US government says Silicon Valley Bank depositors can get their cash on Monday Customers of collapsed startup-centric Silicon Valley Bank will be able to access their deposits on Monday, US authorities announced on Sunday. “After receiving a recommendation from the boards of the FDIC [Federal Deposit Insurance Corporation] and the Federal Reserve, and consulting with the President, Secretary [of Treasury …
"can anyone just buy it and write them self a loan"
That's exactly the concept behind "pocket banks" in Russia, Ukraine and India. You (an oligarch) set up a bank. You push your companies' employees, other shareholders, vendors, clients and maybe (with the appropriate brown envelopes) local governments to open accounts there. You then arrange for the bank to lend various other companies controlled by you a ton of money. Then - and this is the subtle bit - you just don't pay it back, and you let the bank fail, screwing over depositors and the suckers in government that have to bail everyone out.
Ukraine is currently pursuing Ihor Kolomoysky for a cool USD 3 billion over the way he ran PrivatBank. Naturally he denies all misconduct.
https://www.rferl.org/a/ukraine-s-privatbank-wins-key-battle-against-oligarch-in-london-court/30218228.html
That's exactly the concept behind "pocket banks" in Russia, Ukraine and India.
And it seems in the US. Only a short while ago, there was SBF and FTX, where client money seemed to be shuffled into personal accounts for their chosen few. Plus a very lavish lifestyle that turned out unsustainable. Now, there's SVB* who seemed to be doing much the same thing as the 'pocket' banks, but hopefully with less diversion.
But the article included this tweet, which is worth reading for some insight-
Silicon Valley Bank was the main bank for two of our companies, my personal savings, and my mortgage. This is how things unfolded for us:
And echoed in some other reports I saw. So get in bed with SVB, and all your accounts are belong to us. Guessing that must be legal, but seems to concentrate risk or be entirely ethical if that's conditional. But then 'ethical banking' has always been a bit of an oxymoron.
I also can't figure out if this is a bail-out or not. The 'fix' seems to be the Bank Term Funding Program and an existing facility called the 'Discount Window'. The first seems to be essentially a 1yr loan that values bonds at par, so kinda back to the other article about when $1 isn't $1. I can't quite see how taking on more debt is going to help an insolvent bank, especially as it also seems like it's being broken up and asset stripped to raise cash anyway. I guess as HSBC would say "I'll buy that for a dollar", although hopefully HSBC knows what it's buying.
It's also been interesting looking at the IT angle. Back in the day when bank runs were in B&W, it was more a bank shuffle. People would have to go to the bank, queue for a teller and wait. Now, thanks to online banking, huge sums of money were sucked out of SVB. This must make it FUN! for banks to figure out what the hell is going on. Are we solvent? Well, we were 300ms ago, now I'm not so sure. It also got me thinking more about Treasury functions. If you're say, Apple, you have collosal sums of cash to deposit.. somewhere. Preferably somewhere that's low risk and out of reach of tax authorities. So whether there's scope for an Eel (or Vulture?) bank that only takes deposits. For a modest fee. Not being a banker, I'm guessing it's not that easy, and would probably involve a lot of paperwork.
* I guess this means we really shouldn't trust TLAs?
I also can't figure out if this is a bail-out or not
Depositors are being bailed out, to the full extent of their deposits rather than only to the $250K that FDIC guarantees. The claim is that must be done or large depositors will flee smaller banks in favor of the "too big to fail" banks that will be backstopped by the government since by definition they can't be allowed to fail (and according to republicans "free market" principles make it unthinkable that they be forced to break up either via law or via regulation that makes it too painful to remain so large)
However shareholders and debtholders are NOT being bailed out, they are eating their losses. This is a good thing IMHO as bailing them out would encourage greater risk taking by midsize banks as shareholders chase higher returns knowing that they would be protected if the risky investments required to earn those higher returns don't pan out. Hopefully by allowing them to get zeroed (unless there is money left after paying all depositors) shareholders in similar banks will direct management to adopt less risky strategies that may get lower returns but will reduce the risk their shares become worthless.
So it is a bailout if you have a savings or checking account at the bank, but not if you have loaned them money or own stock in it. You were never in any danger if they have loaned you money i.e. via a mortgage, though who you make your monthly payments to is going to change.
> “Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law,” the statement reads.
Which the banks will presumably turn around and assess from their lunchpail customers in the form of new/added fees?
The FDIC backstops a "panic" bank run composed of corporate finance managers which chose to hold deposits over the FDIC limits in a single bank. These people are highly paid employees, not hapless victims.
The FDIC fund will liquidate SVB and it's remaining assets. That includes worthless bond debt that is being blamed publicly for triggering this fiasco. I also includes the mountains of paper that the bank hold on all of the companies it has been backing. That's the loans and credit lines held against the same companies screaming bailout.
All the fee's paid by the big banks will taken out on US, so we will still end up paying for most of it as that gets passed along. The startups get a bailout, even though it was their choice to hold funds in SVB over the FDIC limits, and if we don't watch them like a hawk, they will try to change the terms on the paper the bank held against them for loans and credit lines, and any equity that was held on those startups. If that is sold now on unfavorable terms to the existing banks, they will profit twice by this, passing the increased fees to customers and holding the paper on these companies till after the market starts to recover and selling it at a handsome profit.
And this is just the first round. So there better be from fast, visible and brutal penalties to the companies and officers triggering this, or others may still decide to join the bailout wagon.
Apparently he had to file the notification that he was going to sell the shares back in January, so it's more like what did he know 6-7 weeks. Whatever it was, I would guess his salary is high enough have made it a better idea to keep the bank afloat for at least another 6 months or so if possible and pocket that income instead/also.
So if this isnt going to cost the taxpayers a cent, then that means that after liquidating it's assets SVB has enough cash to pay out every single customer. That means the run on it was frankly for nothing and the bank was solvent, no?
OK it lost $1.8 BN in selling assets at a loss, that speaks to them taking a very bad gamble on interest rates going down, but then deciding to cut their losses, and not lose more in the future. Pretty standard for a bank. A lot of investment banks write off larger amounts on a regular basis. OK, their attempts to raise additional funds so soon after might have triggered some alarm bells, but it still seems crazy that a solvent bank can collapse so suddenly.
From where did the rumours that started the run originate? Perhaps a bit of extra scrutiny is needed on whichever competitors come in and try to buy up the bank on the cheap. It's not Paranoia, when they really are out to get you... ;)
It was forced to realize losses on bad bets on interest rates due to capital reserve requirements, that would not be an issue if held to maturity. As part of a larger bank with reserves, they will just hold those treasuries until they mature.
SVB has a unique skill set in catering to startups, some of which will be future unicorns or FANGs. Traditional banks are just too hidebound to address the]at market, and it is incredibly valuable. The problems did not come from the retail side. That retail expertise combined with a more diversified entity and competent risk management means whoever buys them will make a killing.
"That means the run on it was frankly for nothing and the bank was solvent, no?"
Not exactly. Solvent means you can pay your debts as and when they fall due. "I've got a £1000 cheque in the post" doesn't mean you're solvent if you have to pay out £50 today.
SVB seems to mostly have had a cashflow problem rather than a net asset problem - but tbf that's kind of a big deal when you're a bank.
The narrative that the only cause being interest rates is probably not true. As a bank valued at less than 250 billion, they are allowed to, and did according Bloomberg, gamble on hedge funds such as Sequoia Capital, whose value has declined about 25% since last year. The lack of transparency in their narrative, and the extent to which is lapped up and projected, is a stark warning of worse to come.
"...That’s in stark contrast to 2008, when the US government poured billions into failed banks"
Just as an aside, the taxpayer certainly bore a risk of loss in 2008, but the federal government ended up making a USD 15 billion profit. Although that might or.might not have been wiped out by inflation, it's not like taxpayers ended up paying out tons of money to save fat cats...in that instance.
https://en.m.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008
Which is ridicoulously low. If you want more than that you need commercial insurance (which doubtless will go up now). ALso any insurance companies on the line to cover other accounts will probably start selling stocks and bonds to cover the expense.
Other limitations may apply.
I think it wouldn't be a terrible idea for the FDIC to offer insurance for deposits exceeding $250K at a set rate per dollar, and require banks to make that available to depositors who have to affirmatively state whether they do or do not want such insurance.
Then make it known that next time they will allow the chips to fall where they may. Since the FDIC is effectively covering everything right now depositors are getting this extra insurance for free, but if they had some tiny fraction of a percent charge (which would in reality just lower the interest rate being paid on your deposits over $250K) at least the people benefiting from the insurance would have been paying a bit for the privilege.
Also, holding the companies involved to account for managing (or mismanaging) their own risk.
While it may be convenient look at a huge balance in one bank, the officers of the companies can and should have spread that money and the associated risk around to multiple banks. At least enough to float minimum operations and payroll till a bigger fish can sort things out.
That said, for any of you that are reading this that DIDN'T, don't all rush to the door at once. Open some new accounts and start shifting it in increments so you don't put gas on the fire and fuel another bank run.
The FDIC is not funded by the government. The Federal reserve is not owned by the government.
The government just sets the laws and regulations. And some of those regulations that trump so proudly had watered down may have prevented this fiasco. The recent train derailment can also be blamed in part on his push at eliminating regulations.
There seems to be no end to trumps failures.
And some of those regulations that trump so proudly had watered down may have prevented this fiasco
There is no "may" about it. One of the changes was to raise the threshold of where a bank is required to undergo "stress tests" from $50 billion to $250 billion in assets. SVB had $200 billion in assets, and was of the banks lobbying for this change in 2018 as at the time they were pushing up against the then $50 billion limit. One of the stress tests that is done is "what if interest rates rapidly rise". 100% certainty that particular stress test would have caught this several years ago when SVB started investing in long bonds, preventing them from going too far with that strategy well before interest rates started to spike in the past year!
To be fair though this 2018 rollback of Dodd-Frank is was not just Trump and republican doing. There were plenty of democrats who went along with it. The banking industry are equal opportunity bribers, and if sanity prevails and the 2018 changes are rolled back I have little doubt that a decade from now it will get undone again because the banking lobbyists are good at convincing lawmakers that 1) "things are different" now than they were when this happened last time and 2) someday you'll lose your seat and may be wanting a cushy banking job.
You wanna know how bad it is? Barney Frank, the "Frank" in Dodd-Frank is a director at a third bank that was shut down by regulators on Sunday! If banking industry lobbyists are able to make a traitor of one of the main sponsors of the law that reined them in after 2008, no one should be under any illusion that this issue can ever be permanently fixed until real campaign finance reforms are passed.
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