https://www.nytimes.com/2023/03/10/business/silicon-valley-bank-stock.html (https://www.nytimes.com/2023/03/10/business/silicon-valley-bank-stock.html)
$175 billion in customer deposits. Authorities quick to reassure public this is an isolated problem.
I am sure this has absolutely nothing to do with mass layoffs in the tech sector.
That bank was highly specialized which is high risk in banking. Catering specifically to the tech sector should have been a red flag to the tech sector not to trust them so much, but I guess that's why they're in tech and not finance.
This is an interesting situation.
This is an except that I sent to an associate.
SVB had a $1.8 billion unrealized loss on the LT federal treasures as of its last filings (AA Rated securities issued by the .GOV).
If SVB sold these securities to raise cash it would have recognized the loss on the securities neccesatating further sales to raise liquid capital and recognize even more losses. So it held off doing so hoping things would get better.
Then major depositors wisely realized that their deposits over $250k were at risk and pulled out their cash. This clearly devastated their ready cash position.
The rest is my supposition based upon the fact no bank stepped up to buy SVB. A private firm would still have to deal with $1,8 billion of US treasuries.
The FDIC comes in and takes over the assets and to the US .GOV all of those US LT treasuries with a $1.8 billion loss are actually not a $1.8 billion loss but rather a means to buy back their debt at a discount.
So they credit the discount back to the depositors close the bank and the FDIC fund covers the difference. The FDIC either takes the treasuries and holds them to maturity or more than likely gives them back to the FED.
BTW this is a list of banks with similar issues.
https://www.marketwatch.com/story/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb-c4bbcafa?siteid=yhoof2 (https://www.marketwatch.com/story/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb-c4bbcafa?siteid=yhoof2)
Two points to take away:
1.The FDIC limit should be observed at ALL TIMES. No exceptions. If you have funds in excess of the FDIC limit buy short term Us Treasuries to provide coverage. These can be liquidated at $1,000 increments as needed.
2.A good Treasury Manager can save you millions.
A third bit of opinion:
A lot of the uncovered deposits (250 K+) at SVB were routine items like covering AP & Payroll. Which is almost impossible to avoid. That said the FDIC almost always closes banks on Friday @ 4pm (note that Signature bank was an exception). If the EFT date for these transfers occurs on a Monday or Tuesday you are less likely to have uncovered funds in an account.
One final irony:
This is what is referred to being as being hoist by your own petard:
The second bank (signature Bank) closed had Barney Frank (the Frank in the Dodd-Frank Act) who as a board member of signature bank was raising hell over its closure.(note this link refers to politics).
The fact that an institution Frank himself oversaw blew up may trigger schadenfreude among his enemies.
https://finance.yahoo.com/news/signature-bank-collapse-us-reformer-133242867.html (https://finance.yahoo.com/news/signature-bank-collapse-us-reformer-133242867.html)
BTW normally my reaction to this would be the only ones at risk are those who routinely have over $250k in an FDIC insured bank account.
That sounds like a lot but that includes company payrolls which typically are paid Friday and routine accounts payable vendor invoices. It also includes mortgage company accounts that routine have millions of USD in them daily for home purchases and sales. The funds sit for 24 to 48 hours while the closing documents go through. It is very easy to have amounts in excess of the FDIC limits for short period of time.
However there are 2 unusual things.
1. SVB was closed at noon on Friday. Normally the FDIC shows up at 3:30pm to 4pm on Friday. They clearly wanted to stop any cash outflows. (BTW runs on banks do not involve people standing line at the teller. Bank runs now days involve folks wire transferring funs out. Once you have a fedfunds # the finds are gone from the bank.)
2. Signature Bank was closed on Sunday. As far as I can tell this has not happened since 1929. I may be wrong about that date but it is really odd. I suspect that Mr Frank had something to do with the weird timing of this. That or once the FDIC folks started doing analysis they saw something at SVB that changed the picture substantially for Signature.
Also in both cases the state banking regulators shut down the bank and handed the matter over to the FDIC.
Quote from: Raptor on March 13, 2023, 12:58:12 PMhttps://www.marketwatch.com/story/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb-c4bbcafa?siteid=yhoof2 (https://www.marketwatch.com/story/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb-c4bbcafa?siteid=yhoof2)
Paid subscription to read. :rolleyes1:
Things aren't looking great 3 banks in a week first Silvergate, SVB, and then Signature. Should be interesting few weeks to see what happens.
I've been following closely but a lot of what I've read/heard/watched I'm not familiar with its out of my breadth of knowledge
Quote from: MacWa77ace on March 13, 2023, 01:28:56 PMQuote from: Raptor on March 13, 2023, 12:58:12 PMhttps://www.marketwatch.com/story/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb-c4bbcafa?siteid=yhoof2 (https://www.marketwatch.com/story/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb-c4bbcafa?siteid=yhoof2)
Paid subscription to read. :rolleyes1:
Sorry about that. Attached are the top 10 banks.
https://www.morningstar.com/news/marketwatch/20230313167/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb
Quote from: Halfapint on March 13, 2023, 01:34:43 PMThings aren't looking great 3 banks in a week first Silvergate, SVB, and then Signature. Should be interesting few weeks to see what happens.
All start with "S" but each is very different. I would actually argue that Silvergate is not a bank that it self liquidated. The FDIC did not close it. It was one of several hybrid/bridge "banks" set up to serve as a clearing house for institutional cypto currency conversion to fiat money.
In many ways these "banks" are needed but if you think about ii crypto is everything it claims to be this type of function should not be needed.
https://ir.silvergate.com/news/news-details/2023/Silvergate-Capital-Corporation-Announces-Intent-to-Wind-Down-Operations-and-Voluntarily-Liquidate-Silvergate-Bank/default.aspx