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

[Aerides]

It's not just big SV businesses that are going to be hurt....

Etsy sent out a notice to some sellers this morning that their deposits may be delayed. Etsy typically gathers all the payments made to a shop and disburses them weekly - Monday. Sellers can request them manually, earlier, but most don't.

The notice indicated they have other banks as well, but...that's a lot of people who make very small incomes from Etsy getting impacted.

 

[Qs Laptop]

Something I read today was disturbing. SVB got into trouble because they were holding lots of US treasury bonds that were declining in value because of rising interest rates. When depositors made a bank run and demanded their deposits SVB could not pay them for several reasons, but one of them was because they couldn't liquidate their US bonds in a timely manner and without losing money on them.

So here comes the US government to help other banks that might be in similar situations. Banks with older bonds will be allowed to pledge those bonds as collateral in case they need to borrow more money to cover depositors withdrawals.

Huh?

The US government, which is paying interest on these bonds and will have to pay to redeem them, is accepting these bonds as collateral against loans they will make?

Does that seem on the up-and-up? What am I missing here?

 

[Gumby]

MODERATOR NOTE: Disagree with each other all you want, but please do not personalize those disagreements. Just state your case and let others state theirs. No need to comment on their lack of knowledge, intelligence or logic. Posts have been removed and edited. If it continues, the thread may be closed, which would be a shame because I am finding it quite helpful.

 

[ERD50]

That money is not lost. SVB still has lots of assets and one would expect to see a recovery of a high percentage of those funds. ....

Thanks for bringing some sobriety to this thread.

Heck, even a significant (most?) portion of the $$$$ in the Madoff scam was recovered and returned. It doesn't all just go 'poof'.

That money is not lost. SVB still has lots of assets and one would expect to see a recovery of a high percentage of those funds.

The monetary system has good options for banks to raise cash on the spot, assuming they have the collateral.

There is no reason to expect systemic risk from this incident. Bank failures are individual events. In the case of the 2 banks that failed this week, both were highly specialized, neither was a typical retail bank, and both relied heavily on non-traditional funding for much of its assets.

I guess I'm confused as to what all the hub-bub is about. These companies had their money in uninsured accounts. What does the FDIC have to do with that? The FDIC is there to cover insured accounts. And they are doing that, AFAIK (and/or, those insured accounts are fine, unaffected by this?).

Should I cry and whine that the FDIC should cover my market losses? It was up to these companies to analyze the risk to take with their cash. Don't they have a CFO? Don't they have a BOD?

-ERD50

 

[JoeWras]

It's not just big SV businesses that are going to be hurt....

Etsy sent out a notice to some sellers this morning that their deposits may be delayed. Etsy typically gathers all the payments made to a shop and disburses them weekly - Monday. Sellers can request them manually, earlier, but most don't.

The notice indicated they have other banks as well, but...that's a lot of people who make very small incomes from Etsy getting impacted.

Fidelity has a warning on their "Activity" page that says something like: "Due to high volume, all in-progress transfers may not show up." I think it is just a matter of ACH being overloaded.

 

[bmcgonig]

Sure, they could pull out money as long as loan is in good standing.

I think it means you can pull your money out but the loan becomes due.

 

[MichaelB]

Thanks for bringing some sobriety to this thread.

Heck, even a significant (most?) portion of the $$$$ in the Madoff scam was recovered and returned. It doesn't all just go 'poof'.



I guess I'm confused as to what all the hub-bub is about. These companies had their money in uninsured accounts. What does the FDIC have to do with that? The FDIC is there to cover insured accounts. And they are doing that, AFAIK (and/or, those insured accounts are fine, unaffected by this?).

Should I cry and whine that the FDIC should cover my market losses? It was up to these companies to analyze the risk to take with their cash. Don't they have a CFO? Don't they have a BOD?

-ERD50

Clearly the Fed and Treasury feel there is systemic risk. In that case they are free to use the FDIC, and the cost will be charged back to the member banks.

In this case FDIC is not covering market losses. It is covering bank deposits, which are different.

It’s not yet clear how much the FDIC will need to cover. Once again, this is not a solvency issue, it is a liquidity mismatch, so the cost will probably be much less.

 

[tulak]

I have a feeling that when all is said and done that the impact of SVB and Signature will be negligible to the FDIC, so increases in the premiums that banks (and we) pay will also be negligible.

I agree and I’m happy that a potential crisis was avoided.

 

[Montecfo]

I think it means you can pull your money out but the loan becomes due.

If you change banking relationships, then you are noncompliant. They do not want to call the loan because this puts the borrower in liquidation in many cases.

But pulling out money by itself is not an issue.

 

[Gumby]

I suppose you could have a deposit secured loan, where the funds on deposit are the collateral for the loan, in which case it would seem unlikely that the bank is going to let you take collateral in its possession, although I don't know for sure.

 

[Montecfo]

I suppose you could have a deposit secured loan, where the funds on deposit are the collateral for the loan, in which case it would seem unlikely that the bank is going to let you take collateral in its possession, although I don't know for sure.

Correct. But usually loans are secured by inventory, receivables or equipment.

And sometimes stock in the case of loans against a future funding event or IPO.

 

[pb4uski]

I would think that if the requested withdrawal was going to cause violation of loan covenants that the bank would have the right of offset.

 

[pb4uski]

Correct. But usually loans are secured by inventory, receivables or equipment.

And sometimes stock in the case of loans against a future funding event or IPO.

If what you say was the case then the deposit "requirement" has no teeth. Doesn't make sense.

 

[Montecfo]

If what you say was the case then the deposit "requirement" has no teeth. Doesn't make sense.

Well, it does have teeth. But no requirement to bite if bank feels that is not in its best interests.

This is really no different than any loan covenant. You can bust a covenant but that does not mean the loan is immediately called. It means you have some explaining to do and the loan could be in jeopardy.

 

[Texas Proud]

So it seems that there MIGHT be a loss to the FDIC in the future, but at this time we do not know...


It seems interesting that nobody wants the loan portfolio without some kind of assurance which the FDIC does not want to give... and the deposit base is not wanted since it is not retail...


BTW, looking at CNBC today it seems like the winner in all this is JPM... companies that were pulling out money were saying they were depositing it in JPM... so why buy deposits when you can get them for free!!


With the loss in regional banks I decided to take a flyer and buy a small amount of a regional bank ETF.. I bet in a year it will be up...

 

[Toocold]

….and shareholders are wiped out and management has been dismissed and replaced. I’m going to assume no bonuses, either. Altogether, an improved and fairer response over 2008.

I agree that it was fairer, but there is still a moral hazard issue. I'm sure the management did very well during the last 2 years when their stock price went from 200 to 750. Now if they can claw back last two year bonuses, that would be most fair.

 

[Aerides]

….and shareholders are wiped out and management has been dismissed and replaced. I’m going to assume no bonuses, either. Altogether, an improved and fairer response over 2008.

From what I read, they paid bonuses literally hours before this disaster started, last week.

 

[Chuckanut]

According to an article in the WSJ our cell phones are to blame. Too many big depositors upon reading the news signed in online using phones and immediately started withdrawing money. That started the run on the bank. Pre cell phone they would have had to do it using slower less panicky methods. I’ll take that reasoning with a grain of salt.

 

[Texas Proud]

OH... BTW, I am surprised that people seem to want to move money even if below the $250K amount... why?


The amount is insured and the new bank will operate just like the old bank for whatever you need... your checks will clear, you can take money from the ATM and you can for sure make deposits...

 

[dixonge]

so 20 pages of handwringing and this morning it's all good? OK.

LOL

 

[audreyh1]

so 20 pages of handwringing and this morning it's all good? OK.

LOL

Well, in fairness, some moves were announced last night that help mitigate the situation.

 

[audreyh1]

OH... BTW, I am surprised that people seem to want to move money even if below the $250K amount... why?


The amount is insured and the new bank will operate just like the old bank for whatever you need... your checks will clear, you can take money from the ATM and you can for sure make deposits...

I think some people believe there will be a delay in access to their funds, even thought that’s not generally how it happens for insured depositors.

 

[jazz4cash]

OH... BTW, I am surprised that people seem to want to move money even if below the $250K amount... why?


The amount is insured and the new bank will operate just like the old bank for whatever you need... your checks will clear, you can take money from the ATM and you can for sure make deposits...

I always assumed FDIC meant I would be made whole eventually. Maybe others assume this also. I am reassured by how quickly they have responded. Isn’t FDIC (like any insurance scheme) subject to a run on claims? If the run on a bank turns into contagion there is not enough to cover all the claims. Insurance works when you have a claim here or there, not when everybody has a claim.

 

[ERD50]

So this is (mostly) a liquidity issue? Well, from what I've learned watching "It's a Wonderful Life" umpteen times, the customers were told that they had to make a claim for withdrawal X days (30?) in advance. Ahhh, here it is (and it's 60 days):

IT'S A WONDERFUL LIFE

GEORGE
No, but you... you... you're thinking
of this place all wrong. As if I had
the money back in a safe. The money's
not here. Your money's in Joe's
house...
(to one of the men)
...right next to yours. And in the
Kennedy house, and Mrs. Macklin's
house, and a hundred others. Why,
you're lending them the money to
build, and then, they're going to
pay it back to you as best they can.
Now what are you going to do?
Foreclose on them?

TOM
I got two hundred and forty-two
dollars in here, and two hundred and
forty-two dollars isn't going to
break anybody.

MEDIUM CLOSE SHOT – ANOTHER ANGLE

GEORGE
(handing him a slip)
Okay, Tom. All right. Here you are.
You sign this. You'll get your money
in sixty days.

TOM
Sixty days?

GEORGE
Well, now that's what you agreed to
when you bought your shares.

So wouldn't that bank have some sort of similar agreement on large withdrawals? Wouldn't that be SOP?

-ERD50

 

[misanman]

Just read that a likely consequence is that the FED will have to back off their planned rate hikes. Might be wise to watch out for a stock market rally?