Silicon Valley Bank collapses after failing to raise capital

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3 minutes ago, John Drake said:

I have no problem assigning blame to the dumb brute, Trump. Just as I have no problem pointing out the hypocrisy of Barney Frank in becoming a champion of Trump's repeal of Dodd-Frank, to which you allude above, as it affected his crypto focused bank.

 https://www.wsj.com/articles/barney-frank-pushed-to-ease-financial-regulations-after-joining-signature-bank-board-e5c8819c 

The hypocrisy of Frank is really not significant compared to the actions of Trump and the Republican Congress.

[bamnutsak]

Forgiving student loans? Ye gads, the Moral Hazard. The lessons it teaches.

 

Bail out banks? Of course.

 

 

[vandeventer]

4 hours ago, Misty said:

Agreed on hypocrisy of libertarians, and that the parties (paid by lobbyists) who slashed regulations are real culprits.

 

Also, bank management is directly responsible.  Besides losing their jobs, let's see if management has their bonuses, paid on 10 March, clawed back.

Lets see just how many banks the Biden government will bail out, remember it's American tax payers money.

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17 minutes ago, vandeventer said:

Lets see just how many banks the Biden government will bail out, remember it's American tax payers money.

Let's see how many banks crash due to Trump's undoing much of the Dodd Frank law.

[John Drake]

What's so special about SVIB?  Get a load of this. 93 percent of the accounts at SVIB were above the $250,000 limit. And apparently it's because most of them were businesses stuffed with venture capitalists' funds. Don't these companies have CEOs and CFOs whose job it is to mitigate risks, including those created by deposit accounts over the FDIC limit? Why didn't they do their job? How did they miss this fundamental aspect of deposit protection? 

Quote

While Silicon Valley Bank is FDIC-insured, one of the unique aspects of the institution is the number of depositors whose accounts were over the FDIC limit: More than 93% of the domestic deposits at SVB were above $250,000. An outsize number of SVB’s clients were startups with a lot of money on hand from venture capitalists.

“SVB is also not your average regional bank,” says White. “They are a niche bank catering to the venture capitalist crowd and are not a traditional everyday consumer bank.”   https://fortune.com/2023/03/13/how-does-fdic-insurance-work-silicon-valley-bank-implosion/

 

[vandeventer]

1 hour ago, placeholder said:

Let's see how many banks crash due to Trump's undoing much of the Dodd Frank law.

If it is not Trump it's Putin. Biden has been in power for 2 years, is there anything that is his fault?

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17 minutes ago, vandeventer said:

If it is not Trump it's Putin. Biden has been in power for 2 years, is there anything that is his fault?

Deflecting much? You've got nothing.

[nigelforbes]

1 hour ago, John Drake said:

What's so special about SVIB?  Get a load of this. 93 percent of the accounts at SVIB were above the $250,000 limit. And apparently it's because most of them were businesses stuffed with venture capitalists' funds. Don't these companies have CEOs and CFOs whose job it is to mitigate risks, including those created by deposit accounts over the FDIC limit? Why didn't they do their job? How did they miss this fundamental aspect of deposit protection? 

 

There is no risk to the bank or the depositors if a majority of deposits are over the FDIC maximum limit so I don't know what "fundamental aspect of deposit protection" you are talking about. 

 

The risk that should have been mitigated is the mismatch between bank assets and liabilities and that was wholly a bank responsibility to manage, nobody elses. As interest rates began to rise, Treasury or risk management at the bank should have said to the CFO, we need to replace some long dated bonds with newer shorter duration bonds, slowly over time in line with rate rises. If they had done that, the mismatch wouldn't have shown up on their balance sheet, the short sellers wouldn't have targeted them etc etc.

 

 

[Etaoin Shrdlu]

31 minutes ago, vandeventer said:

If it is not Trump it's Putin. Biden has been in power for 2 years, is there anything that is his fault?

It's Trump and Putin.

[nigelforbes]

When banks take deposits they become a liability that must be repaid at some point. Liabilities must be offset by buying assets that match the liabilities in value.

 

A 10 year Treasury Bond that has a 10 year duration (for example) will repay the face value of the bond in 10 years time, meanwhile it pays interest or coupon payments every year. If the current rate of interest is say 3% (for example), the bond may pay 3.5% effective interest. But as interest rates rise, the redemption price of the bond falls because newer bonds pay higher rates of interest, the bigger the gap between the interest rate and the coupon rate, the lower the redemption value of the bond. The longer the duration of the bond, the more the early redemption rate will fall when interest rates rise and new bonds are issued. The trick is to sell longer duration bonds before the gap between the coupon rate and the interest rate widens, that way the loss on redemption is broadly covered by coupon payments. That means selling long duration bonds soon after rate increases are announced. But when the gap is too large, coupon payments don’t make up for the bond redemption loss, which is what happened at SVB.

 

Eventually SVB got to a point where their assets were worth substantially less than their liabilities which meant they were no longer solvent.

[eisfeld]

The tricky part is how to value the bonds. Mark-to-market (MTM) or Hold-to-maturity (HTM). One could argue that SVB had a liquidity issue (using HTM) instead of a solvency issue (using MTM). But they handled the liquidity issue by selling the bonds which switches their value from HTM to MTM and therefore transforms everything into a solvency issue. Now if they were somehow able to solve the liquidity problem via other means than selling the bonds then the losses might not have been incurred. And that's where the FED stepped in, they solved the situation by providing liquidity to the bank so depositors can withdraw funds without it being forced to sell the bonds. Now they just need to sit and wait until the bonds mature.

 

Many people here incorrectly seem to think that the FDIC saved the bank or the depositors. That's not true. FDIC saved a few small depositors but they are the minority. FDIC took over the bank and the FED saved the new bank from incurring too many losses via a liquidity facility. It's the best case scenario really for a messed up situation created by the executives of SVB. These people should somehow suffer for it but I am not sure if they will.

[nigelforbes]

The CPI report is due today. If that comes in hot the Fed will have difficulty avoiding a rate increase, which will put further distance between longer duration bond face and redemption values, hence it will further stress bank balance sheets. But, if CPI has fallen far enough, a high value rate increase may be avoided, as indeed may any rate increase at all. Fingers crossed that CPI has fallen by a decent margin.

 

Meanwhile, equities markets are betting CPI will have fallen, S&P Futures are up 0.75% with one hour fifteen until the US markets open. My pension holdings need CPI to fall, please!

[ExpatOilWorker]

14 hours ago, eisfeld said:

The tricky part is how to value the bonds. Mark-to-market (MTM) or Hold-to-maturity (HTM). One could argue that SVB had a liquidity issue (using HTM) instead of a solvency issue (using MTM). But they handled the liquidity issue by selling the bonds which switches their value from HTM to MTM and therefore transforms everything into a solvency issue. Now if they were somehow able to solve the liquidity problem via other means than selling the bonds then the losses might not have been incurred. And that's where the FED stepped in, they solved the situation by providing liquidity to the bank so depositors can withdraw funds without it being forced to sell the bonds. Now they just need to sit and wait until the bonds mature.

 

Many people here incorrectly seem to think that the FDIC saved the bank or the depositors. That's not true. FDIC saved a few small depositors but they are the minority. FDIC took over the bank and the FED saved the new bank from incurring too many losses via a liquidity facility. It's the best case scenario really for a messed up situation created by the executives of SVB. These people should somehow suffer for it but I am not sure if they will.

The only beef I have with this is net present value. A 2023 dollar is worth more than a 2033 dollar. When the treasures department issue bills or notes and the Fed ends up holding them, it is starting to look like QE again.

I don't recall the Fed reached out to me when I took a hit on my bonds in 2022, but hey banks are special snowflakes ????. 

[nigelforbes]

Below, a useful comparison (with chart) puts the Credit Suisse/SVB  liquidity issue into perspective. Much of this seems to be herd momentum and short selling rather than legitimate concern regarding financial stability and ability. CS is a global systemically important bank.

 

https://www.ft.com/content/983f7f7d-5429-4f54-a93a-1f079794e409

[nigelforbes]

Another useful summary of the things that happened regarding CS. There is no doubt that CS had some issues last year regarding customer confidentiality, which led to deposit withdrawls. But the restructuring efforts were already underway and the issues were being addressed so I don't see these things as being relevant to their current situation.

 

It looks as though the bond value/interest rate issue that nailed SVB, surfaced once again at a time when CS was preparing to issue its annual report. The US SC, already nervous following the SVB debacle, saw the same bond/interest rate issues at CS and challenged their draft annual report which was subsequently withdrawn and is being amended. That news made an already nervous market even more nervous. The big difference of course is that CS has substantially more liquidity than SVB had plus it now has the public backing of the Swiss Central Bank. I don't believe there is a story here but the public and markets may take some time before they understand this.

 

https://www.afr.com/companies/financial-services/credit-suisse-is-in-crisis-what-went-wrong-20230316-p5csiz

[Misty]

On 3/15/2023 at 8:44 AM, ExpatOilWorker said:

I don't recall the Fed reached out to me when I took a hit on my bonds in 2022, but hey banks are special snowflakes ????. 

So true.  A US broker must mark-to-market its investment portfolio on a daily basis, and report the loss in its financial statements (monthly, quarterly, yearly). But a bank can carry underwater bonds at cost, if it plans or claims it will hold those bonds to maturity.  It's yet another difference between the financial reporting of different types of US institutions, and one that was previously probably not widely understood. 

[John Drake]

It was all about a bailout for the well connected and politically influential. Like Gavin Newsom.

 

Quote

CHEERING SILICON VALLEY BANK BAILOUT, GAVIN NEWSOM DOESN’T MENTION HE’S A CLIENT

At least three of the California governor’s wine companies are held by SVB, and a bank president sits on the board of his wife’s charity.

 

Ken Klippenstein

March 14 2023, 11:03 p.m.

ON MONDAY, California Gov. Gavin Newsom praised the Biden administration’s decision to intervene on behalf of Silicon Valley Bank’s clients after the bank was taken over by the Federal Deposit Insurance Corp. last Friday amid a bank run. The White House “acted swiftly and decisively to protect the American economy and strengthen public confidence in our banking system,” Newsom said in a statement. What Newsom didn’t mention is that it also protected his own companies if they held over $250,000 in deposits. CADE, Odette, and PlumpJack, three wineries owned by Newsom, are listed as clients of SVB on the bank’s website. Newsom also maintained personal accounts at SVB for years,   https://theintercept.com/2023/03/14/cheering-silicon-valley-bank-bailout-gavin-newsom-doesnt-mention-hes-a-client/

 

[ExpatOilWorker]

On 3/14/2023 at 7:18 PM, nigelforbes said:

The CPI report is due today. If that comes in hot the Fed will have difficulty avoiding a rate increase, which will put further distance between longer duration bond face and redemption values, hence it will further stress bank balance sheets. But, if CPI has fallen far enough, a high value rate increase may be avoided, as indeed may any rate increase at all. Fingers crossed that CPI has fallen by a decent margin.

 

Meanwhile, equities markets are betting CPI will have fallen, S&P Futures are up 0.75% with one hour fifteen until the US markets open. My pension holdings need CPI to fall, please!

CPI came in at the low end, so the stage is set for a pass on interest rates when the Fed meets next week.

Let's see what the ECB will do in a few hours. Flat or at most 0.25%.

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13 minutes ago, ExpatOilWorker said:

CPI came in at the low end, so the stage is set for a pass on interest rates when the Fed meets next week.

Let's see what the ECB will do in a few hours. Flat or at most 0.25%.

It didn't really come in at the low end of expectations. It was mixed. On its own, a decent case could be made for doing nothing or raising it. But given the situation with the banks, I think raising interest rates would be foolish right now. And I'm going to say the same to the Fed next time I hang out with those dudes.

[nigelforbes]

3 hours ago, John Drake said:

It was all about a bailout for the well connected and politically influential. Like Gavin Newsom.

 

 

Nonsence!

 

You saw what happened to bank stocks globally, you saw the impact on large banks such as CS who came under greater scrutiny as a result, you saw what happened to global equity markets and pension funds. All those things happened WITH a helping hand, can you even begin to think what would have happened if they had done nothing!  I get it that you have a boner for bank bail outs and the wealthy, do try and be a little more objective however, it will serve you well in later life!

Edited March 16, 2023 by nigelforbes

[riclag]

3 hours ago, John Drake said:

It was all about a bailout for the well connected and politically influential. Like Gavin Newsom.

 

 

Im taking my family out for a wine tasting tour, we won’t be visiting those wineries.

"Everyone knew it was the go-to bank for woke CEOs," one source told the New York Post. "They knew they were aligned politically. 

The report alleges that most of the SVB board lacked actual banking expertise, except for Tom King, a factor that's likely to be part of the Justice Department's probe into the bank's collapse.

https://www.foxnews.com/politics/former-dems-including-clinton-donor-obama-official-dominated-svbs-board-directors

 People sitting on boards with no actual expertise, oh dear!  Doesn’t seem responsible enough for taxpayers to  give or be mandated to help ,if it came down to that!

 

 

[nigelforbes]

12 minutes ago, riclag said:

Im taking my family out for a wine tasting tour, we won’t be visiting those wineries.

"Everyone knew it was the go-to bank for woke CEOs," one source told the New York Post. "They knew they were aligned politically. 

The report alleges that most of the SVB board lacked actual banking expertise, except for Tom King, a factor that's likely to be part of the Justice Department's probe into the bank's collapse.

https://www.foxnews.com/politics/former-dems-including-clinton-donor-obama-official-dominated-svbs-board-directors

 People sitting on boards with no actual expertise, oh dear!  Doesn’t seem responsible enough for taxpayers to  give or be mandated to help ,if it came down to that!

 

 

So how do you account for Ivanka Trump being on the Board, if they were all so woke and so politically aligned!

[eisfeld]

3 minutes ago, nigelforbes said:

So how do you account for Ivanka Trump being on the Board, if they were all so woke and so politically aligned!

New York Post and Fox News. Not surprised they try to stir up outrage instead of neutral reporting on the actual causes and solutions.

[John Drake]

20 minutes ago, nigelforbes said:

So how do you account for Ivanka Trump being on the Board, if they were all so woke and so politically aligned!

Do you have a source that verifies Ivanka Trump was on SVB's board? I don't think you do, although I wish you did. She was on the board of Signature Bank.  And she deserves to be raked over the coals as well. Is she woke, btw? Don't know about that. But she sure fits the description of a limousine liberal. 

[nigelforbes]

6 minutes ago, John Drake said:

Do you have a source that verifies Ivanka Trump was on SVB's board? I don't think you do, although I wish you did. She was on the board of Signature Bank.  And she deserves to be raked over the coals as well. Is she woke, btw? Don't know about that. But she sure fits the description of a limousine liberal. 

SB not SVB, I stand corrected.

[Eric Loh]

26 minutes ago, John Drake said:

Do you have a source that verifies Ivanka Trump was on SVB's board? I don't think you do, although I wish you did. She was on the board of Signature Bank.  And she deserves to be raked over the coals as well. Is she woke, btw? Don't know about that. But she sure fits the description of a limousine liberal. 

Signature Bank has been a go-to lender to the Trump family. Would that qualify them as politically aligned as well as woke? 

[ozimoron]

55 minutes ago, nigelforbes said:

So how do you account for Ivanka Trump being on the Board, if they were all so woke and so politically aligned!

oh, snap!

[bamnutsak]

A lot of the fringier Republicans are telling us that SVB collapsed due to "Wokeness". And maybe too much regulation? Or maybe not enough regulation?

 

 

[nigelforbes]

1 minute ago, bamnutsak said:

A lot of the fringier Republicans are telling us that SVB collapsed due to "Wokeness". And maybe too much regulation? Or maybe not enough regulation?

 

 

Without even watching the video, SVB collapsed because of asset liability mismatches and bad management. We can go back and trace underlying reasons for those things, including a change in the law, including the CEO being improperly trained, including the risk manager not having a clue, but they will still all boil down to those two core reasons. 

[John Drake]

There goes the dollar. And here comes inflation again.

 

Quote

The Federal Reserve’s emergency loan program may inject as much as $2 trillion of funds into the US banking system and ease the liquidity crunch, according to JPMorgan Chase & Co.    https://www.bloomberg.com/news/articles/2023-03-16/jpmorgan-says-fed-s-loans-will-provide-2-trillion-of-liquidity#:~:text=The Federal Reserve's emergency loan,according to JPMorgan Chase %26 Co.