SVB - second largest FDIC insured bank failure since WaMU
The Fed's rising rates set us up the bomb:https://techcrunch.com/2023/03/09/si...-self-in-foot/...
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.
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Mini bank run ensued making SVB balance sheet hole even worse:https://www.cnbc.com/2023/03/10/sili...-happened.html...
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.
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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:https://www.fdic.gov/news/press-rele...3/pr23016.htmlFor 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.
Unfortunately, a large percentage of SVB accounts are uninsured (above the $250K FDIC insurance limit):https://www.msn.com/en-us/money/comp...it/ar-AA18tO2M...
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.
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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:https://markets.businessinsider.com/...032160351?op=1...
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."
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Treasury Dept is concerned:https://www.marketwatch.com/story/ye...banks-979ec0fbU.S. Treasury Secretary Janet Yellen said Friday she’s tracking a number of banks as Silicon Valley Bank has faced major problems.
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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:https://www.coindesk.com/markets/202...n-valley-bank/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.
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).https://www.cnbc.com/2023/03/10/sili...pay-bills.htmlThe 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."
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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.
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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."
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