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Thread: SVB - second largest FDIC insured bank failure since WaMU

  1. #1

    Default SVB - second largest FDIC insured bank failure since WaMU

    The Fed's rising rates set us up the bomb:
    ...
    If you’re just catching up, here’s what happened: Silicon Valley Bank lost $1.8 billion in the sale of U.S. treasuries and mortgage-backed securities that it had invested in, owing to rising interest rates. The bank is also contending with shrinking customer deposits, given that its customer base of largely startups has far less money right now to park at a financial institution.

    Because it’s in this spot, it decided to raise a bunch of money to safeguard its business. The plan was to sell $1.25 billion of its common stock to investors, $500 million in convertible preferred shares, and $500 million of its common stock in a separate transaction to the private equity firm General Atlantic. The apparent goal was to project that the bank was being conservative and raising this money to stabilize itself.

    Oh, though, how it backfired, and who can be surprised, given it issued its announcement about these plans just as the crypto bank Silvergate was announcing that it was winding down operations.

    You might imagine that someone at Silicon Valley Bank would have paused to think: “Hmm, maybe today is not the right time to declare that we’re shoring up our balance sheet.” Evidently, they did not. Instead at the end of the market close yesterday, they put out a convoluted press release that was received so badly that it was almost comical. Except that Silicon Valley Bank is a trusted financial partner to many startups and venture firms that are now nervously scrambling to figure out what to do.
    ...
    https://techcrunch.com/2023/03/09/si...-self-in-foot/

    Mini bank run ensued making SVB balance sheet hole even worse:
    ...
    All told, customers withdrew a staggering $42 billion of deposits by the end of Thursday, according to a California regulatory filing.

    By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing, and failed to scrounge enough collateral from other sources, the regulator said.
    ...
    https://www.cnbc.com/2023/03/10/sili...-happened.html

    This is a massive bank failure:


    https://www.dailymail.co.uk/news/art...ce-losses.html

    FDIC is on the case and has set up a bridge bank to ensure that insured deposits are made whole:
    For Immediate Release

    WASHINGTON – Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.

    All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.

    Silicon Valley Bank had 17 branches in California and Massachusetts. The main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023. The DINB will maintain Silicon Valley Bank’s normal business hours. Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear. Under the Federal Deposit Insurance Act, the FDIC may create a DINB to ensure that customers have continued access to their insured funds.

    As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.

    Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959.

    The FDIC as receiver will retain all the assets from Silicon Valley Bank for later disposition. Loan customers should continue to make their payments as usual.

    Silicon Valley Bank is the first FDIC-insured institution to fail this year. The last FDIC-insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.
    https://www.fdic.gov/news/press-rele...3/pr23016.html

    Unfortunately, a large percentage of SVB accounts are uninsured (above the $250K FDIC insurance limit):
    ...
    SVB Financial Group's Silicon Valley Bank had a relatively high amount of uninsured deposits as it courted tech workers and venture capital firms. The FDIC said on Friday the amount of uninsured deposits at the bank was “undetermined,” likely complicated by the rush of bank customers to remove uninsured funds. But data submitted to the FDIC by the bank at the end of 2022 showed that 89% of its $175 billion in deposits were uninsured.
    ...
    https://www.msn.com/en-us/money/comp...it/ar-AA18tO2M

    SVB might just be the tip of the iceberg as the Fed's rising rates will pressure the balance sheets of small and regional banks:
    ...
    While SVB may be the poster child for the difficult banking environment, it is far from alone. The Federal Deposit Insurance Corporation (FDIC) estimates U.S. banks have more than $600 billion in unrealized losses generated by rising interest rates.

    "Typically, this is not seen as an issue as banks can wait until maturity and thus not realize a loss," CFRA analyst Alexander Yokum said Thursday.

    "However, if deposit outflows accelerate, banks could be forced to liquidate securities at a substantial loss, as displayed today by SIVB."
    ...
    https://markets.businessinsider.com/...032160351?op=1

    Treasury Dept is concerned:
    U.S. Treasury Secretary Janet Yellen said Friday she’s tracking a number of banks as Silicon Valley Bank has faced major problems.
    ...
    https://www.marketwatch.com/story/ye...banks-979ec0fb

    This could force the Fed to pause and/or pivot their rate policy. They walk a fine line now choosing whether to either fight inflation (raise rates) or save bank balance sheets (hold or lower rates).

    There are also some contagion fears around the USDC stablecoin which held assets at SVB:
    Circle’s USDC, the second-largest stablecoin, with $43 billion market capitalization, held an undisclosed part of its $9.8 billion cash reserves at failed Silicon Valley Bank.
    https://www.coindesk.com/markets/202...n-valley-bank/

    If USDC lost significant money at SVB, they might be forced to sell a large tranche of Treasuries...

    Aside from Circle/USDC, there are a lot of (non-financial sector) companies that are facing similar financial issues if they had all their eggs in the SVB basket (far exceeding the FDIC insurance limit).
    The sudden collapse of Silicon Valley Bank has thousands of tech startups wondering what happens now to their millions of dollars in deposits, money market investments and outstanding loans.

    Most importantly, they're trying to figure how to pay their employees.

    "The number one question is, 'How do you make payroll in the next couple days,'" said Ryan Gilbert, founder of venture firm Launchpad Capital. "No one has the answer."
    ...
    However, unlike a typical brick-and-mortar bank — Chase, Bank of America or Wells Fargo — SVB is designed to serve businesses, with over half its loans to venture funds and private equity firms and 9% to early and growth-stage companies. Clients that turn to SVB for loans also tend to store their deposits with the bank.

    The Federal Deposit Insurance Corporation, which became the receiver of SVB, insures $250,000 of deposits per client. Because SVB serves mostly businesses, those limits don't mean much. As of December, roughly 95% of SVB's deposits were uninsured, according to filings with the SEC.

    But the process is much more convoluted for uninsured depositors. They'll receive a dividend within a week covering an undetermined amount of their money and a "receivership certificate for the remaining amount of their uninsured funds."

    "As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors," the regulator said. Typically, the FDIC would put the assets and liabilities in the hands of another bank, but in this case it created a separate institution, the Deposit Insurance National Bank of Santa Clara (DINB), to take care of insured deposits.

    Clients with uninsured funds — anything over $250,000 — don't know what to do. Gilbert said he's advising portfolio companies individually, instead of sending out a mass email, because every situation is different. He said the universal concern is meeting payroll for March 15.

    Gilbert is also a limited partner in over 50 venture funds. On Thursday, he received several messages from firms regarding capital calls, or the money that investors in the funds send in as transactions take place.
    ...
    One founder, who asked to remain anonymous, told CNBC that everyone is scrambling. He said he's spoken with more than 30 other founders, and talked to a finance chief from a billion-dollar startup who has tried to move more than $45 million out of SVB to no avail. Another company with 250 employees told him that SVB has "all our cash."
    ...
    https://www.cnbc.com/2023/03/10/sili...pay-bills.html
    A journey of a thousand miles must begin with a single step. -Lao Tzu

  2. #2

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    Good thread. Monday is going to interesting.

  3. #3

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    Quote Originally Posted by jjmcwill View Post
    Good thread. Monday is going to interesting.
    In my experience from 2008-12, the FDIC vans show up Saturday evening through Sunday night - and the closures are announced Monday morning.

    There's no street riots and broken glass that way. Normal police / sheriff / trooper staff are on shift Monday morning.

    I remember years ago in NC, I was mowing the lawn with my radio headphones on.
    The noon news mentioned ALL WACHOVIA ATMs had shut down due to a technical glitch.
    I was head of the line on a bank run, looking at the lobby.
    I left the mower in the yard, cleaned my business bank account into cash and moved it to a local credit union. Could not see closing my business operations due to a bad bank.
    - UPDATED-
    2.4 BILLION people still cook with manure as their fuel.
    3.0 BILLION more people will be born in the next 30 years.

    IEA, Number of people without access to clean cooking by scenario, 2021-2030, IEA, Paris

    More energy. Not less.

  4. #4

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    If it ain't THE black swan event, it is purdy close to it....spooky
    Thomas Jefferson is credited with writing, “When injustice becomes law, resistance becomes duty.” The seceding states in the Civil War period issued a similar declaration using the word “tyranny” as opposed to “injustice.”

  5. #5

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    Quote Originally Posted by ConanTheLibertarian View Post
    In my experience from 2008-12, the FDIC vans show up Saturday evening through Sunday night - and the closures are announced Monday morning.

    There's no street riots and broken glass that way. Normal police / sheriff / trooper staff are on shift Monday morning.

    I remember years ago in NC, I was mowing the lawn with my radio headphones on.
    The noon news mentioned ALL WACHOVIA ATMs had shut down due to a technical glitch.
    I was head of the line on a bank run, looking at the lobby.
    I left the mower in the yard, cleaned my business bank account into cash and moved it to a local credit union. Could not see closing my business operations due to a bad bank.
    How did you move your business acct into cash?
    Politicians and diapers must be changed often, and for the same reason. -Mark Twain

    The purpose of life is to matter, to be productive, to have it make some difference that you lived at all. -Leo Rosten

  6. #6

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    SVB failed due to having 57% of their assets in "hold to maturity" government debt. This was a CYA move for unrealized losses on the bank's balance sheet. An accounting trick allowed under gov't rules. It worked until customers pulled their cash out, the bank didn't have enough debt that they could sell, and the bank was forced to issue stock and try to raise funds to cover their withdrawals. Time ran out before they could get the cash needed. Locked doors and FDIC steps in for anyone less than $250,00. Others get an expensive haircut!

    Just how many small businesses that just lost their cash to keep them going is TBD. More job losses.

    OBTW, some of the bank's management sold their stock in the bank prior to the collapse. (Insider trading???) Overall, problem was caused by low interest rates on government debt and the Fed's rapid increase in interest rates that left the bank on the wrong side of low yielding debt.

    Several other banks have as much as 42% of their assets in "hold to maturity" debt too. If the FDIC had stepped in to protect the customers over the limit and allowed the bank to be merged with a 2nd bank and covered the cash needs until the "hold to maturity" assets to reach maturity then most likely the whole mess would not have been the cluster F that it is now. Stay tuned as our government continues to shoot themselves in both feet.

    What we need now is an unrealized capital gains tax and perhaps a wealth tax. WTF! Will all rats please board the life rafts, women and children last.
    Do your own due diligence

    I stand united with my friends & family in Canada who seek freedom.

  7. #7

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    Looks like they didn't account for the FED raising rates.
    What's the Frequency, Kenneth?

    432Hz

  8. #8

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    Quote Originally Posted by redraspberry View Post
    Looks like they didn't account for the FED raising rates.

    PFFF, when banks cannot cope with unde 5 pct rates, then they are nowt worth to be called bankers. They just have been throwing money out of the windows and been paying huge wages to themselves during the period before banruptcy.

    There should be a rule that bankpeople are responsible with the wealth of their family for losses. Too easy to get fat wages and bonuses and leave then other people high and dry with the losses.


    The disease of our " modern" world is the lack of backfiring ( retro)responsability.
    Bankers their family possesions should be at stake too.

    They would'nt give money to goons if they knew they could be shafted too.

    Golditiki2+++

  9. #9

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    Quote Originally Posted by golditiki2 View Post
    PFFF, when banks cannot cope with unde 5 pct rates, then they are nowt worth to be called bankers. They just have been throwing money out of the windows and been paying huge wages to themselves during the period before banruptcy.

    There should be a rule that bankpeople are responsible with the wealth of their family for losses. Too easy to get fat wages and bonuses and leave then other people high and dry with the losses.


    The disease of our " modern" world is the lack of backfiring ( retro)responsability.
    Bankers their family possesions should be at stake too.

    They would'nt give money to goons if they knew they could be shafted too.

    Golditiki2+++

    They believed the FED when they said the inflationary spike was only transitional.

    “We can ignore reality, but we cannot ignore the consequences of ignoring reality.”

    ― Ayn Rand

    What's the Frequency, Kenneth?

    432Hz

  10. #10

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    More bank runs to ensue as their are few big boys that cannot fail. Look for dollars to be moved to JP Morgan, Bank of America, Chase, Citi, or Wells Fargo.
    Fear and contagion I'm sure. The problem is banks know they can get bailed out, merged, etc. the employees / execs are often friends & family, already taken what they want. They know a fail will happen months ahead of time.

    This is prolific in health care, education, and increasingly government. It's why Elizabeth Warren complaining, her sisterhood whining, but most of sisterhood owns recession proof jobs, 70%+ education and health care is all women owned jobs. They took over government fast too, I was government employed and got out while Karen went nuts on us men. They would just come in and randomly yell at anyone anytime and it was fine. I asked leadership they said it's fine. When I resigned, they said it's fine. I'm like ok cool, and went to work for men, we got one woman on our production line, she drives all the other women away, she hates them and she knows who gets the work done.

    Anyway, back to government, they outsource everything and anything they can, contracts are oven subbed out several times, accountability lost along the way, etc. They use industry think tanks to tell them what to do, why think for yourselves, they definitely are not building teams anymore.

    Banks will be banks, much of the rest of institutions are hanging in the balance of failure too, just a good time to remind people. And, a good example is cops, who wants to be a cop?, or EMT? Take care of your health.

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