Article

2023-03-11 Economy

Silicon Valley Bank is largest failure since financial crisis, billions stranded

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Posted by badanov 2023-03-11 00:00|| || Front Page|| [11139 views ] Top

#1
Is history repeating itself?

Coming out of an intermediate level depression cycle.

* US economy grows quickly.
* US ends a Major War.
* Pandemic hits the World.
* US/World economy starts to see issues.
* Jobless and Inflation numbers grow.
* Bank Runs are driven by media & hearsay are caused.

Sure, sounds more and more like a 1900's - 1929 or Obama Part 2 redo with some minor variations.

Posted by NN2N1 2023-03-11 07:34|| 2023-03-11 07:34|| Front Page Top

#2 Cue the bail-ins and nobody goes to jail.

Posted by M. Murcek 2023-03-11 07:36|| 2023-03-11 07:36|| Front Page Top

#3 Sure, sounds more and more like a 1900's - 1929 or Obama Part 2 redo with some minor variations.

Say it with me: Boosh in 2008 also...

Posted by M. Murcek 2023-03-11 07:37|| 2023-03-11 07:37|| Front Page Top

#4 Uniparty

Posted by Procopius2k 2023-03-11 08:00|| 2023-03-11 08:00|| Front Page Top

#5 Tech went Woke. Financial institutions successfully funding them for years are now suddenly going Broke. Dump techs third/fourth gen Harvard indoctrinated dipshit CEOs asap.

Posted by Mad Eye Omeretch7959 2023-03-11 08:16|| 2023-03-11 08:16|| Front Page Top

#6 Tech workers may face huge layoffs next week. SVB helped tech companies meet weekly payroll. Tech companies will now have trouble meeting payroll.

Posted by Mad Eye Omeretch7959 2023-03-11 08:31|| 2023-03-11 08:31|| Front Page Top

#7 Only pure communism can solve this.

/snark

Posted by M. Murcek 2023-03-11 08:35|| 2023-03-11 08:35|| Front Page Top

#8 Who thinks these "friends of the deep state" won't be made whole at the taxpayers' expense.

Only 2.7% of SVB deposits fall within FDIC protection.

Posted by M. Murcek 2023-03-11 08:55|| 2023-03-11 08:55|| Front Page Top

#9 I wouldn't be surprised if more financial institutions get hit hard or even fail.

I can go buy a short-term T-bill online directly from the US Treasury and make 4.5-5%, or I can have my money languish pitifully at a bank and "earn" 0.05% interest (and it's possible some of those same banks charge an APR of up to 30% on their credit cards). So, pulling money out of a do-nothing "interest-bearing" account makes sense (I am not a certified financial advisor).

The banks have had it pretty good at our expense.

P.S. - CNBC's Jim Cramer, the same scumbag joker who said Bear Stearns was fine in 2008, also very recently said that Silicon Valley Bank was a "buy" in February.

Posted by DooDahMan 2023-03-11 09:32|| 2023-03-11 09:32|| Front Page Top

#10 Ever see a bank 'going out of business sale? Used computers, adding machines, desks, and the like? No, me neither.

The simply change the name and sign.

Posted by Besoeker 2023-03-11 09:35|| 2023-03-11 09:35|| Front Page Top

#11 And keep your eyes on Signature Bank (ticker: SBNY) next week. It might suffer a similar fate as Silvergate (SI).

Posted by DooDahMan 2023-03-11 09:36|| 2023-03-11 09:36|| Front Page Top

#12 But...but...Biden assures us that the economy is on the right track.

Posted by Butch Lover of the Algonquins1594 2023-03-11 09:37|| 2023-03-11 09:37|| Front Page Top

#13 @#10 - Nor have I ever seen a bank[st]er ever go to jail. Ever. Did any exec from Wachovia/Wells Fargo go to jail for laundering Mexican drug cartel money over a decade ago? Nah, just a slap on the wrist and a "just part of doing business" fine (a la Pfizer).

Ever wonder why the metaphorical "war on drugs" is all lip service?

Posted by DooDahMan 2023-03-11 09:39|| 2023-03-11 09:39|| Front Page Top

#14 Not anymore.

I suppose Newsom has taken his sleeping pill and is not to be disturbed.

Posted by swksvolFF 2023-03-11 10:12|| 2023-03-11 10:12|| Front Page Top

#15 There's less here than meets the eye. SVB got themselves caught in a liquidity trap, because their depositors are highly concentrated in tech, and were drawing down their balances because new funding rounds (and even more, IPOs) are not to be found right now. They failed not because of dodgy loans, but because they couldn't find enough decent loans to do, and instead some genius put the funds into long bonds, which depreciated as interest rates went up. When they were forced to cash out to repay depositors, they had to realize the loss and it wiped out most of their equity. Once news of that hit the street, there was a bank run that accelerated the crash.

Likely outcome: SVIB shareholders are wiped out, most if not all of the uninsured depositors get repaid, but not as fast as they would like, causing some marginal startups to fail.

Bottom line: The circumstances that caused the particular bank run were somewhat unique, the thing to watch out for is other banks that bet on the Fed gravy train to continuing forever.

Source: I spent 30 years in Silicon Valley, part of it in finance, and was a long term SVB client.

Posted by Nero 2023-03-11 10:36|| 2023-03-11 10:36|| Front Page Top

#16 Isn't pretty much the entire idea of a "bank" is that it will be safe?

Posted by M. Murcek 2023-03-11 10:39|| 2023-03-11 10:39|| Front Page Top

#17 Fed bonds are supposed to be 'safe'. If the regulators had examined SVB's portfolio, it would have passed with flying colors. If they'd been able to hold it to maturity, everything would have worked out.

The failure is due to putting too much of the deposits into long term assets that they couldn't sell in the short term without a loss. That's a gross management failure, since they should know their clientele and the local business scene. I know there's been a lot of turnover there since earlier days, so that's where I'd dig for the root cause.

Posted by Nero 2023-03-11 10:46|| 2023-03-11 10:46|| Front Page Top

#18 I would allow a bail out only on the condition that it was funded 100% by all the cash allocated towards funding woke staff and school programs nationwide. Give anything extra to buy that Broward County guy a new watch and sneaker set.

Posted by Super Hose 2023-03-11 11:07|| 2023-03-11 11:07|| Front Page Top

#19 Isn't pretty much the entire idea of a "bank" is that it will be safe?

Bank runs have happened pretty regularly in this country and throughout the world — the musical “Mary Poppins” features one at the father’s bank because of something little Michael was overheard saying, Deposits are safe only up to the limit of federal depositors’ insurance, some several thousand dollars per account. Beyond that it depends on the benevolence of the politicians at the moment. That’s why things like American Express Bank pay higher interest — as I recall those deposits are not at all insured.

Posted by trailing wife 2023-03-11 11:38|| 2023-03-11 11:38|| Front Page Top

#20 Thank you for your explanation, Nero — that’s very helpful.

Posted by trailing wife 2023-03-11 11:38|| 2023-03-11 11:38|| Front Page Top

#21 Only 2.7% of SVB deposits fall within FDIC protection.

*sigh* M, you really must start using /sarc or a winky to cue me in, instead of letting me hang in the wind as I try to teach my grandmother to suck eggs. $250,000 insured per account is much better than several thousand.

I am shocked that 93% of SVB depositors had more than the insured limit in each account at what must have been minimal interest. What were their accountants thinking?!

Posted by trailing wife 2023-03-11 11:45|| 2023-03-11 11:45|| Front Page Top

#22 #15 Nero's explanation is really very good.

I'd just add a few things: Apparently they disclosed that in 2022 the "duration" of their portfolio increased--which means that they bought bonds and other financial assets with a longer maturity date. When rates rise, these bonds decline in value--and the longer-term bonds usually decline more than the short-term ones.

If you don't have to sell them but can hang on to maturity, it doesn't matter, because the bonds will pay you the face value at maturity. But if you have to sell them during a time of rising rates, you only get the market value, which is less than the face value. THAT is when you know what hits the fan.

The other thing I'd add is the difference between insolvency and illiquidity. Insolvency means that your liabilities are higher than your assets--so that you can't pay out your bills, and you are technically bankrupt. Illiquidity means that you are solvent but just don't have enough liquid assets like cash to pay all of your depositors.

If a bank is just illiquid, it can get emergency loans from the Fed through Reg A. We don't know if SVB asked the Fed for loans here or not and what the Fed said if they did. But if a bank is insolvent, then the FDIC will take it over. Which does make me think that SVB was in fact insolvent (bankrupt), since the FDIC took it over.

Finally (I know this is a long comment), the whole business of borrowing short (deposits, checking accounts) and lending long is what banks do. We can criticize them for borrowing short; but we all withdraw money from checking and savings accounts al the time and expect the bank to have money to pay us. It is part of the banking business; which is why the Treasury function of a bank, trying to match the length of assets and liabilities, is so devilishly difficult.

Posted by Tom 2023-03-11 12:43|| 2023-03-11 12:43|| Front Page Top

#23 Bankers are supposed to be conservative, but decade(s) of easy Fed Window money and easy IPO's lulled a younger generation with no memory of Volker and the rates of the 80's into the FTX/OPM mindset.
Reality bites hard sometimes, and old wisdom isn't always wrong.

Posted by NoMoreBS 2023-03-11 12:55|| 2023-03-11 12:55|| Front Page Top

#24 I had one of the best belly-laughs in a very long time when I read this a little while ago"

Rumors swirl that Prince Harry and Meghan ‘lost everything’ at SV Bank… Citizens Free Press
Posted by Kane on March 11, 2023 11:29 am

Posted by NoMoreBS 2023-03-11 14:35|| 2023-03-11 14:35|| Front Page Top

#25 Silicon Valley Bank CEO Sold $3.5 Million in Stock 2 Weeks Before Collapse

Not a chance in hell of insider trading charges.

Posted by Woodrow 2023-03-11 15:52|| 2023-03-11 15:52|| Front Page Top

#26 Understand 26% of Roku’s liquidity was in SVB

Posted by Griter Slash1619 2023-03-11 17:52|| 2023-03-11 17:52|| Front Page Top

#27 Panic spreading to UK, EU.

Posted by Mad Eye Omeretch7959 2023-03-11 17:54|| 2023-03-11 17:54|| Front Page Top

#28 Looks like there may be something else going on

https://www.dailymail.co.uk/news/article-11848705/Woke-head-risk-assessment-Silicon-Valley-Bank-accused-prioritizing-diversity-issues.html

Posted by davemac25 2023-03-11 18:04|| 2023-03-11 18:04|| Front Page Top

#29 Doodah: Bend over Barney Frank is on the SBNY BOD. He was at the forefront of the 2008 bank collapsed. Hold onto your ankles and think of the Dem Party.

Posted by Regular joe 2023-03-11 19:15|| 2023-03-11 19:15|| Front Page Top

#30

Posted by Anomalous Sources 2023-03-11 22:31|| 2023-03-11 22:31|| Front Page Top