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> That's a lot but also means depositors get 80-85% of their money back

That's not what happens. Let's say 100 clients each deposited $1 in the bank, and the bank loses $20, so only has $80 to pay out when liquidated.

Let's say half (50) depositors withdraw their funds early, they each get $1 back. So now the bank has $30 in assets and has to pay 50 people. Suppose 20 people demand withdrawals, and the bank pays $20 to them. Now the bank has $10 and has to pay 30 people.

I admit that I don't know when/whether a bank can actually refuse withdrawals in such situations, or when bankruptcy proceedings are triggered, but the earlier you withdraw the less likely you're going to lose money, and the later you withdraw the more likely you'll lose a significant part of your deposits.

Sure your calculus still works out on average, but I'm not sure that means anything and it's no consolation for the ones that reacted last.

This isn't bitcoin world though, deposits are FDIC insured to stop this

Not to the amount that most startups would have in their account

The startup I worked for used SVB. While I am unsure if all of their money was with SVB, it was company that had raised over 100m. I wonder if there will be issues with paychecks going out. Surely they diversified their accounts, but who knows.

FDIC limits are low. Socialized losses can definitely happen past those limits.

A document I saw yesterday claimed that SVB had ~$160B in uninsured deposits.

Deposits ate FDIC insured up to 250k per depositor per bank. Companies with > $250k in the bank need to take the risk that they really can lose that money into account.

Per bank and per account with different ownership categories, so if a company had multiple accounts in different ownership categories those would each be insured up to $250,000

Why would a company have different ownership categories for their accounts? Wouldn't all of their accounts be wholly owned by the company and no one else?

Insured up to $250k. No guarantee there won't be a delay in withdrawing your funds once the Fed takes over.

After FDIC seizes the bank your funds are available the next business day up to the insured amount. Above the insured amount you have to wait a while longer.

There are certain clawback provisions in such cases, however I don't know extend of them.

You're also forgetting about clawbacks of preferential transfers that happened less than 90 days before bankruptcy. 11 U.S.C. 547.

I learned something. Thanks!

I don't believe the bankruptcy clawback provisions you're referring to apply here, because this is an FDIC conservatorship/receivership, not a bankruptcy proceeding. I don't fully understand why this particular part of the processes differs, but I'd argue it's that it does unfortunate, as it incentivizes bank runs like this.

There is an extensive comparison of the two processes in [1]. Specifically:

> the Bankruptcy Code provides trustees the authority to avoid, that is, claw-back or reverse, certain transfers (subject to certain limitations52) made by debtors

> the FDIC as conservator or receiver may not avoid (i.e., reverse or claw-back) any property transfer pursuant to a qualified financial contract unless the transfer was performed with the "actual intent to hinder, delay, or defraud."

[1]: https://www.everycrsreport.com/reports/R40530.html

I do love a CRS report, but that was written before Dodd–Frank imported the bankruptcy code rules for preferential transfers into FDIC receivership.

> The Corporation as receiver for any covered financial company may avoid a transfer of an interest of the covered financial company in property [...] that enables the creditor to receive more than the creditor would receive if [...] the covered financial company had been liquidated under chapter 7 of the Bankruptcy Code... (12 U.S.C. 5390(a)(11)(b))

It also calls the 90-day clawback period out explicitly.

This is precisely why we have the FDIC -- if deposits are federally insured, there is much smaller incentive for depositors to withdraw their money out of fear of a bank run.

250k per account.

Imagine all the big businesses with millions in the bank. FDIC will not help them.

"As of December 31, 2022, the amount of estimated uninsured deposits in [SVB] U.S. offices that exceed the FDIC insurance limit was $151.5 billion. [from total deposits of $173,11B]." [0]

[0] https://ir.svb.com/financials/sec-filings/sec-filings-detail...

2.7% of SVB deposits were FDIC insured

That's true, but it doesn't take that many leaving to fail the bank, so usually not many are able to leave.

We'll see what happens, but I would be surprised if more than 20% of deposits were withdrawn.

> My finger in the air haircut would thus be maybe 15-20% loss of deposits, if this simplified model has anything to do with reality. That's a lot but also means depositors get 80-85% of their money back.

Depositors have been getting 100% of their money back. [and will still do if they are quick (or has the bankruptcy been declared already?) - edited: too late!]

The loss - that is an amount measured in dollars, not an abstract percentage - is going to be supported by a smaller number of depositors.

Bingo!

If 70% of depositors exit (which actually seems possible) the bank does not have adequate assets for the remaining depositors and the bank fails.

A bank that can't pay back 100% of deposits has failed. This isn't equity where haircuts can be expected at times; depositors absolutely expect to be able to get back all of their money when requested.

> A bank that can't pay back 100% of deposits has failed.

Well, not at the same time. No bank can do that.

The fed seems to have never had a problem when all their customers [i.e. banks/hedgies/wallstreet] come asking.

It's easier when you can print money :)

I believe the implication is: why aren't we using the fed for our banking, this kind of bank run would be impossible. The fed provides guarantees to banks but not to retail and that's a policy decision we could change, if we wanted to.

Try selling socialism to Americans...that's why.

> The fed provides guarantees to banks but not to retail and that's a policy decision we could change, if we wanted to.

Who is "we?" The US is not a democracy. Nothing could stop US elites from overturning the Bretton Woods system, passing NAFTA, and bailing out the banks in the mortgage crisis, so what makes you think "we" could change this policy decision?

Karl Marx showed us how capitalism works 150 years ago. The ruling class rules and the working class works. If you don't like it, you need to move beyond capitalism.

>>Who is "we?"

Guns

Is that a joke or do you lack even a passing clue about the weapon power of the US military?

We're making some progress in that direction. The FedNow program will provide retail money transfer services [0]. This should make it much more practical to do direct stimulus efforts like we saw during COVID.

[0] https://www.frbservices.org/financial-services/fednow/about....

No, failing is failing. It means the bank is insolvent. That doesn't mean the bank is worthless, but it doesn't have enough cash to meet its obligations. And yes, depositors will likely get some of their money back, but only after a long battle. Also, the bonds held by the bank are likely off the run. The market for these is not large.

Yes, insolvent, but the money doesn't go poof.

I never traded cash bonds but would struggle to imagine it would be hard to liquidate. Sure, over a week, but surely SVB can't be a major bondholder.

They are easy to liquidate. But not at the face value. For that you need to wait until maturity.

Principle is simple. Why would you buy from someone a piece of paper saying someone else(even government) will pay you 1,5% a year. When you could directly buy from then similar paper paying 4%.

These types of bonds are what caused the pound's dramatic fall a few months ago. There isn't a large market for these. If you need to sell a lot at once, you're in trouble. The treasury recently explored stepping in to provide liquidity for off-the-run bonds: https://www.reuters.com/markets/us/yellen-says-taking-steps-...

> I never traded cash bonds but would struggle to imagine it would be hard to liquidate

Bonds are actually well known for having terrible liquidity. It's common for corps and munis even with good credit ratings to be no-bid, and even Treasuries, once they're off-the-run, aren't easy to move without moving markets.

You're disagreeing but I dont see the conflict between your claims and his.

He's making it sound like depositors are going to get 80% of their money back tomorrow. It's going to be a years-long legal battle while affected companies are going to potentially shutter due to an inability to meet obligations. Also, his number of 80-85 is based on the yield of the treasuries, but old treasuries like this are hard to move.

Why won't the FDIC resolve this quickly for depositors?

For customers who are startups, investors, and large tech concerns, FDIC insurance of $250k may not cover the balance. Sure don't want the $2M you have left from your last funding round to evaporate, or even be frozen.

Can the bank be sold and continue operating under new ownership without making all depositors whole?

The issue is that a startup needs that capital right now. They cannot wait for bankruptcy courts to redistribute.

Yeah, well, indeed, that is an issue. I'd imagine it would be possible to get a fraction of it now via some third party, but that could be quite a haircut too.

This is the big issue. If they can’t get their money lots of startups will fold very quickly.

Exactly. These startups know that they don't have a lot of runway to wait so they rushing to the exit.

Well, treasurers looking to park their cash and use US Gov debt guarantees usually buy shorter dated treasury bills - around 3-6 months. This matches their duration - chances are they will need the money quickly. In general treasurers match the duration of liabilities (when they will need the money) with the duration of assets (bonds).

If SVB really parked most of the cash in 10-year old treasury bonds that sounds.... questionable...

> The story seems to be that SV put all their deposits into 10 y bonds in 2021.

Not sure who told you that, its incorrect.

https://twitter.com/jamiequint/status/1633956163565002752?s=...

Seems a bit pedantic, MBS are basically bonds. The important part is the 10 year term.

It says 10+. I wonder what the average duration is.

According to their filing[0], the securities they were forced to sell at a loss had durations of 3-6 years.

[0]: https://www.sec.gov/Archives/edgar/data/719739/0001193125230...

Perhaps but I’d argue it makes a huge difference.

Svb had to sell at a huge loss for two reasons.

- the duration risk, this applies to both assets. Though shortened dates treasuries would have far less loss due to duration than MBS would.

- the size of the trade compared to the market. Treasuries are treasuries but each MBS has specific terms that make the market for them much smaller.

This only affects their MBS

If the held treasuries they’d be in far better shape due to the much smaller haircut they’d take.

Sadly this wasn’t th care.

SVB situation is made worse 'coz it seems about 93% of bank's $160B deposits are uninsured as they are above FDIC's $250K limit. So all the more reason for depositors to pull out their money.