SVB collapse

Wildsound

For those that are interested, a link to a twitter post showing the "open letter" which went off to the chancellor, along with the list of companies that signed the letter:

https://twitter.com/kprescott/status/1634564263355330563

Not to say those companies specifically bank with them I guess, but just signed the letter.

Bravepants

Not to be a Ludite, but perhaps it might help slow down some of the inherent educational rot brought about by the increased use of AI: "Write me a story about my summer holidays"

jaypers

Good time to buy into the mainstream Banks as their shares WILL go back up. 

dale_cotterill

darren232002 said:

SVB failed because;

(1) Bonds bought during the past decade+ of record low interest rates have declined in (current) value as interest rates have risen sharply in the last year, and

(2) These bonds had to be marked to market because of a customer run on the bank because in our fractional reserve banking system no holder of deposits (ie. a bank) actually possesses those deposits on hand.

So, the real question is, do you think either of these two problems are unique to SVB? 

(2) isn't technically correct. Under US regulation, non-systemically important banks aren't required to mark to market the value of their capital, therefore their reported capital was significantly greater than what they would receive if they were forced to sell it (which they were). Once they realised their losses, capital was actually negative.

In the UK and EU under Basel regulations, CET1 requirements are required to be mark to market, so would have to be topped up with additional capital to meet minimum regulatory requirements rather than just ignored.

What is different with SVB to most banks is that;

It was totally undiversified. It basically held the money of VC's, and the companies VC's lent to, and that was about it, in these scenarios, it was always going to be a one out, all out situation. Added to that, the nature of the funds held meant that 95% of it was above the insured limit, so even more of a risk to get it out.

Spectacular failure of risk management across the whole tech industry, not just in the bank itself. SVB basically just made a huge bet on interest rates staying low, rather that managing it's capital and liquidity properly.

Band7

Huge number of UK startups and people affected. Not many in financial sector - I have only spotted POCKIT and Curve - but it is likely to have a very severe impact on the wider community, in business and private life

flaneurs_lobster

Band7 said:

Huge number of UK startups and people affected. Not many in financial sector - I have only spotted POCKIT and Curve - but it is likely to have a very sever impact on the wider community, in business and private life

I've got a couple of quid in my Curve Cash account. Since they are not FSCS-protected should I be withdrawing my money asap?

User232002

dale_cotterill said:

(2) isn't technically correct. Under US regulation, non-systemically important banks aren't required to mark to market the value of their capital, therefore their reported capital was significantly greater than what they would receive if they were forced to sell it (which they were). Once they realised their losses, capital was actually negative.

Correct. I used the phrase 'mark to market' because I assumed that the financial literacy rate of this forum was/is pretty low. Whether you mark it to market, or are forced to sell it at current market value, the effect is the same.

dale_cotterill said:

In the UK and EU under Basel regulations, CET1 requirements are required to be mark to market, so would have to be topped up with additional capital to meet minimum regulatory requirements rather than just ignored.

But the point is whether there is contagion within the US banking sector, so these are irrelevant.

dale_cotterill said:

What is different with SVB to most banks is that;

It was totally undiversified. It basically held the money of VC's, and the companies VC's lent to, and that was about it, in these scenarios, it was always going to be a one out, all out situation. Added to that, the nature of the funds held meant that 95% of it was above the insured limit, so even more of a risk to get it out.

Keep seeing this argument that SVB is somehow unique because it 'wasnt diversified.'. Its completely incorrect. Sure, SVBs customer base may have had a higher than usual percentage of business customers with > $250k accounts. But I guarantee there are other banks with varying percentages of these customers where those customers are, quite rightly, going to be wanting to move their money in the upcoming days. The point is that, of the two factors I identified, (1) has affected the entire market and (2) is probably about to.

dale_cotterill said:

Spectacular failure of risk management across the whole tech industry, not just in the bank itself. SVB basically just made a huge bet on interest rates staying low, rather that managing it's capital and liquidity properly.

In December 2020, the Fed stated that inflation was 'transitory' and that interest rates in 2023 would be 0.1%. The current interest rate is 4.75%. Throughout much of 2021, interest rate rises and predictions were muted. The Fed is both the body that both predicts rates and sets them. A business taking that advice on board and acting on it isn't 'making a huge bet on interest rates staying low.'

This is mismanagement by the central bank. 

Band7

flaneurs_lobster said:

Band7 said:

Huge number of UK startups and people affected. Not many in financial sector - I have only spotted POCKIT and Curve - but it is likely to have a very sever impact on the wider community, in business and private life

I've got a couple of quid in my Curve Cash account. Since they are not FSCS-protected should I be withdrawing my money asap?

I don't know whether they are just signatories to the letter or whether they might be financially exposed. Personally, I never keep a penny in non-FSCS accounts......

dealyboy

I have read news about Silicon Valley Bank's collapse on various news outlets, for me the most interesting article is on CNN where they show the timeline ...

https://edition.cnn.com/2023/03/11/business/svb-bank-collapse-explainer-timeline/index.html

... for the broader impact look no further than the markets. The events took place between Wednesday and Friday a.m. EST when the bank was shutdown, but I'm looking at the DJ graph for last week. It was a down week in a wider sell-off from Monday, I can't tell the difference between 'the hawk' and SVB's influence.

flaneurs_lobster

darren232002 said:

dale_cotterill said:

(2) isn't technically correct. Under US regulation, non-systemically important banks aren't required to mark to market the value of their capital, therefore their reported capital was significantly greater than what they would receive if they were forced to sell it (which they were). Once they realised their losses, capital was actually negative.

Correct. I used the phrase 'mark to market' because I assumed that the financial literacy rate of this forum was/is pretty low. Whether you mark it to market, or are forced to sell it at current market value, the effect is the same.

I do so appreciate it when an "expert" dumbs hard stuff down because they've assumed our level of financial illiteracy makes doing big sums difficult.

Keep your incorrect assumptions to yourself mate.