Silicon Valley Bank: Largest bank failure of past decade occurs

No coincidence that those with the most ties to crypto and high growth tech are hurting.

 

SVB did not fall under Frank Dodd. If it did, they would have been forced to diversify some of their holdings earlier on. It was highly risky as it exposed them to a bank run, specifically with their mortgage backed securities. They went pretty heavy with these securities as they were deemed very safe a couple years ago, but with the rapid raising interest rates, they became a liability. They were using these once safe securities and heavily collateralizing them at attractive low rates to borrowers, which in turned costing them massive loses over the last year as interest rates started creeping up.

Additionally, they were requiring their borrowers to leave the cash parked in their bank on some of their business loans. On paper, the balance sheet looked healthy. If I am a bank and I can lend out 100 billion to various startups for long term business expenditures like payroll and require them to keep the cash parked in my bank, that would make my deposits look healthy, but in reality, there is risk on both ends of the balance sheet. The business loan origination backed by the cheap mortgage securities became an active liability and the depositor became a liability when they pulled the money.

As SVB was also primarily a commercial bank, they had fewer accounts with massive balances. More accounts = more liquidity.

Also, they made it very easy to move money very quickly. All it takes is a couple bad actors to quickly move some of their larger balances to create a liquidity issue. Personally I lean towards this was intentional like when CZ rugged FTX.

Anyone is free to chime in to correct any inaccuracies

 

Don’t bother with this doofus bro. He has his head so far up Joey B’s butt, he can’t think straight. SVB went under because of several reasons such as bad investments in bonds, 2 billions in the red, depositors panicked and pulled their money out and the current financial climate. We are truly in a misinformation war where the guy can basically spew out nonsense like this on a regular basis.

 

Thank you. Both threads have been 99% dog crap. Like, nobody knows wtf is happening or cares to get inside baseball and just wants to get their political shots in. Finding good info on LinkedIn. Hope the bank runs don't spread.

 

I mean it is a really uncanny situation now. A situation where everyone decides they will only put $ in the TBTF banks doesn't really sound tenable or good for the economy. Spreading $250k across a bunch of banks also isn't practical for most businesses - plus doesn't that mean the FDIC is basically guaranteeing more than $250k per client - so why not just raise the $250k to $5mm? Oh, and charge for it since the banks just took on more insurance. If I had the time, I'd search for my old thread where I said FDIC costs should reflect the risk covered - just like any other insurance.

On the other hand, bailing out banks because they made bad investments would not be great either - though in this case, if you are a shareholder of SVB, you are SOL in any scenario. So, there is that benefit.

The real issue here, and with the other banks is the unrealized losses on all these bonds. If they can hold onto them for 5-10 years, no harm since the US government is going to pay its debts (this summer's debt ceiling notwithstanding). So, I suppose the other solution is to make favorable lending terms to banks against their treasuries so that they have the liquidity they need but not realize the loss by selling these bonds?

 

Satoshi diagnosed this over a decade ago, and invented the cure for all of humanity. Then disappeared. What a legend.

 

"Satoshi diagnosed this over a decade ago, and invented the cure"

 

it has been pointed out that SVB lobbied for the rollback of Dodd-Frank, for non tier-one banks, Trump did in 2018.

the roll back exempted SVB from performing financial stress test on a regular basis; the stress tests would have alerted regulators of SVB's

• unusual
  • concentrated (on tech startups) client base, as well as
  • its large "hold-til-maturity" bond portfolio.

( this approach is easy money, for SVG, as long as the interest rate is low )

​

 

I don't think crypto had anything to do with this.

 

I mean, yeah, he did.

 

I don't mind regulators bailing out a bank to limit systemic risk, I mind when the same people who want a bail out (Jamie Dimon, Larry Summers, literally the entire establishment of economic "Wise Men" from banks, PE and hedge funds) , at other times, go ****ing apeshit at the idea of stimulus checks and Remote work and low unemployment with worker power etc.

Socialism for them, capitalism for you when you get your pink slip.

 

you echo my sentiment.


With demands for a bank bailout, Silicon Valley shows
its ‘small government’ mantra was just a pose


For decades, the dominant mantra of Silicon Valley‘s powerful has been that government is just a drag on their innovative spirit. Get regulators off our backs, they’ve argued, and we’ll improve people’s lives to an indescribable degree.

Not at the moment. The same investors and entrepreneurs who argued for less government and less regulation in the past successfully lobbied for a government bailout of Silicon Valley Bank, which failed Friday as a result of astoundingly imprudent business practices.

​

Start with billionaire hedge-fund operator Bill Ackman, who has advocated for self-regulation by the cryptocurrency sector and has pushed back against efforts by the Securities and Exchange Commission to regulate one of his investment funds. Ackman went all-in for Donald Trump after Trump’s election in 2016, gushing that the U.S. has been “undermanaged for a very long period of time. We now have a businessman as president.”

In a lengthy tweet Saturday, Ackman flayed banking regulators for “allowing [SVB] to fail without protecting all depositors,” which he called “a-soon-to-be-irreversible mistake.”

He added, “Already thousands of the fastest growing, most innovative venture-backed companies in the U.S. will begin to fail to make payroll next week. Had the gov’t stepped in on Friday to guarantee SVB’s deposits ... this could have been avoided and SVB’s 40-year franchise value could have been preserved.”

 

Capitalism, Silicon Valley Style​

Then there’s David Sacks, an intimate of Thiel and Elon Musk, who were his partners in establishing and growing PayPal. Sacks and his friends have promoted a worldview that opposes progressive laws and regulations, including those aimed at reining in economic inequality.

Appearing on Megyn Kelly’s Sirius XM satellite show June 7, the day of the successful recall vote against San Francisco’s progressive district attorney, Chesa Boudin — a recall movement Sacks helped to finance — he called Democrats “useful idiots for the Chinese Communist Party.”

By this weekend Sacks was squealing: “Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe.” (His references are to Federal Reserve Chair Jerome H. Powell and Treasury Secretary Janet L. Yellen.)

Venture investor Brad Gerstner called in a tweet for the Federal Reserve to “act now to make sure depositors are 100% protected.” In a second tweet, he asserted that the savings of thousands of small investors are at risk “just [because] the system failed.”

Former Treasury Secretary Lawrence H. Summers, who last year was heard disdaining President Biden’s student loan relief as inflationary. His argument was that the $10,000 to $20,000 in proposed relief “consumes resources” better used to help those who don’t attend college, and invites colleges to raise tuitions.

By Friday, however, Summers was saying that it’s “absolutely imperative” that “all depositors be paid back and paid back in full.” Interestingly, the same cadres who argue that student loan borrowers should have known what they were getting into when they took out their loans were able to overlook that Silicon Valley Bank depositors should have known that deposits beyond $250,000 are uninsured and therefore not guaranteed to be paid back.
former Treasury Secretary Lawrence H. Summers, who last year was heard disdaining President Biden’s student loan relief as inflationary. His argument was that the $10,000 to $20,000 in proposed relief “consumes resources” better used to help those who don’t attend college, and invites colleges to raise tuitions.

By Friday, however, Summers was saying that it’s “absolutely imperative” that “all depositors be paid back and paid back in full.” Interestingly, the same cadres who argue that student loan borrowers should have known what they were getting into when they took out their loans were able to overlook that Silicon Valley Bank depositors should have known that deposits beyond $250,000 are uninsured and therefore not guaranteed to be paid back.

​