First-Citizens Bank to assume deposits and loans of Silicon Valley Bridge Bank
fdic.gov
fdic.gov
“All transferred deposits will be separately insured from any accounts you may already have at First–Citizens Bank & Trust Company for at least six months after the failure of Silicon Valley Bank.” [1]
Sounds like maybe this isn’t an issue but unclear if that’s just an extra $250K insurance in the event you had an existing account there. Maybe unrelated to insurance they're fine because First Citizens bought from SVB at discount/current FMV so they can liquidate assets if needed to meet withdrawals without risk of loss.
[1] https://www.fdic.gov/resources/resolutions/bank-failures/fai...
> All transferred deposits will be separately insured from any accounts you may already have at First–Citizens Bank & Trust Company for at least six months after the failure of Silicon Valley Bank.
That suggests that there is not going to be a reduction in coverage of FDIC insurance.
Separately the Federal Reserve’s lending facility makes it unlikely that the same sort of long-duration treasury notes will bring down a bank.
But yeah, it’s a good point that they did not explicitly spell out what sort of insurance is available for the transferred deposits.
It does not. The deposit insurance limit was $250k before the svb collapse, it was unlimited while the (government) fdic held your account, and now it has been transfered back to a private institution it is 250k again.
<Insert "it always was" meme here>
In practice, FDIC covers at least 250k
It’s a system that simply cannot go well for the majority of people even if the top continues their plunder and walks away with everyone else’s chips.
It’s not an ironic bug if the intentions of the features are nefarious.
Who exactly got rewarded here? Not the bank shareholders, not their management - only depositors got protected, aka the system actually worked for once.
> It’s a system that simply cannot go well for the majority of people even if the top continues their plunder and walks away with everyone else’s chips.
This simply did not happen here. It happens a lot. It didn't happen here.
This is the same old story, governments printing money. This time they held hostages as they were printing their money. Almost like Money heist. Funnily enough, the narrative is so strong they are somehow the heroes. Maybe because people can't understand that inflating money is stealing.
And they got wiped out because they did it badly, while depositors kept their deposits. The system works.
> So essentially, the government got to use those depositors money, and then turned around and gave them back their money.
The government didn't give them back their money, the loss came from the DIF, which is a fund made of private contributions assessed to member banks. No government money was spent making depositors whole. I wouldn't care if it was personally, I think that's kind of the point of the government, but in this case that's simply not true.
> Finally, if this thing didn't blow up, those depositors would've seen none of the profits from lending to the government which is clearly a risky business.
Er, no, the bonds would have matured and they would have received face value plus interest. Lending to the US government is the least risky thing one can do, three-month treasury yields determine the 'risk-free' rate.
> This is the same old story, governments printing money.
The Fed actively manages the money supply. I'd look at where the demand for dollars is coming from to better understand the system and what's actually happening in the economy. These simplifications border on conspiracy.
I think depositors should still refund the 4.50% APY SVB on business savings was paying.
> No government money was spent making depositors whole.
That’s not true. There was a new 50bn debt hole in money created from thin air. Tax payers are footing the bill temporary at minimum.
You can view it here: https://twitter.com/jacksage_nft/status/1638494009361420290?...
If you're not a part of some inner clique you can't tell when will the Fed pivot. It took the Fed a goddamn one year too long to raise rates. Everyone who has no knowledge of the Fed actions beforehand is losing huge financial value. hundreds of billions of dollars rest on these decisions, and any common person who trades and does any financial decision in the wrong side of the Fed is being robbed of financial value by the Fed. Instead of playing capitalism we've been playing Simon says.
Yes in the same way the EPA is an 'environmental bully' - so actually no.
> It starts by printing money for itself, and using the value of the money in the present.
I'm really not sure what this means - I suspect you're conflating fiscal and monetary policy.
> Then it causes inflation which robs financial value out of everyone who lended to it.
Inflation has many causes, changes in supply aren't necessarily inflationary - what matters is what that new supply is used for and where demand is coming from. For instance there's a ton of demand for dollars from abroad. If new money is created and it goes into say dollarized nations then no, it doesn't. This is but one example. That's why supply increase isn't inflation - it's supply increase.
> The actions of the Fed are extremely unpredictable.
Actually they telegraph them far in advance.
> If you're not a part of some inner clique you can't tell when will the Fed pivot.
They will absolutely tell you in advance, like they told us they'd start tightening well in advance. That doesn't mean people won't try and front-run it.
> Instead of playing capitalism we've been playing Simon says.
I suggest you think this through some more.
but these depositors above 250k should not have been protected, they have been rewarded for not managing their finance well.
Should the FDIC guarantee all depositors? Perhaps, but then those were not the rules.
I am not sure we can say anything worked as intended.
If depositors start withdrawing money from the new bank, they at least have access to this amount of extra liquidity from the acquisition.
I'd guess the tansferred assets are eligible for the new Bank Term Funding Program, so First-Citizens should be able to borrow cash to pay withdrawals in a way that SVB couldn't. I'd expect everyone involved to be aware of the danger of a bank run from this group of customers, and plan accordingly. Of course, expecting others to act sensibly is not always justified.
I like that they didn't call it TARP 2.0
First Citizens does however have existing assets that would count as eligible collateral.
Yes. The number gamed will likely be > 50% given the type of customers they are dealing with.
The Fed just reversed a lot of quantitative tightening so they are feeling free to be reckless again.
The tweet you linked shows the Fed's balance sheet. Yes, QE implies that balance sheet up. But not the other way around. Correlation is not causation.
P.S. loved your meltdown, copy pasting it here for posterity
> FollowingTheDao 10 minutes ago | root | parent | next [–]
> I FCKING HATE IT HERE AND I QUIT! WHY THE FCK IS THE TRUTH BEING DOWNVOTED!
> IS IT NOT TRUE THAT THE FED REVERSED QT??? IS IT NOT TRUE THAT THIS MENAS BANKS CAN PUT MONEY BACK INTO RISKY ASSEST???
> YOU ARE ALL DELUSIONAL! CANCEL MY FCKING ACCOUNT SO I CANNOT DOWNVOTE ALL YOU IDIOTS INTO OBLIVION!
> YOU HERE ME @DANG???
> I cannot wait for the Depression to hit and all you will be like "what?" and not know what to do. BYE!
Maybe next time don't refer to your nonsense as "the truth"?
Remember that flight just means one bank is down and another is up at the Fed. All it needs is for the target bank(s), or the Fed to lend back and the circuit is closed.
Everybody wins - particularly the bank buying assets at a huge haircut.
Doesn't someone have to lose? I am guessing the tax-payers lose somehow, though I don't understand how..
Liabilities: $56bn (all of SVB's remaining deposits)
Assets: $56bn (SVB's illiquid loan book notionally worth $72bn at a $16.5bn discount)
(With a loss-share agreement depending on how the loan-book evolves over times.)
This implies that First-Citizens just acquired $56bn of flightly deposits with no additional liquid assets, and those depositors just lost their FDIC insurance for any amounts over $250k. If you're one of these depositors, why wouldn't you run to a big 4 bank?
It is backwards from the normal business model, but that's because a banks business is to make money lending instead of borrowing to make money.
The cash backing the deposits has already been lent out to create the $56 million in assets that they are also receiving.
Say they then use that $50 to buy office paper (it's a small bank).
They then owe you $50 and have several thousand pieces of blank paper.
The thing you are tripping on is that the deposit doesn't necessarily represent something the bank actually has.
1) Assets make the bank money (loans. interest collected), liabilities lose money (deposits. interest paid).
2) Deposits are loans the bank takes. (As in it has to pay interest to service the "debt".)
In your example a bank with $100 in deposits is paying interest on $100, but only receiving interest on $50. In the reverse it is receiving interest on $100, but only paying interest on $50. So the reverse is much more profitable for the bank.
I get no interest on my checking account.
I remember back around 2005 I'd get 4% interest on my checking account. Feels bizarre now.
But if you wanna discuss the convention, in your example the $100 in deposits might vanish overnight (as in fact did in the case of SIVB) whereas the $50 loans is a LOT less volatile.
Your intuition is correct to some degree - if you imagine I go down to the bank and deposit $50 in cash, that deposit is both an asset and a liability to the bank (it expands both sides of the bank's balance sheet by $50). It's an asset in that the bank now owns $50 of paper notes, and it's a liability in that the bank now owes me $50.
The bank can then choose to loan out those paper notes to someone else, and therefore you're entirely correct that it can be lent out to make money, however the bank can't lend out the fact they now owe me $50 (that's just a liability to them).
What about US Treasury Bonds? Are those not safe? Yes, they are very safe, however, if they are low yield and the interest rates increase, they are not liquid so they at that point don't provide the requirement banks have for liquid assets.
The bad version of a bank run is when a bank is solvent but illiquid. It has a bunch of loans that are preforming and haven’t lost value due to interest rate changes, but there’s no easy way to sell them because they are just individual loan agreements between the bank and some borrowers.
But again, that’s not what happened here. The bank was in trouble because its assets were worth* less than it’s obligations.
* in the only sense of worth that matters
Unless you're talking about melting gold, I can't see how gold is liquid. Bid/ask spreads are wide and it's hard to (literally) move a lot of it without both incurring costs and moving prices.
[0] https://www.marketwatch.com/story/why-basel-iii-regulations-...
It's good to see that Basel III treats paper gold (gold futures or shares in gold-holding ETFs) as more risky than actual gold-in-hand.
In the US this is called "Reserve Requirement". In 2020 it was lowered to 0%
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
(Not sure about the rest of the world currently)
Well, you never really had it (except for the last what, two business weeks) and you won't have it at a large bank either.
That's ok, you can probably insure in the private markets (I've never looked into it but you can insure literally anything else so) or you can adjust your treasury program.
Did people think that, just for them, a special institution disguised as as a defunct bankrupt bank, was never going to be "that one trick they dont want you to know about" and you would have infinity insurance for $0?
Post-SVB, this is the system we’ve got.
That book is worth $72bn on run off. $16.5bn pays an awful lot of interest.
Wasn’t it $178bn at the end of last year?
First-Citizens is buying $72bn assets for $56bn. They're leaving behind "$90 billion in securities and other assets...in the receivership for disposition by the FDIC." Nobody would have been haircut.
I'm not familiar enough with FDIC jargon to know what this means. My guess is it's an accounting figure, incorporating the $16.5bn discount given to First-Citizens, not a cash outlay from the DIF, though the wording suggests the latter. (It may be a reference to the expected loss-sharing agreement outlay.)
Also total losses are FDIC + the already defauted on share capital + any bonds the bank had issued. The hole in the balance sheeet is a lot bigger than it first looked.
When SVB failed, the Federal Reserve said they would give banks a one year loan at par for treasuries and mortgage-backed securities: https://www.federalreserve.gov/newsevents/pressreleases/mone...
Without a solution, we run a bank run risk _at all times_. This seems untenable. Perhaps we should raise the limit to quite a bit higher, and charge large account holders for that?
(Banks are already charged for the current insurance up to $250K)
A sweep account is a very common business account and most banks offer this, if you don't pick it based on your balances they'll call you up and try and sell you this service. SVB strangely did not have this product for some reason.
And if they get 56 billion out of this deal that should leave 63 billion out of 119 billion in deposits to cover, so if the bailout ends up costing 20 billion that means they're only recovering 43 billion on the remaining 90 billion in assets? Is this some kind of worst case estimate?
We also don't know today's deposit numbers from the press release. Presumably a future report will give all the numbers as of the same date.
SVB had plenty of assets at "par" value or held to maturity value. But it was insolvent if you marked those to market.
So FDIC is letting First-Citizens buy the assets at closer to their true market value. 20% loss.
That's my understanding but it is kind of a distressing conclusion. SVB had no enterprise value, and the outcome we're getting is financially the same for FDIC as if they just firesold the assets and did a pure winddown?
If I have $100 in assets in 10yr zero coupon treasuries at par issued in a 0% interest rate environment, and funded with $100 of liabilities in the form of deposits paying 0%, and rates increase 1% and the rate I’m paying depositors increases to 0.1%. My bonds are now only worth $90, but I’m going to receive $100 at maturity, and so I’m really only out the the $1 on interest paid to depositors over 10 years, not the $10 mark to market loss. In this example I’d say your economic impairment is closer to $1 vs the $10 implied. judging at the asset side of the ledger in isolation doesn’t give you the whole picture.
So while you might not feel like you are not going to take a loss, you are also chained to a position that will not make money either.
While everyone else is out making 1%, you are stuck with 0%. If you could wave a wand and get out of your bond with no loss, you would pick up a 1% and hold that instead. It would almost certainly be better to just eat the loss, and re-invest that money into something else, and come out ahead after 10 years.
Dollars in, dollars out isn't the only factor here. Bonds give this illusion that loss isn't happening because you can wait to get your money back. But a little introspection reveals that the loss is actually just hidden in the waiting is a itself.
Could you explain why that's a distressing conclusion?
Not saying I studied the data and concluded that; it's just what I wanted to believe.
$20b loss to FDIC insurance fund feels high. It still meets the technical definition of "no losses borne by taxpayers" but it's a lot of money. I've gotta believe it's among the largest ever if not the largest ever losses borne by the FDIC for a single bank failure.
Distressing – some combination of having been in denial about just how screwed up SVB was financially, paired with concern for what this will mean if the dominos keep falling.
And yes, if it does cost $20b, it will be the most expensive single bank failure (exceeding IndyMac).
Limits (possibly to include prohibitions) on using H2M accounting to back demand deposits would be a more targeted (and therefore appropriate) intervention.
No bank / institution today probalby wants older bonds that yield e.g. 1% if bonds issued today yield 3.5% and the Fed interest rate is 4.75-5.00%.
So there just may not be a market for them, unless you discount them enough to make the purchase price yield profit in the current inflation environment. At which point, you're selling 20B worth of bonds for e.g. 15B.
You can sell treasuries almost instantly for an instantly computed discount/premium...it's not like selling real estate, treasuries are nearly perfectly fungible
So it's not really a matter of demand for low yield treasuries...they've been instantly revalued every second since they were issued. All that matters is the duration remaining.
its a currency market, liquid and fungible...there is no "enticement" of buyers
This is the whole 'mark to market' loss thing. If I have a treasury at 4% that I want to liquidate - but new ones are being issued at 5% - I can still do so instantly. I have to make up that 1% myself in cash, though. The 'loss' is the amount I have to come up with to make my treasury equivalent to a new one.
Inflation doesn't factor in.
It is more complicated than that because the price of the bonds change to account for the market alternatives.
As an example, Would you rather buy a bond that returns $1005% for $100, or a greater number of bonds that return $1001% for $20 each?
Because the price of the low interest bond is discounted, the annual ROI is the same as the high interest bond. Additionally, if you hold to maturity, the ROI is better with lower interest (in this example)
notch898a is referring to how, when the full backstop of deposits regardless of size at SVB and Signature bank was announced, the government said that a) it wasn't a bailout because taxpayers wouldn't pay anything, and b) there would if necessary be a "special assessment" (i.e., mandatory additional premiums) from all banks. Our point is that a) is nonsensical given b), because of the total overlap between US taxpayers and US bank customers.
https://www.fdic.gov/resources/deposit-insurance/deposit-ins...
Obviously a system-wide crash would hurt, but a handful of weak regional banks failing wouldn't hurt the average person.
EDIT:
> Lessons from the financial crisis are still seared into management’s brain at JPMorgan. After the 2008 crisis, it got slapped with the label of a bailed-out bank profiting from taxpayers’ generosity, and it eventually paid billions of dollars of fines and legal expenses after buying Bear Stearns and Washington Mutual, including a then-record $13 billion penalty over mortgage lending. The irony was that it completed the takeovers partly at the request of the government, which had encouraged JPMorgan to acquire the stressed banks to prevent further instability in the financial system.
https://www.bloomberg.com/opinion/articles/2023-03-15/silico... (although Levine is quoting from a different source)
Additionally, the FTC and CFPB are very much opposed to more bank mergers and acquisitions so any big players would likely face lawsuits blocking it.
Where that $250k insurance money come from really?
If it is all Fed printed first then I understand assets are auctioned later to suck that printed money out of the market, sell and burn cash, right?
Additionally, the dollar is merely a piece of paper, and the FDIC essentially guarantees pieces paper with $250,000 or whatever face value printed. There may be intricate mechanisms at play, such as the FDIC issuing bonds which the Federal Reserve subsequently purchases, or the Fed buying Treasury securities and providing the proceeds to the FDIC in the form of loans or capital injections. Or Fed directly offers credit line with failing banks. It is difficult to envision any issues the FDIC could encounter that could not be effectively addressed by the Federal Reserve essentially printing more money.
The value of US dollar is all about confidence, in the event of failing of FDIC, it is a testing moment of the confidence of USD. Although forced to print a lot more money could be bad for confidence, but not that catastrophic as FDIC failing.
The insurance premiums are collected and insured amounts. Uninsured amounts don’t pay premiums. That’s why this was a bailout and not an insurance payout.
> The assessment base has always been more than just insured deposits. From 1935 to 2010, a bank's assessment base was about equal to its total domestic deposits. As required by the Dodd- Frank Act, however, the FDIC amended its regulations effective April 2011 to define a bank's assessment base as its average consolidated total assets minus its average tangible equity. Therefore, a bank pays assessments on its total liabilities, not just insured deposits.
From here: https://www.fdic.gov/resources/deposit-insurance/deposit-ins...
With a 0.75% coverage ratio I do worry what happens in the case of more bank failures. The only question is will the bag holders be the US taxpayer or all dollar holders globally via inflation?
The Fed is determined to fight inflation until their shareholders, the banks, are in trouble. Then we get to learn who the Fed really works for. Hint: not the people.
Then they told us there would be no inflation.
Then inflation was transitory.
Then they were serious about fighting inflation until banks started failing.
Suddenly they reversed course and wiped out 2 years of quantitative tightening in the past 2 weeks. [0]
The Fed hasn’t apologized for any of those actions or accepted any responsibility, which tells me they haven’t learned a thing.
As far as I am concerned the Fed is both regulator and PR arm of the banking industry.
The Fed regulates their member banks, and very poorly it would seem based on events during the GFC and today.
You can take Powell at his word. I remain skeptical.
[0] https://mobile.twitter.com/1MarkMoss/status/1640099789537939...
Their stance on interest rates has not changed.
That tweet is someone who doesn’t understand the nuance of the balance sheet.
>As far as I am concerned the Fed is both regulator and PR arm of the banking industry.
They are not helping banks. What are you missing here? Nothing they are doing with rapid rate hikes is advantageous to banks.
>You can take Powell at his word. I remain skeptical.
I’m not, I’m just looking at his actions and the markets priced in probabilities of interest rate changes from the fed.
It would be one thing if they were lending to banks based on the current market value of the assets, but instead they are letting the banks pretend the assets are worth what they would be if held to maturity. So both the Fed and the banks are playing pretend.
We can argue about whether or not this is inflationary. I suppose it would depend on what these funds are used for. It certainly isn’t as inflationary as if the Fed had simply given this money to consumers to spend.
However, I do think it is an error to ignore such a swift reversal of quantitative tightening over the past couple years.
Hypotheticals like this are detached from reality.
Under what scenario would the entire depositor base try to withdraw all of their funds? What would be happening in the world for that to happen? People "lose faith" in banks? Okay, where are they now putting their money, under their mattress?
Then we move into the real world where reality exists: Fed officials double down on rate rise decision citing high inflation
https://www.fdic.gov/consumers/assistance/protection/depacco...
There is no equivalent to a bank run risk on SS/Medicare so why put it in. Putting it in also means that these programs could cause massive inflation if the US Gov had to print money to finance them.
Also, the original statement is not quite correct - FDIC is funded by a special levy on all US banks, so while on principle it's backed by the "full faith and credit" of the US government, in actuality the money comes from the banking system itself.
Edit to add: from the article:
>The FDIC is funded by its member institutions through premiums and assessments paid on deposits. And, if ever needed, the FDIC can draw on a line of credit with the U.S. Treasury.
So, if you're a bank, you have to be a member of FDIC, or the banking regulators come and take your bank away. Being an FDIC member means you have to give them money, pretty much according to their whim (or they come and take your bank away). If that's ever not enough to fund a "not bailout", FDIC can get a loan from the Treasury, to be paid back from those premiums and levies on the banks over a period of time.
The banking system funds an insurance fund, but if that insurance fund is exhausted, the federal government is backstopping it.
I am not at SVB but was considering whether it might make sense to have a second account there, for FDIC-spreading purposes. I have the same knee-jerk reaction as many people, but on second thought I wonder if this is irrational.
Generally, if Stripe etc claimed the money was on the way, Mercury's app already saw the funds and made them available by the time I received the Stripe email. Underneath the hood its Evolve Bank and Trust (or at least my bank account was).. Mercury is merely the smart software layer on top of the actual bank account they open on your behalf behind the scenes.
* The only slight negative is that they did terminate my account last week - they immediately suspended all in/out transactions with no warning, and said they'd either wire or cut me a check to get my balance out in a few weeks. I think it's because I asked their support a question about bringing one of our other much larger businesses across and so asked some ACH related questions which probably spooked them due to lack of understanding.
I'd use them again quite happily in other businesses though.. just be mindful if they do shut you down you might find yourself unbanked for a period of time... and the wire to get your funds out if they suspend you requires manual approval by someone in Mercury Compliance. The account in question is a SaaS for Franchisor Operations and Franchise Compliance, so we're usually considered quite low risk.. I regret losing my Mercury account, as the alternative (RelayFi) is 'good' but not as good unfortunately.
A low-risk SaaS business has their account terminated for no reason at all? Good lord, that's not what you want in a bank.
That shouldn’t dissuade anyone from using them and I have no experience or opinions whatsoever about them. Just mercury isn’t a bank.
So, Chase, Citi, BofA.
If you want someone to be glad when you get home and listen to you complain about bill from accounts then get a dog.
Curious to hear if anybody else has gone this route, and what your experience has been.
Yes you do actually. There are many withdrawal events such as taxes, medical expenses, vehicle repair, and others that you need to provide liquidity for in short notice. If your funds are locked into treasuries or other assets that have a low current value relative to their final worth like SVB then you will have to sell them at a loss which might ruin you financially. Unfortunately there's no FDIC for individuals.
Yes there is, it is called "insurance" and is readily available from a variety of providers. It is meant precisely to turn unexpected high cost expenses into more predictable expenses over time.
That's why it's a good idea to pay attention to the term of the bond. You can buy short term treasury funds with yield to maturity of around 30 days. These aren't capable of having low current value compared to final worth. You can also save a little extra money and be capable of taking the risk of a longer term.
E*trade example below https://us.etrade.com/l/f/asset-protection