Deposit insurance in the U.S. covers a depositor up to $250,000, but if you’re a medium size business or larger, there’s a good chance you have a lot more cash than that tied up in a bank at any given time. What happens when there’s a bank run and most of your company’s operating cash gets trapped in a receivership proceeding? We’ll find out soon enough. This is clearly another Bear Stearns moment.
…the Bank announced a loss of approximately $1.8 billion from a sale of investments and was conducting a capital raise (which we now know failed), and despite the bank being in sound financial condition prior to March 9, 2023, “investors and depositors reacted by initiating withdrawals of $42 billion in deposits from the Bank on March 9, 2023, causing a run on the Bank.“
As a result of this furious drain, as of the close of business on Thursday, March 9, “the bank had a negative cash balance of approximately $958 million.”
Scroll down the article to see the list of companies with deposits at SVB: Roku, Roblox and Rocketlab USA to name a few.
Someone took a haircut.
Fortunately the top executives were each able to sell 3-500K in shares in the last couple weeks.
And they’ll probably get big bonuses when the US government bails out this bank.
The medium and larger size businesses who withdrew $42B did OK. Were they Roku, Roblox and Rocketlab USA? Who was their financial advisor? Probably not my former advisor, TD Brokerage.,
“There is more than $22 Trillion in the U.S. banking system. The FDIC has $124.5 Billion on its balance sheet and a $100 Billion line of credit from the U.S. Treasury. FDIC assets cover only 1.26% of deposits. About the size of Silicon Valley Bank. One bank. Let that sink in.”
https://twitter.com/gaborgurbacs/status/1634329302845079555?t=AxNvCcdQAp4y17J_uDwTmw&s=19
That would help out 1 million depositors at $250,000 limit ea. Not a bad ratio. Big question is what will the people with real money invested do, like Roku with $478 million (26% of its cash) invested with SVB?
Inflation catching up to investments in startups financing. Consumers just ain’t buying anything nowadays except essentials.
This bank SBV specialized in Silicon Valley start-up financing. Start-ups are not doing well in this economy.
The trigger, SVB was issuing $2.25 billion of shares to bolster its capital position after a significant loss on its investment portfolio.
Something is fishy here. SVB announces a moderate $2.25 billion financing (about 1-2% of its holdings) and it immediately fails, triggering a run on the bank? I’m not buying it. How can a financing fail in one day? Something was very wrong before the financing attempt and some people knew about it obviously. Management went for the financing (to buy some time) and their bluff was called. People on the inside waited for the financing announcement and then started to pull their money, knowing the info they had was no longer insider knowledge. Or something like that. You don’t go from financing to bankruptcy in 24 hours. Maybe the company was dead already and the financing was the trigger pull.
Heres a little more info on SVB , Karl Denniger knows how the numbers work and can fill in a few niggling details.
https://market-ticker.org/akcs-www?post=248293
Larry Summers (he of the “moral hazard” in 2008) calls for all the depositors at Silicon Valley Bank to get bailed out 100 percent.
“No atheists in a foxhole, no libertarians in a bank run”
Larry Summers has been nailing the diagnosis but he’s blowing the prognosis. Bad companies should go bust, period. And those who threw in with them should suffer.
How much government paper were they holding? Bonds have been destroyed as a result of the extremely rapid interest rate increases.
From what I have read, SIVB had a lot of mortgage debt and similar investments. Not exactly treasuries, but bond-like stuff. With interest rates rising, they were losing value. As long as SIVB did not have to mark to market everything looked fine. But when they had to admit the real value of their portfolio, probably as part of trying to raise fresh money (the new financing would require they let people look at their books), then it became obvious that SIVB was insolvent and the bank run started.
The real damage was done long before, when the Fed held interest rates near zero for years. Like a termite-infested building that still looks OK from the outside, the collapse can seem sudden. But it really is not.
I expect there will be many, many more such collapses over the next year or two. The cost of the Fed’s ZIRP policy is starting to become apparent. But the MMT lunatics are still pushing for more QE and claiming we can spend outselves rich.
The MMT loons had their moment and it passed. At this, a few months ago, even BloomBerg News carried an in-house editorial calling QE a big mistake. That’s a BFD. I remember for years and years QE skeptics got eye-rolls and were considered ‘crazy’, now we’re vindicated and mainstreaming. A new world is coming.
Your Brave New World is definately coming, hope you are wetting your panties over it.
From what little I’ve read, SVB had a great deal of its assets in low-interest treasuries, as well as long-term mortgage-backed securities. Inflation and the Fed pumping interest rates has greatly devalued those assets, and as a result, when SVB attempted to sell these assets to raise capital, they were unable to get the price they needed to remain solvent.
It is yet another “Thank you, Joe Brandon” moment.
No it’s not. Biden had nothing to do with this. It’s just that this stupid bank got its assets and liabilities correlated with interest rates. This is Powell cleaning out the trash and let me tell you, it’s just getting started. I expect to see badly managed countries go under. Heck Ghana already had a partial default. If this process is even mostly allowed to work, we’ll get an economic golden age out of it.
I agree that clearing out the trash is just getting started. There are immense numbers of zombie companies that only stayed solvent because the Fed kept the free money flowing with near-zero intertest rates. Most of these companies are going to go bankrupt as they are forced to roll over their debt at the current, higher rates.
There are also a ton of tech companies that only got launched because of nearly free money. These cash furnaces have never made a profit and have little prospect of ever becoming profitable, but since money was free the VCs figured they were worth a roll of the dice. A few of them hit it big and generated massive returns, so the whole thing was worth it. But now that interest rates are not zero, the cash burners are going to have to become profitable or shut down. Or get acquired for pennies on the dollar by companies that do have cash flow.
Either way, look for lots of tech jobs to evaporate as the sector goes through a major shakeout. Even the profitable companies are going to cut back, as we have already been seeing with the biggest names slashing thousands of jobs. Expect a large number of those ‘do little real work while posting on Twitter all day and eating the free food’ type people to find themselves thrown off the gravy train.
You got it. And the best part is the resources that get freed up: I’m sure some of these weakly managed companies have a good idea or two, some good people maybe, that are wasted in weak organizations. Now the resources get *rationally* aligned!
California is going to get…transformed. Their world as they’ve known it is on fire and ending.
SVB made Forbes list of America’s best banks published 14 February 2023.
https://mobile.twitter.com/SVB_Financial/status/1632818336391213059
Also SVB was proud to be named to Forbes inaugural Financial All-Stars list.
Easy money can certainly contribute, but Trump implemented energy, employment, immigration, trade etc policies that increased employment, wages and production while keeping energy prices reasonable , which kept a lid on inflation
Biden reversed these and inflation literally took off the next day.
Inflation is coming from the supply side and the only way interest rates will succeed in reducing this type of inflation is destroying demand to match the limited supply.
All engineered folks.
^^^^^That 100%^^^^^
Actually Trump’s trade, immigration, and monetary policies are much of why we’re here. He pushed Powell to cut interest rates because the economy was sputtering in 2018 as a result of wars on trade and immigration, and that contributed to this mess.
UM, you are arguing against yourself. Pre-covid, the Feds balance sheet was contracting under Trump, i.e. the opposite of QE. The response to covid was dumb, but prior things were working. This is on the JoeBama administration.
The balance sheet was (slowly) contracting but Trump pushed Powell to bail his economy out with rate cuts (didn’t work). This is a fact. It happened.
I don’t know what your definition of a good economy is, but I’ll take 2019 every year, thanks.
2019 sucked. Business investment was already contracting in 2018.
https://www.bankofengland.co.uk/bank-overground/2019/what-has-driven-the-recent-weakness-of-business-investment
We haven’t had a truly good economy in America since the late ’90s. The best we’ve had since then was 2015-2017, a time bounded by Obama getting bored of breaking things and Trump getting started at breaking things.
“the Bank announced a loss of approximately $1.8 billion from a sale of investments and was conducting a capital raise”
What I don’t know about American accounting would fill your average sized accounting textbook. But. But. Shouldn’t the banks have already written down the asset values long before they sold them? The losses became reality day by day as the price declined. One particular sale didn’t change any value. Maybe banks swing differently when it comes to write-downs but I can’t imagine why.
But it’s not a Bear Stearns moment unless regulators make it into one, which is what happened in 2008. IIRC, the regulators essentially froze the inter-bank bond market before things went really crazy, which broke banks.
Do your banking in Canada. American banks are stricken by a bevy of awful regulations that don’t touch Canadian banks. The worst of these might be the banking branch limit laws that keep much of US banking in small crummy banks that are unstable and suck. Bigger is better. Too big to fail is a myth; much of the 2008 crisis was tons of small banks going under.
UM, you linked story is about UK business investment. I don’t care, not a whit. Real incomes rose for the broad middle and working class in 2019 in the US, which hadn’t happened in decades.
Indeed this is the story I mean to link to: https://www.reuters.com/article/us-usa-economy/u-s-business-investment-downturn-could-pressure-slowing-economy-idUSKBN1WB1PV
The ‘rising real income’ stuff was a result of the brief period of prosperity that I mentioned. Cause-effect time lag.
There’s more to living standards than ‘real incomes’. Standard of living has increased massively since the freeing up of trade and other supply side reforms of the ’80s. The move from free trade is already damaging our living standards.
That’s what you call a sbanking!
If you want to actually understand what’s happening to SVB and US money/finance/banking in general, look up George Selgin and read him up, Twitter and articles.
“Every time a bank run happens, it gets shoe-horned into the Diamond-Dybvig theory. In truth, runs that actually fit that theory are as rare as hens’ teeth. And the runs on SVB certainly isn’t one of them! 1/2”
https://twitter.com/GeorgeSelgin/status/1634481945051537408?cxt=HHwWgICx6emq7K4tAAAA
Redux: bank’s don’t collapse because of bank runs. The runs happen because the bank is weak and already collapsing.
COMEDY GOLD right here:
“Lulz from the SVB Website”
https://www.zerohedge.com/news/2023-03-10/lulz-svb-website
“ In fact, the more I look at this site, the more I wonder if these guys actually did any banking business. Every corner of the website is devoted to values, diversity, and inclusion. Yet again, we get to learn about how empathetic, responsible, and diverse they are, and how they speak and act with integrity. Really? So how come almost $200 billion just went up in smoke? Asking for a friend.”
The of so ethical responsible Corporate Leaders led the run on the bank. Those vultures destroyed SVB for their own personal financial gain after they heard that SVB officers selling their stock. $42 BILLION. $42 Thousand Millions.
Prominent venture capitalists advised their tech startups to withdraw money from Silicon Valley Bank, while mega institutions such as JP Morgan Chase & Co sought to convince some SVB customers to move their funds Thursday by touting the safety of their assets.
You don’t see $42 Billion ($42,000,000,000!!!) in withdrawals from little old ladies pulling out their Christmas Fund and Egg Money.
What is the lesson for you and me?
Spread your money into two or three different banks and credit unions.
Make damn sure you have some money safe and hidden at home.
1) Vultures are good they clean up the landscape 2) There is nothing unethical about protecting yourself and your company by leaving a bad bank. Weak banks cause bank runs, not the other way around, so get out first and get that implosion started!
3) That’s not really the lesson, though some bank diversification isn’t crazy. The real lesson is try not to do your banking in America, certainly not in weak banks that seriously go all in on one correlated asset class without any hedging. Also, credit unions SUCK.
SVB destroyed itself because it was stupid. I don’t care if a person diversifies themselves, but a bank lending into essentially one industry is dumb. Taking pre IPO stock as collateral is way dumber.
Good take but you left out that 1) their assets and liabilities were correlated by response to interest rates and 2) they didn’t otherwise hedge at all.
Point is: this isn’t about crypto. Every idiot out there on Twitter and Reddit is doing the thing they did with FTX and trying to turn this into an indictment of crypto, but the facts aren’t there for it.
Agree that Silicon Valley Bank’s failure has nothing to do with crypto. They were massively concentrated in one industry, and heavily exposed to interest rate risk. That has now blown them to bits.
It rather reminds me of the banks and S&Ls in Texas during the big oil bust back 25+ years ago. Many of them did almost all of their business with oil companies and the employees of oil companies. During the boom times they did fantastically well, as the companies were very profitable and all the people had lots of money. But when the oil industry crashed, they got hit from all directions. Business loans failed, mortgages and car and personal loans to employees went bad as those people lost their jobs. It was an ugly period and many of the banks and S&Ls in Texas went bankrupt.
SVB appears to be in a similar situation. Their business side was with tech companies and startups, and their personal loans were to VCs and employees of those same tech companies and startups. So all aspects of their business are going bad at once.
For the people doing business with them, it is a mirror image. Their employer kept their cash at SVB, and they also had their own auto, home, and personal loans with SVB. So now they are getting hit from every side, as SVB going into regulatory liquidation means both their professional and personal finances are frozen. People who last week appeared to be rich are now completely screwed financially.
Absolute manna from Heaven for Powell and even Yellen. The name of the anti-inflation game is ‘crush M2’. SVB out here doing just that!
I was wondering why the big Canadian banks did so poorly on Friday. Contagion is on the minds of people with big money. Guess who will be holding the bag if contagion happens.
Any business, large or small, that leaves big money in a bank account is a sad combination of stupid, lazy and crazy. There are literally thousands of other means of short to medium term investing large sums from corporate and government bonds and notes through shares of major corporations.
If only I had a degree in Russian literature or drama so I could fully comprehend the ramifications of these events
Harry and Megan had their money in SVB
As did Oprah.
Don’t know how true this is.
https://twitter.com/isource_news/status/1634413085787316225
But all I can say is haw, haw, haw.
Apparently Joe & Janet strong armed Powell. Let the bailouts begin.
No worry they fired senior execs…..after bonuses were handed out.