Silicon Valley Bank, Serving 1/2 of Tech and other Startups Failed Friday. HSBC Buys UK Solvent Subsidary, FDIC, Fed and Treasury Back Deposits

[Uttamattamakin]

Summary

UPDATED INFORMATION BELOW regarding SVB and BREAKING other banks related to CRYPTOCURRENCY now in trouble.  SVB was not heavy into CRYPTO but other banks were and had overlapping business with SVB's customers and such. 

This is big.  This is the failure of a bank which had 209 Billion dollars in assets as of December 31.  This bank served the Silicon Valley venture capital community.  The FDIC has stepped in to take over.  The thing is the Federal Deposit Insurance Corporation (a public-private entity here in the United States of America) only insures deposits up to a certain amount.  Currently $250,000 "per depositor, per insured bank.  With separate 250,000 limits for different categories of ownership at a bank.    All deposits in the same category count towards the 250,000.  So say you have two checking accounts with over 250k in them.  The FDIC takes over.  You'll get back at least 250K money over that in your checking accounts is not covered.  However, if one has 250k in checking and 250k in a savings account or Certificate of Deposit CD they'll get back their 250 that is in each account.  

Clearly if the bank that serves a lot of Silicon Valley venture capitalist is in difficulty that will have consequences for all sorts of tech startups.  It would be interesting to know which startups did / do their banking there.  Which companies that are not startups are also connected to that bank.  That I am going to look into. 

 

Quotes

Per the New York Times

Quote

 

Silicon Valley Bank, a lender to some of the biggest names in the technology world, did just that on Friday, becoming the largest bank to fail since the 2008 financial crisis. The move put nearly $175 billion in customer deposits, including money from some of the biggest names in the technology world, under the control of the Federal Deposit Insurance Corporation.

 

It was an extraordinary denouement less than two days after the bank shocked Wall Street and its depositors with emergency moves to raise cash and stave off a collapse in the face of withdrawal requests and a precipitous decline in the value of its investment holdings. The bank as of Friday morning was working with advisers on a potential sale, a person with knowledge of the negotiations said, and had halted trading in its shares in the wake of a rapid fall.

 

The F.D.I.C. created a new bank, the National Bank of Santa Clara, to hold the deposits and other assets of the failed one. The regulator said in a news release that the new entity would be operating by Monday and that checks issued by the old bank would continue to clear.

 

 

Per The Wall Street Journal. 

Quote

The bank is the 16th largest in the U.S., with some $209 billion in assets as of Dec. 31, according to the Federal Reserve. It is by far the biggest bank to fail since the near collapse of the financial system in 2008, second only to the crisis-era shutdown of Washington Mutual Inc. 

 

The bank’s parent company, SVB Financial Group, was racing to find a buyer after scrapping a planned $2.25 billion share sale Friday morning. Regulators weren’t willing to wait. The California Department of Financial Protection and Innovation closed the bank Friday within hours and put it under the control of the FDIC.

 

SVB, based in Santa Clara, Calif., earlier this week surprised investors by announcing that it lost nearly $2 billion selling assets following a larger-than-expected decline in deposits. The stock has lost more than 80% since then, and tech clients rushed to pull their deposits over concerns about the bank’s health.

Performance this weekSource: FactSetAs of March 10, 2 p.m. E

asdf

 

This has effected the stock value of other banks too.  Per WSJ

Quote

The bank’s troubles have dragged down the entire industry. The four largest U.S. banks lost some $52 billion in market value Thursday, and a broader index of bank stocks had its worst day in nearly three years. Bank stocks continue to plunge Friday morning, with a number halted for volatility.

 

From the FDIC

Quote

WHEN A BANK FAILS

A bank failure is the closing of a bank by a federal or state banking regulatory agency, generally resulting from a bank's inability to meet its obligations to depositors and others. In the unlikely event of a bank failure, the FDIC acts quickly to ensure depositors get prompt access to their insured deposits.

FDIC deposit insurance covers the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing.

The FDIC acts in two capacities following a bank failure:

1. As the "Insurer" of the bank's deposits, the FDIC pays deposit insurance to the depositors up to the insurance limit.
2. As the "Receiver" of the failed bank, the FDIC assumes the task of collecting and selling the assets of the failed bank and settling its debts, including claims for deposits in excess of the insured limit.

The FDIC has an official statement. 

 

Quote

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.

 

CNBC also on the topic. 

 

More from CNBC on this. 

According to the above video this was not just some little starups that are serviced by this bank.  Apparently a lot of big tech as well. Even more context on this.   Most of their deposits are over the FDIC limit. 

 

 

As you can see these are LARGE sums of money buy LARGE banks and institutional investors.     

No misread this chart... Look at the lower right of the chart and you see SVB.  SVB has a very VERY low percentage of depositors (and hence a similar total of money deposited) FDIC insured). I am still looking to see if there is a list of which starups and which big tech companies had money there. 

 

Another good video from CNBC about this.    Go to CNBC for more. 

 

Per Reuters

 

Per NY Post

Quote

Building managers at Silicon Valley Bank’s Manhattan branch reportedly called the police Friday morning after a group of tech founders showed up and attempted to pull out their cash.

 

Police responded after a group of “about a dozen founders” went to SVB’s Manhattan location on Park Avenue, journalist Eric Newcomer said in a Substack post. One of the founders was former Lyft executive Dor Levi, who provided Newcomer with text updates from the scene.

 

The incident was the latest indication of growing panic among investors linked to the tech lender, which warned of a cash crunch this week that sparked a run on the bank.

 

It has now been reported that the Federal Reserave bank has scheduled an emergency meeting for Monday.   

 

Quote

Closed Board Meeting on March 13, 2023   Government in the Sunshine Meeting Notice

Advanced Notice of a Meeting under Expedited Procedures

It is anticipated that the closed meeting of the Board of Governors of the Federal Reserve System at 11:30 a.m. on Monday, March 13, 2023, will be held under expedited procedures, as set forth in section 261b.7 of the Board's Rules Regarding Public Observation of Meetings, at the Board’s offices at 20th and C Streets, N.W., Washington, D.C. and by audio/video conference call. The following items of official Board business are tentatively scheduled to be considered at that meeting.

Matter(s) to be Considered:

Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.

Meeting Date: Monday, March 13, 2023

The best source on what SVB does is SVB.  See a post below though for an important example of why to not take a entity's claims at face value. 

 

A good short breakdown from Bloomberg.

 

Here is a report from ABC seven.  They talk to some of the small holders of SVB.  It seems while mainly they did business with larger operations some single person operations also banked there.  

 

 

Also happening Silvergate bank, which served the Crypto sector collapsed. 

https://www.coindesk.com/tech/2023/03/10/how-silvergates-crypto-collapse-differed-from-silicon-valley-banks-no-us-government-bailout/ 

Quote

For all the angst this week about how troubles in the crypto industry are fueling a banking crisis, the reality, so far, is actually something else: Of the two banks that went under this week, the one squarely focused on crypto – Silvergate Capital's (SI) Silvergate Bank – escaped the black mark of federal assistance.

 

It was Silicon Valley Bank (SVB), which has a weaker tie to digital assets, whose rapid collapse required Federal Deposit Insurance Corp. (FDIC) receivership.

Similarities have been drawn between the collapses of the two California-based banks – namely that both were hit by a flood of withdrawals, forcing executives to liquidate securities held as reserves. Those multibillion-dollar sales forced the banks to take big write-downs because the values of the portfolios had been eroded by rising interest rates over the past year. (When rates rise – and they have massively, with the Federal Reserve hikes – bond prices usually drop.)

 

UPDATES

 

The FDIC, US Treasury, and Federal Reserve has brokered a deal that will save at least the depositors at Silicon Valley Bank.  Per CNBC
 

Quote

 

A joint statement also said there would be no bailouts and no taxpayer costs associated with any of the new plans.

“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” said a joint statement from Fed Chair Jerome Powell, Treasury Secretary Janet Yellen and FDIC Chair Martin Gruenberg.

 

The Fed facility will offer loans of up to one year to banks, saving associations, credit unions and other institutions. Those taking advantage of the facility will be asked to pledge high-quality collateral such as Treasurys, agency debt and mortgage-backed securities.

 

“This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy,” the Fed said in a statement. “The Federal Reserve is prepared to address any liquidity pressures that may arise.”

 

The Treasury Department is providing up to $25 billion from its Exchange Stabilization Fund as a backstop for the funding program.

 

Along with the facility, the Fed said it will ease conditions at its discount window, which will use the same conditions as the BTFP.

The news came after Treasury Secretary Janet Yellen said Sunday morning that there would be no SVB bailout.

 

 

The UK subsidiary of SVB is up for sale as a separate unit.  It was financially solvent to have value.  Per Reuters

Quote

March 12 (Reuters) - Bank of London has tabled an offer to Silicon Valley Bank UK, SVB's subsidiary, the company said on Sunday, adding that it had sent the proposals to British authorities, including the Treasury and the Bank of England.

Bank of London, a clearing bank, is leading a consortium of investors including private equity funds, which has submitted what it described as formal proposals.

"Silicon Valley Bank cannot be allowed to fail given the vital community it serves," Bank of London co-founder and CEO Anthony Watson said in a statement.

 

 

 

My thoughts

 

Not "mine" but breaking points has a good video breakdown on this.  

Watch the markets. 

On one hand the Dow is down today. 

On the other hand it has been lower and is on a Downward trend for quite a while. 

   

Final markets closed for the day ... 

 

Then there is the fact that this has been the first major, top 20, bank failure since the 2008 financial meltdown.   Don't panic but if you have money in the market take a look at your positions, talk to your broker or financial advisor. 

I have more solid thoughts on this issue now.  Bank related stocks are down, the Federal reserve is thinking of taking action to rescue this sector.  The Federal Reserve  like the FDIC is a public private entity.  They can raise or lower interest rates and interest rates have been at rock bottom for a while.  The fed has been trying to raise rates to put the brakes on inflation for a while.  They may lower rates or state that rates will not go any higher.  They may try to get a cash bailout for all investors and depositors at SVB.   

The real impacts of this will be, in my opinion on if this bank is unable to pay out paychecks.  This is not the kind of bank (many if any) normal people would just bank at.  This is the bank that a company would hold their payrolls at and at which VC's would keep their money.  Their value would be the relationships they have with VC's, at silicon valley area colleges and universities where founders get educated, and with others in the tech space.   In the wider sense there could be a fear that it presages instability in similar banks that deal in venture capital.  These banks are ones which investment banks invest in so as to get a piece of the tech space. 

Again don't panic.  If you are not in the tech sector and you know your own paycheck wasn't coming from SVB you are fine.  If you are an investor in mutual funds and such you are fine.  Contact your own financial advisors if you have them.  IF you are just a tech worker, in the silicon valley area I would consider calling or writing to HR or payroll and asking them what's up .
 

The rest of us are at most indirectly exposed to this in the following ways. 

• This bank served venture capital both via investment and lines of credit.  So think of the kinds of operations that are on indiegogo or other such places seeking funding to make something new and innovative.  Some names we know others we don't. They won't be able to operate for a time some will cease to operate forever. 
• Tech products that would've been released will not be.  Some of these are small, some of these are large.  Some of the deposits there and some of the investments in SVB were big tech.  So large companies will have some challenges.    
• I can say more but to do so to really really discuss the implications of this, POTENTIALLY, mean digging into the realpolitik of the situation.  It just does.  I'd want feedback from a moderator before I do. 

 

On the culture war brain cancer.

I have refrained from saying much on this aspect of the issue and am seeking Explicit moderator approval to speak on it any more than this.  Let me say at least this much.  If you know anything of the UK subsidiary you know of the LGBT Brown young woman who while managing risk for them also lead a LGBT resource group.  She lead a legally separate entity that shared investors.   Certain toxic commentators in the US tried to blame this person and odds are she has just been instrumental in saving the global financial system.  Money talks and that there is a bidding war to get the assets she helped mange speaks volumes.  I can't see how she wasn't some part of the negotiations regarding the UK part of SVB. 

Now as to Greg Becker.  It turns out he was very connected to the San Francisco Branch of the Federal Reserve Bank and was on the board of it.  He was removed/stepped down.  I am thinking he as he said in the video above he did act in the interest of his employees, his depositors, and if possible perhaps his investors.  Sometimes when heck breaks loose there isn't a devil to blame.  Lets hope on monday this all works out.  If not Congress would need to act... then it really gets crazy political for real. 

NOT FINANCIAL ADVICE if you have to watch one thing watch the Dow Jones Futures to get an idea of how US markets are acting, and look at how markets in Europe and Asia react since their markets open and in some cases close before ours.   Seek counsel and advice from people you know who are financially trained and who owe you a fiduciary responsibility to act in your interest.   

 

Sources

https://www.nytimes.com/2023/03/10/business/silicon-valley-bank-stock.html

 

https://www.fdic.gov/news/press-releases/2023/pr23016.html

 

https://www.wsj.com/articles/svb-financial-pulls-capital-raise-explores-alternatives-including-possible-sale-sources-say-11de7522

https://nypost.com/2023/03/10/nypd-called-to-silicon-valley-bank-branch-as-depositors-attempt-to-pull-cash-report/?utm_source=url_sitebuttons&utm_medium=site buttons&utm_campaign=site buttons 
https://www.federalreserve.gov/aboutthefed/boardmeetings/20230313closed.htm

https://www.federalreserve.gov/newsevents/pressreleases/orders20210610a.htm

https://www.fdic.gov/news/press-releases/2023/pr23016.html

https://www.coindesk.com/tech/2023/03/10/how-silvergates-crypto-collapse-differed-from-silicon-valley-banks-no-us-government-bailout/

https://www.cnn.com/2023/03/12/politics/janet-yellen-bailout-silicon-valley-bank-cnntv/index.html

https://www.cnbc.com/2023/03/12/regulators-unveil-plan-to-stem-damage-from-svb-collapse.html

https://www.reuters.com/business/finance/bank-london-submits-proposal-svbs-uk-arm-2023-03-12/

 

[Uttamattamakin]

I want to be sure no onee thinks this is the official news.  This is not financial advice.  This is just me trying to be funny before I go to my brokerage account and think over my positions. 
 

Here is a funny observation from Twitter. 
 

 

 

[Brooksie359]

Not going to lie I am not a huge fan of banks. I am wondering what horrible business practices they are doing to have the bank go bust because some of their holdings went down in value. I mean I can't really think of a bank that has gone bust that wasn't the result of pure stupidity somewhere down the line. I mean in 2008 it was due to giving loans to people who clearly couldn't afford it and then being surprised when they couldn't make payments. 

[Uttamattamakin]

11 minutes ago, Brooksie359 said:

Not going to lie I am not a huge fan of banks. I am wondering what horrible business practices they are doing to have the bank go bust because some of their holdings went down in value. I mean I can't really think of a bank that has gone bust that wasn't the result of pure stupidity somewhere down the line. I mean in 2008 it was due to giving loans to people who clearly couldn't afford it and then being surprised when they couldn't make payments. 

It was more than that.  They sold people adjustable rate mortgages in the decade before that.  They did it while rates were low.  Those people could've switched to a lower rate when the switching was good.  However, they didn't want to since their rate was low as it was.  Lots of people won't act on a situation until it is a crisis.   They could afford their low initial rate, but when the fed raised rates the mortgage banks raised rates much more.  

In this case I think ... just Talking out of my @$$ but tech companies are risky.  Their assets are all digital (or nearly so).  Their asses are only worth what people think of them.  If these assets are marked down then they can become worth nothing very quickly.  I'd really wonder if SVB was invested heavily in crypto OR do they hold the deposits of companies that are.  You know.... won't toss out any names without information.  I really am wondering whose deposits, whos corporate accounts are at that bank.  You know. 

This is also a thing

 

 

[Uttamattamakin]

Mario Nawfal is hosting a Twitter space about this.  His spaces tend to accumulate people who are known and know what they are talking about. 

https://twitter.com/i/spaces/1lPKqBybDqmGb?s=20

 

[Brooksie359]

32 minutes ago, Uttamattamakin said:

It was more than that.  They sold people adjustable rate mortgages in the decade before that.  They did it while rates were low.  Those people could've switched to a lower rate when the switching was good.  However, they didn't want to since their rate was low as it was.  Lots of people won't act on a situation until it is a crisis.   They could afford their low initial rate, but when the fed raised rates the mortgage banks raised rates much more.  

In this case I think ... just Talking out of my @$$ but tech companies are risky.  Their assets are all digital (or nearly so).  Their asses are only worth what people think of them.  If these assets are marked down then they can become worth nothing very quickly.  I'd really wonder if SVB was invested heavily in crypto OR do they hold the deposits of companies that are.  You know.... won't toss out any names without information.  I really am wondering whose deposits, whos corporate accounts are at that bank.  You know. 

This is also a thing

 

 

But isn't that sorta the point? They invested into something super volatile and went bust. If you are a bank you shouldn't be taking others peoples money and gamble it on tech companies. I mean they should stick to giving out loans and investing in safe investments. If you are a bank and you are taking money and putting it into something that can result in the bank going bust then you should be arrested tbh. It should be against the law so that we can prevent banks from doing stupid stuff with other people's money. 

[Dominik W]

To add on, I read somewhere that it was both the FDIC and the California Department of Financial Protection and Innovation.

 

This is my opnion:

 

This is somewhat major news. Is the whole economy going flat? No, in fact the jobs report for February here in the US came out today with better-than-expected results. However, the economy isn't healthy in any way, and the layoffs from tech companies have been indicative of that. From my brief glance and just some shot in the dark, I'd say tech companies are more riskier, and are more prone to market movements, and if you are a bank that is heavily invested in tech, you will also feel those pains, to the point where you have a $21 billion asset sell-off and announce a $1 billion fundraising round right before the authorities take over and shut you down. 

 

I am just a regular person on the internet, so don't take this as some sort of sound insight. I will keep my eye out for this; I am very curious as to how this all plays out.

Edited March 10, 2023 by Dominik W
Grammar

[Uttamattamakin]

21 minutes ago, Dominik W said:

To add on, I read somewhere that it was both the FDIC and the California Department of Financial Protection and Innovation.

 

This is my opnion:

 

This is somewhat major news. Is the whole economy going flat? No, in fact the jobs report for February here in the US came out today with better-than-expected results. However, the economy isn't healthy in any way, and the layoffs from tech companies have been indicative of that. From my brief glance and just some shot in the dark, I'd say tech companies are more riskier, and are more prone to market movements, and if you are a bank that is heavily invested in tech, you will also feel those pains, to the point where you have a $21 billion asset sell-off and announce a $1 billion fundraising round right before the authorities take over and shut you down. 

 

I am just a regular person on the internet, so don't take this as some sort of sound insight. I will keep my eye out for this; I am very curious as to how this all plays out.

This is going to effect the tech sector big time.    Listening to Mario Nawfals Twitter space, an econ professor whos name escapes me,  they say that the payroll issues this is going to cause could lead to sudden mass layoffs by Monday at the latest.  

I mean they won't be able to pay people so what's having a job if you aren't being paid?  At least being totally unemployed they can get unemployment. 

I also want to share one thing which really brings home to me WHY I am so adamant that we need reliable THIRD PARTY sources and that anyone who treats corporate press releases as "authoritative" above the press to consider the following.  This is a screen shot from SVB's website right now. 

 

 

 

As you can see right now if one relied on SVB's information as authoritative they would just think SVB was the bestest most stablest bank ever.  Not a PEEP of anything being wrong at all.  According to them there is no war in Ba Sing Se. 
 

 

[Brooksie359]

39 minutes ago, Dominik W said:

To add on, I read somewhere that it was both the FDIC and the California Department of Financial Protection and Innovation.

 

This is my opnion:

 

This is somewhat major news. Is the whole economy going flat? No, in fact the jobs report for February here in the US came out today with better-than-expected results. However, the economy isn't healthy in any way, and the layoffs from tech companies have been indicative of that. From my brief glance and just some shot in the dark, I'd say tech companies are more riskier, and are more prone to market movements, and if you are a bank that is heavily invested in tech, you will also feel those pains, to the point where you have a $21 billion asset sell-off and announce a $1 billion fundraising round right before the authorities take over and shut you down. 

 

I am just a regular person on the internet, so don't take this as some sort of sound insight. I will keep my eye out for this; I am very curious as to how this all plays out.

Tech companies downsizing is just the result of them not realizing their crazy growth during covid was only temporary. People stuck inside used tech and social media way more and tech companies hired a bunch of people in response to that increase and even preemptively hired more based on projections of continous growth. Turns out once lockdown was over people went outside more and used tech and social media less so companies had to layoff people they no longer needed. Actually most tech companies still have more employees now than pre covid so it's not like the tech companies have seen 0 growth. 

[Uttamattamakin]

Just now, Brooksie359 said:

Tech companies downsizing is just the result of them not realizing their crazy growth during covid was only temporary. People stuck inside used tech and social media ......

Not really.  In this case this is the bank failing even if your company was fine.  

Suppose a company like @LinusTech was located in Santa Clarita.  Doing fine covering tech.  Doing all their business right.  Then WHAMO the bank goes out of business.  A lot of the places effected are going to be not unlike LTT.  Not media companies (some might be) think a hardware company about the same size.  Think about this from the CEO of YCombinator. 
 

 This kind of comment is why to really discuss this I'd want some feedback from a mod.  Lets really talk turkey.  To a lot of middle America Silicon Valley is the devil.   Maybe something that they might want to talk about on the Wan show?  Which is sad since as the above tweet shows the main and most immediate victims of this will just be workers who are a lot like people we watch on YouTube who did their work and now they won't get paid. 

[Brooksie359]

2 minutes ago, Uttamattamakin said:

Not really.  In this case this is the bank failing even if your company was fine.  

Suppose a company like @LinusTech was located in Santa Clarita.  Doing fine covering tech.  Doing all their business right.  Then WHAMO the bank goes out of business.  A lot of the places effected are going to be not unlike LTT.  Not media companies (some might be) think a hardware company about the same size.  Think about this from the CEO of YCombinator. 
 

 This kind of comment is why to really discuss this I'd want some feedback from a mod.  Lets really talk turkey.  To a lot of middle America Silicon Valley is the devil.   Maybe something that they might want to talk about on the Wan show?  Which is sad since as the above tweet shows the main and most immediate victims of this will just be workers who are a lot like people we watch on YouTube who did their work and now they won't get paid. 

I am talking about most of the big tech companies before this bank going bust. Obviously if the bank you have your money in goes under then yeah you are pretty screwed if you have more than 250k. 

[Monkey Dust]

39 minutes ago, Dominik W said:

To add on, I read somewhere that it was both the FDIC and the California Department of Financial Protection and Innovation.

 

This is my opnion:

 

This is somewhat major news. Is the whole economy going flat? No, in fact the jobs report for February here in the US came out today with better-than-expected results. However, the economy isn't healthy in any way, and the layoffs from tech companies have been indicative of that. From my brief glance and just some shot in the dark, I'd say tech companies are more riskier, and are more prone to market movements, and if you are a bank that is heavily invested in tech, you will also feel those pains, to the point where you have a $21 billion asset sell-off and announce a $1 billion fundraising round right before the authorities take over and shut you down. 

 

I am just a regular person on the internet, so don't take this as some sort of sound insight. I will keep my eye out for this; I am very curious as to how this all plays out.

A buoyant jobs market and tech lay-offs are weirdly linked.

 

Tech companies took on more staff than they needed because they could, in case they needed them later. Interest rates were 0-0.5%, even negative in some places such as Japan and the eurozone, so leaving money in the bank was a bad idea. Investors chasing returns threw money at tech (and property, but that's a separate discussion), be that established, safe, tech companies and the venture capital crowd chasing the tech companies who have never turned a profit. All this money had to go somewhere, and in businesses that aren't super capital intensive, it goes into staff.

 

A tight labour market is helping drive inflation, which in turn will keep interest rates high, at least relative to the sub-1% we've had over the past decade. This turns the pressure down on the money fountain that the tech companies have been enjoying, resulting in them having to shed staff. All because other sectors are having trouble filling their open roles.

[Uttamattamakin]

33 minutes ago, Brooksie359 said:

I am talking about most of the big tech companies before this bank going bust. Obviously if the bank you have your money in goes under then yeah you are pretty screwed if you have more than 250k. 

True.  The big tech companies the BIG ones will be slowed down a bit.  I doubt that say a Twitter or Facebook has much money in any one bank.  Some surprising ones may though.  The tweet about a payroll provider that used SVB to process transfers for payroll.  So it could be companies that used SVB as a middle man will be in a world of hurt.  

Roku had a lot of CASH they were doing fine.  Now. 

 

 

 

 

 I'm kinda wonder where does Framework keep their money?  What about Redhat?  What about Sun?  What about System 76?  What about ... name a small hip up and coming company and there is a chance they've got some exposure to SVB.  

 

@Brooksie359  Your instinct about this is really how a lot of America will see it.  For the last two years big tech has been the villain of history for half of America.  

 

Even if SVB it seems, also had a lot of small business type customers, who knows if some of these people are trying to cash their paper checks. there. 
 

 

 Images like this will not help.  I have heard of videos of theirs that show a lavish... "road show" they put on to entice investors as late as last week or early this week. 

 

 

 

[Uttamattamakin]

Roblox had 150 million dollars with SVB.  
 

This is the type of company to look at.  Not a small bank, not so small companies. 

 

[Blade of Grass]

4 hours ago, Brooksie359 said:

Not going to lie I am not a huge fan of banks. I am wondering what horrible business practices they are doing to have the bank go bust because some of their holdings went down in value. I mean I can't really think of a bank that has gone bust that wasn't the result of pure stupidity somewhere down the line. I mean in 2008 it was due to giving loans to people who clearly couldn't afford it and then being surprised when they couldn't make payments. 

its probably just pretty boring stuff, treasuries, mortgages, etc. Seems like their issue is largely stemming from a duration gap i.e. people want money now but it's locked up for X time period, and like all regional banks they've been suffering from deposit drawdowns over the last few months as people move money to higher interest rate products.

 

Again, pretty boring, banks go bust all the time https://www.ft.com/content/8e8084b6-a2b8-11e0-83fc-00144feabdc0

[Uttamattamakin]

13 minutes ago, Blade of Grass said:

its probably just pretty boring stuff, treasuries, mortgages, etc. Seems like their issue is largely stemming from a duration gap i.e. people want money now but it's locked up for X time period, and like all regional banks they've been suffering from deposit drawdowns over the last few months as people move money to higher interest rate products.

 

Again, pretty boring, banks go bust all the time https://www.ft.com/content/8e8084b6-a2b8-11e0-83fc-00144feabdc0

As I understand it's not just locked down for X time period.  The FDIC limit of 250 K is ... but the rest is ??????

 

The money beyond the limit it seems the FDIC will sell the banks assets and pay what it can.  Unless Congress bails them out. There is already talk about this.(Pleaese have mercy on me but the only drama free way out of this would be a bailout and that means Congress.  Just a fact of super relevant "politics".)

 

 

USD coin "stable coin" is effected.

 

[Uttamattamakin]

24 minutes ago, Blade of Grass said:

 

Again, pretty boring, banks go bust all the time https://www.ft.com/content/8e8084b6-a2b8-11e0-83fc-00144feabdc0

Not like this.  I'm not the only one who thinks so.

 

[Blade of Grass]

4 minutes ago, Uttamattamakin said:

As I understand it's not just locked down for X time period.  The FDIC limit of 250 K is ... but the rest is ??????

 

 

FDIC is a different thing, not even included here.

 

Think about it like this, you're a customer at a bank, you deposit $X dollars, the bank gives you a debit card, checks, supplies you a website, an app -- how do they pay for all of it? Well, the law says that they have to keep Y% as tier 1 capital, which is basically just cash, but then they are allowed to invest Z% to make money in safe assets (like US Treasuries).

 

Let's just call X 100, and Z 60%. 

 

So they do, they buy all $60 of 10yr treasuries that pay 1.5%, they give you 0.25% interest, and use the 1.25% left over to fund their business and pay for everything. 

 

Now 2 years later interest rates rise, and 8yr treasuries pay 5% -- how much money is that $60 of treasuries worth in the market today? Probably something like $40

 

But they're fine right? You don't need all your money today? But what if you do? 

 

Well, they only actually have $40 in cash, and the other $60 they owe is locked up in a treasury bill for 8 more years, its there, just 8 years away.

[Blade of Grass]

17 minutes ago, Uttamattamakin said:

The money beyond the limit it seems the FDIC will sell the banks assets and pay what it can.  Unless Congress bails them out. There is already talk about this.(Pleaese have mercy on me but the only drama free way out of this would be a bailout and that means Congress.  Just a fact of super relevant "politics".)

 

Generally when banks fail the FDIC just lines up another well capitalized bank to take over and assume all deposits. SVB was big but not big enough that JPM or BAC couldn't absorb them (not that they are going to/want to). 

[Uttamattamakin]

4 minutes ago, Blade of Grass said:

FDIC is a different thing, not even included here.

 

....

That's all true 199% but...they tried all that and it failed.  

 

 

The FDIC has ceased that bank.  The UK subsidiary of it even though a separate legal thing has been ceased.

 

I'm sure they have a good reason.

 

[Uttamattamakin]

2 minutes ago, Blade of Grass said:

Generally when banks fail the FDIC just lines up another well capitalized bank to take over and assume all deposits. SVB was big but not big enough that JPM or BAC couldn't absorb them (not that they are going to/want to). 

According to the sources they tried that.  Apparently the assets are so toxic no bigger bank that could afford them was interested.  They were one of the top 20 on the US.   16th

 

It's in the official sources  NYT WSJ and CNBC.  I am at dance class actually right now and I can't really do a lot of intensive research.  I really appreciate your insight.

[Immure]

Thanks for this thread, been hearing about this whole fiasco but I got a lot of good info from this.

[Uttamattamakin]

25 minutes ago, SydneySweeney said:

Thanks for this thread, been hearing about this whole fiasco but I got a lot of good info from this.

I truly want to say thank you for that.  If you have any exposure to anything that could be called an investment just talk to someone who advises you on finances a professional and look out for yourself.

 

The news about circle having some holdings with that bank tells me that even crypto might not be safe from this.

[Brooksie359]

1 hour ago, Blade of Grass said:

FDIC is a different thing, not even included here.

 

Think about it like this, you're a customer at a bank, you deposit $X dollars, the bank gives you a debit card, checks, supplies you a website, an app -- how do they pay for all of it? Well, the law says that they have to keep Y% as tier 1 capital, which is basically just cash, but then they are allowed to invest Z% to make money in safe assets (like US Treasuries).

 

Let's just call X 100, and Z 60%. 

 

So they do, they buy all $60 of 10yr treasuries that pay 1.5%, they give you 0.25% interest, and use the 1.25% left over to fund their business and pay for everything. 

 

Now 2 years later interest rates rise, and 8yr treasuries pay 5% -- how much money is that $60 of treasuries worth in the market today? Probably something like $40

 

But they're fine right? You don't need all your money today? But what if you do? 

 

Well, they only actually have $40 in cash, and the other $60 they owe is locked up in a treasury bill for 8 more years, its there, just 8 years away.

That doesn't make sense to me. Couldn't they just sell those bonds to other people to pay for the liquidity crunch? I mean theoretically if the assets are worth what they owe people it shouldn't be difficult to sell some things to get enough money for withdrawals as it's not like 100% of the people banking with them are withdrawing all their money. Also you would think the US treasury would allow them to borrow money against those assets if they really did have them or make some exceptions as that would seem way better than letting a bank go bust. Regardless I don't think it was as simple as the money being stuck in bonds. 

[Uttamattamakin]

36 minutes ago, Brooksie359 said:

That doesn't make sense to me. Couldn't they just sell those bonds to other people to pay for the liquidity crunch? I mean theoretically if the assets are worth what they owe people it shouldn't be difficult to sell some things to get enough money for withdrawals as it's not like 100% of the people banking with them are withdrawing all their money.

The issue seems to be their mortgage loans were no good.  Maybe people did not pay them.  They had residential mortgages (houses) and commercial mortgages(most of which were to apartment buildings).  So people were just not paying the rent or the mortgage. 

Here is my hypothesis.  Over the last several months Silicon valley companies have been laying people off.  Either those now former tech workers OR people who provided them goods and services then have less money.  This leads to either those now former tech workers OR those they paid for goods and services not being able to pay the mortgage or the rent. 

Delted a comment that was based on the assumption that the mortgages were the issue.  It might be that they weren't.  It's just easier to blame workers and rent payers than to blame the monyed interest. 

 

Here is a CNBC story that goes into detail.  Their story starts with SVB needing to raise 2.5 billion in capital.  The mortages going bad would be the cause of them needing that money.  

https://www.cnbc.com/2023/03/10/silicon-valley-bank-collapse-how-it-happened.html

 

Quote

• The company’s downward spiral began late Wednesday, when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet.
• “This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor of Restive Ventures, told CNBC.
• All told, customers withdrew a staggering $42 billion of deposits by the end of Thursday, according to a California regulatory filing.
• Now, those who remained with SVB face an uncertain timeline for retrieving their money.

......

The episode is the latest fallout from the Federal Reserve’s actions to stem inflation with its most aggressive rate hiking campaign in four decades. The ramifications could be far-reaching, with concerns that startups may be unable to pay employees in coming days, venture investors may struggle to raise funds, and an already-battered sector could face a deeper malaise.

 

Quote

 

The sudden need for fresh capital, coming on the heels of the collapse of crypto-focused Silvergate bank, sparked another wave of deposit withdrawals Thursday as VCs instructed their portfolio companies to move funds, according to people with knowledge of the matter. The concern: a bank run at SVB could pose an existential threat to startups who couldn’t tap their deposits.

Linus even speculated on Wan show that some of the companies LTT does business with may be exposed. So who knows if this wasn't caused by a lot of regular people not being able to pay their mortgages.... if they aren't getting their paycheck due to this they won't be able to pay those mortgages now.  The system is a big web of interdependence. 
 

 

36 minutes ago, Brooksie359 said:

Also you would think the US treasury would allow them to borrow money against those assets if they really did have them or make some exceptions as that would seem way better than letting a bank go bust. Regardless I don't think it was as simple as the money being stuck in bonds. 

The US treasury cannot just do that.  In any country the government has to authorize expenditures.  The money in the US treasury belongs to US tax payers and is controlled by our representatives in Congress.  

The Federal Reserve Bank on the other hand can do a lot of things.  They can raise or lower interest rates.  They can loan money to banks.  They can broker deals between banks.   The Emergency meeting of Federal Reserves board of governors scheduled for Monday will see some action on this. 

I know this is a super confusing and strange thing but the Federal Reserve bank is not the US treasury. Yet technically the money in the US is "lent" to the treasury by the fed.  The treasury then spends the money into existence and taxes it out of existence to pay back the fed. 

ANYONE feel free to correct me if I am wrong.  I am not a financial expert.  Quantum Field theory makes way more sense than this.