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Comment by chollida1 | Hacker News Reader

some note i've been taking

> To protect insured depositors, the FDIC created a new entity called the Deposit Insurance National Bank of Santa Clara, or DINB. DINB will maintain Silicon Valley Bank’s normal business hours, with banking activities resuming no later than Monday, including online banking and other services, the FDIC said. Customers with accounts in excess of $250,000 are being told to contact FDIC direclty

> The company’s main office and all Silicon Valley Bank branches will reopen on Monday,

> Uninsured depositors will get a receivership certificate for the remaining amount of their uninsured funds, the FDIC said

Keep in mind 93% of SVB's assest were not FDIC insured.

> Silicon Valley Bank Had About $209.0B in Assets

> Svb Is First FDIC-Insured Institution to Fail This Year

Their recent attempt to raise money via shares and debt sales failed,

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>Keep in mind 93% of SVB's assest were not FDIC insured.

>> Silicon Valley Bank Had About $209.0B in Assets

I'm not an expert, but aren't deposits in a bank liabilities? Assets are things like treasury bills and loans held by the bank.

When someone opens a bank account and makes a cash deposit, he/she surrenders the legal title to the cash, and it becomes an asset of the bank.

> When someone opens a bank account and makes a cash deposit, he/she surrenders the legal title to the cash, and it becomes an asset of the bank.

I think this is Google's first hit when one searches this, but I do not believe this is correct. Here is a source saying the opposite, as an example.

A liability, in general terms, is something owed to another (e.g., a deposit)

https://courses.lumenlearning.com/wm-macroeconomics/chapter/...

And another more reputable source:

https://www.investopedia.com/terms/b/bank-deposits.asp

Not sure about banking rules but in general accounting terms: The deposited amount is an asset (the bank has got the cash) and a liability (the bank owes that amount to the person who made the deposit) and neutral on the balance sheet.

Edit: Seems that this is what's explained in the investopedia article you linked to:

"When someone opens a bank account and makes a cash deposit, he surrenders the legal title to the cash, and it becomes an asset of the bank. In turn, the account is a liability to the bank."

Yes, but the OP comment conflated assets (cash and securities as you mention) with FDIC insurance which only concerns liabilities due to depositors who qualify for FDIC insurance.

> I think this is Google's first hit when one searches this, but I do not believe this is correct.

So, I think the person you are responding to is trying to explain the distinction between a bailment and a loan.

Let's pretend that someone had a safety deposit box with $1B at SVB. They'd get to keep the full amount, because that is a bailment. The money never becomes the bank's.

In contract, if someone deposited $1B at SVB, then the actual money becomes the property of SVB. And the depositor then is a creditor to SVB - they have an unsecured load to SVB of that amount. But after SVB gets taken over by the feds, they have to stand in line with the other creditors and get what they get. They aren't guaranteed to be made whole.

The another, more reputable source says exactly what I said.

"The deposit itself is a liability owed by the bank to the depositor. Bank deposits refer to this liability rather than to the actual funds that have been deposited. When someone opens a bank account and makes a cash deposit, he surrenders the legal title to the cash, and it becomes an asset of the bank. In turn, the account is a liability to the bank."

The ACCOUNT is the liability, the CASH is the asset.

For a bank deposits are liabilities and loans are assets.

edit: Judging by a quick downvote trigger-finger, there seems to be some folks having trouble believing this; check this out from the source: https://www.federalreserve.gov/releases/h8/current/ ... look at the category names of where deposits and loans are listed.

The semantics of this are very cumbersome.

The deposit itself is not a liability. The deposit account is. There are many ways to get money into a DDA. The bank will never give you your original paper currency back.

I agree with everything you say, but at a high level they "owe" you the money that you deposited. Which is a liability. They (generally) are not allowed to just go spend your money on anything they like (in the same way you could if you got a business loan, which is an asset and a liability), but it is prescribed how they can create assets with the deposits.

It's an Accounting 101 situation ( https://en.wikipedia.org/wiki/Accounting_equation ) -

The (say) $100 cash I deposited to the bank becomes both an asset (they have "my" $100 in the vault) and a liability (they own me $100). So the accounting equation still balances.

Clearer to read it in the article:

> As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.

When Alice deposits $100 into a bank, the bank gains a $100 liability (owes Alice $100), and then a $100 asset (the cash). The asset is likely traded for a bond of some kind, in this case a US 10Y treasury.

The 10Y treasury was worth $100 in 2021, but today is only worth $80. The bank still owes Alice $100 (a $100 liability), but the asset's value has declined. This has caused... issues... culminating in the past week of events.

It's somewhat confusing to me, because a $100 treasury note is only worth less than $100 if you try to sell it today. You still will get your $100 back if it matures.

Yes but many people want their money today, not in 10 years.

That's a bank run tho not "normal operating" status.

Bank runs happens when you create conditions that can't handle bank runs. Nobody would worry about keeping assets at a Bank that wouldn't get destroyed if people started asking for their money.

Therefore although bank runs aren't normal, they will almost surely happen to you if you put yourself in a situation where a bank run would destroy you. So you have to work as if bank runs are normal, or they will be normal.

Damn near the entire customer base of Silicon Valley Bank withdrew their money yesterday (Thursday), forcing SIVB to sell those 10-year notes.

Right, but Alice and all of her friends want their money back now, and it’s your job as a solvent bank to give them their money when they ask for it.

This is the crux of the problem. SVB may have intended to hold to maturity, but the market forced it to sell to raise cash.

You may hold 100K in treasuries today, but if your employer can't make payroll, you're gonna sell to pay rent.

> but the market forced it to sell to raise cash.

Can you clarify this part?

I'm not super familiar with the intricacies of banking, so my guess is that this is simply due to part of it I don't know about, but...given all the "creative financial instruments" I've heard about since the runup to the 2008 crash, I have to wonder if this "market force" was at least partly due to something SVB was doing that wasn't terribly wise.

> was at least partly due to something SVB was doing that wasn't terribly wise.\\\

A startup-focused bank probably shouldn't have been investing into 10Y, 20Y, or 30Y US Treasuries, when their customers might only have 2 or 3 years worth of life in them.

So yeah, there's a bit of stupidity here for sure. But its the kind of stupid that I can imagine a lot of banks making.

Aside from all those tech founders (today's LP VCs) from 2008-2020 likely held equity/deposits at SVB, and the sheer call out by them to make a run on the bank yesterday just broke the bank. The speed of fintech makes it feel coordinated.

Funny it seems like VC GPs were on the horn yesterday to withdraw, and I know a number of LPs telling me last Sun/Mon they'll be "out of the country" next month. Looks like some folks had early info.

@danaris - if you are a bank and people want to withdraw money, you need cash to pay them. By "the market" we mean the banks depositors who withdrew their case (partially due to these very concerns, hence why bank runs are called bank runs)

$100 today and $100 in a year are not the same thing.

If I deposit $100 into a demand account, I expect to get $100 when I demand it.

If you want to sell me $100 in the future for less today, that's something worth considering, but that wasn't the deal depositors had.

So, first off, I am not very literate when it comes to the comings and goings of banking procedures, so forgive me if this is a dumb question.

Would an incident like this make other banks shore up their defenses about this sort of thing happening to them, or will more banks fall due to market conditions in general?

Well a defense might be to increase their liquidity by selling those treasury bills, which would drive their price even lower, making other banks also be illiquid on paper.

So yeah I imagine all the banks nervously looking at eachother. Who is going to pussy out the first and cause them all to tumble over.

Fed could buy it and set a price floor on it.

Both would be my guess. I’m expecting more smaller banks to fall.

Yes, this may trigger many banks to sell off long term underwater assets which would further reduce their prices, incentivizing further sales. It can also trigger more bank runs that put time pressure on banks to do this. Bad situation overall

> Svb Is First FDIC-Insured Institution to Fail This Year

Was Silvergate bank not FDIC-Insured?

Silvergate is apparently doing a controlled liquidation of itself, this is an FDIC-forced liquidation.

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