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Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.
Agreed thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels. What about companies that have payrolls of millions a month they going to have 25 separate banks to deal with ?? And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts.. Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech. Maybe they needed more real estate loans tied to prime on their books..
so SVB business model is bit different, they have special loan program for the tech/startup founder but the rule is that they have to invest in SVB.
This problem actually happened because Peter Thiel is saying to everyone in VC world that they should withdraw their fund from SVB.
Btw last time I checked all the big VC has large $$$ in SVB, I guess we will see catastropic changes in bay area in next few month. If bank and Gov cant be trusted what can we do :) lol
All depositors are going to be kept whole. This is an unintended consequence of rapid rise in rates. They'll be taken care of.
The thing is most of the "deposit" in SVB is "corporation" account, for example payroll account.
Guy in roblox and roku can't be paid because thei bank is gone after stupid goverment action :-) even the SVB CEO is not at fault here....
SVB leadership is partially at fault (along with the Fed). SVB put a large portion of their assets in long term instruments like treasuries and MBS. One of those instruments in MBS was declining in value because of the Fed raising rates which was public knowledge. Sure it is a paper loss that doesn't even have to be recognized if they hold the paper for 10 years or more, but clearly their liquidity mix was incorrectly calculated. Their leadership had two issues:
- How they allocated capital (this is just stupid, but not criminal)
- The lunacy of doing things like selling stock and paying large bonuses days and hours in some instances before the Feds took over (I hope they go to jail for this as it was likely criminal)
Now the question will be the long term changes in banking with the Fed. They blew a hole in FDIC insurance now as they backstopped all deposits, not insured deposits, to quell a bank run. What is the new moral hazard created by the Fed for banks now that they will feel ALL deposits are guaranteed going forward? It would seem that banks are impowered to take on more risk knowing they have a larger backstop. If the Fed doesn't clearly make its actual policy actions known for future events, they have increased risk in the market over the long term IMO.
they are not at fault.
The whole US bank this time has 620 billion unrealized losses because the gov. is intentionally crashing their bond value by increasing the rate.
It's powell mistake.
This is why, outside US banking system, 30 year fixed rate mortgage is non existant, because the bank is taking too much risk from holding people debt.
So I agree with you about Thiel (our own company yanked out Thursday also). And that caused a lot of pain and the failure. But SVB is partially at fault for being stupid in how thye setup laddering on their treasuries. The timeline for maturity should have been much better.
Ultimately though people need ot be more concerned about how Thiel essentially caused a viral panic. Also since SVB went down the number of posts/discussions on social/reddit about removing money from their bank has skyrocketed. My concern is panic in the masses who have no understanding of what is going on.
all these VC guys are just bunch of FOMO guy as well, they would invest to one product/company at a time and withdraw as FOMO as well, there's no diversification for those VC although they seems smart from outside, this is also why you see so many "unicorn" list during cheap money era and those list evaporated during high rate lol
So the problem with SVB is not SVB specific, all banks do the same, they would buy MBS in last 10 years as those are the only gov. backed up asset that has little bit of interest.
Now ask Mr Powell why they print 40% more dollar into the circulation in April 2000 (Fauci effect) and when he realized the mistake for too long, everyone (bank,private sector,individual) has unrealized loss (from MBS,investment,etc). Gov. can still survive the unrealized loss because they can play with the accounting books and ability to print money , while private sector can't do the same, they would just bite the losses....
The moral dilemma is with Mr. Powell not with SVB CEO.
So all the banks have exposure to treasuries no doubt. I had a few discussions with some of them over last few days. They are all acknowledging, all acknowledge Thiel - as you know common knowledge to those of us in tech - but their laddering of the treasuries was very poor. That is where the other banks were smarter.
Had they had a range of timelines on treasuries they would have been able to pay the debts.
That said Thiel caused a rampage in the VC / tech world.
So I do agree with you. but let’s acknowledge the fact that their maturity on the bonds was piss poor. Because it was.
