ovens!!! Then don’t count me in.

I wonder, could the FDIC limit their support of uninsured deposits so as to teach them a lesson but not totally abandoning the banking system to the justice of the free market. For example, could they say they will insure 70% of a depositor’s money above the 250,000 limit. The remaining 30% is the depositor’s tuition in the school of hard knocks.

The rules on the books now say that anything over the insured amount gets you shiny new shares in the newly created replacement bank. TPTB didn't want to implement that this time as the whole system isn't as sturdy as they thought it was
and there were politics involved in choosing who could buy SVB and who got bailed out.

 

[Marc]

Credit Suisse is toast. UBS offers a quarter per share basically wiping out shareholder equity and 10,000 jobs and CS rejects the offer; do they still believe in white knights?

 

[Spock]

Credit Suisse is toast. UBS offers a quarter per share basically wiping out shareholder equity and 10,000 jobs and CS rejects the offer; do they still believe in white knights?

Chess moves. or carrot and stick.

Bloomberg reported that authorities are now considering a full or partial nationalization of Credit Suisse - an outcome which would wipe out the equity and bail-in bondholders - as the only other viable option outside a UBS Group AG takeover. And yes, 0.25 is still more than 0.0.

 

[Toocold]

Credit Suisse is toast. UBS offers a quarter per share basically wiping out shareholder equity and 10,000 jobs and CS rejects the offer; do they still believe in white knights?

Did they say that they were going to get rid of 10k jobs? UBS should have offered before the government stepped in.

 

[Marc]

Did they say that they were going to get rid of 10k jobs? UBS should have offered before the government stepped in.

The mention of 10,000 jobs was in an earlier version of CNBC article; not in current version of article nor in the FT article.