Silicon Valley Bank seized by officials after imploding: How this happened and why

Silicon Valley Bank (SVB) was shut down on Friday by the California Department of Financial Protection and Innovation because it ran out of money. The state financial watchdog, citing the bank's "inadequate liquidity and insolvency," turned the VC finance house over to the Federal Deposit Insurance Corporation (FDIC), which is …

[Anonymous Coward]

Waiting to find out how much vicarious exposure they had innovative cleptocurrencies.

I don't think we will see the QE floodgates open while Republicans control congress and Biden is president, but if a deep recession kicks Biden out and its a full House/Senate/President of Republicans, there will be a lots of it flowing. Just before that is the time to get back into crapto - if you can stomach the stench.

[Jellied Eel]

Re: Waiting to find out how much vicarious exposure they had innovative cleptocurrencies.

I think it might be the opposite problem.

I'd never heard of SVB until today, but I suspect we'll be hearing a lot more about them. Huge problem seems to be they were a tech darling, and there's been a stream of announcements from startups and established companies about their exposure. So a lot of tech and biotech businesses who had cash stashed with SVB, relied on them for banking services like payroll and apparently did deals to tie execs personal banking to SVB as well. As for the cleptocurrencies, it seems like a few of the exchanges and assorted shysters held large cash deposits there.. So if those are gone, I'm assuming that means they're going to be having their own liquidity crisis as well because they're going to be short on security for their funny money.

But doesn't look good for what seems to be a large number of start-ups who relied on SVB.

[VoiceOfTruth]

Assets? What kind of assets?

-> $209 billion in assets

If those "assets" are overstated, i.e. they aren't really worth that, then this is a major problem. Bob says some assets are worth $1bn. Actually on the open market they can only realise half that.

[katrinab]

Re: Assets? What kind of assets?

The assets were mostly government bonds, which are very safe.

However, because they are fixed rate bonds, if interest rates go up, which they have done, then the immediate resale price will go down. The amount of money you receive on redemption in maybe 25 years time will stay the same, and the interest payments you receive will stay the same, but that isn't much help if you need to sell them now to repay customer deposits.

[amanfromMars 1]

Re:SVB had about $209 billion in assets

The assets were mostly government bonds, which are very safe. .... katrinab

Even if assets are mostly government bonds, ...and where did that notion/info appear from, katrinab, for surely that would be most surprising in an adventurous entrepreneurial banking enterprise servering Silicon Valley start-ups chasing unicorn status ...... they are only ever relatively safe, and never safe if issued by and bought from a highly indebted failing disunited states operation.

And if the $209 billion in assets is accounted for as being a lien on customer provided assets/collateral for bank loans, are all customers well and truly screwed by a corrupt banking system gobbling its own clients.

[katrinab]

Re: Re:SVB had about $209 billion in assets

From The Financial Times:

The banking group’s troubles stem from a decision made at the peak of the tech boom to park $91bn of its deposits in long-dated securities such as mortgage bonds and US Treasuries, which were deemed safe but are now worth $15bn less than when SVB purchased them after the Federal Reserve aggressively raised interest rates.

[amanfromMars 1]

Re: Re:SVB had about $209 billion in assets

Thanks, katrinab.

[Jellied Eel]

Re: Re:SVB had about $209 billion in assets

... to park $91bn of its deposits in long-dated securities such as mortgage bonds and US Treasuries, which were deemed safe but are now worth $15bn less than when SVB purchased them after the Federal Reserve aggressively raised interest rates.

This is the strange element. If I buy $1bn in Treasuries or Gilts, they're always going to be 'worth' exactly $1bn at maturity. That's why they're safe asset classes. But if I buy $1bn of 10yr Gilts at 0.5%, they're 'worth' less than $1bn at 4%. So the asset gets valued lower, even though they're both 'worth' $1bn, give or take the coupon. I should still have a safe $1bn in security.

So problem to me seems to be inflation rather than interest rates, ie with high inflation, my $1bn is going to be 'worth' a lot less in 10yrs time. I guess the issue for liquidity is liabilities are increasing, then my $1bn isn't going to cover or be 'worth' $1bn next year with inflation at 10%+

I guess this is one of those Fed/Central Bank vs bank challenges. With high inflation, when it comes time to redeem bonds, the dollar you pay back is worth less than when the debt was issued, so there's a bit of a perverse incentive to inflate away national debt.

[katrinab]

Re: Re:SVB had about $209 billion in assets

$1bn in 10 years time is worth $951,110.13 at 0.5%, but only $664,832.64 at 4% - you multiply by (1-r)^t where r is the rate in decimal and t is time in years. You do the same for each of the interest payments you are due to receive on the bond for the smaller values of t.

So, if interest rates go up, the value of your bond goes down, not up.

[Jellied Eel]

Re: Re:SVB had about $209 billion in assets

$1bn in 10 years time is worth $951,110.13 at 0.5%, but only $664,832.64 at 4%

I.. disagree.

So

$1bn @ 0.5% gives me $5m a year or $50m over the term

$1bn @ 4% gives me $40m a year or $400m over the term

So at after 10yrs, I've got $1,005m or $1,400m. So the question is still how much $1bn is 'worth' in 10 year's time, and how much the interest payments are worth every year. So the value is driven mostly by inflation, not interest rates. I did once dabble in bonds when I realised I could buy $1 of debt for maybe 20c, on an 8% bond.. but that assumed the bond would ever become redeemable. So that fun game of gambling on 'distressed' assets. Sometimes on the assumption that conversion of that $1 to equity might just yield a bit of cash and possibly more once the equity got sold. Made a bit of money, but all seemed rather risky, especially in sectors I didn't really understand.

So I guess it's a question of timing, and maturity dates. So inflation is high now, but if I'm say 2yrs into a 10yr bond and inflation drops back to 2-3% next year, it's less painful. So back to your example, the value of my investment seems correct, if you assume 4% inflation rather than interest rates. I know the pro bond traders factor all that into their investment decisions, but the problem seems to be valuing a security at a point in time. But then figuring out what the future value might be gets a lot more complex, and riskier.

Then of course it seems to be the problem of what caused this run on SVB, like was it rival banks spreading FUD, and causing the collapse of a competitor? Especially if they could help that along by making it difficult for SVB to raise additional capital? I just get the feeling that we haven't really learned much from 2008 after all.

[katrinab]

Re: Re:SVB had about $209 billion in assets

OK, you are looking at the position in 10 years time if you put $1bn in now.

That is fine, but isn't relevant to what happened at SVB. What is relevant to them is how much they would get now for an investment that pays out $1bn in 10 years time. And, because interest rates have gone up, the answer is, a lot less than before they went up.

[SundogUK]

Re: Re:SVB had about $209 billion in assets

We learnt a lot from 2008. Mainly: don't let the democrats/labour party anywhere near the levers of the economy.

Actually, don't let any government anywhere near the levers of the economy.

[Justthefacts]

Re: Re:SVB had about $209 billion in assets

First off, inflation is about costs, not value. Historically, productivity should grow by 2% annually. So, if you wait 10 years, you *should* get a basket products equal to the +20% that labour can produce in 2033. You *could* settle for exactly the amount of stuff made in 2023 and locked in a box for 10 years, but why would you?

Second, if I offered you a million quid on your 30th birthday, or two million (adjusted for inflation) on your 70th birthday, most people would have no problem identifying that the former was a much, much better deal. That’s 1.7% pa. Almost everyone would also pick the former against 2 million on their 50th birthday, and that’s already 3.4% pa. Economists think it’s irrational. Economists are wrong.

[katrinab]

Re: Re:SVB had about $209 billion in assets

It is not irrational, because your personal cost of capital is likely higher than 3.4%, and there is also counterparty risk to consider. Will you still be alive and able to deliver on the agreement in 20/40 years time?

[Jellied Eel]

Re: Re:SVB had about $209 billion in assets

It is not irrational, because your personal cost of capital is likely higher than 3.4%, and there is also counterparty risk to consider. Will you still be alive and able to deliver on the agreement in 20/40 years time?

I think it's also based on personal circumstances. I'd go for the indexed $2m so I could have a happy retirement bonus.. But that assumes I'm in a position where I don't need (or want) that $1m now. The only way I'd really gain by taking it now is if I were confident that my investment could outperform the guaranteed $2m. Which should in theory be possible, just riskier. After all, 30yrs ago, I'd never have imagined that economists would think QE and NIRP was sound monetary policy. Problem with economists is they often tend to assume perfect markets, where none exist.

[katrinab]

Re: Re:SVB had about $209 billion in assets

If you were renting a house, $1m would mean you could buy one, and the rent you save would be your return on investment. That would likely outperform the 3.4%. Or if it means you could avoid getting a mortgage, that would be your return on investment.

[martinusher]

Re: Re:SVB had about $209 billion in assets

This is where you play the numbers game, it becomes almost like gambling.

Many companies prefer to rent rather than buy -- a common trick is to take the real estate that's the corporate facilities, sell it off and lease back the space. From an accounting perspective this may make sense and therefore by the rules of modern business its the right thing to do. Profits go up in the near term, bonuses are issued and everyone's happy. But when business slows you find that you're carrying a lot of extra cost which you can't shed (long term rental contract, depressed real estate market etc) but you still have to make the payments. You get squeezed so the obvious answer is to cut costs where its most flexible -- layoffs. This can (and has on numerous occasions) resulted in a corporate death-spiral.

One of the problems we had in the 2000s is that individuals were encouraged to think corporate. All that stored value in your house was wasted, it could be put to work either as investments or improving your standard of living. The problem is that once you mortgage your house you don't own it and if the holder of the note thinks they can get more by foreclosing they will.....you're out of a home and probably your capital. Finance thinking is flawed thinking -- its gambling.

[FlamingDeath]

Re: Re:SVB had about $209 billion in assets

Frito’s abound

He likes money too

[Anonymous Coward]

Re: Re:SVB had about $209 billion in assets

I'll refer you to Morissons Supermarket in the UK. A cash rich profitable company when it was sold to a private equity group

who then loaded it with £6.6 billion in debt, paid themselves bonuses and loans etc. Now it's screwed. £400 million in debt repayments/ year BEFORE it can make a profit. These kind of banking shenanigans should never have been allowed.

I can't wait until teh whole system collapses!.

[blackcat]

Re: Re:SVB had about $209 billion in assets

Quick profit. The shareholders get a nice payout and the PE company profits from dumping debt onto Morrisons. And now more PE companies are smelling blood in the water and are looking to buy up the physical buildings/land and lease them back.

"Ah, I see you have the machine that goes 'ping!'. This is my favourite. You see, we lease this back from the company we sold it to - that way it comes under the monthly current budget and not the capital account."

[SundogUK]

Re: Re:SVB had about $209 billion in assets

Who owned it and made the sale? It was theirs to do what they wanted with it. Cash out and take a billion cash? Sure, I would.

[Jellied Eel]

Re: Re:SVB had about $209 billion in assets

If you were renting a house, $1m would mean you could buy one, and the rent you save would be your return on investment. That would likely outperform the 3.4%. Or if it means you could avoid getting a mortgage, that would be your return on investment.

Yup, but it's why I think it's a timing & circumstances issue rather than a simple binary rational/irrational choice. Plus we're humans, we don't always act rationally.

So suppose 30yrs ago, I was living in LA. I'd be starting my career. $1m now would let me buy a rather nice property with enough space to think about raising a family. I'd also probably have some money left over I could stash in savings as rainy day money, or seed capital for my future pension. I've never fully understood US, or especially Cali's property tax system, but I might also have locked in a low property tax assessement value.

If it was today, $1m might get me a 1-bed apartment with a massive tax liability, and the high probability of ending up with negative equity. Sure, when I sold, it'd still be free money, but it's kind of the reverse choice. I may gamble that in 30yrs time when the $2m is due, property prices may have fallen and I could use the money to buy a nice retirement property and take up golf. Especially as I'd probably be downsizing anyway because hopefully any kids have left home.

I've kind of been in this situation before looking at 'luxury apartments' to cut commuting time. So a £650k apartment near the train station. It was.. nice, but it's still a fairly small 2-bed apartment in Slough. It just wasn't worth £650k to me, especially given the usual apartment taxes, ie being expected to pay £1k+ a month in 'service charges'. Never really understood that one when you rarely actually get anything close to £1k in services, and you end up effectively paying rent to the property 'management' company for a property you barely own given they're also leasehold. Nice business for developers though, if you can get financing and fiind enough suckers to rent yuppie flats. Especially when the developer discovers the era of free money's ending, there's a massive oversupply in 'luxury apartments' and the banks want their money back. It's rather sad that despite going through one housing bubble, we ignored those lessons and allowed it to repeat. Greed is good I guess.

I think other interventionist policies have also highlighted the challenges. The US (and to a lesser extent, UK) did various welfare and stimmy schemes. Have some free money! Some invested that money, others blew it on $2000 trainers that probably cost <$5 to make. A nice revenue boost for purveyors of massively overpriced aspirational tat, but that bubble's ended and the spending's dried up. No idea if goverments can track where the money ended up, eg who put their stimmy checks into 401Ks, and who just blew it, but I suspect the answer is probably a lot of it got wasted. Then again, governments seem to prioritise spending vs savings, even though spending is obviously inflationary.

[anothercynic]

Re: Re:SVB had about $209 billion in assets

"wasted" is a broad word... If you spent it on goods (which was ultimately what stimulus cheques were for), you poured that money back into the economy. It helped others along the chain to a degree (businesses stayed in business, their staff continued to be paid, etc.). But ultimately that money ended up in the savings/401K/assets of someone else, not yours. I guess if that's what you mean by "wasted", then you're right.

[SundogUK]

Re: Re:SVB had about $209 billion in assets

You are not the market for £650k luxury apartments in Slough then. Someone is.

[Jellied Eel]

Re: Re:SVB had about $209 billion in assets

First off, inflation is about costs, not value.

Kind of agree and disagree. Inflation obviously impacts costs, and because economic policies have driven those up, inflation has obviously increased. That has more impact in some areas that others, eg it probably costs more now to buy plywood for shuttering than it does for the concrete. One's price has inflated far faster than the other, even if the actual costs haven't. $1 wiill still be the same now as in 10yrs, it's just what you can do with it that changes, ie the purchasing power or value, and that's driven by inflation.

Historically, productivity should grow by 2% annually. So, if you wait 10 years, you *should* get a basket products equal to the +20% that labour can produce in 2033.

I guess that depends how you err.. value productivity. So the political thinking that it should be a target to raise inflation by 2% annually, rather than decrease costs or those productivity gains. So I make widgets. With my 2% annualised productivity gains, in 10yrs time, I can either be producing 20% more widgets, or produce the same number for 20% less cost. Then I could reduce the price because I'm producing more volume, or because I'm making more margin and still make more money if I just cut the price 10%.

Problem is that doesn't happen. Prices just get raised 2% annually, because that's traditional, and well, inflation! Businesses are obligated to maximise shareholder value, so if you can get away with raising prices faster than your costs increase (or decrease), you go for it. Arguably there have been no productivity increases because prices increase constantly. Even when products are also shrinking. Obviously that all leads to inflation, costs spiralling out of control and customer's suddenly stop spending.

Oops.

Kind of why I keep banging on about our insane energy policies because energy is an input cost to just about everything, and is the main reason why our inflation rate has been soaring. And entirely policy driven. Also ironically aided and abetted by 'socially' minded companies like SVB, who constantly bang on about climate change, ESG and mostly irrelevant stuff like keeping both the bank and your customers afloat. Their risk manager certainly seemed to have his attention on the wrong balls. Inflation rises, costs increase, customer's need more money and.. the cheap money's gone. And so is the bank. Or it's customers.

You *could* settle for exactly the amount of stuff made in 2023 and locked in a box for 10 years, but why would you?

I guess that depends on your needs, greed or appetite for risk. But with gilts, the traditional thinking was you trade yield for security. That security seems to be vanishing, and so might the appetite for gilts. Hence why interest rates go up when customers lose confidence in their government, which is a problem especially when governments rely on debt. Also potentially a huge problem, if de-dollarisation continues or accelerates, which again is a policy problem. In other news, this just happened-

https://www.bbc.co.uk/news/world-middle-east-64906996

Middle East regional rivals Iran and Saudi Arabia have agreed to restore diplomatic relations, seven years after severing them in a bitter row.

The unexpected announcement came after four days of talks between officials from both sides in China.

Probably not that unexpected given State was hopefully aware of it, just powerless to do anything about it. The Bbc neglects to mention part of that deal was oil priced in Yuan, and next steps will probably be KSA and Iran joining BRICS.

Oh dear.

Suddenly, a fairly large part of the world won't need as many dollars. More inflation, fewer customers for dollars, and inflation is going to rocket even faster. So I still think inflation is the problem, not interest rates given those are just a crude policy lever to try and manage that problem. Reducing costs is arguably more effective, but goes against existing policy. Which kind of goes back to bondage. If I've got $1bn @ 4%, and inflation's running at 2%, I'm still in the money. If it's 4% and 4%, at least I get my money back. If inflation > interest rate, well, then I'm losing money. Which I guess is also katrina's point. That value is based on market conditions and sentiment. Sure, if there are bonds @4%, mine @0.5% are going to be less attractive, but $1bn is still $1bn, unless again that's inflated away.

[SundogUK]

Re: Re:SVB had about $209 billion in assets

'Value' is meaningless; 'cost' is all that matters.

[SundogUK]

Re: Re:SVB had about $209 billion in assets

How to tell me you're a Marxist without telling me you're a Marxist.

[Stork]

Re: Re:SVB had about $209 billion in assets

That’s what banks generally do, and what regulations force them to do.

[Justthefacts]

Re: Assets? What kind of assets?

Indeed….I’ve gone to SVB balance sheet on their website, and I suspect the real problem is that their clients didn’t understand what they were. Or perhaps even SVB fooled themselves into not understanding. But a *bank* they were not. They were a rather unusual *hedge fund*.

A *deposit bank* makes its money off the interest from loans, and more precisely from the term conversion implicit in that. SVB in fact were loaning out only $70bn of their $200bn assets. The rest is invested in bonds. Now on the one hand, a 65% tier 1 capital ratio is stupidly high (good) for a bank, which is normally 8-10%. This should really have rung alarm bells. In fact, SVB is mostly a wrapper for government bonds. SVBs return comes from speculative return on Gov Bonds, financed by the deposits of their clients, for which *they* pay their *depositors* a couple %. This is a hedge fund. It doesn’t stop being a hedge fund just because the underlying asset class is normally considered low-risk. Instead of the standard “2% management charge plus 20% of investment returns” hedge fund model, they offered “-2 plus 100”. Any of their deposit clients could simply have bought the gov securities directly (they are companies large enough to do so, and those securities are liquid), but SVB offered them a better “interest rate”. And at no point did their customers question where that interest rate could be coming from. They simply thought it was a bank, because it’s called Silicon Valley Bank. And the regulator seems to have fallen for it too, fooled by the framing of the business and the high tier 1 capital ratio.

SVB were “all in” speculatively on artificially high bond prices supported by artificially low interest rates. When the hedge fund’s bet failed, so did the hedge fund. The regulator needs to look at it definitions.

[Jellied Eel]

Re: Assets? What kind of assets?

SVB were “all in” speculatively on artificially high bond prices supported by artificially low interest rates. When the hedge fund’s bet failed, so did the hedge fund. The regulator needs to look at it definitions.

Yeh, I thought that was a little strange, plus their exposure to start-ups. I thought regulators tried to limit risk by segregating banking activities, but it's looking like that didn't go far enough.

[John Miles]

Re: Assets? What kind of assets?

From another discussion - levels at which various rules applied were changed back in 2018 and various things changed if the bank had less than 250 billion in assets (up from 50 billion) - cadwalader.com link

[Justthefacts]

Re: Assets? What kind of assets?

Oh. God. Well spotted. So, SVB kept their assets just under the new $250bn threshold, and avoided all the bank compliance stuff including stress-testing.

They knew. Everyone knew. This was the *direct* hand of Trump, f*ing up the lessons of 2008 by smashing Dodd-Frank. Because he was just too stupid to know what he was doing. At least we now know what to look for: there are “about two dozen bank holding companies” all hovering below the magic $250bn threshold. And they are all going to go bang in the next few weeks or months.

[John Miles]

Re: Assets? What kind of assets?

Now add -

SVB CEO Greg Becker lobbied the government to relax some Dodd-Frank provisions on regional lenders in 2015. Trump did in 2018

[amanfromMars 1]

Re: Assets? What kind of assets?

In 2015, SVB Chief Executive Officer Greg Becker urged the government to increase the threshold, arguing it would otherwise lead to higher costs for customers and “stifle our ability to provide credit to our clients.” With a core business of traditional banking — taking deposits and lending to growing companies — SVB doesn’t pose systemic risks, he said. ..... https://fortune.com/2023/03/11/silicon-valley-bank-svb-ceo-greg-becker-dodd-frank-trump-rollback-systemically-important-fdic/

Which we now know translates to ....

SVB Chief Executive Officer Greg Becker speak with forked tongue, Kemosabe, for a core business of theirs was not traditional banking — taking deposits and lending to growing companies — but taking deposits and investing in failed government issued dicky Treasury notes and highly risky speculative companies ...... which does have one asking of the UKGBNI Chancellor of the Exchequer and the Bank of England why they would even be thinking of involving themselves in spending other peoples monies to bail out a right dodgy operation in a foreign jurisdiction in which they had no effective remote leverage and lost clients' billions of dollars.

Fools and their money are easily parted is what they say, so don't be a fool is wise counsel says I.

[anothercynic]

Re: Assets? What kind of assets?

The "UKGBNI Chancellor of the Exchequer and the Bank of England" are involving themselves in bailing out SVB UK, i.e. the UK-based branch (which claims to be ringfenced from the US operation, but, because the parent group's going bang, it is now also going bang). This is a repeat of Lehman Bros 2008.

[Panicnow]

Re: Assets? What kind of assets?

I've never understood why people call Trump stupid. My guess is he understood exactly what he was doing. He got to be PotUS. I'd challenge anyone with an IQ for less than 110 to get near a nomination, let alone winning an election!

[Jason Bloomberg]

Re: Assets? What kind of assets?

I don't know how smart one needs to be to rally a mob of torch-waving pitchfork-totting, conspiracy theory prone, bigots who have never heard the term "critical thinking", rattle their cages and tell them they are right, to have them hail you as the one and true leader, the one they should get behind.

Of course Trump knew what he was doing. No, he's not stupid, but he's no brighter, smarter nor more skilled than anyone else. He simply decided to jump on the populist bandwagon while most decent folk wouldn't touch it with a barge pole.

[SundogUK]

Re: Assets? What kind of assets?

If you're 'decent folk' I want no part of 'em.

[Anonymous Coward]

Re: Assets? What kind of assets?

According to Bloomberg One crucial fact to keep in mind as SVB’s failure ripples across industries is that the bank was an investor in its own right. The company’s venture capital and credit investment arm has  directly invested in several fund managers and portfolio companies for more than 20 years. The firms that have benefited from its money include: Sequoia Capital, Accel, Kleiner Perkins, Ribbit Capital, Spark Capitil, and Greylock.

Sequoia are the ones who posted the glowing profile of SFB (https://web.archive.org/web/20221027181005/https://www.sequoiacap.com/article/sam-bankman-fried-spotlight/), until FTX's collapse resulting in $210 million writedown for Sequoia, after which they deleted SBF's profile - without comment.

Between 2021 and today the total capital worth of all crypto has fallen from 3 trillion to 1 trillion - a 2 trillion hole. Even if SIVB did not directly invest in crypto, they were link through cross investment on cross investments so deep nobody knows.

Meanwhile, executives were earning unworldly salaries and bonuses - live today, pay tomorrow. (Well - somebody pays.)

[SundogUK]

Re: Assets? What kind of assets?

Good god. Someone talking sense on the Register!!!

[hayzoos]

I'm affected - no pay today

The small company I work for outsources their payroll to PayrollTime.com which uses Patriot Software and they use SVB. Fortunately, each client or partner of Patriot Software has a separate account with SVB. Direct deposit is mandatory because of this arrangement. SVB has not been consistent with their direct deposit orders for my bank to extend early direct deposit to my account a feature many banks are offering ( I realize that now ). My company is handling this as well as can be expected for a small company. Most of the employees work in the field, each received a personal phone call to inform them of the situation. The situation is an expectation that the pay will process Monday, but a check was offered if needed. I declined the check today because resolving the difference if deposit goes though would be a nuisance. I'm more pessimistic and do not expect Monday processing, but I'll be patient, I have enough liquidity to be so.

I will be making a stink Monday afternoon if no deposit is made or no check is available. Technically, the company has not met payroll.

I will also be voicing my opinion concerning using a company which is a rebranded online payroll (cloud) using a rather generic name of PayrollTime.com. Nearly the epitome of a shady operation.

If PayrollTime.com has more than the $250,000 deposited with SVB, then they had better make good on the payrolls first before making themselves whole.The payrolls are not their money. Should those shenanigans occur, I will be seeking a lawyer. Of course my employer would be one of the defendants, but they are ultimately responsible to make payroll. I will not tolerate passing the buck(s) in a game of pay keepaway and liability avoidance.

[Jellied Eel]

Re: I'm affected - no pay today

Ouch.. I read a few payroll companies were doing the same thing. As I understand it, providing there really is a seperate SVB account for each PayrollTime client, then $250K should be protected. Challenge it seems will be getting access to it now the bank's been seized. It sounds like a lot of people are going to be in the same position. If your company has offered to pay by check or make a deposit though, I suspect a lawyer will tell you they have made a good faith attempt to make payroll obligations though.

[katrinab]

Re: I'm affected - no pay today

How many employees can you pay out of $250k? Obviously it depends on their salary levels, but it is not that many people in the overall scheme of things.

[Paul Crawford]

Re: I'm affected - no pay today

Would that held deposit be covering $250k per month, or overall per year?

[katrinab]

Re: I'm affected - no pay today

Depends on the company, but probably 2-3 months.

[Jellied Eel]

Re: I'm affected - no pay today

Would that held deposit be covering $250k per month, or overall per year?

Per account. So then it's a question of how many months of payroll does $250k cover? I'm curious how or if payroll services are regulated. So if they're like lawyer's client accounts where monies have to be kept seperate, or if payroll companies can co-mingle their client's funds. Hopefully they can't, but for a business, relying on hope isn't often good financial planning.

[katrinab]

Re: I'm affected - no pay today

Lawyers can put all their client money in a single client account, they don't have to open a new account for each client.

What they can't do is put it in the same account as their own money.

[vtcodger]

Re: I'm affected - no pay today

Challenge it seems will be getting access to it now the bank's been seized

A reasonable assumption. But the bank employees except for a few high level suits that will have been replaced by state bureaucrats still have a job (this week anyway). And the $250,000 comes from a real insurance operation -- the Federal Deposit Insurance Corporation that has some experience dealing with this sort of thing. The problem will be when the $250,000 per account has been burned through. That's a probably matter hours for larger operations, days for medium sized. A few of the smallest and newest might last a few weeks or even months.

And the bank still has considerable assets albeit apparently not enough to cover its obligations. Apparently, some of that cash will be available "soon".

Still, this is surely a very bad thing. It may save the public from having to deal with a lot of awful AI products that are even more erratic and less dependable than Elon Musk since AI seems to be the fad d'jour. And maybe it'll finally drive a stake through the (virtual) heart of cryptocurrency. But this is not a good way to do those things.

Might be a good time to read over that plastic card of In case of emergency ... instructions in the seat back of the seat in front of you. The one you've been ignoring for years. ... Now then, where is this life vest they are going on about? And how does it work again?

[Jellied Eel]

Re: I'm affected - no pay today

A reasonable assumption. But the bank employees except for a few high level suits that will have been replaced by state bureaucrats still have a job (this week anyway). And the $250,000 comes from a real insurance operation -- the Federal Deposit Insurance Corporation that has some experience dealing with this sort of thing. The problem will be when the $250,000 per account has been burned through. That's a probably matter hours for larger operations, days for medium sized. A few of the smallest and newest might last a few weeks or even months.

Yup. I think this is perhaps the wider structural or risk management issue. So according to latest news, FDIC says protected funds should be accessable Monday. What happens next would seem to depend on how CFOs or Treasurers managed risk. Or how service companies used by businesses managed risk. One of the biggest losers seems to be Roku, with $500m or 25% of it's cash with SVB, Losing that has got to hurt, but it's still got 75% left. Other companies may be less lucky/well managed and be more exposed.

I'm curious if it'll affect business thinking as well, so the payroll outsourcing as an example. With my own businesses, I'd been pressured to sign up for various payroll services, but that was kept in-house. They''d never had enough employees to exceed $250k, but I generally had payroll from a dedicated account with enough in it to cover 3-6 months payroll expenses. Helped to ensure we could make payroll, and generally covered by insurance schemes like FDIC. In fact when I had some US staff, that was one of the concerns, ie how much would be protected? Especially after 2008..

But it was always a concern of mine. Mostly my businesses were normal banking, but occasionally needed credit for design/build projects were we had to buy tin before it was sold on to clients. It was easier to get a revolver from our bank because we had the relationship, although that concentrated risk. Same with 'offshore' banking, so having US or Euro accounts to run projects in those countries. Most jobs weren't large enough to need or justify going outside our own traditonal bank, or need any fancy hedging or securitisation. Cash was still split though.

I also think I'm lucky enough to have grown up when interest rates were 8%+ so that and inflation have always been at the back of my mind. As others have said, if businesses are living hand-to-mouth and can't survive relatively small interest rate moves, then they're perhaps not meant to survive. Then again, that's always been the challenge for start-ups, and valuing those businesses.

[CrazyOldCatMan]

Re: I'm affected - no pay today

I also think I'm lucky enough to have grown up when interest rates were 8%+

I remember when mortgage interest rates were 15%.. (we had an endowment mortgage and saw the value of our house go down from the £68K we'd paid for it to £55k). Fortunately, we were both (reasonably well paid) prgrammers in a fairly cut-throat environment where constant staff poaching was rife and so were paid a fairly decent retention bonus (50% of which was paid out at the end of 3 years) so we managed to survive.

We still took a fairly big hit when we went to sell the house in 1997 to move to our current house. Needless to say, the current house has grown fairly massively in price since then.

And, equally fortunately, we ended up on a tracker mortgage where we could overpay so, when our very-underperforming endowments vested, we actually had enough to pay off the mortgage.

Moral of the story? The Finance world is inherently unstable and anyone that tells you that they can predict out to 5 years is either a fool or lying.