Yes, but the assets of the balance sheet exceed the liabilities by a reasonable percentage. The vast majority of what will be paid out won't be from the FDIC's funds, it will be from those assets.
1) When yields go up, treasury prices fall. 2) When yields go down, treasury prices rise. 3) The only way you get the basis cost for a treasury back is if you hold to maturity.
When a bank run happens, you (if you are bank) need cash. Lots of it. If you own assets, you have to sell those assets to come up with that cash. SVB had to sell ALL of their notes for less than they bought them for. See #3.
The losses by SVB were realized well before today. This has been going on for a while now. Outside of $250,000 per account type per person, the only additional money folks will get back is whatever a bank sale comes up with, which won't be as much as most folks think, since the core assets were already sold off. If I had to make an educated guess, most startups/investors will lose more than 50% of what they started with. Remember, high interest rates. SVB will NOT be sold at a good price. This is not a market for sellers, it is a market for buyers. Again, sky high interest rates and many of the very investors that could make that sale possible had money at this bank. That means a lower sale price.
If I lend you 25% of your SVB deposit secured against your SVB deposit, I should still be fine (as long as my claim comes early enough in any ensuing bankruptcy).
Long term treasuries have declined 40% in value since they peaked in 2020.
https://www.google.com/finance/quote/TLT:NASDAQ
Banks hold a lot of treasuries as part of their capital requirements. So long as they intend to hold them to maturity, they don't have to mark them to market.
Banks collectively hold about $620 billion in loses in held-to-maturity securities right now since they have declined rapidly in value during the Fed's interest rate hikes.
https://www.aol.com/finance/why-silicon-valley-banks-crisis-...
If you can hold them to maturity, you're fine. If you need to sell them to raise cash (to cover other losses or during a bank run) those losses become real.
And if your startup had $10m in cash in SVB, but now you find out you're only getting back, say, $7m, that's very bad news for your business.
> Long term treasuries have declined 40% in value since they peaked in 2020.
This is inaccurate. What you linked to (TLT) aren't bonds, these are bond funds. The way a bond ETF works is that they have a stack of bonds that track the benchmark interest rate. They periodically sell off their old bonds and buy new ones, they don't just sit on them and wait for them to mature. That means TLT's NAV goes down when interest rates go up because they're selling lower interest rate bonds, and buying higher interest rate bonds.
Treasuries cannot lose value just like cash. They are as good as cash in almost every context. You can always sit on them until they mature and you'll get the full amount plus interest. You cannot lose money this way.
Where you can lose money though is if you have to liquidate them sooner. Why would someone buy a 3% 30y treasury for $X from you when they can get a 4% 30y treasury from the source for the same price? You have to sweeten the deal by paying out the difference in rates. This is where you can lose money.
SVBs issue was a mismatch in durations. They had too many demands for money out now, and too little available now. They have plenty of money coming in the future, but that's too late.
Reply to two basically correct statements, make a claim that's completely false, and then — and here's the genius — say a bunch of true statements that come around to support the view you're disagreeing with!
Be careful with absolute statements like that. While it hasn't happened so far with USA treasuries, its equivalents in many countries have lost value in the past.
No free lunch. Treasuries yield more than bills because they’re less liquid.
T-Notes - 2y-10y
T-Bonds - 20y-30y
Only if your definition of risk is limited to default risk.
It looks like a lot of their holdings were in MBS and a lot of the treasuries were recently sold at losses (which necessitated raising capital, which appears to have set this whole thing off), but there is no reason this couldn't have happened if they only held treasuries anyway.
Then the government starts selling those bonds a lot cheaper. To buy the same bonds you have today would only cost $900k.
Even though the 2030 value of those bonds is the same, the 2023 value just plummeted. (And they will gain more per day to eventually make up the difference.)
When your customers demand their money, you have to give them 2023 dollars.
A bond that you can redeem early has the safety of cash here. A bond that you can't redeem early does not.
Back of the napkin, take the 10yr and 30 yr spot prices today for issues from 1-2 years ago, and that's your max haircut. I believe some are trading at 70 cents , so we are talking about 30%. And that's worst case (not all assets would have sold at that price, but better).
Remember this is highly liquid assets. Not some exotic stuff. Its a big loss, but not 50%
Brex's offer is collaterized up to 25 cents per dollar. SO, unless SVB lost huge money elsewhere, there's no way SVB lost > 75% mostly off their MBS portfolio (or other assets, for that matter).
Do you know this? That's a number I (and some other posters) pulled out of a hat as a reasonable thing to do, but I don't think any of us had any sources for it?
Depends upon how much was liquidated and already went to paying out fleeing customers at 100% of deposits. The average haircut could be 30%, but late to move depositors could have it worse (this is why you participate in a run on the bank).
If they bought them near the peak value what they can actually sell the income streams for is going to be a lot less than what they paid.
In the meantime, impacted account holders can get their IOUs and borrow money to make payroll.
Until the FDIC pores over their books, nobody can say anything sensible about what they own, what they sold, what they sent out and what is secured as collateral.
> As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits.
And I'm not trying to claim that the balance sheet necessarily entirely reflects reality
December 31st, or even March 1st, are virtually irrelevant to a bank collapse today. Assets were sold at a deep discount, presumably some were pledged, and deposits fled.