First Republic, other regional bank stocks sink after failure of SVB(cnbc.com)
cnbc.com
First Republic, other regional bank stocks sink after failure of SVB
https://www.cnbc.com/2023/03/10/first-republic-leads-regional-bank-rout-as-silicon-valley-bank-crisis-raises-fears-about-bond-losses.html
115 comments
What's really scary about the SVB situation is the dynamic that there's no cost to causing a bank run, so now you've got all these VC guys who are disingenuously claiming that every bank in America is now at risk because of SVB. We all know what they're doing - they're trying to create panic so that the government has to step in, but it's a massively dangerous game to be playing. If other regional banks do start failing it's going to be in no small part due to these people preaching doomsday scenarios. Will they pay a price for their behaviour. Of course not.
> VC guys who are disingenuously claiming that every bank in America is now at risk because of SVB
They’re deflecting blame. A bailout is unrealistic given the House. And there is no contagion to the systemically-important banks. VCs should have advised their founders to adopt reasonable treasury procedures. Instead, they funnelled them into an easy solution.
They’re deflecting blame. A bailout is unrealistic given the House. And there is no contagion to the systemically-important banks. VCs should have advised their founders to adopt reasonable treasury procedures. Instead, they funnelled them into an easy solution.
You're speaking with confident 20/20 hindsight.
Who, realistically until now has had “bank goes bust” on their risk list?
“Crypto exchange goes bust”, almost a certainty, but “major bank goes bust”, I don’t think it’s reasonable to criticize for not having five distributed bank accounts.
Who, realistically until now has had “bank goes bust” on their risk list?
“Crypto exchange goes bust”, almost a certainty, but “major bank goes bust”, I don’t think it’s reasonable to criticize for not having five distributed bank accounts.
This line of thinking infuriates me. As an individual, I risk manage my deposits by making sure I remain under federal insurance limits by spreading my investments among multiple institutions (the FDIC limit isn't that relevant to me but the $500k SIPC limit is). Yet somehow "sophisticated" VCs aren't able to tell their partner companies how to manage the millions they hand them? There are straightforward, simple ways to increase insurance limits (primarily by services that automatically distribute deposits among multiple banks, like MaxSafe and IntraFi). The was just fundamentally poor asset management by VCs who got on the "well, everyone else uses SVB you should too" bandwagon.
As an individual, you have much lesser money to spread around than a company. If a company with 25+ million in cash has to manage more than 100 accounts, they are more likely to make some other banking mistake and lose some of that money through some administrative mistake.
That said, I sympathize with your broader point. With hindsight, it would make more sense for a company to have a brokerage account, and do something like invest their cash 1/3 each in 1-month/2-month/3-months Treasuries, rolling over every month.[1]
But most tech CEOs/founders of tiny startups probably don't know much about finance, and I can't really blame them for just putting their cash in a large bank.
[1] There's a startup opportunity to build this product right now, a pure custodian-style cash-management "bank" for small companies.
That said, I sympathize with your broader point. With hindsight, it would make more sense for a company to have a brokerage account, and do something like invest their cash 1/3 each in 1-month/2-month/3-months Treasuries, rolling over every month.[1]
But most tech CEOs/founders of tiny startups probably don't know much about finance, and I can't really blame them for just putting their cash in a large bank.
[1] There's a startup opportunity to build this product right now, a pure custodian-style cash-management "bank" for small companies.
> If a company with 25+ million in cash has to manage more than 100 accounts
These products already exist. That is why I mentioned IntraFi (https://www.intrafinetworkdeposits.com/) and MaxSafe (https://www.wintrust.com/maxsafe.html). There are standard cash management accounts, https://www.moneycrashers.com/cash-management-account/.
> But most tech CEOs/founders of tiny startups probably don't know much about finance, and I can't really blame them for just putting their cash in a large bank.
Completely agree. But this is exactly the type of area VCs should be there to assist with, even if just purely for self interest.
> There's a startup opportunity to build this product right now, a pure custodian-style cash-management "bank" for small companies.
Again, these already exist, and are literally called "cash management accounts".
Also, though, it wasn't just SMBs. Roku had nearly $500 million, a quarter of their cash, in a plain old SVB bank account!! Why they wouldn't put more of their money in 3 month TBills earning nearly 5% is beyond me.
These products already exist. That is why I mentioned IntraFi (https://www.intrafinetworkdeposits.com/) and MaxSafe (https://www.wintrust.com/maxsafe.html). There are standard cash management accounts, https://www.moneycrashers.com/cash-management-account/.
> But most tech CEOs/founders of tiny startups probably don't know much about finance, and I can't really blame them for just putting their cash in a large bank.
Completely agree. But this is exactly the type of area VCs should be there to assist with, even if just purely for self interest.
> There's a startup opportunity to build this product right now, a pure custodian-style cash-management "bank" for small companies.
Again, these already exist, and are literally called "cash management accounts".
Also, though, it wasn't just SMBs. Roku had nearly $500 million, a quarter of their cash, in a plain old SVB bank account!! Why they wouldn't put more of their money in 3 month TBills earning nearly 5% is beyond me.
"well, everyone else uses SVB you should too"
Which is not even true because it is a tiny no name bank. Prior to this debacle if you asked an American to name a bank nobody would have said SVB.
Which is not even true because it is a tiny no name bank. Prior to this debacle if you asked an American to name a bank nobody would have said SVB.
Most Americans not being able to name it is not a good standard for bank size. Banks like SVB exclusively have businesses as customers and most Americans do not run businesses. It’s not a tiny no name bank by any reasonable measure.
It was apparently the 16th-largest bank in the US. I live in SV but wouldn't have guessed it was that big. I'm sure it's much, much smaller than the #1 bank, but it's by no means a "tiny" bank in objective terms. It may not be well known in most of America, but it was a very large bank.
You've misunderstood. When I said a VC says "everyone else uses SVB you should too", by the "everyone else" I was referring to other VC-funded startups, not the American populace at large.
America has about 5000 banks. Most banks outside 5-6 are no-name banks.
> Who, realistically until now has had “bank goes bust” on their risk list?
Every corporate treasurer. This is a core function of a CFO. I didn’t realise the degree to which this was missing in Silicon Valley so soon after a global financial crisis.
Every corporate treasurer. This is a core function of a CFO. I didn’t realise the degree to which this was missing in Silicon Valley so soon after a global financial crisis.
Startups don’t hire CFOs until the revenue is in 10s of millions of ARR. And most companies don’t ever get there.
I, and others, would never keep more than $250k in a bank account even before this SVB debacle. There are products made to manage this risk. For example, Mercury gives you up to $1M of insurance by sweeping to four different banks on the back end without you having to lift a finger. You can also sweep excess into money market funds.
I do have sympathy for 20-something founders who were too young and unaware of these risks, and focused on other aspects of their business, but this is not a “hindsight only” kind of thing.
I do have sympathy for 20-something founders who were too young and unaware of these risks, and focused on other aspects of their business, but this is not a “hindsight only” kind of thing.
Really?!! There's a reason the government insures deposits, but up only to a certain amount. Because banks go bust pretty frequently. Of course this is the sort of think that should be on your risk register, whether you're an individual or a company.
> VCs should have advised their founders to adopt reasonable treasury procedures. Instead, they funnelled them into an easy solution.
I am in awe of how aggressively stupid VCs are being about this:
https://twitter.com/htaneja/status/1634620603469647873?cxt=H...
Silicon Valley Bank has been a trusted and long-time partner to the venture capital industry and our founders. For forty years, it has been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the US.
The events that unfolded over the past 48 hours have been deeply disappointing and concerning. In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.
In other words, they're going to keep doing the same stupid thing, more vigorously.
I am in awe of how aggressively stupid VCs are being about this:
https://twitter.com/htaneja/status/1634620603469647873?cxt=H...
Silicon Valley Bank has been a trusted and long-time partner to the venture capital industry and our founders. For forty years, it has been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the US.
The events that unfolded over the past 48 hours have been deeply disappointing and concerning. In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.
In other words, they're going to keep doing the same stupid thing, more vigorously.
Maybe the standard banking model is broken. Banks offer a theoretical guarantee of the ability withdraw your money at any time and then just hope the situation that prevents that doesn't happen.
Perhaps they should require your consent to invest your money in illiquid assets. If they can't promise depositors liquidity they are cheating on their obligation in hopes seek a higher interest rate (profit).
Perhaps they should require your consent to invest your money in illiquid assets. If they can't promise depositors liquidity they are cheating on their obligation in hopes seek a higher interest rate (profit).
> Maybe the standard banking model is broken. Banks offer a theoretical guarantee of the ability withdraw your money at any time and then just hope the situation that prevents that doesn't happen.
In this case it's not just a case of the depositor's money being tied up in illiquid assets, it's that the asset's market value dropped so that they're worth less than the deposits. This is slightly different than just the assets being "illiquid", because if were only illiquid, you can presumably pay off your depositors once a sale can be arranged. In this case even if they were able to sell the bonds, there won't be enough money to pay back the depositors.
>Perhaps they should require your consent to invest your money in illiquid assets. If they can't promise depositors liquidity they are cheating on their obligation in hopes seek a higher interest rate (profit).
That's... basically how banks implicitly work and one of their core functions (maturity transformation).
In this case it's not just a case of the depositor's money being tied up in illiquid assets, it's that the asset's market value dropped so that they're worth less than the deposits. This is slightly different than just the assets being "illiquid", because if were only illiquid, you can presumably pay off your depositors once a sale can be arranged. In this case even if they were able to sell the bonds, there won't be enough money to pay back the depositors.
>Perhaps they should require your consent to invest your money in illiquid assets. If they can't promise depositors liquidity they are cheating on their obligation in hopes seek a higher interest rate (profit).
That's... basically how banks implicitly work and one of their core functions (maturity transformation).
You could go stronger with your assertion, that the MBS are actually fairly liquid (defintion: a quick sale will not cause a large drop in their value) but have large losses in market value compared to when they were bought. SVB should not have been allowed to use HTM accounting on such a large portfolio of their assets generated from hot money inflows.
Liquidity vs Solvency
It's not the bank that guarantees it. It's the US Government through FDIC insurance. And that is working perfectly. There is no guarantee implied or explicit over 250k / entity / bank. There are distribution facilities that allow higher amounts to be guaranteed and that is working too.
If by "cause" you mean "say lots of scary-sounding stuff in public", then no, there probably isn't. If by "cause" you mean "take your money out", then yes, there is a cost. It takes time and effort to do. It especially costs if you're playing dodgeball, trying to get out of every institution that everyone says might possibly be in danger of failing.
How long until we have a 4chan-inspired bank run spill into real banks?
DON"T GIVE THEM IDEAS.
Or a YouTuber making "Fun financial pranks [gone wrong] [gone sexual]"
What % is federally insured tho?
For SVB it was tiny. I'm guessing other banks it is bigger but idk
For SVB it was tiny. I'm guessing other banks it is bigger but idk
It's 250k at every bank.
The comment section on hn makes this seem like it was obviously risky to bank with svb but to everyone making treasury decisions, it looked to be the same as banking with any significantly old and significantly large bank. They are very large, publicly traded, regulated like everyone else, have their assets primarily in us treasuries and all fdic member banks have the same insurance policy.
There really can be a run on other large banks, svbs balance sheet wasn't upside down unless you marked to market their hold to maturity assets. If people start withdrawing you have to sell those and you get exposed and all of the banks are holding us treasuries that are worth a lot less due to rapidly rising interest rates. If people start withdrawing from other banks they get exposed too.
The comment section on hn makes this seem like it was obviously risky to bank with svb but to everyone making treasury decisions, it looked to be the same as banking with any significantly old and significantly large bank. They are very large, publicly traded, regulated like everyone else, have their assets primarily in us treasuries and all fdic member banks have the same insurance policy.
There really can be a run on other large banks, svbs balance sheet wasn't upside down unless you marked to market their hold to maturity assets. If people start withdrawing you have to sell those and you get exposed and all of the banks are holding us treasuries that are worth a lot less due to rapidly rising interest rates. If people start withdrawing from other banks they get exposed too.
From @commbankerguy | https://twitter.com/commbankerguy | on Twitter on evaluating your bank, where more than one factor should be in play to probably be of concern:
https://twitter.com/commbankerguy/status/1634637082659364866
1. Red flag if cash as % of assets or deposits is below 3%. Meaning can they handle a withdrawal of up to 3% or is cash tied up in bonds.
2. Red flag if tangible capital is under 4% after looking at bond portfolio as % of tangible capital (this one wasn't totally clear, but I think get the idea).
3. Red flag if over 20% of liabilities are brokered deposits and/or funds borrowed from FHLB. If the bank is not well capitalized those funds become restricted/unavailable.
Also:
High concentration of consumer deposits is less likely to face destabilizing run.
For example @commbankerguy says:
"If 50% in brokered/FHLB and capital level of 5%, I would recommend you move your money if over $250k." https://twitter.com/commbankerguy/status/1634764850126520320...
@Citrini7 shorted $SIVB in late 2022 after marking their holding to market and finding their book value was negative. https://twitter.com/Citrini7/status/1583593158738612226?s=20
Then this dude created an SVB recovery analysis that is legend:
https://docs.google.com/spreadsheets/d/13OyOLDePh85Wna5xcyTi...
https://twitter.com/commbankerguy/status/1634637082659364866
1. Red flag if cash as % of assets or deposits is below 3%. Meaning can they handle a withdrawal of up to 3% or is cash tied up in bonds.
2. Red flag if tangible capital is under 4% after looking at bond portfolio as % of tangible capital (this one wasn't totally clear, but I think get the idea).
3. Red flag if over 20% of liabilities are brokered deposits and/or funds borrowed from FHLB. If the bank is not well capitalized those funds become restricted/unavailable.
Also:
High concentration of consumer deposits is less likely to face destabilizing run.
For example @commbankerguy says:
"If 50% in brokered/FHLB and capital level of 5%, I would recommend you move your money if over $250k." https://twitter.com/commbankerguy/status/1634764850126520320...
@Citrini7 shorted $SIVB in late 2022 after marking their holding to market and finding their book value was negative. https://twitter.com/Citrini7/status/1583593158738612226?s=20
Then this dude created an SVB recovery analysis that is legend:
https://docs.google.com/spreadsheets/d/13OyOLDePh85Wna5xcyTi...
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What’s the news value of a two-day old article in a situation that has evolved a lot since then?
It's an article about stock prices. The US stock exchanges close at 4 p.m. Eastern time on Friday. Aside from opinions and speculation, what has changed re: First Republic's stock price since then?
Most banks do not have most of their capital tied up for ten years; SVB had to sell their treasuries before the ten years at a loss. The only thing tying other banks who don't do that to SVB is random fear of a bank run.
If I’m a treasurer at a small firm, I’m just going to move my funds to the biggest bank I can find. Who has the time or energy to spend interrogating the asset mix and bond duration of the bank with your checking account?
> Who has the time or energy to spend interrogating the asset mix and bond duration of the bank with your checking account?
The treasurer should have time as that’s part of her job.
The treasurer should have time as that’s part of her job.
Just not remotely feasible. How many companies have dedicated treasury functions? It’s almost always part of the role/responsibilities of a CFO or VP Finance until much larger than the companies in question here. People have really odd ideas about what corporate finance roles entail.
I worked for a 50 person startup that only had $6M in VC funding. Our comptroller with staff of zero did this.
It’s not terribly complicated.
I would expect that even the smallest companies have someone responsible for finance. Or they can rent or contract out for it. But if there’s truly no one then that company has a huge mundane risk.
It’s not terribly complicated.
I would expect that even the smallest companies have someone responsible for finance. Or they can rent or contract out for it. But if there’s truly no one then that company has a huge mundane risk.
> I’m just going to move my funds to the biggest bank I can find.
Why would 2023 lead to you do that if 2008 had not?
Why would 2023 lead to you do that if 2008 had not?
It felt like there was a distinction between the community bank with a few billion under management and banks like SVB with hundreds of billions under management. SVB-sized banks felt “safe” post-2008, apparently they’re not.
Washington Mutual was bigger then SVB, even ignoring inflation
> SVB-sized banks felt “safe” post-2008, apparently they’re not
I don’t think SVB has ever had an investment-grade (EDIT: issuer) credit rating. Certainly not in the last year.
I don’t think SVB has ever had an investment-grade (EDIT: issuer) credit rating. Certainly not in the last year.
It sure did, every part of their business was investment grade and as of last week it was rated A by Moodys.
https://ir.svb.com/shareholder-and-bondholder-information/cr...
https://ir.svb.com/shareholder-and-bondholder-information/cr...
Sorry, flubbed. They were medium risk, not junk, but borderline investment.
Or better yet, keep less than 250k at each institution.
This is HN. Who else had a funding term sheet which required the ongoing and exclusive use of SVB for deposits? I did.
Wow. What was the putative reason for this clause? It's interesting that a VC would have such a strong incentive to pressure portfolio companies to keep their money at one specific bank.
Invested in the bank? Got a sweet personal deal with the bank in return for pinning their investments to the bank?
It certainly sounds like they had some side-things going on, otherwise hard to believe they'd not just recommend fiscally unsound practices to their portfolio companies, but even require them to.
It certainly sounds like they had some side-things going on, otherwise hard to believe they'd not just recommend fiscally unsound practices to their portfolio companies, but even require them to.
If practices like these are widespread, it could explain why some VCs are pushing hard for a government backstop. It would be embarrassing to them if these clauses came to light, and they could arguably be on the hook for damages in lawsuits by shareholders of their portfolio companies.
It also seems possible that some VCs have their personal funds tied up in SVB.
A LOT of them do. And late-stage founders as well. You know how people like Elon cash out their shares via collateralized loans? What bank do you think processes those loans? And SVB really didn't like to be transactional--they work hard to make sure your SVB collateralized loan is linked to a SVB checking account and a SVB founder-shares-backed mortgage for your 5,000 sqft mansion in Los Altos Hills.
It's indirect and, I think, unintentional on the VC's part. The VC required closing via wire to a SVB account, and that a SVB deposit account be maintained to assist in further financing rounds, bridge loans, and other things. Separately, SVB required an exclusive depositing relationship when signing up with them for commercial bank services. It's the SVB side of this that I have issue with, really. No fault of the VC that they wanted a shared banking relationship, but that bank should not have been allowed to prohibit us from using other banks for deposit services.
TL;DR: If we went with that VC for the Series A, they wanted us to be a SVB customer, and SVB demanded exclusivity.
TL;DR: If we went with that VC for the Series A, they wanted us to be a SVB customer, and SVB demanded exclusivity.
Wow, that's incredible. I can't imagine signing up with a bank that demanded exclusivity. I know some banks give better rates if you have a broader relationship, but I've never heard of one that insisted on exclusivity across the board.
I've never heard of another example like this.
The amount of coordination / bank reconciliation / overhead that would add is absolutely not worth it. It’s completely normal to have $10M+ in cash in a checking account for these companies, if I need to make payroll of $500k twice per month + pay vendors, accounts will necessarily have much more than the FDIC limit.
I could find 40 community banks and shift funds around constantly or I could just put it all in JPM and actually worry about running my business.
I could find 40 community banks and shift funds around constantly or I could just put it all in JPM and actually worry about running my business.
Or you could split it between two banks and reduce your exposure by half. Four banks and you reduce it by 75%. That way a deathblow turns into a setback, and overhead is minimal. There are cash management services that will do this for you if you can't be personally bothered.
Running a business means doing the maintenance keeping ship afloat as well as charting a course to exotic destinations.
Running a business means doing the maintenance keeping ship afloat as well as charting a course to exotic destinations.
Those probabilities assume there’s an equal likelihood of going under for each bank which certainly isn’t true. I could just move it to half at WFB and half at JPM and cut my risk by substantially more than spreading it across random community banks.
If I split between SVB and FRB, have I reduced my exposure by half? I agree with GP that using a too-big-to-fail bank seems to be the more practical option.
Also the big banks will do overnight sweeps as well to protect customers over the FDIC limit. I’m not sure if smaller banks do this as well, but I know JPM will do it for large customers. From the brokerage side interactive brokers will do it on any cash sitting in your account as well if you opt in.
Are there any figures on "weighted average maturity" of bond holdings of banks? That seems like a key health indicator right now...
> Most banks do not have most of their capital tied up for ten years;
{{Citation needed}}
Why would SVB be particularly special with respect to investments? They were all sharing the yield environment the the current effects of recent monetary policy.
{{Citation needed}}
Why would SVB be particularly special with respect to investments? They were all sharing the yield environment the the current effects of recent monetary policy.
Answering myself, JPmorgan at least says SVB's asset mix was different: https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/ins...
As a public service, I would recommend you down vote into oblivion any comment/article spreading FUD like this one. Although the fears are valid, talking about it and spreading it is exactly what causes the vicious cycle that will lead to another unnecessary bank run. If you want to pull your money, do so silently. Stop telling other people about it.
It's interesting to see First Republic bank having this trouble. It seems clear (feel free to correct me) that they ALSO had massive loan portfolios at extremely low rates which have likely rapidly and seriously declined in value over longer terms. And it's likely they too were enjoying a deluge of deposits from the valley's success and are now seeing huge amounts of money drying up. I'm not saying the bank is bankrupt, but they too could easily end up in a liquidity crisis. In fact, I wonder if they already are heading in that direction...
This is FUD without analytic support. Loan portfolios are floating rate and pricing for loans has been stable. You need to look at interest rate exposure which is not in the loan portfolio.
It’s not FUD. If the government sends the message that depositors will go down with the ship every bank that isn’t considered too big to fail will see all their uninsured deposits start moving out. Many of them won’t be able to meet their liquidity needs as a result and go into receivership. With every bank that goes into receivership the outflows will only accelerate. People will start to get worried about insured deposits as we hit the limits of what FDIC can cover and insured deposits will start to flow out and into systemically important banks as well, further accelerating the death spiral of all but the biggest banks. This isn’t some made up scenario, start asking people that have underinsured depositors about their money movement plans.
> every bank that isn’t considered too big to fail will see all their uninsured deposits start moving out
Small banks usually had to pay more for deposits and run conservative books for this reason.
Small banks usually had to pay more for deposits and run conservative books for this reason.
I would guess that FRB's loan portfolio is heavy on fixed rates. At least that's what the products they've sold looks like.
Products sold to customers may not be assets held.
They specifically don't resell the mortgages, it's part of their marketing.
I'm not sure i understand the difference here between "a liquidity crisis" and bankruptcy. people want to withdraw their deposits made at low interest rates and invest them with better yields.
The banks have misrepresented their ability to pay out the current deposits.
The banks have misrepresented their ability to pay out the current deposits.
It's a claim about what would happen given more time. Imagine I owe you a million dollars in cash, and also own a house that is probably worth about $1.5M. Houses are not very liquid: each transaction takes a lot of slow evaluation, you need to find the right person, etc. Best case for turning it into cash at close to its value is about a month, often takes a few months. So if I suddenly needed to pay back my loan to you we could say I'm in a liquidity crisis: given time to liquidate I'm good for it (my net worth is positive) but I don't have the cash on hand now.
On the other hand, if the house is actually only worth $750k, then my issue is solvency. Even taking time to sell the house for as much as possible I won't have enough to pay everything I owe, and will need to go into bankruptcy. And we don't know for sure until I actually try hard to sell the house.
People running into issues of solvency often say that they are running into a liquidity issue, however, through some mix of wishful thinking, hoping for self-fulfilling prophecies, and lying.
On the other hand, if the house is actually only worth $750k, then my issue is solvency. Even taking time to sell the house for as much as possible I won't have enough to pay everything I owe, and will need to go into bankruptcy. And we don't know for sure until I actually try hard to sell the house.
People running into issues of solvency often say that they are running into a liquidity issue, however, through some mix of wishful thinking, hoping for self-fulfilling prophecies, and lying.
No bank in the world could pay out all its deposits immediately.
Can I just open a bank account at the federal reserve directly rather than worrying about bank failure?
Would be nice if we could open an account at the local post office: https://en.wikipedia.org/wiki/Postal_savings_system
No but you can buy government bonds.
Recall that a dollar bill is a promise by the federal reserve to pay a dollar. There is no guarantee that that promise holds.
If the promise doesn't hold, then the American financial system comes crashing down and you have bigger worries than that.
That feels circular, what is a dollar then
In time.
So I see Ally may be at risk too, great I have savings there...
Pretty scary to go from thinking you have a safe emergency fund regardless of the market to a potential bank run seemingly overnight.
Wondering what tomorrow will look like and how many people are wait to transfer funds out of any at risk bank.
Pretty scary to go from thinking you have a safe emergency fund regardless of the market to a potential bank run seemingly overnight.
Wondering what tomorrow will look like and how many people are wait to transfer funds out of any at risk bank.
If you have anything less than 250k in cash, it’s silly to transfer it out
There is risk of it being locked up for some period. Specially if the system gets busy and there is multiple banks failing at one time.
Nah, FDIC-insured funds are available the next business day in every bank failure. Funds over the limit could be locked up but their primary goal is to make sure that $250k is ~immediately available.
Would that actually be case if a dozen banks failed in single day or a hundred? Does FDIC have enough man power to handle all of these banks at one time simultaneously?
I suspect that’s why they are offering 1.5-2x comp for SVB employees at the moment. They know the SVB systems. They are these power to get out of the situation.
I imagine the same would happen in other situations.
I imagine the same would happen in other situations.
What? AFAIK the FDIC just keeps paying employees as normal. Where’d you hear about 1.5-2x comp, except perhaps in the event they’re hourly employees working overtime, which would just fall under normal overtime rules not some special FDIC bonus.
Employees at SVB have roughly the same game theory decisions to stay or leave as depositors did. It costs nothing to leave right now and go work for a rival bank, but the last person out the door is going to have a very hard time… there are only a certain number of jobs / job opening for their roles so the FDIC did indeed offer a premium to keep them around.
https://www.forbes.com/sites/jackkelly/2023/03/11/some-silic...
https://www.forbes.com/sites/jackkelly/2023/03/11/some-silic...
They are paying 1.5x for retention.
Dozens of banks, very likely yes, hundreds - probably not the next day but the ability to resolve dozens should be enough to prevent hundreds from needing help.
[deleted]
It may be irrational, but then irrational behavior is whats leads to bank runs.
Why should I keep my money there if I can hit a few buttons and move it somewhere with less perceived risk? What if every one is thinking like that? Great FDIC will step in quickly, I hope.
I think tomorrow will be interesting in general to see how things hold up.
Why should I keep my money there if I can hit a few buttons and move it somewhere with less perceived risk? What if every one is thinking like that? Great FDIC will step in quickly, I hope.
I think tomorrow will be interesting in general to see how things hold up.
I was thinking to pull out my money. Maybe Redneck bank, but ultimately chose not to this morning. I have less thank 250k. I might pull out 40k for 4 week bills. But that’s just for better interest while staying relatively liquid.
There hasn’t been a reason to be in Ally for at least the past year or so, they’ve been WAY behind other banks in raising their rates along with the Fed rate hikes. Tons of competitors are offering 4-5% now on savings, and short-term T-Bills and money market funds are also above 4%.
What makes you say that, other than the fact that Ally is a smaller bank?
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The gang finds out about fractional reserve banking.
Now this is a strange bank
Banks do not lend against deposits. Fractional reserve banking is not what we do
No bail out! It's your own fault for! You shouldn't have taken such insane risks! You deserve to lose your money, that's capitalism in action! We shouldn't socialize your losses!
Ah, the age old question: is it cheaper to bailout (to one degree or another) 1 bank or watch 9 more fail because they're in the same position but the run hasn't started yet...
I wonder how much this outcome was foreseen and discussed by the fed when they went into full rate rise mode.
I wonder how much this outcome was foreseen and discussed by the fed when they went into full rate rise mode.
Is it cheaper to let 9 more fail or give the green light to moral hazard for hundreds or thousands more?
Well we should really not rely on morality, we should have regulation instead. Otherwise letting bankers gamble away depositors money is not really any better than letting them do it with taxpayer's money. And people will stop using all banks, even honest ones...
Whats the moral hazard here? Every bank is illiquid if pushed hard enough.
SVB wasn’t illiquid. They were insolvent, as declared by their regulators. If they were simply illiquid, they could have borrowed at the Fed’s discount window.
To be fair, the bank run is what made SVB insolvent. Prior to that, all they had was a liquidity problem. A rather big one, but if depositors hadn't bailed, SVB would just have had subpar growth for a few years.
> the bank run is what made SVB insolvent. Prior to that, all they had was a liquidity problem.
The bank run exposed the insolvency. But it was already there. That’s why SVB couldn’t solve their problems at the Fed’s discount window.
SVB lobbied for exemption from the Fed’s stress tests and Basel III that would have prevented this problem. The policy treatment is rolling back those changes so regional banks are covered.
The bank run exposed the insolvency. But it was already there. That’s why SVB couldn’t solve their problems at the Fed’s discount window.
SVB lobbied for exemption from the Fed’s stress tests and Basel III that would have prevented this problem. The policy treatment is rolling back those changes so regional banks are covered.
Panic is contagious. The real risk to any bank these days seems to be a Crypto affiliation. Fatal Bank runs happen if you have a group of people who talk to each other and have a large % of holdings in the bank (so sudden pull of those holdings ends up putting the bank under liquidity thresholds). Circle has the biggest or one of the biggest accounts in SVB and the stable-coin run or another factor made them rebalance. VCs, another large connected cluster at SVB got wind of it, and drained the rest. First Republic has VC exposure but not to Circle. There are 5 other banks that are affiliated with Circle and if any of them are struggling with underwater bonds, that would be a big problem.
There are a lot of interest-rates-weakened non-crypto affiliated banks in the US, but their deposits are mostly under the FDIC threshold. SVB had the worst vin diagram of all: Crypto, large average deposits, and very inter-connected client base.
There are a lot of interest-rates-weakened non-crypto affiliated banks in the US, but their deposits are mostly under the FDIC threshold. SVB had the worst vin diagram of all: Crypto, large average deposits, and very inter-connected client base.
> The real risk to any bank these days seems to be a Crypto affiliation.
Maybe. Meanwhile the second biggest bank failure in the history in the US is undergoing and it has nothing to do with crypto.
> Circle has the biggest or one of the biggest accounts in SVB and the stable-coin run or another factor made them rebalance.
It's Circle's fault now?
> There are 5 other banks that are affiliated with Circle and if any of them are struggling with underwater bonds, that would be a big problem.
Circle, unless they're lying, said they have $5.4 bn at BNY. $3.3 at SIVB and the rest over the 5 other banks. So out of $9.8 bn in USD cash reserves, there is at most $1.1 bn left, spread over 5 banks.
I don't think it's a problem as big as you pretend it is.
I also think it's an argument made in very bad faith that Circle is responsible for this. SIVB had, at one point, $200 bn AuM. $3.3 bn is not nothing but it's not much compared to $200 bn.
Maybe. Meanwhile the second biggest bank failure in the history in the US is undergoing and it has nothing to do with crypto.
> Circle has the biggest or one of the biggest accounts in SVB and the stable-coin run or another factor made them rebalance.
It's Circle's fault now?
> There are 5 other banks that are affiliated with Circle and if any of them are struggling with underwater bonds, that would be a big problem.
Circle, unless they're lying, said they have $5.4 bn at BNY. $3.3 at SIVB and the rest over the 5 other banks. So out of $9.8 bn in USD cash reserves, there is at most $1.1 bn left, spread over 5 banks.
I don't think it's a problem as big as you pretend it is.
I also think it's an argument made in very bad faith that Circle is responsible for this. SIVB had, at one point, $200 bn AuM. $3.3 bn is not nothing but it's not much compared to $200 bn.
In the Circle press announcement they shared that last week, prior to the collapse, they moved several billion into BNY Mellon, and 3.3 remained at SVB. They didn’t say if they removed them FROM SVB to put them into BNY but they didn’t say they didn’t either and the “remained” leads to that assumption. They had pulled assets from Silvergate as well and then Silvergate collapsed, but they have no exposure to it. That tells you that Circle with its gigantic accounts may have realized the banks are vulnerable, pulled its money out (or been forced to by crypto investors cashing in their USDC), and that money is a disproportionately large share of the liquidity those banks were holding. When SVB was shuttered it was underwater by slightly less than a billion. Circle is not to blame, as they did what they probably had to do, but the size of Circle’s accounts would probably bring down most banks in these conditions.
The banks partnering with large crypto whales in a high interest rate environment are likely in deep trouble. SVB was the perfect bank for startups, but its appetite for crypto and poor risk management likely caused the collapse.
https://www.circle.com/blog/an-update-on-usdc-and-silicon-va...
The banks partnering with large crypto whales in a high interest rate environment are likely in deep trouble. SVB was the perfect bank for startups, but its appetite for crypto and poor risk management likely caused the collapse.
https://www.circle.com/blog/an-update-on-usdc-and-silicon-va...
The full list of banks that held cash for Circle’s USDC are Bank of New York Mellon, Citizens Trust Bank, Customers Bank, New York Community Bank (a division of Flagstar Bank, N.A.), Signature Bank, Silicon Valley Bank and Silvergate Bank. Circle also keeps some part of USDC reserves in a dedicated BlackRock fund.
Circle said last week it had cut ties with Silvergate Bank, the crypto-friendly bank that halted operations and said it would “voluntarily liquidate” its assets earlier this week. https://www.coindesk.com/markets/2023/03/10/scrutiny-falls-o...
The SVB run was unrelated to crypto, other than that VCs also invest in crypto startups. We're also past the point of a group of people talking to each other about bank risk; now everyone's looking at it.
Bitcoin solves this.
Few understand.
/s
Few understand.
/s