[Bank failure discussion mega-thread]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
curmudgeon
Posts: 2630
Joined: Thu Jun 20, 2013 11:00 pm

[Bank failure discussion mega-thread]

Post by curmudgeon »

[Title was "Bank stress from bond holdings - SVB". The FDIC has taken over bank. See this post and the FDIC press release 3/10/2023.]

Update: March 12, 2023: Title was "[Silicon Valley Bank fails, FDIC takes over]". New York’s Signature Bank has now been closed. See: Federal Reserve Board - Joint Statement by Treasury, Federal Reserve, and FDIC.

Use this thread to discuss bank failures. Stay focused on comments directly actionable as a personal investor. Forum policy regarding economic and political policy comments remains in effect (not permitted). --admin LadyGeek


There was a major drop in bank shares today, beyond the general market down day. It was led by Silicon Valley Bank (off 60%). Decent article in the WSJ about it. The basic premise seems to be the SVB had taken in a large growth in deposits the last several years, and turned around and invested those deposits in "safe" government bonds. The rise in interest rates has knocked a lot of value off of those bonds, but banks don't have to recognize those losses if they "intend to hold to maturity". The rub comes when depositors start spending down their accounts and/or moving their money into something else (like T-bills). Then the bank has to start selling those devalued bonds and actually book the loss.

It turns out that SVB has something like $16B of off-books loss in their bond holdings, nearly equal to their total capital. They've had to recognize about $2B of loss in selling a different category of bond holdings this quarter, and announcing that drove today's market actions.

It's an interesting question whether this will precipitate a run on SVB, and what vulnerabilities there may be in other banks. I'm sure there will be a lot of looking at the footnotes of bank financial statements (where the lower current values are reported). I could see a lot of big corporate depositors pulling money out of SVB because the FDIC insurance doesn't give much, if any, coverage for them.

I'd be interested in thoughts from others about whether this is a narrow issue tied to a few special cases, or a broader risk.
daektr
Posts: 60
Joined: Sat Apr 07, 2018 6:18 pm

Re: Bank stress from bond holdings - SVB

Post by daektr »

Run is already underway, absolutely crazy behind the scenes today.

Ask yourself - if you ran a company & had all the money you needed to make payroll in a bank & your investors started warning you there was some risk… what would you do?

Not everyone got out before they froze things, though. Tomorrow is going to be interesting.
smectym
Posts: 1530
Joined: Thu May 26, 2011 5:07 pm

Re: Bank stress from bond holdings - SVB

Post by smectym »

curmudgeon wrote: Thu Mar 09, 2023 11:40 pm There was a major drop in bank shares today, beyond the general market down day. It was led by Silicon Valley Bank (off 60%). Decent article in the WSJ about it. The basic premise seems to be the SVB had taken in a large growth in deposits the last several years, and turned around and invested those deposits in "safe" government bonds. The rise in interest rates has knocked a lot of value off of those bonds, but banks don't have to recognize those losses if they "intend to hold to maturity". The rub comes when depositors start spending down their accounts and/or moving their money into something else (like T-bills). Then the bank has to start selling those devalued bonds and actually book the loss.

It turns out that SVB has something like $16B of off-books loss in their bond holdings, nearly equal to their total capital. They've had to recognize about $2B of loss in selling a different category of bond holdings this quarter, and announcing that drove today's market actions.

It's an interesting question whether this will precipitate a run on SVB, and what vulnerabilities there may be in other banks. I'm sure there will be a lot of looking at the footnotes of bank financial statements (where the lower current values are reported). I could see a lot of big corporate depositors pulling money out of SVB because the FDIC insurance doesn't give much, if any, coverage for them.

I'd be interested in thoughts from others about whether this is a narrow issue tied to a few special cases, or a broader risk.
curmudgeon, yes this is an issue for many smaller/regional banks and (for now) to a lesser extent for the big boys. The deposit run is gathering steam, not just by big commercial depositors, but also hordes of “little guys” who’ve woken up to the potential for yield at greener pastures and are now moving their money. The bank run based on rate arbitrage then can accelerate whenever a whiff of negative news hits a specific name, and depositors decide discretion is the better part, and just pull their funds: “shoot first and ask questions later.”

Let’s see what happens; but I doubt SVB is purely idiosyncratic.
Makefile
Posts: 2657
Joined: Fri Apr 22, 2016 11:03 pm

Re: Bank stress from bond holdings - SVB

Post by Makefile »

smectym wrote: Fri Mar 10, 2023 1:10 am curmudgeon, yes this is an issue for many smaller/regional banks and (for now) to a lesser extent for the big boys. The deposit run is gathering steam, not just by big commercial depositors, but also hordes of “little guys” who’ve woken up to the potential for yield at greener pastures and are now moving their money. The bank run based on rate arbitrage then can accelerate whenever a whiff of negative news hits a specific name, and depositors decide discretion is the better part, and just pull their funds: “shoot first and ask questions later.”

Let’s see what happens; but I doubt SVB is purely idiosyncratic.
Are you basically describing the S&L crisis? Or not so much since banks sell their mortgages now?
smectym
Posts: 1530
Joined: Thu May 26, 2011 5:07 pm

Re: Bank stress from bond holdings - SVB

Post by smectym »

Makefile wrote: Fri Mar 10, 2023 1:19 am
smectym wrote: Fri Mar 10, 2023 1:10 am curmudgeon, yes this is an issue for many smaller/regional banks and (for now) to a lesser extent for the big boys. The deposit run is gathering steam, not just by big commercial depositors, but also hordes of “little guys” who’ve woken up to the potential for yield at greener pastures and are now moving their money. The bank run based on rate arbitrage then can accelerate whenever a whiff of negative news hits a specific name, and depositors decide discretion is the better part, and just pull their funds: “shoot first and ask questions later.”

Let’s see what happens; but I doubt SVB is purely idiosyncratic.
Are you basically describing the S&L crisis? Or not so much since banks sell their mortgages now?
Makefile, it’s premature to dub this any sort of crisis, though perhaps it may morph into one. Right now, bank holdings of fixed rate securities yielding historically abnormally low rates due to the financial repression of the last decade, are running afoul of the Fed’s sudden and rapid pivot to higher interest rates; thus, bank bond portfolios are deeply underwater. “Normally not a problem” as banks “HTM” (= “Hold Till Maturity”) but, as Silicon Valley Bank just learned, sometimes you have to sell.

It’s unclear how this will unfold; let’s see what happens.
Tanelorn
Posts: 2370
Joined: Thu May 01, 2014 9:35 pm

Re: Bank stress from bond holdings - SVB

Post by Tanelorn »

The banking sector was -5% yesterday, everything from JPM to BAC on the big side, to KRE the regional banking etf. Surely SIVB, last seen -70% in the after hours with prominent VC funds telling everyone to pull their cash out immediately, is not alone in having owned lots of boring bonds and mortgages. These have gotten hammered by the Fed’s rate hikes and subsequent failure to control inflation, with recent rising rate expectations continuing that pain.

The only difference is all the regional banks that did this haven’t had anyone publicly say “pull your money out” and trigger the same bank run that would force them to sell all their “held to maturity” investments at big losses. SIVB’s unrealized losses were as big as their equity as of EOY, and I’m sure that didn’t improve since.

You can dismiss the liquidation of Silvergate as a one off crypto failure and talk about more regulation, but SIVB a was a $15B mkt cap bank, member of the S&P500 and they might be a zero for their shareholders if there’s no immediate bailout forthcoming.

Looking like we’re in for some “interesting times”
User avatar
novolog
Posts: 450
Joined: Tue Jan 30, 2018 5:24 pm
Location: Greater Boston

Re: Bank stress from bond holdings - SVB

Post by novolog »

lol they top ticked the bond market with what appears to be… the majority of their capital. What a bunch of morons.

it’s funny how you can just fail upwards during a bull market
S&P 500 + Bitcoin
InvestInPasta
Posts: 213
Joined: Sat Sep 16, 2017 12:42 pm
Location: Italy

Re: Bank stress from bond holdings - SVB

Post by InvestInPasta »

https://youtu.be/S735y-gESJ4

This link directs to:
Ava Labs President John Wu discusses Silicon Valley Bank’s shares sinking 60% on Thursday, the reason’s behind the fall and his exposure to the bank.


Please remember forum rule:

refrain from posting naked links - all links should include an explanation or excerpt unless its meaning is clear from the context.


Moderator Pops1860
When I study English I am lazier than my portfolio. Feel free to fix my English and investing mistakes.
saver007
Posts: 236
Joined: Fri Nov 07, 2014 8:18 pm

Re: Bank stress from bond holdings - SVB

Post by saver007 »

Schwab also is sitting on large amount of unrealized losses on their held to maturities bond portfolio..

Ongoing Fed driven deposit drop and cash sorting and little bit of panic withdrawal can easily lead to a nasty scenario.. if you have funds there or any banks over FDIC limit, now is the time to understand risk your banks taking with customer deposits.
jebmke
Posts: 25474
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Bank stress from bond holdings - SVB

Post by jebmke »

Tanelorn wrote: Fri Mar 10, 2023 2:46 am The banking sector was -5% yesterday, everything from JPM to BAC on the big side, to KRE the regional banking etf. Surely SIVB, last seen -70% in the after hours with prominent VC funds telling everyone to pull their cash out immediately, is not alone in having owned lots of boring bonds and mortgages. These have gotten hammered by the Fed’s rate hikes and subsequent failure to control inflation, with recent rising rate expectations continuing that pain.

The only difference is all the regional banks that did this haven’t had anyone publicly say “pull your money out” and trigger the same bank run that would force them to sell all their “held to maturity” investments at big losses. SIVB’s unrealized losses were as big as their equity as of EOY, and I’m sure that didn’t improve since.

You can dismiss the liquidation of Silvergate as a one off crypto failure and talk about more regulation, but SIVB a was a $15B mkt cap bank, member of the S&P500 and they might be a zero for their shareholders if there’s no immediate bailout forthcoming.

Looking like we’re in for some “interesting times”
Seems like as long as it doesn’t get out of hand this is good in the long run. Like a burn in a forest fire that clears dead wood. Assets get re-priced, businesses fail and capital moves along.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Malinois000
Posts: 183
Joined: Sun Feb 26, 2017 5:08 pm

Silicon Valley Bank Recent Issues

Post by Malinois000 »

[Thread merged into here --admin LadyGeek]

Last month I added a brokered CD from Silicon Valley Bank ($10,000) to my laddered CD's. The last couple of days there has been alarming news regarding what they were doing with their bonds and the individual stock has plummeted. My question is could their current financial problems result in problems from my FDIC insured CD? I'm thinking not but starting to wonder. Thanks for any feedback.
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: Silicon Valley Bank Recent Issues

Post by exodusNH »

Malinois000 wrote: Fri Mar 10, 2023 6:29 am Last month I added a brokered CD from Silicon Valley Bank ($10,000) to my laddered CD's. The last couple of days there has been alarming news regarding what they were doing with their bonds and the individual stock has plummeted. My question is could their current financial problems result in problems from my FDIC insured CD? I'm thinking not but starting to wonder. Thanks for any feedback.
FDIC will make you whole as long as you are within the limits. If you have multiple accounts at the bank, this will help you calculate if you're within the limits.

https://edie.fdic.gov/calculator.html
MrJedi
Posts: 3540
Joined: Wed May 06, 2020 11:42 am

Re: Silicon Valley Bank Recent Issues

Post by MrJedi »

FDIC insures your principal (including accrued interest).

But FDIC does not ensure the original terms of the CD. So if you were hoping to lock in a CD rate for 10 years or something like that, that would be a problem, since you would need to reinvest your money after you get your insured money back.
User avatar
simplesimon
Posts: 4578
Joined: Mon Feb 25, 2008 7:53 pm

Re: Bank stress from bond holdings - SVB

Post by simplesimon »

I am mainly concerned with how this affects commercial lending. It has already slowed down due to rate increases but further slowdowns will have big negative effects on the economy.
User avatar
LadyGeek
Site Admin
Posts: 95686
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Bank stress from bond holdings - SVB

Post by LadyGeek »

I merged Malinois000's thread into a similar discussion.

(Thanks to the member who reported the post and provided a link to this thread.)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
novolog
Posts: 450
Joined: Tue Jan 30, 2018 5:24 pm
Location: Greater Boston

Re: Bank stress from bond holdings - SVB

Post by novolog »

down 60% pre-market :shock:
S&P 500 + Bitcoin
staustin
Posts: 456
Joined: Mon Mar 14, 2011 9:36 am

Re: Bank stress from bond holdings - SVB

Post by staustin »

SVB specialized in venture capital / tech related loans which has come under severe strain. The run started when Peter Thiel and the like instructed their portfolio companies to withdraw cash / move to larger institutions after the silvergate failure. Bank was forced to sell bonds to meet cash drain requirements. The run gains momentum resulting in Bank announcing it needs to raise 2 billion immediately or risk not being able to continue.

This issue was more specific to tech market conditions / bank loan portfolio to unprofitable tech venture companies and not bond portfolio.
jebmke
Posts: 25474
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Bank stress from bond holdings - SVB

Post by jebmke »

staustin wrote: Fri Mar 10, 2023 7:32 am SVB specialized in venture capital / tech related loans which has come under severe strain. The run started when Peter Thiel and the like instructed their portfolio companies to withdraw cash / move to larger institutions after the silvergate failure. Bank was forced to sell bonds to meet cash drain requirements. The run gains momentum resulting in Bank announcing it needs to raise 2 billion immediately or risk not being able to continue.

This issue was more specific to tech market conditions / bank loan portfolio to unprofitable tech venture companies and not bond portfolio.
I suppose the impact will be felt in tech down the road when they can no longer borrow money (or not as cheaply). But in this case, someone will come along and possibly just pick up these loans at a deep discount?
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
muffins14
Posts: 5528
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Bank stress from bond holdings - SVB

Post by muffins14 »

Thanks for nothing, Peter Thiel
Crom laughs at your Four Winds
User avatar
Svensk Anga
Posts: 1612
Joined: Sun Dec 23, 2012 4:16 pm

Re: Bank stress from bond holdings - SVB

Post by Svensk Anga »

I had been planning to move some short term money from money market funds to bank deposits, just in case the MM funds (which are largely Treasuries now) have to freeze redemptions for a while due to the debt ceiling drama. Now I may be at risk of having deposits locked up while FDIC sorts things out. :oops: Its going to be hard to pay my far-flung creditors with cash from the mattress.
CletusCaddy
Posts: 2678
Joined: Sun Sep 12, 2021 4:23 am

Re: Bank stress from bond holdings - SVB

Post by CletusCaddy »

First Republic Bank now down -50% today.

Smells like Lehman contagion to me.
User avatar
whodidntante
Posts: 13114
Joined: Thu Jan 21, 2016 10:11 pm
Location: outside the echo chamber

Re: Bank stress from bond holdings - SVB

Post by whodidntante »

Someone should tell SVB that bonds are for safety. Also, they should be glad for their losses because it means they now get higher yields. 🙄 :twisted:
User avatar
whodidntante
Posts: 13114
Joined: Thu Jan 21, 2016 10:11 pm
Location: outside the echo chamber

Re: Bank stress from bond holdings - SVB

Post by whodidntante »

novolog wrote: Fri Mar 10, 2023 7:01 am down 60% pre-market :shock:
Probably they will be acquired under gunpoint if anyone is able to take their balance sheet. Typically these deals are pretty sweet for the acquiring bank.
mega317
Posts: 5705
Joined: Tue Apr 19, 2016 10:55 am

Re: Bank stress from bond holdings - SVB

Post by mega317 »

whodidntante wrote: Fri Mar 10, 2023 9:03 am Someone should tell SVB that bonds are for safety. Also, they should be glad for their losses because it means they now get higher yields. 🙄 :twisted:
We need to figure out which bh.org account is their burner which posted about holding individual bonds to maturity reduces risk compared to bond mutual funds.
rgs92
Posts: 3436
Joined: Mon Mar 02, 2009 7:00 pm

Re: Bank stress from bond holdings - SVB

Post by rgs92 »

Thanks to Curmudgeon for explaining this situation so clearly. Best to you.
User avatar
whodidntante
Posts: 13114
Joined: Thu Jan 21, 2016 10:11 pm
Location: outside the echo chamber

Re: Bank stress from bond holdings - SVB

Post by whodidntante »

Y’all are viewing this way too negatively. I mean, sure. It could result in a financial crisis where we all get crushed. But I foresee a golden age of bank bonuses being offered as banks broken glass bottle street fight for new money deposits to save their bacon.
bberris
Posts: 2420
Joined: Sun Feb 20, 2011 8:44 am

Re: Silicon Valley Bank Recent Issues

Post by bberris »

Malinois000 wrote: Fri Mar 10, 2023 6:29 am [Thread merged into here --admin LadyGeek]

Last month I added a brokered CD from Silicon Valley Bank ($10,000) to my laddered CD's. The last couple of days there has been alarming news regarding what they were doing with their bonds and the individual stock has plummeted. My question is could their current financial problems result in problems from my FDIC insured CD? I'm thinking not but starting to wonder. Thanks for any feedback.
The insurance covers your principal and interest up to the default date. But you could have a loss if you sell the CD before that happens. In most cases the FDIC assists in the takeover of the failed bank by a stronger bank and there would be no effect on a CD holder. Assuming you don't sell on the secondary market.

SVB has not defaulted. Yet.
alexbogle
Posts: 293
Joined: Thu Sep 22, 2022 8:01 pm

Re: Bank stress from bond holdings - SVB

Post by alexbogle »

is there any reason this should worry me if I hold money market funds like FDLXX, SNSXX, or VUSXX?
"Learn every day, but especially from the experiences of others. It’s cheaper!” -- Jack Bogle
User avatar
simplesimon
Posts: 4578
Joined: Mon Feb 25, 2008 7:53 pm

Re: Bank stress from bond holdings - SVB

Post by simplesimon »

CletusCaddy wrote: Fri Mar 10, 2023 9:00 am First Republic Bank now down -50% today.

Smells like Lehman contagion to me.
I just took a look at FRB's 10K. The unrealized loss on its HTM portfolio is about 1/3 the book value of equity.

Cash and AFS portfolio is about $7B against a $176B deposit base, so only 4% of deposits need to leave before FRB will need to do something to solve its liquidity issue.
alex_686
Posts: 13320
Joined: Mon Feb 09, 2015 1:39 pm

Re: Bank stress from bond holdings - SVB

Post by alex_686 »

Makefile wrote: Fri Mar 10, 2023 1:19 am Are you basically describing the S&L crisis? Or not so much since banks sell their mortgages now?
Yes. The general issue is the same. MBS plugged a big risk hole. But banks will always face duration risk.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
retiringwhen
Posts: 4743
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: Bank stress from bond holdings - SVB

Post by retiringwhen »

Wouldn't the first task of the bank(s) be to raise their interest rates enough to keep money from running out the door?

My credit union has been keeping reasonably close to Treasury MM rates over the past 12 mos., it allows me to keep a modest amount of cash there without regret. Ally, OTOH has fallen behind and I left in a minute after their little bonus quarter.
Johnny Thinwallet
Posts: 454
Joined: Wed Nov 21, 2012 5:07 pm

Re: Bank stress from bond holdings - SVB

Post by Johnny Thinwallet »

alexbogle wrote: Fri Mar 10, 2023 9:30 am is there any reason this should worry me if I hold money market funds like FDLXX, SNSXX, or VUSXX?
I'm very interested in this question as well. I just moved some of our short-term liquid cash into FDLXX earlier this week before I even knew what was going on with SVB. FDLXX holdings are about two dozen short-term treasury bills and that's about it.

My thought (hope?) is that FDLXX fund is about as safe as it gets w/out FDIC insurance. But I also realize there's a chance I could be mistaken with that thought.
User avatar
whodidntante
Posts: 13114
Joined: Thu Jan 21, 2016 10:11 pm
Location: outside the echo chamber

Re: Bank stress from bond holdings - SVB

Post by whodidntante »

mega317 wrote: Fri Mar 10, 2023 9:07 am
whodidntante wrote: Fri Mar 10, 2023 9:03 am Someone should tell SVB that bonds are for safety. Also, they should be glad for their losses because it means they now get higher yields. 🙄 :twisted:
We need to figure out which bh.org account is their burner which posted about holding individual bonds to maturity reduces risk compared to bond mutual funds.
Yes. Of course, bogleheads would never need to sell early. :twisted:
muffins14
Posts: 5528
Joined: Wed Oct 26, 2016 4:14 am
Location: New York

Re: Bank stress from bond holdings - SVB

Post by muffins14 »

Johnny Thinwallet wrote: Fri Mar 10, 2023 9:57 am
alexbogle wrote: Fri Mar 10, 2023 9:30 am is there any reason this should worry me if I hold money market funds like FDLXX, SNSXX, or VUSXX?
I'm very interested in this question as well. I just moved some of our short-term liquid cash into FDLXX earlier this week before I even knew what was going on with SVB. FDLXX holdings are about two dozen short-term treasury bills and that's about it.

My thought (hope?) is that FDLXX fund is about as safe as it gets w/out FDIC insurance. But I also realize there's a chance I could be mistaken with that thought.
FDLXX is a money market fund, and with high yield, there is zero risk of losing principal on such an investment.

Do you hold it at SVB? I’m not sure what the scenarios would be but maybe there’s some hyperbolic scenario where the whole company explodes and the servers are down and it takes you a few days/weeks to transfer your holdings elsewhere if there’s an SPIC insurance issue? This is purely conjecture
Crom laughs at your Four Winds
alex_686
Posts: 13320
Joined: Mon Feb 09, 2015 1:39 pm

Re: Bank stress from bond holdings - SVB

Post by alex_686 »

muffins14 wrote: Fri Mar 10, 2023 10:27 am
Johnny Thinwallet wrote: Fri Mar 10, 2023 9:57 am
alexbogle wrote: Fri Mar 10, 2023 9:30 am is there any reason this should worry me if I hold money market funds like FDLXX, SNSXX, or VUSXX?
I'm very interested in this question as well. I just moved some of our short-term liquid cash into FDLXX earlier this week before I even knew what was going on with SVB. FDLXX holdings are about two dozen short-term treasury bills and that's about it.

My thought (hope?) is that FDLXX fund is about as safe as it gets w/out FDIC insurance. But I also realize there's a chance I could be mistaken with that thought.
FDLXX is a money market fund, and with high yield, there is zero risk of losing principal on such an investment.

Do you hold it at SVB? I’m not sure what the scenarios would be but maybe there’s some hyperbolic scenario where the whole company explodes and the servers are down and it takes you a few days/weeks to transfer your holdings elsewhere if there’s an SPIC insurance issue? This is purely conjecture
We could talk worse case scenarios. SBV could cause a general banking crisis via contagion and freeze the commercial paper market like 2008. Extra safeguards have been put in so I am not concerned at this point.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
GP813
Posts: 1242
Joined: Wed Dec 11, 2019 9:11 am

Re: Bank stress from bond holdings - SVB

Post by GP813 »

The State of California and FDIC have already created a receivership to stop the bank run. Any amount of money customers had outside of FDIC insurance limits will receive a share certificate and as SVB's assets are sold off the customers will be made "whole" but who knows how long that will take. What a mess.

From what is being reported deposits under FDIC limits will be available on Monday to withdraw immediately.
Last edited by GP813 on Fri Mar 10, 2023 10:51 am, edited 1 time in total.
trirunner
Posts: 216
Joined: Fri Feb 26, 2021 3:14 pm

Re: Bank stress from bond holdings - SVB

Post by trirunner »

No worse case scenario. SVB already shut down and FDIC took over. In my opinion, a big nothing burger, bank fail even in good times.
MindBogler
Posts: 1446
Joined: Wed Apr 17, 2013 12:05 pm

Re: Bank stress from bond holdings - SVB

Post by MindBogler »

trirunner wrote: Fri Mar 10, 2023 10:51 am No worse case scenario. SVB already shut down and FDIC took over. In my opinion, a big nothing burger, bank fail even in good times.
The risk is that this spreads to other banks. Banks aren't paying enough interest to keep deposits. The 3mo treasury is at ~5% while banks are paying 4%.
trirunner
Posts: 216
Joined: Fri Feb 26, 2021 3:14 pm

Re: Bank stress from bond holdings - SVB

Post by trirunner »

MindBogler wrote: Fri Mar 10, 2023 10:53 am
trirunner wrote: Fri Mar 10, 2023 10:51 am No worse case scenario. SVB already shut down and FDIC took over. In my opinion, a big nothing burger, bank fail even in good times.
The risk is that this spreads to other banks. Banks aren't paying enough interest to keep deposits. The 3mo treasury is at ~5% while banks are paying 4%.
As has been said, there are firewall in the banking system, all those stress tests since 08. SVB is not too big to fail, there are likely more small bank failures going forward. But systemically important banks are well capitalized from the stress test. please don't spread unnecessary panic.
User avatar
firebirdparts
Posts: 4411
Joined: Thu Jun 13, 2019 4:21 pm
Location: Southern Appalachia

Re: Bank stress from bond holdings - SVB

Post by firebirdparts »

What I'm not following is this: Does anybody know why long treasuries are up 2% today? I've never seen them move that much in one day. TMF is up 7%, and that's what I actually looked at.
This time is the same
trirunner
Posts: 216
Joined: Fri Feb 26, 2021 3:14 pm

Re: Bank stress from bond holdings - SVB

Post by trirunner »

firebirdparts wrote: Fri Mar 10, 2023 10:58 am What I'm not following is this: Does anybody know why long treasuries are up 2% today? I've never seen them move that much in one day. TMF is up 7%, and that's what I actually looked at.
who knows, market has been fighting the Fed on rates for awhile, maybe hopium, maybe justified. We will know by end of year.
GP813
Posts: 1242
Joined: Wed Dec 11, 2019 9:11 am

Re: Bank stress from bond holdings - SVB

Post by GP813 »

trirunner wrote: Fri Mar 10, 2023 10:57 am
MindBogler wrote: Fri Mar 10, 2023 10:53 am
trirunner wrote: Fri Mar 10, 2023 10:51 am No worse case scenario. SVB already shut down and FDIC took over. In my opinion, a big nothing burger, bank fail even in good times.
The risk is that this spreads to other banks. Banks aren't paying enough interest to keep deposits. The 3mo treasury is at ~5% while banks are paying 4%.
As has been said, there are firewall in the banking system, all those stress tests since 08. SVB is not too big to fail, there are likely more small bank failures going forward. But systemically important banks are well capitalized from the stress test. please don't spread unnecessary panic.

The SVB scenario can actually ripple through tech and other associated California businesses. Many small startups and small businesses banked with SVB, like half of the money in new tech startups reportedly flowed through this bank. If working capital is frozen for weeks, months, or even years that will have an effect for certain. The fact the State of California stepped in so quickly is probably telling.
Tanelorn
Posts: 2370
Joined: Thu May 01, 2014 9:35 pm

Re: Bank stress from bond holdings - SVB

Post by Tanelorn »

FDIC seized the bank. no answers about what happens if you had more than $250k or if you owned stock in the bank, but I expect you won't like those answers.

https://www.fdic.gov/news/press-release ... 23016.html
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.
trirunner
Posts: 216
Joined: Fri Feb 26, 2021 3:14 pm

Re: Bank stress from bond holdings - SVB

Post by trirunner »

GP813 wrote: Fri Mar 10, 2023 11:01 am
trirunner wrote: Fri Mar 10, 2023 10:57 am
MindBogler wrote: Fri Mar 10, 2023 10:53 am
trirunner wrote: Fri Mar 10, 2023 10:51 am No worse case scenario. SVB already shut down and FDIC took over. In my opinion, a big nothing burger, bank fail even in good times.
The risk is that this spreads to other banks. Banks aren't paying enough interest to keep deposits. The 3mo treasury is at ~5% while banks are paying 4%.
As has been said, there are firewall in the banking system, all those stress tests since 08. SVB is not too big to fail, there are likely more small bank failures going forward. But systemically important banks are well capitalized from the stress test. please don't spread unnecessary panic.

The SVB scenario can actually ripple through tech and other associated California businesses. Many small startups and small businesses banked with SVB, like half of the money in new tech startups reportedly flowed through this bank. If working capital is frozen for weeks, months, or even years that will have an effect for certain. The fact the State of California stepped in so quickly is probably telling.
California startups are not the US economy, and is a very small piece. FDIC step in quickly because it's their job, shutdown a bank that's about to fail. The capital raise failed, and no apparent buyers. just another day at the office, nothing to see here and ignore the scaremongers.
trirunner
Posts: 216
Joined: Fri Feb 26, 2021 3:14 pm

Re: Bank stress from bond holdings - SVB

Post by trirunner »

Tanelorn wrote: Fri Mar 10, 2023 11:03 am FDIC seized the bank. no answers about what happens if you had more than $250k or if you owned stock in the bank, but I expect you won't like those answers.

https://www.fdic.gov/news/press-release ... 23016.html
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.
For treasury/bonds, the receiver is well capitalized to hold to maturity. Not sure about other assets.
GP813
Posts: 1242
Joined: Wed Dec 11, 2019 9:11 am

Re: Bank stress from bond holdings - SVB

Post by GP813 »

trirunner wrote: Fri Mar 10, 2023 11:04 am
GP813 wrote: Fri Mar 10, 2023 11:01 am
trirunner wrote: Fri Mar 10, 2023 10:57 am
MindBogler wrote: Fri Mar 10, 2023 10:53 am
trirunner wrote: Fri Mar 10, 2023 10:51 am No worse case scenario. SVB already shut down and FDIC took over. In my opinion, a big nothing burger, bank fail even in good times.
The risk is that this spreads to other banks. Banks aren't paying enough interest to keep deposits. The 3mo treasury is at ~5% while banks are paying 4%.
As has been said, there are firewall in the banking system, all those stress tests since 08. SVB is not too big to fail, there are likely more small bank failures going forward. But systemically important banks are well capitalized from the stress test. please don't spread unnecessary panic.

The SVB scenario can actually ripple through tech and other associated California businesses. Many small startups and small businesses banked with SVB, like half of the money in new tech startups reportedly flowed through this bank. If working capital is frozen for weeks, months, or even years that will have an effect for certain. The fact the State of California stepped in so quickly is probably telling.
California startups are not the US economy, and is a very small piece. FDIC step in quickly because it's their job, shutdown a bank that's about to fail. The capital raise failed, and no apparent buyers. just another day at the office, nothing to see here and ignore the scaremongers.

I'm not trying to scaremonger please don't characterize my posts. But it can take years for depositors to get payed back, we saw this with the failure of Lehman Brothers and WAMU. This bank was not just startup tech, it was also small businesses, commercial real estate, agriculture, etc. All these industries are important to California.
Last edited by GP813 on Fri Mar 10, 2023 11:17 am, edited 1 time in total.
MrJedi
Posts: 3540
Joined: Wed May 06, 2020 11:42 am

Re: Bank stress from bond holdings - SVB

Post by MrJedi »

FDIC expects to support access to insured deposits by Monday at the latest.
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: Bank stress from bond holdings - SVB

Post by Johm221122 »

MindBogler wrote: Fri Mar 10, 2023 10:53 am
trirunner wrote: Fri Mar 10, 2023 10:51 am No worse case scenario. SVB already shut down and FDIC took over. In my opinion, a big nothing burger, bank fail even in good times.
The risk is that this spreads to other banks. Banks aren't paying enough interest to keep deposits. The 3mo treasury is at ~5% while banks are paying 4%.
Are people who put money in your average bank interested in yield? My main bank I use for my checking account paid extremely low interest as long as I can remember. I can't imagine there business model was people who deposited money for yield
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: Bank stress from bond holdings - SVB

Post by rockstar »

The problem is that t-bills pay significantly more that bank deposits do. The last time the US had high inflation bank savings accounts provided a real yield. Today, with the Internet, it’s really easy to buy bonds instead. This problem would be much bigger if more people were confident buying bonds online.
exodusing
Posts: 2210
Joined: Thu Oct 13, 2022 7:32 am

Re: Bank stress from bond holdings - SVB

Post by exodusing »

"Bank stress from bond holdings".

The problem wasn't that SVB held bonds. The problem was that SVB had deposits that could be withdrawn quickly and assets that had significantly longer terms. Borrow short and lend long is risky and the risk manifested. If they had a more conservative portfolio of assets they wouldn't have a problem. They didn't anticipate that they might have to liquidate longer term bonds in the face of higher interest rates due to depositors withdrawing money, leading to a classic bank run. Bad risk management.
Post Reply