Posted on 03/10/2023 3:41:04 PM PST by dynachrome
At the end of 2022, SVB had uninsured deposits in its US offices of $151.5 billion, versus total deposits of $173 billion. That's 88% of all SVB deposits that didn't have FDIC insurance.
(Excerpt) Read more at finance.yahoo.com ...
I told my beloved I couldn’t believe bus accounts would have more than $250,000 in a bank knowing they wouldn’t be insured for the full amount.
“People got lazy or too sure of the system/bank,” was his reply.
If there was even a business left I rather think firing folks would be in order.
“Lots of $$$ going bye-bye”
On the bright side that makes our remaining dollars slightly more valuable
It’s very curious how that much money was left unprotected by depositors.
They never thought there would be a failure like this. Too big.
Wells Fargo employees didn’t receive their checks today
That’s huge
“The issue here is that banks were forced to buy assets at near zero yields to cover deposits”
Treasuries might fit that description but I’ve never seen a current rule that forces banks to buy them. That was a rule beginning in 1864 but I think it ended in 1913.
And if SBV had kept to short term Treasuries they would have been less exposed.
In a nutshell, actions by the Fed raising interest rates. The bank has depositor money on its hands, and invested the money into loans at higher interest rates than what they pay out to depositors. Unfortunately, the only loans they could find locked them into up to 1.56 interest rates over ten year periods. This is billions of dollars. Then the Fed raised rates, and interest rates ranged from 3.5 to 5 percent. Depositors pulled money, and the bank was stuck waiting for the ten-year loans so had to sell the ten-year loans at a huge loss in order to pay money out to depositors. More money paid out than what they have on hand. Bank scrambled for help from other institutions but failed.
FDIC limit is $ 250,000.
It was certainly bad money management on the part of the account holders. They would have been better off using money market funds, the Fed demonstrated that they get all excited and do something when money market funds break the buck.
When you have a business and must have cash for bills and payroll there isn’t a way I know of to have all deposits insured. One company I worked for used several banks. You never knew which one your payroll would be on.
In my own company cash management always bothered me. One paid invoice could equal many times the insurance limits. So could just our little monthly payroll.
When Penn Square in OKC failed the company I worked for struggled to keep going. Obviously bank failure can be devastating for a company let alone an individual.
That’s true that they would have been less exposed with short term Treasuries. But you want to get some interest to pay operating expenses. And if the interest you pay on deposits doesn’t keep up, depositors withdraw and go elsewhere. it’s a difficult balance.
SANTA CLARA, CALIF. – January 10, 2022—Silicon Valley Bank, the bank of the world’s most innovative companies and their investors, today announced it has committed to provide at least $5 billion by 2027 in loans, investments and other financing to support sustainability efforts and the company has set a goal to achieve carbon neutral operations by 2025.
“Our ability to make a meaningful difference for people and the planet, and to address the systemic risk that climate change presents, is magnified by the outsized impact our innovative clients make,” said Greg Becker, CEO, Silicon Valley Bank. “Over the last 12 years, our Climate Tech and Sustainability and Project Finance teams, for example, have supported hundreds of companies that are working to accelerate the transition to a more sustainable, low carbon world.”
SVB’s sustainable finance commitment aims to support companies that are working to decarbonize the energy and infrastructure industries and hasten the transition to a sustainable, net zero emissions economy in several related sectors:
Circular economy
Climate resilience
Energy efficiency and demand management
Green buildings
Renewable energy, energy storage and grid infrastructure
Sustainable agriculture and alternative foods
Sustainable transportation
Technology solutions that mitigate greenhouse gas emissions
Waste management and pollution control
Water technology
from Bloomberg:
“Stay calm”
Silicon Valley Bank was founded in 1983 and over the decades became the go-to financial institution for startups. Today, it’s a household name in the Bay Area, deeply enmeshed in tech companies’ networks and infrastructure. SBV isn’t just a bank — it makes equity investments, patronizes startups’ services and sponsors lavish industry parties.
This week, though, phones across the startup world are blowing up with the same question: Should we move our money?
The trouble started on Wednesday after SVB took steps to shore up capital following losses stemming from the larger tech downturn. By Thursday morning, the bank’s chief executive officer, Greg Becker, was urging clients to “stay calm.”
Many investors and banking clients failed to take his message to heart. The company’s stock plunged 60% during the day Thursday, shedding almost $10 billion, and then fell as much as 30% in after-hours trading.
Partners at prominent venture firms reached out to their portfolio companies — in some cases urging them to pull their money out of the bank. Among the firms advising caution were Peter Thiel’s Founders Fund, Coatue Management and Union Square Ventures.
But while Thursday’s chaos felt sudden, skittishness about SVB had been percolating in some corners of the industry for months. My colleague Lizette Chapman reviewed an email sent by Greenoaks Capital Partners’ Neil Mehta to portfolio companies back in November warning that banks, including SVB, might get caught short. The problem, Mehta feared, was that institutions were offering higher interest rates to customers to avoid losing clients to competitors. But they weren’t well-positioned to do this because they made a large number of long-term, low-interest loans that were still outstanding, he wrote.
Mehta also voiced what many in the investing world now fear: that SVB may not be the only bank to stumble. Already this week, crypto lender Silvergate Capital Corp. said it planned to shut down. On Thursday, the S&P 500 Financials Index slumped 4.1% — its worst day since mid-2020. And shares of San Francisco’s First Republic Bank fell 17%. Notably, in his email, Mehta warned about First Republic. The bank declined to comment late last night.
Small- and medium-sized banks could find themselves in a particularly delicate position. As my Bloomberg colleagues write: “Rising interest rates have left banks laden with low-interest bonds that can’t be sold in a hurry without losses. So if too many customers tap their deposits at once, it risks a vicious cycle.” Christopher Whalen, chairman of Whalen Global Advisors, said small banks could take a “terrible kicking.” Said Whalen: “Silicon Valley Bank is just the tip of the iceberg.”
Despite Thursday’s chaos, there was no shortage of tech leaders defending SVB — thanks in part to the outsize role the institution has played in the industry. Some urged their compatriots not to abandon SVB in its time of need. G Squared founder Larry Aschebrook called it “truly unfortunate” that VCs were advising companies to pull out money, “making a tough situation for SVB worse by pressing the panic button.”
Others were less diplomatic. Ava Labs President John Wu said his company had already diversified away from its reliance on SVB, and recommended others do the same. “This is a classic bank run,” Wu said in an interview on Bloomberg Television, “and when the bank run starts, you don’t want to be the last guy there.”
Venture firm Tribe Capital was one of the firms advising its portfolio companies to move some, if not all, of their balances from SVB on Thursdsay. “I am getting bad looks from other VCs about it,” said Tribe co-founder Arjun Sethi. “But none of them are objecting.” –Anne VanderMey, Edward Ludlow and Lizette Chapman
Forbes:
“Numerous Wells Fargo online banking users complained of not seeing scheduled paychecks hit their accounts Friday, which the bank blames on a technical issue that does not appear connected to Thursday’s bank stock crash.”
Wow. Go woke go broke.
Tucker exposed the managers last night - bunch of woke womyn.
It is mostly businesses that had deposits above the FDIC limits.
The problem is that their losses have to come from somewhere.
They may have to close down part of their operations, lay off employees, stop paying vendors.
That is a great example of financial contagion.
Just as inflation slowly moves through the economy, deflation (losses) takes time to have its full impact.
Good post—any Senate hearings on these guys will be as bad as the Nevada Senator praising the Corleone family in Congressional hearings in Godfather II.
Yup—their failure made my day.
Their slogan:
Go Big.
Then:
Go woke go broke.
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