edit: At the very least, FDIC should issue a statement guaranteeing beyond the $250K/depositor limit sooner rather than later in order to stem some of the outflow.
Not worth $20B to me, but there are dozens of vain people with billions that may disagree.
If the natural incentive of the bank's assets isn't enough, its literally the job of the FDIC to add that incentive. That's what the FDIC does. "We'll pay you $100M to continue operations of this bank" this happened dozens upon dozens of times during 2008. The insurance component of their mandate is an absolute last ditch "holy shit actually they had nothing it was all smoke and mirrors" tool.
It won't come to that because, well first of all, regulations don't allow banks to get to that point anymore, but also: SVB is actually a solid bank, who made a couple fuck-ups, caused a panic, and their customers are generally more agile and cutthroat than industry average. There are so many tools they, the industry, and regulators have to stabilize things that if you walked into the meetings that are happening about this right now and said "we should raise our insurance guarantees above $250k" you'd be laughed out of the room.
The FDIC doesn't give a shit about stemming outflows from SVB. The FDIC cares about the system, not SVB's bottom line or stock price. Customers should be able to withdraw their money. If they're even involved at this point (and that's a huge if), their primary concern would be to make sure customers still can get money out, not changing the incentive structure or adding limitations toward getting that money out.
This is a liquidity problem (so far). This isn’t because loans went bad or anything, just that they needed cash quick and had to fire sale things (the things they took losses on were US Treasuries. Mostly.)
They still have a big loan book that is probably worth more than their liabilities.
A large player with liquidity could get those loan assets on the cheap if they agree to provide the short term capital liquidity (a reassuring name also probably stems any bank run risk).
Also the FDIC is pay in pay out insurance. The commercial accounts at SVB are in the hundreds of millions and no payments were made for those accounts. The FDIC probably won’t help.
In theory they could hold that shit to maturity but in practice they can’t because some folks want money now and all depositors will want higher interest on deposits eventually to match market rates.
How is that known currently? Edit: As opposed to a solvency problem?
What we know happened is that they sold US treasuries for less than they paid. They did this because people withdrew money faster than they expected.
If that has an impact on their loan book (mostly loans to investors), at the very least, that line of connection has not yet been drawn.
[0]https://s201.q4cdn.com/589201576/files/doc_financials/2022/q...
That said, if I'm an SVB customer...do I want to stick with the bank that's had this issue? Even so, would I want to bank with the acquirer?
Seems like the reason for acquiring this risking market would be to transition your the clients who succeed into the parent bank for their future banking needs. Sure you will get a bunch of small/medium sized clients for a mega bank, but they are just fishing for a couple giant paydays and want the next Apple or Amazon to start banking with them.
is there precedent for that?
I don't remember tbh, but IndyMac (in July 08) was before Lehman (in Sept) so I think the answer is yes.
If it's only a handful, it's in the gov't interest to ensure that businesses and people don't loose their savings.
Again, it would be better to have a comment from someone who banks for a living, but back in 2008 when the FDIC limit was $100K, ISTR Sheila Bair making a statement to that effect (IndyMac?). One large issue was that companies would regularly be above the limit in order to run their payrolls, and so got caught in a bad position. That started companies with other banks worrying about where they were parking money, contributing to a systemic issue.
At this point, does SVB have positive brand value anymore, or are they negative?
SVB has positive brand value and (much more importantly) positive book value. At $16bn market cap EOD two days ago, they are also a relative minnow in the banking world.
This slip-up is tarnishing to their management, but the main side-effect is that it makes them a prime acquisition target.
> At the very least, FDIC should issue a statement guaranteeing beyond the $250K/depositor limit sooner rather than later in order to stem some of the outflow.
The FDIC chose instead to shut the bank in the middle of the business day. They apparently don't see this as inciting a systemic event, where other uninsured deposits at other banks will now begin flowing out.
That imho is not playing it safe, given some of the price drops in the other banks today.
I think odds are good that we see that this weekend.
Edit: aaand FDIC couldn't wait until COB
https://finance.yahoo.com/news/fdic-closes-silicon-valley-ba...
One reason that it was done in the past was because it saves the taxpayers money by bailing out a single meltdown rather than something systemic.
But you should recognize: The taxpayers back up the FDIC, but singleton meltdowns are paid out of the insurance fund, which is paid into by the banks themselves. As long as that fund does not get exhausted (ie a systemic meltdown) it doesn't cost the taxpayers directly.
I for one am tired of privatizing the profits, and socializing the losses.
In the extremely unlikely case that the fdic insurance fund couldn’t make insured deposits while the tax payer is on the hook.
The bank's continued existence isn't the FDIC's concern. Making the depositors whole is.