***OFFICIAL*** Bank Failure/Crisis Thread (1 Viewer)

[whoknew]

Didn't see a thread on this but it seems like pretty big news.

Silicon Valley Bank is Shut Down by Bank Regulators in Biggest Bank Failure since Global Financial Crisis

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I am not an expert in this area so would love to hear from those that have more knowledge than me. What will this mean overall? Will it hurt a lot of startups? Will it ripple through the economy? Will it affect other banks?

Thanks.

 

[The Z Machine]

Shouldn't have bet on crypto and NFTs.

Just kidding. I have no idea if they got caught up in that or just made other bad investments.

 

[whoknew]

Interesting twitter thread from Morning Brew Daily (@mbdailyshow)

Silicon Valley Bank is imploding before our eyes here is how SVB threw 50 years of goodwill and $80 billion down the drain in just 30 hours.

1/ To understand this situation is to understand SVB's place within the startup ecosystem SVB situated itself as the bank for founders Just signed a fat Series A? Put the money in SVB
2/ And lots of people we're signing fat Series A's back at the start of the pandemic Deposits in SVB grew from $60 billion in 2019 to over $189 billion in 2022
3/ With all that money rolling in, SVB wanted to put the money to work They ended up buying $80 billion in Mortgage Backed Securities (MBS) with an average yield of 1.5%
4/ With interest rates at historic lows, that 1.5% yield didn't look half bad Then interest rates started to rise
5/ With every rate hike, the $80 billion SVB had locked up looked worse and worse Then deposits also started to fall
6/ Those absurd valuations and checks startups were getting? They came back down to earth which means SVB wasn't getting the inflows it once was
7/ Since it was in a more precarious position than before, SVB decided to sell some securities (at a loss) in order to give themselves a little breathing room the idea was to free up more capital and improve their liquidity
8/ Turns out that was a HUGE mistake Even though SVB didn't have a liquidity problem, investors got spooked and reacted as if it did
9/ A hilariously bad and convoluted press release yesterday only served to make investors more nervous over the past two trading days SVB is down over 70% and its still falling
10/ As the stock continues to free fall, SVB has wisely decided to scrap its capital raise not because they realized it was a bad idea but because they are now considering a sale
11/ All of this has obviously spooked founders as well Lots of VCs have jumped in to advise founders to get their money out of SVB that's sparked a bank run
12/ Making matter worse, only 2.7% of SVB deposits are FDIC insured 97.3% aren't
13/ It's truly wild SVB went from one of the most important banks in the startup world with 8,500 employees, to being sold for scraps in the span of 30 hours
14/ Google can't even populate the daily stock chart for SVB right now, its falling so fast
15/ And the broader bank sector is getting slammed too (but most believe the risk of serious contagion is low)

 

[massraider]

Interesting twitter thread from Morning Brew Daily (@mbdailyshow)

Silicon Valley Bank is imploding before our eyes here is how SVB threw 50 years of goodwill and $80 billion down the drain in just 30 hours.

1/ To understand this situation is to understand SVB's place within the startup ecosystem SVB situated itself as the bank for founders Just signed a fat Series A? Put the money in SVB
2/ And lots of people we're signing fat Series A's back at the start of the pandemic Deposits in SVB grew from $60 billion in 2019 to over $189 billion in 2022
3/ With all that money rolling in, SVB wanted to put the money to work They ended up buying $80 billion in Mortgage Backed Securities (MBS) with an average yield of 1.5%
4/ With interest rates at historic lows, that 1.5% yield didn't look half bad Then interest rates started to rise
5/ With every rate hike, the $80 billion SVB had locked up looked worse and worse Then deposits also started to fall
6/ Those absurd valuations and checks startups were getting? They came back down to earth which means SVB wasn't getting the inflows it once was
7/ Since it was in a more precarious position than before, SVB decided to sell some securities (at a loss) in order to give themselves a little breathing room the idea was to free up more capital and improve their liquidity
8/ Turns out that was a HUGE mistake Even though SVB didn't have a liquidity problem, investors got spooked and reacted as if it did
9/ A hilariously bad and convoluted press release yesterday only served to make investors more nervous over the past two trading days SVB is down over 70% and its still falling
10/ As the stock continues to free fall, SVB has wisely decided to scrap its capital raise not because they realized it was a bad idea but because they are now considering a sale
11/ All of this has obviously spooked founders as well Lots of VCs have jumped in to advise founders to get their money out of SVB that's sparked a bank run
12/ Making matter worse, only 2.7% of SVB deposits are FDIC insured 97.3% aren't
13/ It's truly wild SVB went from one of the most important banks in the startup world with 8,500 employees, to being sold for scraps in the span of 30 hours
14/ Google can't even populate the daily stock chart for SVB right now, its falling so fast
15/ And the broader bank sector is getting slammed too (but most believe the risk of serious contagion is low)

Holy Shnikies

 

[CletiusMaximus]

This bank was reportedly on Forbes list of "Best Banks" 4 days ago - https://pbs.twimg.com/media/Fq4EUs5WIAw3odv?format=png&name=360x360.

This is like ENRON / Madoff stuff where we'll probably see some folks coming out of the woodwork who predicted this months ago and everyone ignored them.

 

[whoknew]

This bank was reportedly on Forbes list of "Best Banks" 4 days ago - https://pbs.twimg.com/media/Fq4EUs5WIAw3odv?format=png&name=360x360.

This is like ENRON / Madoff stuff where we'll probably see some folks coming out of the woodwork who predicted this months ago and everyone ignored them.

Look forward to the HBO “Too Big to Fail” type movie.

 

[The Z Machine]

Gotta diversify yo bonds...

 

[McBokonon]

This is like ENRON / Madoff stuff where we'll probably see some folks coming out of the woodwork who predicted this months ago and everyone ignored them.

It happened. I posted this in the stock thread, but this guy in my Fintwit feed pointed out their issues in January. He pretty much nailed it.

 

[Sand]

Gotta diversify yo bonds...

And even then they should have been fine at maturity of these. At 1.5% it doesn't sound like these were risky securities.

 

[massraider]

This is like ENRON / Madoff stuff where we'll probably see some folks coming out of the woodwork who predicted this months ago and everyone ignored them.

It happened. I posted this in the stock thread, but this guy in my Fintwit feed pointed out their issues in January. He pretty much nailed it.

Thanks, What's a Fintwit feed, is this some Twitter list I can follow (please share)?

Looks like this wasn't some crazy fraud, just buying at the top of the bond market, and not much new deposits squeezed them?

 

[McBokonon]

It happened. I posted this in the stock thread, but this guy in my Fintwit feed pointed out their issues in January. He pretty much nailed it.

Thanks, What's a Fintwit feed, is this some Twitter list I can follow (please share)?

Looks like this wasn't some crazy fraud, just buying at the top of the bond market, and not much new deposits squeezed them?

It’s just my curated list of financial twitter people I follow. And yes, you pretty much summarized it.

Here’s a good summary. The author removed the paywall: https://www.netinterest.co/p/the-demise-of-silicon-valley-bank

 

[Juxtatarot]

Long-term, low rate investments coupled with rate sensitive depositors is a bad combo when rates rise. This is, like, Banking 101.

 

[culdeus]

Gotta diversify yo bonds...

And even then they should have been fine at maturity of these. At 1.5% it doesn't sound like these were risky securities.

Fine till some VC firm pulls their deposits out.

 

[IvanKaramazov]

I'm seeing a lot of stuff on Twitter about depositing firms actually getting hammered here. Do businesses (or, hell, anybody) actually keep cash in a bank above whatever the FDIC guarantees? Because if so, oof.

 

[FreeBaGeL]

Shouldn't have bet on crypto and NFTs.

Just kidding. I have no idea if they got caught up in that or just made other bad investments.

SVB wasn't crypto. It was tech startups and venture capital they primarily banked.

 

[Quint]

SVB is/was a main player in financing wineries in CA.

 

[otb2huffing]

SVB is/was a main player in financing wineries in CA.

talk about sideways, eh?

 

[mr. furley]

this hit my work related radar this afternoon and scrambling has ensued at levels above me.

next week should be fun.

 

[massraider]

Silicon Valley Bank has 50% of US VC-backed startups as customers

There are over 130,000 VC-backed companies, according to PitchBook.

That's nearly 65,000 startups that used SVB


From some person on Twitter

 

[Leeroy Jenkins]

I wonder if this may halt the next waive of rate hikes. Rates have been historically low for a long time. So every bank will have a ton of these low yield longer term investments --which are inherently safe. Rates are rising so fast now, that a lot of other institutions could have similar problems -- but perhaps not quite so magnified as a high VC bank with so much uninsured volume.

 

[culdeus]

Shouldn't have bet on crypto and NFTs.

Just kidding. I have no idea if they got caught up in that or just made other bad investments.

SVB wasn't crypto. It was tech startups and venture capital they primarily banked.

I mean their bad investments were 10 year treasuries bought with USD. The opposite of crypto.

 

[massraider]

Let's just get this out of the way:



Jim Cramer said Silicon Valley Bank was a buy last month at $320

 

[culdeus]

Let's just get this out of the way:



Jim Cramer said Silicon Valley Bank was a buy last month at $320

bwahahahahaha

 

[FairWarning]

Let's just get this out of the way:



Jim Cramer said Silicon Valley Bank was a buy last month at $320

Buy the dip?

 

[New Binky the Doormat]

Shouldn't have bet on crypto and NFTs.

Just kidding. I have no idea if they got caught up in that or just made other bad investments.

SVB wasn't crypto. It was tech startups and venture capital they primarily banked.

I mean their bad investments were 10 year treasuries bought with USD. The opposite of crypto.

so those 10 year US treasuries were bad investments?

because they needed something more liquid ...or some other reason?

 

[Psychopav]

Interesting twitter thread from Morning Brew Daily (@mbdailyshow)

Silicon Valley Bank is imploding before our eyes here is how SVB threw 50 years of goodwill and $80 billion down the drain in just 30 hours.

1/ To understand this situation is to understand SVB's place within the startup ecosystem SVB situated itself as the bank for founders Just signed a fat Series A? Put the money in SVB
2/ And lots of people we're signing fat Series A's back at the start of the pandemic Deposits in SVB grew from $60 billion in 2019 to over $189 billion in 2022
3/ With all that money rolling in, SVB wanted to put the money to work They ended up buying $80 billion in Mortgage Backed Securities (MBS) with an average yield of 1.5%
4/ With interest rates at historic lows, that 1.5% yield didn't look half bad Then interest rates started to rise
5/ With every rate hike, the $80 billion SVB had locked up looked worse and worse Then deposits also started to fall
6/ Those absurd valuations and checks startups were getting? They came back down to earth which means SVB wasn't getting the inflows it once was
7/ Since it was in a more precarious position than before, SVB decided to sell some securities (at a loss) in order to give themselves a little breathing room the idea was to free up more capital and improve their liquidity
8/ Turns out that was a HUGE mistake Even though SVB didn't have a liquidity problem, investors got spooked and reacted as if it did
9/ A hilariously bad and convoluted press release yesterday only served to make investors more nervous over the past two trading days SVB is down over 70% and its still falling
10/ As the stock continues to free fall, SVB has wisely decided to scrap its capital raise not because they realized it was a bad idea but because they are now considering a sale
11/ All of this has obviously spooked founders as well Lots of VCs have jumped in to advise founders to get their money out of SVB that's sparked a bank run
12/ Making matter worse, only 2.7% of SVB deposits are FDIC insured 97.3% aren't
13/ It's truly wild SVB went from one of the most important banks in the startup world with 8,500 employees, to being sold for scraps in the span of 30 hours
14/ Google can't even populate the daily stock chart for SVB right now, its falling so fast
15/ And the broader bank sector is getting slammed too (but most believe the risk of serious contagion is low)

The bolded is maybe the most interesting part to me. As part of the broader recession narrative, I wonder if the Crypto/tech sector layoffs/now silicon valley bank fail are relatively insulated from the broader economy. Hoping so, time will tell.

 

[Ted Lange as your Bartender]

ROKU just announced that 26% of their total cash was held at SVB. ooooooof

 

[dickey moe]

Let's just get this out of the way:



Jim Cramer said Silicon Valley Bank was a buy last month at $320

Even more value to be had now!

 

[Runkle]

ROKU just announced that 26% of their total cash was held at SVB. ooooooof

Also the cash was “largely uninsured", that's gonna hurt

 

[Andrew74]

Long-term, low rate investments coupled with rate sensitive depositors is a bad combo when rates rise. This is, like, Banking 101.

It’s not like there isn’t an example of this in history (S&L crisis) FFS.

Not only ballooning a bond portfolio at low rates but buying securities (MBS) that extend when rates rise, exacerbating the price drop. This is kindergarten-level Asset/Liability management.

 

[Desert_Power]

Gotta diversify yo bonds...

And even then they should have been fine at maturity of these. At 1.5% it doesn't sound like these were risky securities.

Right. But when you lose deposits and have to liquidate them at a loss...

 

[Desert_Power]

Shouldn't have bet on crypto and NFTs.

Just kidding. I have no idea if they got caught up in that or just made other bad investments.

SVB wasn't crypto. It was tech startups and venture capital they primarily banked.

I mean their bad investments were 10 year treasuries bought with USD. The opposite of crypto.

so those 10 year US treasuries were bad investments?

because they needed something more liquid ...or some other reason?

No. When rates go up, the price of a bond goes down. If you hold it to maturity, nothing happens. If you need to sell it at depressed values due to deposit run, you take that loss.

 

[Sand]

ROKU just announced that 26% of their total cash was held at SVB. ooooooof

And yet I wonder how much is actually lost here. This bank suffered a run and didn't have the liquidity to continue. Sounds like most of their deposits were in MBS and UST. Those will mature. So the question is, given enough time, what is the percentage that can be returned to depositors? I'd think it would be pretty high - this isn't FTX.

 

[Sand]

Shouldn't have bet on crypto and NFTs.

Just kidding. I have no idea if they got caught up in that or just made other bad investments.

SVB wasn't crypto. It was tech startups and venture capital they primarily banked.

I mean their bad investments were 10 year treasuries bought with USD. The opposite of crypto.

so those 10 year US treasuries were bad investments?

because they needed something more liquid ...or some other reason?

No. When rates go up, the price of a bond goes down. If you hold it to maturity, nothing happens. If you need to sell it at depressed values due to deposit run, you take that loss.

And they did that, but it was a small fraction of their total (and a huge mistake).

 

[New Binky the Doormat]

Shouldn't have bet on crypto and NFTs.

Just kidding. I have no idea if they got caught up in that or just made other bad investments.

SVB wasn't crypto. It was tech startups and venture capital they primarily banked.

I mean their bad investments were 10 year treasuries bought with USD. The opposite of crypto.

so those 10 year US treasuries were bad investments?

because they needed something more liquid ...or some other reason?

No. When rates go up, the price of a bond goes down. If you hold it to maturity, nothing happens. If you need to sell it at depressed values due to deposit run, you take that loss.

thats what i said ...

 

[CletiusMaximus]

ROKU just announced that 26% of their total cash was held at SVB. ooooooof

And yet I wonder how much is actually lost here. This bank suffered a run and didn't have the liquidity to continue. Sounds like most of their deposits were in MBS and UST. Those will mature. So the question is, given enough time, what is the percentage that can be returned to depositors? I'd think it would be pretty high - this isn't FTX.

Probably at or very close to 100% but many will suffer due to having large sums tied up for possibly weeks or longer.

 

[The Z Machine]

Probably at or very close to 100% but many will suffer due to having large sums tied up for possibly weeks or longer.

Let's sat it's 99%. Who are the 1% that gets the haircut?

 

[CletiusMaximus]

As Matt Levine put it in his article at Bloomberg this afternoon:

If you are a bank looking at buying SVB, and you do a detailed analysis of its assets and conclude that they are worth $180 billion, and you come to the FDIC and say “I will take over this bank and pay the uninsured depositors 95 cents on the dollar,” the FDIC is going to look at you and say “don’t you mean 100 cents on the dollar,” and you are going to say “oh right yes of course, silly me, 100 cents on the dollar.”

Presumably, equity will get a cup of coffee and a kick in the ###.

 

[CletiusMaximus]

Probably at or very close to 100% but many will suffer due to having large sums tied up for possibly weeks or longer.

Let's sat it's 99%. Who are the 1% that gets the haircut?

uninsured deposits pro rata

 

[The Z Machine]

Probably at or very close to 100% but many will suffer due to having large sums tied up for possibly weeks or longer.

Let's sat it's 99%. Who are the 1% that gets the haircut?

uninsured deposits pro rata

Well that makes the calculations easier and the legal battles less fun.

 

[New Binky the Doormat]

really enjoy the crypto bros rolling in ...

 

[Desert_Power]

I wonder if this may halt the next waive of rate hikes. Rates have been historically low for a long time. So every bank will have a ton of these low yield longer term investments --which are inherently safe. Rates are rising so fast now, that a lot of other institutions could have similar problems -- but perhaps not quite so magnified as a high VC bank with so much uninsured volume.

Yep. Financial stability is still part of the mandate. This is a big part of the story on the Silvergate failure too. The scramble for deposits is heating up.

 

[Alex P Keaton]

I'm seeing a lot of stuff on Twitter about depositing firms actually getting hammered here. Do businesses (or, hell, anybody) actually keep cash in a bank above whatever the FDIC guarantees? Because if so, oof.

I have, unfortunately, deep familiarity with a firm that had/has $28m in a single SVB account.

 

[Alex P Keaton]

Probably at or very close to 100% but many will suffer due to having large sums tied up for possibly weeks or longer.

Let's sat it's 99%. Who are the 1% that gets the haircut?

Everyone (almost everyone) gets a 1% haircut from their base amount.

 

[The Z Machine]

Probably at or very close to 100% but many will suffer due to having large sums tied up for possibly weeks or longer.

Let's sat it's 99%. Who are the 1% that gets the haircut?

Everyone (almost everyone) gets a 1% haircut from their base amount.

Eh, it could be worse.

 

[Alex P Keaton]

ROKU just announced that 26% of their total cash was held at SVB. ooooooof

And yet I wonder how much is actually lost here. This bank suffered a run and didn't have the liquidity to continue. Sounds like most of their deposits were in MBS and UST. Those will mature. So the question is, given enough time, what is the percentage that can be returned to depositors? I'd think it would be pretty high - this isn't FTX.

Probably at or very close to 100% but many will suffer due to having large sums tied up for possibly weeks or longer.

Just heard from a super connected colleague who knows one of the FDIC guys in charge of dismantling SVB. Here’s what he said will happen:
- any account holders will get paid up to $250k on Monday (basically what they had insured)
- they will get paid 50% of their outstanding balance within 1-2 more business days (midweek next week)
- money market account holders will get paid 100% this week
- remainder could take 3-6 months depending on claims, time it takes to liquidate assets, etc
- FDIC has already sold half of SBV’s assets as of today (they started selling at FDIC direction two weeks ago)

Details might vary, but those are the broad brushstrokes conveyed to me.

 

[Desert_Power]

I'm seeing a lot of stuff on Twitter about depositing firms actually getting hammered here. Do businesses (or, hell, anybody) actually keep cash in a bank above whatever the FDIC guarantees? Because if so, oof.

It wasn't really the case in a Reg Q world, but has been increasingly happening since it's repeal in 2011. Business demand accounts used to be routinely swept into other investment products or included in an analysis product which gives an earnings credit rate to offset other service fees. Increasingly, business deposits have migrated to interest bearing deposit accounts that banks offer. The promulgation of Basel III liquidity standards increases the importance of these deposits to firms subject to the Liquidity Coverage Ratio.

Personal side of FDIC insurance is a little more complicated as insurance can be extended by different ownership type (joint vs personal) and most banks offer a sweep insurance product to a sister bank under the same parent or a correspondent bank. So there are ways for certain firms with these products/tools to extend coverage much more than the $250k you often see quoted.

This whole category has seen a relative explosion as the low rate environment limited alternatives. Demographics also seem to contribute to the stale money getting stuck places.

 

[Desert_Power]

FDIC has already sold half of SBV’s assets as of today (they started selling at FDIC direction two weeks ago)

That is a very interesting nugget that could explain some of the price movements in bonds lately. Also not sure that is something that should really be public...

 

[Alex P Keaton]

FDIC has already sold half of SBV’s assets as of today (they started selling at FDIC direction two weeks ago)

That is a very interesting nugget that could explain some of the price movements in bonds lately. Also not sure that is something that should really be public...

Well thankfully we are all just dudes on a message board. And SVB is barely a public company anymore. No disagreement though.

 

[Desert_Power]

FDIC has already sold half of SBV’s assets as of today (they started selling at FDIC direction two weeks ago)

That is a very interesting nugget that could explain some of the price movements in bonds lately. Also not sure that is something that should really be public...

Well thankfully we are all just dudes on a message board. And SVB is barely a public company anymore. No disagreement though.

Yep, I get it. Have to deal with the info wall daily so was just making an observation. The rumor mill has been quite active today.

Something like this starting two weeks ago does somewhat explain speculation on the other regional banks. The regulators really need to use this weekend to sift through what is going on.