SVB Fails as FDIC Takes Over and Appoints a Receiver 74
Bloomberg News: Silicon Valley Bank was closed Friday by the California Department of Financial Protection and Innovation, with the Federal Deposit Insurance Corp. as receiver, the FDIC said in a statement. All insured depositors will have full access to their insured deposits no later than Monday morning, the FDIC said. Uninsured depositors will get a receivership certificate for the remaining amount of their uninsured funds, the FDIC said. As the agency sells off Silicon Valley Bank's assets, future dividend payments may be made to uninsured depositors, according to the statement. Until now, there had only been a dozen US bank failures since 2017. Those failures were usually due to weaknesses in credit quality with losses overwhelming balance sheets, Bloomberg Intelligence's Herman Chan told me last week. Silicon Valley Bank had 17 branches in California and Massachusetts. The company's main office and all Silicon Valley Bank branches will reopen on Monday, the FDIC said.
Funny that (Score:5, Informative)
Billionaire Bill Ackman who was so effusive toward SVB hasn't put up a single pfenig to keep it solvent. Instead, and as per usual, he expected the taxpayers to cough up money to protect the incompetents.
Imagine that.
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In order for the funds to be insured, the bank must pay interest premiums on the assets. That's how the FDIC is funded, along with the Fed requiring banks hold a certain percentage of liabilities*. The melt-down in 2008 had to do with banks handling sub-prime lending similar to a crypto-tumbler.
* To a bank - a loan they make is an asset. Money they hold for someone else (savings, checking, investment), are liabilities.
Re:Funny that (Score:5, Insightful)
Taxpayers aren't coughing up anything. Learn how the FDIC works and is funded.
Re:Funny that (Score:4, Informative)
Taxpayers aren't coughing up anything. Learn how the FDIC works and is funded.
Read what I said earlier, quoting Ackman [marketwatch.com]. He said the government should step in if private industry doesn't.
“The failure of Silicon Valley Bank could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive government preferred bailout should be considered.”
He wasn't talking about the depositors. He was talking about the bank itself and how the government (i.e. the taxpayers) should once again come to the rescue.
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If taxpayers own the Fed, can we make it print us a strong basic income?
As long as you don't mind the strong basic inflation that comes along with it, sure.
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The US government provides insurance which the banks pay
Re: Funny that (Score:2)
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Funny.
Re: Short and sweet (Score:1)
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I wonder what this means for startups (Score:2, Interesting)
It seems like SVB was heavily tied into the VC industry, does this means VC funding will dry up? Will some companies that got VC funding find that money is now gone if it was held as unsecured funds in that bank?
Will it mean a broader downturn for the tech industry?
Re:I wonder what this means for startups (Score:5, Interesting)
See this video for a cogent explanation of SVB's situation: https://www.youtube.com/watch?v=tbc1ooJWG3I [youtube.com]
Long-story-short: SVB had large cash deposits from startups, invested in bonds that got quickly devalued by the Fed's recent actions, which raised the risk of insolvency; VC's told their portfolio companies to pull their funds en masse.
Shouldn't have an impact on VC investments; might cause some startups to be unable to touch funds for some period of time (speculation on my part).
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So... er. silver ends the fed?
Re:I wonder what this means for startups (Score:5, Interesting)
That video doesn't mention the other slightly smaller elephant in the room. SVB wasn't just a big funder of startups and a storer of VC capital. They were one of the crazies that funded and banked *crypto* startups, hedge funds and VC firms. It's was a double whammy of not only this poor bond investment, but also the fact that their main clients were also facing incredible financial pressure on account of investing in crypto.
It's like the whos-who of bad financial prospects all rolled into one, dodgy investments, startups and crypto firms. You couldn't design something to fail more perfectly.
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They were one of the crazies that funded and banked *crypto* startups, hedge funds and VC firms.
Citation, please? Reporting seems to indicate that crypto is not the cause of SVB's demise - for example, https://www.theverge.com/2023/3/10/23633734/silicon-valley-bank-startups-venture-capital [theverge.com]
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I think he confuses Silvergate bank with SVB.
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No I don't. Silvergate provided direct crypto services to crypto firms. That's not the same thing as a bank having deposits from crypto startups or VC firms that fund crypto heavily as depositors.
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Coindesk has run many articles about SVB and their connection to crypto firms including ones recently about the collapse. But that article you linked also isn't correct. For one Silvergate wasn't in trouble because of their customers. They were in trouble because they were a direct crypto service provider. SVB on the other hand, their connection to crypto is via their customers and had no crypto services of their own.
As the old saying goes: when you owe the bank $1m you have a problem. When you owe the bank
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And now there's one on Slashdot's front page showing SVB's customers are inherently tied to crypto.
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Well, all the crapcoin stuff is coming crashing down and so is anybody that did any real "investments" into it. Nobody with a clue is surprised at all. This got predicted time and again. And not it has been happening for a while. I think it is time to outlaw crapcoins (or rather regulate them into oblivion), the economic damage this exceptionally bad idea is doing is just too large.
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The icing on the cake is that they didn't have a permanent Chief Risk Officer for 8 months
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SVB was the bank of choice for startups in the San Francisco bay area. They had an entire team that worked with startups to navigate the financial issues that many founders had no clue about (other than they knew they needed to deal with finances).
SVB also has (had?) direct contacts with a number of VC firms to help make a connection.
Existing startups with money sitting in SVB accounts will have some issues accessing (at least some) of it in the short term.
There will almost certainly be a bump in th
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SVB also has (had?) direct contacts with a number of VC firms to help make a connection.
That kind of implies another ting I was wondering about - are they going to shut down the whole back for good? It sure sounded like it with talk of selling off all assets to pay unsecured creditors, so are all the people that work at the 13 SVB branches out of work after a few months...
Or maybe they would keep the bank open and are only selling financial assets.
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A lot of the VC *required* the companies they invest with to keep their business accounts at SVB, so even if a business wanted to get out of SVB they would then be in breach of their investment deal.
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"does this means VC funding will dry up? "
Very likely. To what extent is a good question.
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Not sure that'll be the case, if only because of the way VC funds work.
They create a fund, have it funded by LPs, and are obligated to make investments by a date certain. So, VC funding isn't going to "dry up" in the short- or medium-term future.
The news story I'm looking for (Score:5, Interesting)
A list of the start-ups who still had all their money at SVB. They will get access to $250,000 (The insured part) on Monday. After that, it is a long wait for whatever is left over.
Companies in SV can burn $250,000 awfully fast. Hopefully, desperate CEO/founders know not to reach for their personal Amex too quickly. Will payroll companies even accept Amex for payroll? I don't think ADP will. (You can't mix personal and business funds without the proper paperwork in place.) Rent and some other payables can be late. Payroll generally can not.
Kinda curious where these tech companies will go. Other banks might not want a new client who just lost all their cash until they see proof of new funding or sale of liquid assets. Banks want to see balance/income sheets.
Re:The news story I'm looking for (Score:5, Informative)
As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.
https://www.fdic.gov/news/pres... [fdic.gov]
I don't take credit for the link. Somebody else also posted it. They were only looking to raise a few billion in equity. My guess is that there will be enough to cover even uninsured deposits. However, the assets of the bank likely can't be sold fast enough to make that money immediately available.
Also you can *pay* business expenses with personal funds without any paperwork involved. It's when you try to deposit a business asset comingled with personal funds that you will have trouble.
For a while the FDIC offered unlimited insurance to non-interest-bearing payroll accounts but that's likely not relevant here.
Re:The news story I'm looking for (Score:5, Informative)
The IRS has a slightly different view. I've sat across from a very angry IRS Revenue Officer. They are not nice people. They talk about what is going to happen to your kids when you get evicted. If you run up a large Amex bill every month, properly document it with expense reports or the like, and the company pays a month later every month, the IRS will make it very clear, you are the same entity as the company. Your providing banking services to the company in the form of a line of credit. They can now take your house. The corporate shield is gone. What the IRS will allow is a loan made from you to the company, properly documented, and paid back with interest. This keeps the corporate shield intact. I'm talking 50-300k (or more) USD in monthly Amex charges on a personal card. They really want you only using corporate Amex cards issued to the company... The will not tell you how much you can fund on a Amex before you are over the line.
(I say Amex, but I really mean any credit card)
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> If your "corporate shield" is an LLC that's also easier to pierce than
>if you have taken VC money and have multiple owners.
the LLC isn't the difference, but the multiple owners that make this difference, whether LLC or corporation.
by design, LLCs get more latitude on informality than corporations, and are *harder* to pierce over mere "casual" transactions.
hawk, esq.
Re:The news story I'm looking for (Score:5, Interesting)
So, you created a shell C corp, didn't pay its taxes, and ended up with the IRS trying to hold you personally liable for the tax you were trying to evade? Gee, man, I wonder why the IRS agent was angry with you.
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Otherwise it is just another bank. The average consumer gets their deposits. The large investor loses money. It happens all the time. The summary even so stated.
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The summaryu also stated that actual banks crashing (not the fake bans called "exchanges") is very rare in the US. Maybe you missed that.
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It is unclear, despite the hype, that this is a national much less international problem. Unless we are going to prop up crypto.
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FDIC Story (Score:5, Informative)
No paywall, direct from the FDIC. [fdic.gov]
Yet again (Score:5, Insightful)
Yet another stunning "success" from the geniuses of finance who assure those of us who do productive things for a living that we should struggle to pay bills and work harder for less while they light cigars with $100 bills they take from us because they're so much more important.
If they're looking for a living, I have a shovel and a ditch that needs digging. I can pay them the minimum wage that they assure us is more than fair compensation for that sort of work.
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Not quite. They had a bunch of bonds that paid low interest rates. To get cash they had to sell some at a loss due to today's higher interest rates. That loss spooked everyone, and that caused a bank run, requiring the sale of even more bonds at a loss.
Almost two generations has seen nothing but declining interest rates. That regime is over.
This is actually a decent explanation of what happened.
https://www.zerohedge.com/mark... [zerohedge.com]
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I've been hearing rumblings about increasing interest interest rates and likely effect on bonds for at least a year and a half and I'm not even in finance. This should not have surprised them.
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Do you feel better grouping large sets of people together and ascribing to them a perfectly singular viewpoint? You seem to be implying that this “geniuses of finance” sub-class, which at best guess consists of rich people, all have claimed you should work harder for less and laughed at your pain.
If I were to do that about poor people, or Afghani people, or hexasexual people or whatever, it would be rightfully called stereotyping. In any case, it is certainly nonsense. If the particular individu
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It's not that large of a set, less than 1%. Find someone that I clearly lumped in with that group who does not deserve criticism and I'll apologize to them. Good luck!
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It sounds like you are talking about the financial geniuses who created the 2008 crash. They were allowed to fly high during the Greenspam / neo-liberal era, but in the aftermath of 2008 the Obama administration clipped their wings. The government passed a whole pile on legislation aimed at increasing oversight, and in particular introduced a bank "stress test"
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It's the same self-important jackasses. While the VCs and possibly the founders of some of the start-ups are in the same class, the people working for the startups who might have ended up without a paycheck are not.
Okay everyone, reset the sign outside. (Score:5, Funny)
It's been 000 days since the last crypto disaster.
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Re:Okay everyone, reset the sign outside. (Score:4, Insightful)
Most banks want a large number of depositors so they aren't beholden to one or two customers. Apparently SVB had only a very small number of customers so they were vulnerable. That's not a good funding mix.
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There is a crapcoin connection with SVB. The rest is just old-fashioned greed and stupidity.
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True. Banks cannot actually "dabble in crypto" except as high risk speculative assets. That means they run into so many regulatory hurdles that it is usually not worth doing it except in really small volume. No, the connection is more indirect, but it is there. Your example is a good one. If that was a major part of the problem, then SVB failed its due diligence. Yes, risk of somebody storing their assets with you suddenly needing them back fast is part of the risk assessment if the volume goes over a certa
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There are various ways to manage this. One is to have revers-tier interest rates (the more you deposit, t
Re:Okay everyone, reset the sign outside. (Score:4, Interesting)
I'm not usually a defender of "big finance," but the interesting thing to me in this case is that the system already has a solution. The Fed Repo (SRF in this case) facility was created to handle precisely this kind of situation.
The fact that SVB went to the equity market for money when they had a huge pile of US Gov. bonds is hilarious; they've sucked at the teet of VC/Silicon Valley for so long that they never actually took the time to learn how banks work. If they'd set up with the Repo facility (which every other bank their size has), they'd have been able to borrow against those bonds at basically free rates.
Alas, they obviously weren't set up at "The Desk" and didn't have that option.
I hate that there will be collateral damage probably to companies that didn't deserve it, but they earned this one.
Will the FDIC cap the insured amount? (Score:2)
IIRC, in a previous default episode the FDIC covered all deposits, even those above the limits.
I suspect in Silicon Valley there are many with deposits in excess $250,000.
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"I suspect in Silicon Valley there are many with deposits in excess $250,000."
Roku had $487 million on deposit at SVB: https://d18rn0p25nwr6d.cloudfr... [cloudfront.net]
Also, there is at least one large payroll processor that did transactions through SVB, so even if their clients didn't have deposits there this week's payroll has gone missing.
Worldwide repercusions (Score:2)
This is because banks hold interests in other banks and thus become liable.
Re: Worldwide repercusions (Score:2)
the shie drops (Score:1)
https://www.youtube.com/live/3... [youtube.com]
Lots of regular folks will suffer (Score:2)
My brother-in-law is a CEO of two companies with more than 300 employees. He's a smart, hard working honest guy that looks out for his people. This was his bank for both of his business. They were profitable and doing well. There's a chance that he and all of his employees will be out of work. Many thousands of people may end up losing their jobs over this. This is the second biggest bank failure in US history..
If you have business accounts in the tens or hundreds of millions of dollars, how do you p
This is why I use a credit union. (Score:2)
Which is why I keep my short-term cash-and-equivalent assets in a credit union, and under the insurance limit. Credit unions DO o
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(Another advantage of credit unions over banks and S&Ls is that the depositors (in the basic "share" savings accounts) ARE the owners (a dolor of deposit is a share of ownership). So they, not external investors, get the profits (in the form of lower borrowing and/or higher savings interest) and get to vote on policies and pick executives. With the profits going to the depositors they can run on a lower margin and still stay afloat, too.
If you're a member of a CU and the execs come to you with a propo
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"Which is why I keep my short-term cash-and-equivalent assets in a credit union"
How many different banks do employers normally spread their payroll out among?
At 50 employees getting paid like me every two weeks you're already over the insurance limit.
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How many different banks do employers normally spread their payroll out among?
Granted personal finance and business accounts are apples-and-oranges. But having a depository institution with your money in it fail, even when fully insured, is still a costly disruption, so it makes sense, where possible, to use those where the probability of failure is lower.
Splitting the assets among several separate institutions - and insuring they're really substantially separate so they don't screw up the conditional prob