If i screw up my investments i am stuck with the consequences. SVB screws up and we are all forced to bail them out? No thank you.
Not letting the bank fail is a form of bankruptcy in a way. The owners lose most or all of the value of their ownership, but the bank is sold to new owners so it can continue to run.
management needs to go. Many, many employees need to go. I'm not sure what % that is, but that's for new ownership to determine
If helping depositors also ends up helping the bankers, we still have to do it.
In cases like this, people need to set aside moral outrage and look at what will actually happen.
2. Depositors have no other option in general. https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
This is like arguing that if I screw up my investments and put myself in a bad position that the government should bail me out for the sake of everyone I owe money to.
Nope. Not even close.
> The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage. https://www.fdic.gov/about/what-we-do/index.html
Worth noting though that based on what I’ve read, the bank has plenty of assets to repay depositors… the issue is just that these assets aren’t super liquid. So if there was some form of bailout, it would be more of a bridge loan type deal than a true bailout assuming I understand the situation.
Few of the explainers are covering both parts of this.
This was a liquidity crisis (bank run) which sparked a solvency issue, not a solvency issue.
Imagine if they put 100% of their deposits in these bonds, they would not be able to raise the interest rates they pay out above like 1.5% for the next 10 years, because they're stuck with their own long term investment. When other banks start offering a better interest rate on savings, of course people will want to withdraw.
So even if they are solvent by definition this is not the same thing as a liquidity crisis that results from an inability to sell a large amount of something in a short time, potentially something that is difficult to sell. It's not the amount or the weirdness of the asset here, it's the price they are locked into, the same way that anyone trying to sell any amount of this right now would be taking a loss if they bought in 2021. And it's not like the price is some irrational situation like GameStop, it's a natural consequence of the interest rates.
I don't see how this wasn't a predictably risky trade regardless of the VC panic factor. They put 40% of their deposits into a long term bet that interest rates wouldn't go up.
This was a liquidity crisis (bank run) which sparked a solvency issue, not a solvency issue.
No. SVB had liabilities significantly in excess of the value of their assets. They were, by definition, balance sheet insolvent.
The "hold to maturity" accounting practice made it legal for them to pretend that the value of their long term bonds hadn't changed, but that's just an accounting figleaf; the actual value of those bonds had factually dropped.
At the same time the flip side of this is that many of those startups aren't profitable and in the absence of a FDIC bailout, those startups' employees (who are typically not paid that well to begin with) may not get their next paycheck and thus it still is directly impacting individuals and families.
Yep. To me it seems like one of the monster banks will gladly pick this up. They can handle the short term liquidity then cash out massively on the long term investments.
Banks pay insurance premiums to the FDIC. These premiums create the reserve the FDIC uses to pay for these exact situations.
Providing short-term liquidity will be profitable for the taxpayer.
It’s a bit unclear because some of those loans were paid back years ago, but even if it works out to be over 6 or 7 years, it’s still pretty bad.
Gov should have juiced its returns by requiring 100% equity wipeouts in exchange for gov’s ultra-high-risk loans/investments.
SVB the company is basically killed. It's true, if you're an investor/owner in the bank, your equity is probably worth ~$0. The bank is owned by the FDIC and is being managed as a new bank.
Even if company SVB is worth ~$0 in equity if the parts are sold on the market, they're still a business... so they have some intrinsic value to the future income. That means there is value in buying the company, at the right price. The hole in there books would have to be bigger than the value of their future cash flow for there to be no reason to buy it. Beyond that, there's some value for a bank to buy it because the FDIC approached them. Because there is tremendous value for everyone in the stability of the system.
Bail out is bad. Takeover is good.
Failure of entity is bad. Failure of equityholders is good.
All we need here is a change in management and owners. The bank should live but without any assistance (bailout) from taxpayers beyond FDIC limits