SVB Bank?

[JohnRoberts]

This is why I don't like bonds... Their inverse valuation with rising interest rates.

The FED's rising interest rates are analogous to the tide going out, so we can see who is and isn't wearing swim trunks.

It appears that SVB bank got tangled up by treasury bonds on their balance sheet that dropped in value as interest rates went up... Of course this is an oversimplification (there are multiple ways to value bonds, etc).

If you want to be angry at somebody how about the SVB bank President Greg Becker who sold $3.5M of common stock 2 weeks before the collapse. The rest of the bank's shareholders are expected to get zip.

According to President Biden this is ex President Trump's fault. Opinions vary (even Barney Frank doesn't agree).

==

Bank deposit insurance protects deposits up to $250k but reportedly they are also protecting larger accounts at SVB. This could create some moral hazard if people don't behave responsibly. Signature Bank in NY is getting similar assistance.

The government needs to manage contagion risk. Unlike old fashioned bank runs, modern electronic funds transfers can quickly deplete bank assets. Its not like when George Bailey could just lock the doors.

Interesting times... This will probably give the central bankers motivation to pause the rising interest rate environment.

JR

 

[pucho812]

You mean like this?

 

[ruffrecords]

All derivative financial instruments should be banned.

HSBC has purchased the UK arm of SVB bank for £1

Cheers

Ian

 

[JohnRoberts]

All derivative financial instruments should be banned.

HSBC has purchased the UK arm of SVB bank for £1

Cheers

Ian

I am not sure what you are talking about.... SVB was a local bank in silicon valley so participated in lots of high tech start ups. They were bigger on ESG investing than bottom line worries.

They got burned by the fed raising interest rates to manage inflation (the fed's target rate for inflation is 2% while current inflation is running 6%). When interest rates go up, bond value goes down. The SVB had lots of bonds on their balance sheet with long duration that lost value.

The SVB does not need to be bailed out, they need to be sold and cleaned up with private money, not taxpayer's money.

JR

[edit- the UK branch was brought into compliance with UK laws before the transfer. /edit]

 

[ruffrecords]

I am not sure what you are talking about.... SVB was a local bank in silicon valley so participated in lots of high tech start ups. They were bigger on ESG investing than bottom line worries.

From BBC news:

Released On: 14 Mar 2023
Available for 28 days
Over the weekend, Signature Bank was closed by the US regulator - the second closure in the past few days following the shutdown of Silicon Valley Bank. HSBC’s UK arm has bought SVB’s UK subsidiary for a pound and finance minister Jeremy Hunt reassured all companies can access normal banking services at SVB UK.

Cheers

Ian

 

[living sounds]

Conspiracy minded people might argue that this is the federal governement clamping down on crypto...

 

[AnalogPackrat]

Pragmatists see a lack of seriousness in handling core business (no risk management, focus on ESG and DEI, general lack of competency).

 

[AnalogPackrat]

https://apnews.com/article/stocks-economy-china-banks-svb-fed-crude-f3e78bc438027148ee1302b003c6a8a8

 

[crazydoc]

From the Atlantic:

​

​ Derek Thompson​ STAFF WRITER​

​

​

​

​ Who killed SVB—and triggered the mini–banking crisis sweeping the United States? You could blame the bank’s executives, who bet $80 billion on long-term bonds that bled value when interest rates went up, thus torching their portfolio with fantastic efficiency. You could blame the Federal Reserve for falling behind inflation and then quickly raising interest rates, bludgeoning investors who watched in horror as their bold portfolios melted down. You could blame regulators, such as KPMG, who gave SVB a clean bill of health when they looked into its portfolio just weeks before its historic collapse. You could blame the phalanx of interests—President Donald Trump, Senate Republicans, tech titans, bankers, and even a handful of Democrats—who called to roll back midsize-bank regulations in 2018, potentially setting the stage for this catastrophic mismanagement. You could, abandoning all common sense, blame “woke” banking culture, under the bizarre assumption that only an all-white, all-male banking team can properly steward a financial institution. (Never mind, say, the entire crisis-strewn history of mostly white, mostly male banking.) Or you could blame venture capitalists. One week ago, SVB was technically insolvent but far from doomed. Without a massive run on its deposits, the bank likely would have puttered along as its long-term bonds matured. Surely, SVB had put itself in an awful position by tossing fresh cash into the Dumpster fire of the 2022 bond market. But actual bank death required one further step: Clients, led by the venture-capital community, had to turn on a trusted financial partner. That’s exactly what happened. As SVB’s leadership scrambled to raise funds, several large venture investors, such as Peter Thiel’s Founders Fund, told their companies late last week to pull out all of their cash. When other start-ups banking with SVB caught wind of this exodus on group chats and Twitter, they, too, raced for the exits. On Thursday alone, SVB customers withdrew $42 billion—or $1 million a second, for 10 straight hours—in the largest bank run in history. If SVB executives, regulators, and conservative politicians built a barn out of highly flammable wood and filled it with hay and oil drums, it was venture capital that tipped over the barrels and dropped a lit match. After some VCs helped to trigger the bank run that crashed SVB, others went online to beseech the federal government to fly to the rescue. “YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW,” the investor Jason Calacanis bleated on Twitter. David Sacks, another investor and a regular panelist on the popular tech podcast All In, chimed in by blaming Treasury Secretary Janet Yellen and Fed Chair Jerome Powell for jacking up rates “so hard it collapsed a huge bank.” (Never mind that the CEO of SVB was on the board of directors of the Federal Reserve Bank of San Francisco.) On Sunday night, the tech community got its wish as the federal government announced it would backstop every dollar of every depositor in SVB.

 

[Matador]

The SVB does not need to be bailed out, they need to be sold and cleaned up with private money, not taxpayer's money.

There is no taxpayer money at issue. Depositors will be repaid through a) the banks assets, and b) through FDIC insurance funds, which are paid by all banks.

 

[JohnRoberts]

From BBC news:

Released On: 14 Mar 2023
Available for 28 days
Over the weekend, Signature Bank was closed by the US regulator - the second closure in the past few days following the shutdown of Silicon Valley Bank. HSBC’s UK arm has bought SVB’s UK subsidiary for a pound and finance minister Jeremy Hunt reassured all companies can access normal banking services at SVB UK.

Cheers

Ian

The news about the UK takeover (for only one pound) was public information. I didn't understand your comment about derivatives... SVB's problem was with duration risk of their US bond portfolio. Signature bank was also in the news. Here's a tidbit about Signature bank. Barney Frank, of the Dodd-Frank banking legislation was made a director at Signature bank, perhaps in a little quid pro quo.

As AnalogPackrat already shared today the contagion is spreading to EU banks (like Credit Suisse).

The fed is raising interest rates to stop inflation (until something breaks). Nominally the interest rates need to be equal or greater than inflation to stop it. We aren't there yet and speculation is that the fed will pause or slow raises now.

mo lata...

JR

PS: speaking of inflation, I just got a notice in the mail that my town's monthly sewer charge, and garbage charge is increasing April 1st...

 

[jasonallenh]

I am not sure what you are talking about.... SVB was a local bank in silicon valley so participated in lots of high tech start ups. They were bigger on ESG investing than bottom line worries.

They got burned by the fed raising interest rates to manage inflation (the fed's target rate for inflation is 2% while current inflation is running 6%). When interest rates go up, bond value goes down. The SVB had lots of bonds on their balance sheet with long duration that lost value.

The SVB does not need to be bailed out, they need to be sold and cleaned up with private money, not taxpayer's money.

JR

[edit- the UK branch was brought into compliance with UK laws before the transfer. /edit]

Peter Thiel isn't known for ESG investing. The ridiculous $6000-a-month birthday party planning app isn't ESG either. It's a bunch of sh*theads getting cheap money to pretend to have companies. They're no different than uber in that regard. The fact that these startups can't make money without near 0% rates should lay bare the fact that the economy (bubble) is being propped up by that cheap money. We're doing 'too big to fail' all over again, so nobody learns anything.

 

[JohnRoberts]

There is no taxpayer money at issue. Depositors will be repaid through a) the banks assets, and b) through FDIC insurance funds, which are paid by all banks.

I've heard the talking points already. The FDIC insurance fund is based on coverage only up to $250,000 per account, mainly to protect small individuals. Extending that protection up to cover all accounts creates moral hazard that businesses don't need to be selective about bank management, and conversely banks don't need to behave conservatively. Using FDIC insurance to bail out business accounts is a step toward socializing the banking system. Spreading the cost across all depositors means the small depositors will bail out the big ones.

Coincidentally President Biden's nominee for the top banking regulator last year (Omarova ). Was Russian educated and won the Lenin award in college. Her nomination was withdrawn after her philosophy about banking was revealed.

===

This is an old discussion but fractional reserve banking is essentially a confidence game based on the expectation that individuals will always be able to get their money out. Modern electronic fund transfers allows customers to rapidly move massive amounts of money quickly. It is not hard to imagine how social media could gin up an imaginary banking scare to trigger a real bank run.

This should not be the real deal (yet), but irresponsible actors can always make thing worse.

JR

 

[AnalogPackrat]

From the Atlantic:

​ ​

​ ​ ​ Derek Thompson​ STAFF WRITER​

​

​

​

​ Who killed SVB—and triggered the mini–banking crisis sweeping the United States? You could blame the bank’s executives, who bet $80 billion on long-term bonds that bled value when interest rates went up, thus torching their portfolio with fantastic efficiency. Absolutely a factor. You could blame the Federal Reserve for falling behind inflation and then quickly raising interest rates, bludgeoning investors who watched in horror as their bold portfolios melted down. Absolutely a factor. You could blame regulators, such as KPMG, who gave SVB a clean bill of health when they looked into its portfolio just weeks before its historic collapse. Yes, and idiots like Cramer, too. You could blame the phalanx of interests—President Donald Trump, Senate Republicans, tech titans, bankers, and even a handful of Democrats—who called to roll back midsize-bank regulations in 2018, potentially setting the stage for this catastrophic mismanagement. No. SVB was a big bank. The "called for" regulation changes didn't occur. Ridiculous Atlantic garbage. You could, abandoning all common sense, blame “woke” banking culture, A factor that distracted from core business focus. under the bizarre assumption that only an all-white, all-male banking team can properly steward a financial institution. (Never mind, say, the entire crisis-strewn history of mostly white, mostly male banking.) Obvious strawman. In reality, hiring based on gender, race, ethnicity or anything else other than competence and merit is a factor. Or you could blame venture capitalists. One week ago, SVB was technically insolvent but far from doomed. Without a massive run on its deposits, the bank likely would have puttered along as its long-term bonds matured. Powerful Silicon Valley insiders breaking rules. Say it isn't so! Also a problem. Surely, SVB had put itself in an awful position by tossing fresh cash into the Dumpster fire of the 2022 bond market. Lack of risk management oversight in investments, yes. Finally, here's a nugget of truth buried in the BS. But actual bank death required one further step: Clients, led by the venture-capital community, had to turn on a trusted financial partner. Insider info passed illegally. But that wouldn't have happened had SVB been run competently. That’s exactly what happened. As SVB’s leadership scrambled to raise funds, several large venture investors, such as Peter Thiel’s Founders Fund, told their companies late last week to pull out all of their cash. When other start-ups banking with SVB caught wind of this exodus on group chats and Twitter, they, too, raced for the exits. On Thursday alone, SVB customers withdrew $42 billion—or $1 million a second, for 10 straight hours—in the largest bank run in history. If SVB executives, regulators, and conservative politicians built a barn out of highly flammable wood and filled it with hay and oil drums, it was venture capital that tipped over the barrels and dropped a lit match. After some VCs helped to trigger the bank run that crashed SVB, others went online to beseech the federal government to fly to the rescue. “YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW,” the investor Jason Calacanis bleated on Twitter. David Sacks, another investor and a regular panelist on the popular tech podcast All In, chimed in by blaming Treasury Secretary Janet Yellen and Fed Chair Jerome Powell for jacking up rates “so hard it collapsed a huge bank.” (Never mind that the CEO of SVB was on the board of directors of the Federal Reserve Bank of San Francisco.) On Sunday night, the tech community got its wish as the federal government announced it would backstop every dollar of every depositor in SVB.

And that is a great example of why I refuse to trust anything "reported" by The Atlantic (and other similar outlets).

 

[crazydoc]

And that is a great example of why I refuse to trust anything "reported" by The Atlantic (and other similar outlets).

And this is a great example of why I don't trust anything posted by the "experts" (LOL) here. Confirmation bias rules (for me too).

 

[JohnRoberts]

Caveat Lector (reader beware).... So old its latin.

JR

 

[AnalogPackrat]

And this is a great example of why I don't trust anything posted by the "experts" (LOL) here. Confirmation bias rules (for me too).

Did you expand and read my embedded comments? For some reason the way the article was quoted messed up the usual formatting when I responded. Are the writers at The Atlantic any more knowledgeable about banking? It's just a stupid opinion rag.

 

[Rusan]

Pragmatists see a lack of seriousness in handling core business (no risk management, focus on ESG and DEI, general lack of competency).

About 6 months ago, I heard an economist on a radio show foretell this exact scenario would happen within a year, based on things he saw happening in the banking industry and economy at that time. And, that it would occur en masse in domino effect fashion once it started, with the main catalysts being rising interest rates and a widespread lack of competent financial management at several major banks. I recently read where a couple of industry analysts had warned this was about to happen and threw up some red flags, which apparently either fell on deaf ears, or else it was already too late.

 

[crazydoc]

Did you expand and read my embedded comments? For some reason the way the article was quoted messed up the usual formatting when I responded. Are the writers at The Atlantic any more knowledgeable about banking? It's just a stupid opinion rag.

No I hadn't expanded it, not realizing you had responded inside the quote. But it looks to me like the Atlantic got most of it right, and the apparent insider info causing the electronic/twitter run on the bank was the ultimate cause. No Jimmy Stewart in sight.

 

[Matador]

Using FDIC insurance to bail out business accounts is a step toward socializing the banking system. Spreading the cost across all depositors means the small depositors will bail out the big ones.

Ok...but what does this have to do with "needing to sold and cleaned up but not with taxpayer money"? Coincidentally it's a screed I see plastered all over Fox News.

Given a sizable chunk of small business accounts that were held at SVB (and child banks) that exceeded the $250K insurance limit, I'm sure if the FDIC hadn't stepped in to guarantee all deposits, the line would have been how Biden and the Fed let small businesses fail rather than act.