Silicon Valley Bank Collapses

[Wallace Gasiewicz]

The UN  BAILOUT

http://endoftheamericandream.com/the-federal-reserve-just-made-an-emergency-decision-which-will-fundamentally-change-banking-in-america-forever/

Please note  I am not agreeing with any of the authors opinions

I also do not know how much money the bank had in long term securities, which supposedly have taken the big hit. It is supprising that they would put the blame on the rising interest rates, since the government securities are readily sell able at a discount after the rates go up. Long term securities obviously take the biggest hit with rising interest rates.
The news seems to state that the bank had a lot of money in long term government securities.

[iMo]

Printing money is easy. All banks saved and a BigMac will cost $300 soon..

[BravoV]

... and a BigMac will cost $300 soon..

... and that already in heavily discounted price at big promo season. 

[wilfred]

The UN  BAILOUT

http://endoftheamericandream.com/the-federal-reserve-just-made-an-emergency-decision-which-will-fundamentally-change-banking-in-america-forever/

Please note  I am not agreeing with any of the authors opinions

I also do not know how much money the bank had in long term securities, which supposedly have taken the big hit. It is supprising that they would put the blame on the rising interest rates, since the government securities are readily sell able at a discount after the rates go up. Long term securities obviously take the biggest hit with rising interest rates.
The news seems to state that the bank had a lot of money in long term government securities.

That link had a statement that the banks are being bailed out. But it seems to me they are, to use the "bail out" metaphor, letting the Titanic sink and rescuing the passengers. That's not a bail-out in the sense of propping up the bank. Equity holders and unsecured creditors have lost the lot.

They are injecting liquidity and preventing the need to sell at a loss bonds that are yet to mature. SVB was uniquely at risk as I understand it in that they held a lot of them. I suppose other banks that hold other forms of assets will have a different risk exposure but every bank can fail if enough deposits are withdrawn.

People and smaller depositors that had less than $250k were safe but if they work for a larger company that would go belly-up without their cash reserves being protected would likely lose their jobs and suffer anyway.

In Australia where we have a very small number of banks it is a bit strange to find America has thousands and they fail in their hundreds. The small one presumably.

[Stray Electron]

The UN  BAILOUT

http://endoftheamericandream.com/the-federal-reserve-just-made-an-emergency-decision-which-will-fundamentally-change-banking-in-america-forever/

Please note  I am not agreeing with any of the authors opinions

I also do not know how much money the bank had in long term securities, which supposedly have taken the big hit. It is supprising that they would put the blame on the rising interest rates, since the government securities are readily sell able at a discount after the rates go up. Long term securities obviously take the biggest hit with rising interest rates.
The news seems to state that the bank had a lot of money in long term government securities.

That link had a statement that the banks are being bailed out. But it seems to me they are, to use the "bail out" metaphor, letting the Titanic sink and rescuing the passengers. That's not a bail-out in the sense of propping up the bank. Equity holders and unsecured creditors have lost the lot.

They are injecting liquidity and preventing the need to sell at a loss bonds that are yet to mature. SVB was uniquely at risk as I understand it in that they held a lot of them. I suppose other banks that hold other forms of assets will have a different risk exposure but every bank can fail if enough deposits are withdrawn.

People and smaller depositors that had less than $250k were safe but if they work for a larger company that would go belly-up without their cash reserves being protected would likely lose their jobs and suffer anyway.

In Australia where we have a very small number of banks it is a bit strange to find America has thousands and they fail in their hundreds. The small one presumably.

   Regardless of why you think SVB is different, this sets a VERY BAD precedent IMO. In effect, this means that from here on out the Feds are going to bail out any and all failing banks. This is an open door invitation for BAD management in the banks, knowing that there will be no consequences for them.  In fact, many of the Savings and Loan institutions took FULL advantage of the same arrangement back in the late 1980s.  Many wealthy people including Jeb Bush bought up failing S&Ls for pennys on the dollar and then were then bought out by the Feds for 100% of the claimed value. 

  "They are injecting liquidity and preventing the need to sell at a loss bonds that are yet to mature."

    That is probably THE biggest question in SVB's case, on paper they have a lot of assets but no one outside of SVB really believes it.  That's why the Feds and the lawyers have been scrambling over the past weekend, to find out what assets they really do have and what they're worth. IF SVB has enough assets then one of the bigger banks will buy them out but if they don't then either the Feds throw money into the quagmire and buy them out and everyone gets 100% of their money back or they simply pay off the insured deposits and let the others take their losses. 

     So far, no big bank or investment group has bought them so that should tell you something.

  "it is a bit strange to find America has thousands and they fail in their hundreds. The small one presumably."

    Nope, SVB is the 16th largest bank in the US. 

    Banking is a very lucrative business racket in the US, that's why we have an excess of banks!

[wilfred]

<snipped>


   Regardless of why you think SVB is different, this sets a VERY BAD precedent IMO. In effect, this means that from here on out the Feds are going to bail out any and all failing banks. This is an open door invitation for BAD management in the banks, knowing that there will be no consequences for them. 

Guaranteeing the funds of depositors is not bailing out the bank. The bank is bust. Janet Yellen said they are not bailing out the banks anymore. Which I agree with, but we'll see what happen if Wells Fargo is at risk.

I heard on the news some bank in London (whose name escapes me) bought the UK arm of SVB for one British pound. I don't know if some large American bank bought or will buy the US operation but SVB no longer exists. Nor does the other bank. Neither will resume business. That sounds like not bailed out to me.

[coppice]

I heard on the news some bank in London (whose name escapes me) bought the UK arm of SVB for one British pound. I don't know if some large American bank bought or will buy the US operation but SVB no longer exists. Nor does the other bank. Neither will resume business. That sounds like not bailed out to me.

It looks like HSBC are grabbing the UK arm of SVB. They have quoted healthy figures for that business, but buying it for one pound doesn't make it sound too healthy.

[TimFox]

The proximate cause of SVB's failure was an old-fashioned bank run, after depositors became worried about the bank and many withdrew funds immediately.
Today's New York Times business section had an article suggesting that the run was exacerbated by the depositors' being members of the tech community who spent much of their time online, thus spreading the fear quickly.
Their fear was possibly an overreaction to normal business activities by the bank that were communicated badly to the public.

[dave j]

It looks like HSBC are grabbing the UK arm of SVB. They have quoted healthy figures for that business, but buying it for one pound doesn't make it sound too healthy.

SVB UK weren't in a position to haggle on price - the Bank of England had already decided to rule them insolvent. With the customers about to have financial problems and the markets in panic mode having someone like HSBC buy it for a nominal amount meets both protect the customers and calm the markets objectives all without the UK government having to spend a penny. Wins all round (apart from for SVB owners) as far as the UK government are concerned.

[coppice]

It looks like HSBC are grabbing the UK arm of SVB. They have quoted healthy figures for that business, but buying it for one pound doesn't make it sound too healthy.

SVB UK weren't in a position to haggle on price - the Bank of England had already decided to rule them insolvent. With the customers about to have financial problems and the markets in panic mode having someone like HSBC buy it for a nominal amount meets both protect the customers and calm the markets objectives all without the UK government having to spend a penny. Wins all round (apart from for SVB owners) as far as the UK government are concerned.

Larger, more stable, banks usually hoover up the pieces at bargain prices when there is a collapse. However, if the bank that failed still has genuine net value you might expect everyone to be a the trough fighting for a piece of the action.

[AndyBeez]

British perspective. London Stock Exchange public listed (PLC) share holdings with exposure to SVB's 'liquidity issues'. Some notable brands mentioned including Oxford BioMedica, Music Magpie, Trust Pilot and Moon Pig

Shares Magazine: London listings with exposure to Silicon Valley Bank
https://www.sharesmagazine.co.uk/news/market/1678709915961551900/summary-london-listings-with-exposure-to-silicon-valley-bank-


Sure Money === Sure Risk

[SiliconWizard]

Printing money is easy. All banks saved and a BigMac will cost $300 soon..

No problem, that will be Russia's fault. People will be starving but happy to have someone to hate.
 

[Gyro]

It looks like HSBC are grabbing the UK arm of SVB. They have quoted healthy figures for that business, but buying it for one pound doesn't make it sound too healthy.

SVB UK weren't in a position to haggle on price - the Bank of England had already decided to rule them insolvent. With the customers about to have financial problems and the markets in panic mode having someone like HSBC buy it for a nominal amount meets both protect the customers and calm the markets objectives all without the UK government having to spend a penny. Wins all round (apart from for SVB owners) as far as the UK government are concerned.

Yes, HSBC bought the UK arm for £1, injected a bunch of money (the HSBC boss said how much on the 6pm news interview but I can't see it in the story) and they opened for business as usual at 9AM.

https://www.bbc.co.uk/news/business-64937251

[ejeffrey]

I found it interesting that so many companies in one area had a large part of their cash holdings in the same place. Don't these people know what SPOF means?

I agree. Even a Dutch company had tens of millions of pounds and dollars at that bank. If you do business like that, you'd at least choose a big bank that is financially healthy. But maybe the beancounters thought it was a better idea to choose a small bank with lower costs over financial security... Penny wise, pound foolish.

SVB was one of the top 20 commercial banks in the US.  It's not nearly as big as the top 5, but it's way bigger than most local and regional banks.  They just largely didn't have a consumer presence so they aren't a household name like bank of america.

The proximate cause of SVB's failure was an old-fashioned bank run, after depositors became worried about the bank and many withdrew funds immediately.
Today's New York Times business section had an article suggesting that the run was exacerbated by the depositors' being members of the tech community who spent much of their time online, thus spreading the fear quickly.
Their fear was possibly an overreaction to normal business activities by the bank that were communicated badly to the public.

It definitely looks like that played a part, although it also appears to have an element of good old fashioned yield chasing.  The news that triggered the bank run was that they were forced to sell a fairly large chunk of long-term bonds at a loss.  Rising interest rates (and the corresponding loss in value of long term bonds with lower yield) were widely expected by everyone and projected by the federal reserve well in advance, so it's hard to say how much of that was reckless investing vs. mass hysteria.  I don't think the full extent of their holdings is well understood or reported, so it isn't clear if they would have been mostly OK without the shock, or if they were just a collapse waiting to happen.

[MT]

The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&l Industry; By William K. Black
https://law.umkc.edu/profiles/faculty-directory/william-k-black.html

https://www.amazon.com/Best-Way-Rob-Bank-Own/dp/0292754183

In this expert insider’s account of the savings and loan debacle of the 1980s, William Black lays bare the strategies that corrupt CEOs and CFOs—in collusion with those who have regulatory oversight of their industries—use to defraud companies for their personal gain. Recounting the investigations he conducted as Director of Litigation for the Federal Home Loan Bank Board, Black fully reveals how Charles Keating and hundreds of other S&L owners took advantage of a weak regulatory environment to perpetrate accounting fraud on a massive scale. In the new afterword, he also authoritatively links the S&L crash to the business failures of 2008 and beyond, showing how CEOs then and now are using the same tactics to defeat regulatory restraints and commit the same types of destructive fraud.

Black uses the latest advances in criminology and economics to develop a theory of why “control fraud”—looting a company for personal profit—tends to occur in waves that make financial markets deeply inefficient. He also explains how to prevent such waves. Throughout the book, Black drives home the larger point that control fraud is a major, ongoing threat in business that requires active, independent regulators to contain it. His book is a wake-up call for everyone who believes that market forces alone will keep companies and their owners honest.

[Stray Electron]

Quote from: coppice on Yesterday at 10:09:32 pm

    I found it interesting that so many companies in one area had a large part of their cash holdings in the same place. Don't these people know what SPOF means?


   I talked to my family member that's involved with this today and asked the same question. Their reply was that SVB was VERY good to deal with and had a very good website and gave better benefits than the other banks so most of their customers dealt with them exclusively. I talked to another family member that lived in the area until recently and he said the same.

[EEVblog]

Guaranteeing the funds of depositors is not bailing out the bank.

The funny thing is Biden literally quote tweeted a NY Times article saying that it was a "bail out", LOL.

[james_s]

Guaranteeing the funds of depositors is not bailing out the bank.

The funny thing is Biden literally quote tweeted a NY Times article saying that it was a "bail out", LOL.

Well in a sense it's "bailing out" if only that it's covering their screwup so that the clients don't get hosed.

I would be ok with this IF bank executives received serious punishment such as fines and jail time if they engaged in risky behavior. Unfortunately what usually happens is they are given millions of dollars to go away.

[SiliconWizard]

Guaranteeing the funds of depositors is not bailing out the bank.

The funny thing is Biden literally quote tweeted a NY Times article saying that it was a "bail out", LOL.

Well in a sense it's "bailing out" if only that it's covering their screwup so that the clients don't get hosed.

I would be ok with this IF bank executives received serious punishment such as fines and jail time if they engaged in risky behavior. Unfortunately what usually happens is they are given millions of dollars to go away.

Yep. In that regard, it kinda looks like a mafia. Well, it mostly is.

[coppice]

Guaranteeing the funds of depositors is not bailing out the bank.

The funny thing is Biden literally quote tweeted a NY Times article saying that it was a "bail out", LOL.

I suspect he's trying to blur things. A lot of regional bank stocks seem to have plummeted today. Biden doesn't want that. On the other hand a bail out would be a political hot potato after the public backlash over bailouts in 2008. So, I suspect he's trying to keep both side calm, but will end up spooking them both.

[RJSV]

   "SPOF" (thanks, coppice);
That meant opposite of 'Diversify your holding's, but I'm afraid that once we've focussed on diversity, they be thinking about race and ethnicity.
   That level of incompetence INVITES such disasters.

[Rick Law]

...
 Their reply was that SVB was VERY good to deal with and had a very good website and gave better benefits than the other banks so most of their customers dealt with them exclusively. I talked to another family member that lived in the area until recently and he said the same.
...

They (SVB) may very well be nice people, just not very business savvy.  They operated for months (April 2022 to Jan 2023) without their Chief Risk Management Officer.

Nice, may be.  Smart?  No.

Well, at least they have their Chief Diversity office all that time so their C-suite is not a ghost town.  Businesses need to go back to being a business, sooner better.

[Red Squirrel]

This whole fiasco shows how important it is to not put your eggs in one basket when it comes to money.  Good to have a backup plan such as cash on hand and a secondary bank account.  Ideally you want to have enough cash to cover about a month worth of expenses, or at least the more critical ones like mortgage/rent and property taxes as not paying those means you basically lose your house and you may not even be allowed to go in to get your stuff as they'll condemn it. 

[james_s]

They (SVB) may very well be nice people, just not very business savvy.  They operated for months (April 2022 to Jan 2023) without their Chief Risk Management Officer.

Nice, may be.  Smart?  No.

Well, at least they have their Chief Diversity office all that time so their C-suite is not a ghost town.  Businesses need to go back to being a business, sooner better.

The people that clients interact with may be both nice and smart, the people making the decisions in the back may be neither. If they're as large a bank as it sounds like, they probably have (had) thousands of employees.

[VK3DRB]

Every engineer will have learnt control theory. This is a classic example of an unstable system having an abrupt stimulus, creating an undesirable outcome, and chaos. The Chinese real estate implosion and the virus, Vlad the Terrible, and the resulting huge interest rate rises are stimulus to the unstable global financial system.

As I write this, three banks have failed. If the banking system is inherently unstable, they will fall like a house of cards in the next few weeks. This is a symptom and not a cause.

Time to buy gold.