Comment by mixdup | Hacker News Reader

Comment by mixdup | Hacker News Reader

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This explains why the FDIC couldn't find a buyer of the distressed assets and also seized the bank in the middle of the day. They always wait until after the close of business on Friday (or, at the very least end of business of whatever day) to avoid a panic

Out of 563 previous bank failures going back to October 2000, only 31 did not have an acquiring institution lined up (https://www.fdic.gov/resources/resolutions/bank-failures/fai...)

Usually the FDIC will sell the assets and liabilities of the failed bank to a healthy bank, sometimes at a negative value (paying the acquiring bank to receive the assets) and then also making the acquiring bank whole on losses of the assets

SIVB is upside down on various interest bearing assets like MBS and US Treasuries. In a normal case, it'd be cheaper for the FDIC to just make up those losses than directly make depositors whole, so they do that

In this case, given how little of SIVB's deposits are actually insured, the scale of the run before they got the doors closed, and the amount of losses they are going to take in the assets, the FDIC obviously wasn't willing to backstop the losses and no one was willing to take the risk

Depositors are definitely taking a haircut on this one

> Depositors are definitely taking a haircut on this one

That's not clear at all and many people disagree with you.

I'm happy for them, I guess. Of course I could be wrong, but given the evidence I don't think I will be. More power to the VCs and everyone else if they get their money back.

But, if they were going to find a buyer they probably would've found one already. They certainly will either have to have one before the open on Monday or it's not happening. The assets of the bank become more and more toxic as time goes on (this happened with Lehman Brothers) and if someone swoops in today, on Saturday, then it's not too bad. But if it sits a week and no one wants to buy it, if someone buys it next Saturday now that bank looks like a fool and people are going to question the deal

If they don't have a buyer, depositors are taking a haircut. Maybe they will get 100% of their money back in actual dollars, but they will lose via time--the FDIC will either liquidate the assets or let them mature. If they liquidate, they will take an immediate loss. If they wait for them to mature, then sure in 10 years everyone gets their money but Time value of Money is a thing and being made whole 10 years from now is not being made whole

The known portfolio isn't toxic with more time. It's just Treasury bonds and MBS. In fact they are rising in price because of SVB. However, the suspected problem is the unpublicized part of the portfolio. Some here say there are funny, poorly collateralized loans in there to the same people who made deposits there. It might turn out to be out-and-out fraud that looks like clever financial engineering.

Thats not what parent is saying. They are saying todays value of the known portfolio is not what is on the books due to interest and risk discounting the future value at which the bonds mature.

Either you sell everything now at the discounted value, leading to loss in deposits. Or you wait 10 years and pay everyone back their deposit then. Given current inflation a dollar now is only worth 50 cent in 10 years.

Sure, the "known" portion may not be getting more toxic, but an acquirer has to take the whole thing. The "known" and the "unknown" part you're talking about. As it goes on, people are going to increasingly wonder why no one has stepped in to buy what would otherwise be a pretty lucrative business

It's because there's a lot more bad assets there than people know or acknowledge, and most of the deposits (and therefore customers) are gone. And as time ticks on, that continues to get worse, even if it's just a perception of it getting worse that perception becomes reality

would be interested in knowing if the us gov just buys the assets, since at the end of the day, (longer term) there seems to be a pretty good guarantee of getting it all back (minus time value of money)

I don't think this is within the existing authority of the FDIC, or Federal Reserve to do. I'm not an expert, so happy to be corrected, but given where things are currently -- with SBV closed, assets transferred to the Deposit Insurance Bank of Santa Clara -- I believe this would take an act of Congress.

And I sincerely doubt there is appetite in Congress for a bank bailout for Big Tech.

I appreciate that's perhaps how it'll be viewed, but let's be clear here: "big tech" is not being bailed out. Apple, Google, Meta, etc. do not have a substantial portion of their cash in SVB. Sequoia, Andreesen, etc. do not have a substantial portion of their fund in SVB (most of it is kept by their LPs until actually used). Investors of SVB are not being bailed out -- shareholders exit last (as they should).

The people being "bailed out" are the owners and employees of small businesses and startups that, just by nature of having a deposit as SVB, unconsciously acted as a creditor to an institution that had an 'A' credit rating by Moody's, a 'Buy' rating by JPM, and had passed whatever monitoring and risk tolerance requirements put in place by the Fed.

Completely agree, that part of my comment was only meant to speak to the political environment.

I don't think that's likely. Other stats I've seen indicate over the past decade or two, uninsured depositors have been paid something like 75 cents on the dollar on their uninsured accounts. This would indicate the FDIC, if they don't find someone to buy the bank and make everyone whole, will liquidate the assets and pay out the accounts over a pretty short term

That was before QE. What's some bonds to the Fed when they are the kind it would buy for its own balance sheet anyway? The issue is, one, they are in QT right now; two, buying isn't enough, as these are perfectly marketable securities, just that they are worth less than face value, so the Fed or anyone buying them at market price doesn't help. You actually need someone to eat the loss by paying face value.

Money doesn’t magically appear out of nowhere. SVB does not have assets on its books to pay its short term liabilities.

Unless a government agency swoops in to bail out the difference between their short term liabilities and the net present value of their long term assets, somebody is going to be taking a haircut.

The equity of the bank itself isn’t enough to cover the losses so it’s going to be depositors.

What if the FDIC or someone pays all depositors and then takes over the long-term bond portfolio, intending to hold to maturity?

No private institutions with hard cash are going to be willing to take the portfolio because of the opportunity cost of investing that money at higher rates of returns. Any institutions that would need to borrow to buy the portfolio would need to borrow at higher interest rates and earn lower rates generating a loss each month. There is now way to take the portfolio without a discount and not have a loss.

If there was a way out of this without a loss the bank wouldn’t be insolvent (bankrupt).

That’s an example of someone swooping in to save the day. Whoever does that would not do it for free as the SVB bond portfolio is worth less than the same bonds bought today (rates go up, bond prices go down). No private party is going to hand over billions of dollars for free so either the Feds do it or nobody does.

These startups are kind of the backbone of the tech economy, you'd think this would be a case where the government says "too big to fail" again.

When the alternative is going to be handing over stablecoin market dominance to unregulatable foreign entity, it’s not out of question that the government would step in to stabilize the USDC stablecoin market.

Why would they? their long term treasury bills are yielding almost 0% interest rate and current rate is closer to 6%. Ergo, no one is going to buy an out of the money long term asset at par when current yield is significantly higher. No sane rational person would do that.

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