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

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The FDIC, US Treasury, and Federal Reserve bank of the US while they have no statutory authority to spend money they do have the ability to broker financial deals. Gregg Beker the CEO of that Bank was on the San Fransisco Fed board until Friday.  His knowledge of the people involved may have been relevant to this... just knowing how deals are really cut in the real world.  Now this comes out. 

 

 

Quote

Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC  

WASHINGTON, DC -- The following statement was released by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg:

Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.

After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13.  No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole.  As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. 

The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.

 

 

From CNBC

Quote

Banking regulators devised a plan Sunday to backstop depositors with money at Silicon Valley Bank, a critical step in stemming a feared panic over the collapsed tech-focused institution.

 

Regulators said depositors at both failed SVB and Signature Bank in New York, which also has been closed, will have full access to their deposits.

 

The Treasury Department said it approved of plans that would unwind both institutions “in a manner that fully protects all depositors.” Those with money at the bank will have full access starting Monday.

 

The Federal Reserve also said it is creating a new Bank Term Funding Program aimed at safeguarding institutions impacted by the market instability of the SVB failure.

 

A joint statement also said there would be no bailouts and no taxpayer costs associated with any of the new plans. Shareholders and some unsecured creditors won’t be protected.

 

“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.

 

SVB RELEASE


 

My additional thoughts on the apparent answer. 

 

I want to share one piece of information that sounded like it might just be corporate speak so I did not post it.  A video from the president of SVB  I like THIRD PARTY sources even less well known but still journalistic ones.   This is context for the answer to this situation.  A deal has been struck to cover the depositors at SVB and to sell whole SVB UK which did global business in Europe the Middle east and Africa.   Corporate press releases from a Bank... or Norton or Last Pass or NVIDIA or Intel are highly suspect sources not fountains of truth.   Same for this bank.  Their corporate press releases and even their Moodys credit rating were fine until they were junk. 

 

Yes he sold some stock two weeks ago and bonuses for 2022 work were paid out on Friday BUT those were pre planned.  I get it CEOs bad to a lot of people (but you like Linus 😕 ).  To hate him but love Roku or Etsy is like ... loving Nicola Tesla but cursing George Westinghouse without whose money Nicola Tesla would've done much less.   Becker and the managers  at that bank including the young lady in the news Jay Ersapha their UK risk manager seem to have done their jobs just fine.  The Senior Managers have been removed at SVB HQ in California but people like that they'll be fine.  I just hope that those who did do their job fine wont' be stained because of this bank run.  

We need banks that won't only invest in buggy whips and railroads. 

IF there was a problem it was that the US HQ of the company had no one doing Ersapah's job there.  They had no risk management officer for 9 months as the Fed raised rates that made their mortgage backed securities worth less.   To the extent hiring was an issue as some will say... it was the lack of hiring or promotion not too much of it. 

I must also note that as unlikely as it seemed and it took extraordinary action by three separate regulatory bodies that @Blade of Grass was right.  Between these people ... all people Becker apparently knows since he was on the Fed Board in SF... and just common sense prevailing a rescue deal was brokered.  Though I'd disagree that this was boring.   If our favorite tech companies don't get money they die.  

Watch the markets in Asia and Europe as they open hours earlier.  Watch the Dow Jones futures (Premarket Stock Trading Data: Dow, S&P, NASDAQ Futures (cnbc.com) )... and consult with a trusted financial advisor if you are concerned. 

Sources

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

 

https://news.sky.com/story/bank-of-london-submits-rescue-bid-for-uk-arm-of-silicon-valley-bank-12830933 

 

https://home.treasury.gov/news/press-releases/jy1337

Posted
On 3/11/2023 at 2:07 PM, wanderingfool2 said:

Anyways, yea what you said is pretty much correct.  It's the standard bank-run, pretty much any bank could be vulnerable to that.

Isn't there a limit on how much money you can take out? e.g. above X value, you can take only Y amount per week.

Because exchanging the money between the banks shouldn't have caused such issue, they could just transfer the backing assets/credit notes or whatever, and problem solved.

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Just now, Forbidden Wafer said:

Isn't that a limit on how much money you can take out? e.g. above X value, you can take only Y amount per week.

Because exchanging the money between the banks shouldn't have caused such issue, they could just transfer the backing assets/credit notes or whatever, and problem solved.

No, its your money you can withdraw it all whenever you want. and transferring from one bank to another there would be no asset trading, there are no asset to trade, the second bank isn't buying your account from the other bank. There is FDIC forms you have to fill out when its over 10k and you cant just withdraw it as cash without notice because of reserves on hand at any branch, but a bank can not hold on to your money any longer then you want them to. 

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28 minutes ago, starsmine said:

there was no toxic assets/bad investments here that would tank a bank,

If it wasnt investments then it was piss poor management. The fact is a bank doesnt just go bust at random. They were doing some stupid shit, like they did back in 1929 or like they did back in 2008. The fact is the fault is with management. 

 

29 minutes ago, starsmine said:

No profits were privatized, no debt was socialized in this case.

While that is the case here. How many times have we had to bail out companies or banks? It's ok to use socialism if it's for the rich or corporations, but when it comes down to canceling student loan debt, or raising minimum wage, or keeping social security solvent it's a problem. It's like if the poor as for a little socialism they get the lecture about the free market, but as soon as a corporation has issues, the free market is thrown out the window. Im happy this bank is going under, I hope this really hurts the shareholders because last I read, they likely will be the ones taking a hit. 

I just want to sit back and watch the world burn. 

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5 minutes ago, Forbidden Wafer said:

Isn't there a limit on how much money you can take out?

If the transaction is over $10K I think you have to file paper work with the government. You might not be able to walk in and get cash depending on how much it is. I recall withdrawing $6K for buying a used car once and the bank teller had to check to see if they even had that much cash at the branch. Banks dont necessarily carry lots of cash now days. In that case they have to put a cash order in with the Federal Reserve, so it could take a couple of days to get your money. Now if you do let's say a certified check from the bank, thats probably more instant, as they dont have to produce physical cash. 

I just want to sit back and watch the world burn. 

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12 minutes ago, starsmine said:

No, its your money you can withdraw it all whenever you want. and transferring from one bank to another there would be no asset trading, there are no asset to trade, the second bank isn't buying your account from the other bank. There is FDIC forms you have to fill out when its over 10k and you cant just withdraw it as cash without notice because of reserves on hand at any branch, but a bank can not hold on to your money any longer then you want them to. 

Interesting. That is not how it works over here. Exchanging any amounts between banks is fine (they exchange credit notes and the central bank does its magic), but getting cash is limited to a few thousand BRL/day, unless you request a few days in advance (1 day for >5k, 3 days for >50k).

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16 minutes ago, Donut417 said:

If it wasnt investments then it was piss poor management. The fact is a bank doesnt just go bust at random. They were doing some stupid shit, like they did back in 1929 or like they did back in 2008. The fact is the fault is with management. 

Dude it was a bank run. literally zero banks can handle a bank run of this magnitude. It has nothing to do with management. You are right a bank doesnt go bust, and neither did SVB. They went insolvent. They could not liquidate their assets to pay for the withdrawals. A mortgage or a loan is an asset for a bank, they take your money and they loan it to your neighbor for a car loan, they give your other neighbor a mortgage to buy a house. They buy bonds with it so it can make money, this is how you get interest on your savings account. the bank is paying you to use your money to do these loans and bond purchases. When someone wants to withdraw all their money a bank has a reserve on hand (10% required by law) to give you what they owe you. the money is yours. But when a bunch of VC at the behest of Theil all pull out. YOU CANT LIQUIDATE a mortgage. you can not go to the guy who bought a car with a loan and say pay up. you cant go to a linus type who got a couple million dollar mortgage for lab 2 and say, you owe everything now or we take the ware house. and even if you did, you still need to find a fucking buyer. 

You can find people who will buy your bonds or mortgage back securities for pennies on the dollar and they will make out like a bandit, but now you have just made the bank lose money to the point where they can not back the people who banked with them. aka, insolvent. SVB still has the assets when FDIC took over, so now FDIC has the assets, the couple of billion that SVB lost fire selling before being taken over can and will be covered by investors eating crow. 

 

16 minutes ago, Donut417 said:

While that is the case here. How many times have we had to bail out companies or banks? It's ok to use socialism if it's for the rich or corporations, but when it comes down to canceling student loan debt, or raising minimum wage, or keeping social security solvent it's a problem. It's like if the poor as for a little socialism they get the lecture about the free market, but as soon as a corporation has issues, the free market is thrown out the window. Im happy this bank is going under, I hope this really hurts the shareholders because last I read, they likely will be the ones taking a hit. 

Im not defending bail outs, but how many times? rarely. 2008 had contagion issues. No its not OK, the bail outs were necessary for 08 so all the banks didnt follow in failing like dominos as the toxic assets had been spread out to be in the diverse portfolios of many banks assets.  

JP morgan in 08 loaned a lot of money to a lot of banks back then to inject cash to prevent them from failing, but its not up to a private bank to support everyone and it puts them at risk as well. 

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1 minute ago, Forbidden Wafer said:

Interesting. That is not how it works over here. Exchanging any amounts between banks is fine (they exchange credit notes and the central bank does its magic), but getting cash is limited to a few thousand BRL/day, unless you request a few days in advance (1 day for >5k, 3 days for >50k).

What? what you just described is exactly what I described. 

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2 minutes ago, starsmine said:

What? what you just described is exactly what I described. 

Then I misunderstood something. 😆

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22 minutes ago, starsmine said:

No, its your money you can withdraw it all whenever you want. and transferring from one bank to another there would be no asset trading, there are no asset to trade, the second bank isn't buying your account from the other bank. There is FDIC forms you have to fill out when its over 10k and you cant just withdraw it as cash without notice because of reserves on hand at any branch, but a bank can not hold on to your money any longer then you want them to. 

This @Forbidden Wafer .  Let me just restate it more simply.  (My specialty IRL I'm a professor).   Under normal circumstances you can get a cashiers check or a wire transfer and the other bank will just honor it and credit you however much it is.    Now the underlying assets that are used to back up deposits those don't go anywhere. 


Like suppose banks held gold in a vault.   

 

People would deposit money up to or over the amount of gold in the vault.  (fractional reserve).    If you got a cashiers  check in Cordoba  and traveled to China to a branch of that bank you'd get credit for that money you deposited in Cordoba.  (This was really a thing... remember Die Hard 3).  The problem arises IF everyone wants their cash (and gold) all at the same time in the same place.  That is basically what happened to SVB.  Just replace gold with US Treasury bonds and mortgages which got marked down.    Returning to the gold analogy it would be like if the value of gold changed making a hoard of gold in the vault that was more than enough suddenly not enough.   In Tech terms suppose your 1 TB HDD for some reason instantly lost 10% of its capacity.  

Like starsmine said about a bank run... it wasn't anything else any bank that has 1/3 of it's deposits called at once will have a problem. 

It wasn't exactly this but the idea is the same. 

... and this makes it look funny and not sad.


Not a lot of people are saying this but my unpopular opinion is that the president and CEO of that bank did everything reasonable to take care of his employees and depositors (after of course taking care of himself.  Can't put on anyone else oxygen mask unless you put yours on first. ) 

 

3 minutes ago, Forbidden Wafer said:

Then I misunderstood something. 😆

and I see you got it.  I hope this post helps others who are less financially/ quantitatively inclined to visualize the situation. 

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I want to stress, its not that SVB didnt have a problem here or there. But that there is nothing significant about their problems, or any that stand out to be outside the norm. Its that even if they were a perfect hypothetical bank with zero issues. the outcome would be the same after what happened. This type of bank run has literally not happened in America since the great depression. 

 

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100 BILLION wiped out, and now the White House says "it's the tip of the iceberg"

Oh yeah, that's a boost in confidence for sure! Last one out is a rotten egg!
 

 

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Interesting turns out Framework had money there.  According to their CEO's Twitter. 

 

 

Furthermore given the news in the answer post... Framework and others are fine.  It's like I've said finance and the financial system are the table upon which the stack of technology rest.   Without money, without fiance, and all that it implies and entails there is no tech.  This bank in particular was THE bank for those who wanted to invent the next mouse, the next GUI, the next Smart Phone.  Things which were certainly laughed out of the door by more stodgy banks.  

Object lesson for potential startup founders... research your bank.  NEVER agree to a term that requires you to keep 100% of your capital in a certain bank.   That shouldn't be a thing anymore. 

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-= Moved to OT =-

-= Topic Locked =-

 

Unfortunately, the topic has little to do with technology-related discussion. 

Additionally, the topic is no longer conducive to a civil or constructive addition to the community at large.

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