SVB collapse

User232002

dale_cotterill said:

SVB's diversification issue wasn't exclusively about number of depositors over £250k. It was the fact that all of it's deposits were basically the same. The VC's seemed to hold all of their money there, the companies ther VC's lent to all kept their money there, and far as can be determined, no-one else really used the bank. The whole 'ecosystem' as they like to call it was entirely incestual, and the moment one firm started worrying about it, then everyone was going to behave in exactly the same way.

This is only relevant to SVB being the first one to fail because its customer base accelerated the issues. It explains why they failed first, but not why they failed. Right now, a whole cross section of american businesses that bank with US banks are thinking the same thing, which is essentially the same as Peter Thiel phoning all of SVB's depositors up a few nights ago. Those 'diversified' banks that lent to a whole variety of different business sectors, including retail, will face the same issues as SVB to some extent. One of the big four banks has similar assets that, when marked to market, give it an unrealised $52B loss. Luckily, for now, this bank can defer this - but for how much longer and will its depositor base sit on its hands now that it knows about this?

dale_cotterill said:

While I have some sympathy for the argument about central banking policy failures, though I'd mainly refer to maintaining low interest rates for so long, rather than the spike now, absolving blame from SVB for this is laughable.

Not absolving them of blame. They hedged their interest rate risk less than other banks, which was a mistake. But those other banks are all sporting unrealised losses in the billions for the same reason that SVB was, which means this isn't just an SVB issue.

dale_cotterill said:

The basic function of an asset and liability department in a bank is to manage interest rate risk, and ensure that is has sufficient liquidiy and capital to meet it's requirements, even in a stressed environment. Using depositor money to buy long term bonds at record low rates, where the value can at best can remain static over the long term.

Sir, we have a fractional banking system. Bank reserve requirements are basically zero and the average bank is running a leverage ratio of like 20+ to 1. No bank has sufficient liquidity to meet its obligations if a moderate amount of customers turned up and asked for their money back.  

Swipe said:

https://www.cnbc.com/2023/03/12/treasury-secretary-janet-yellen-says-us-government-wont-bail-out-silicon-valley-bank.html

No bailout from the US Treasury. Just the $250K FDIC protection.

Well, they either bail out the depositors with money they don't have, or there will be a run on every regional bank by every business w/ > $250k in their account tomorrow morning. Either way, prudent monetary policy will shortly be going out the window.

Eye2021

My top tip - make sure your deposits in each bank are less than £85k

I suppose the new smaller 'challenger banks' are most at risk, but who knows ?

wmb194

Sea_Shell said:

Ok, so many businesses may have their deposits protected, but what of amounts over £85k.?

Bailouts?

They become senior unsecured creditors e.g., IIIRC last week SVB had something like $72bn in loans and the balance of a c.$200bn balance sheet in deposits and bonds. It should be that they won't lose everything.

Just think back to what happened in the financial crisis; if banks are unable to raise any or enough capital from shareholders then systemically important banks would probably be fully or partly nationalised and ones that aren't would be (partly) sold off and/or wound up e.g., Northern Rock, Dunfermline BS, Bradford & Bingley. Barclays was able to raise enough new capital and IIRC HSBC made it through without any problems. Lloyds TSB only got into trouble because it was stupid but a lot of its shareholders were also HBOS shareholders so to a great extent it was pushed into it.

It feels to me that people are panicking a little too much at the moment: the build up to this and the regulatory environment isn't nearly the same as the build up to the financial crisis.

dale_cotterill

darren232002 said:

Sir, we have a fractional banking system. Bank reserve requirements are basically zero and the average bank is running a leverage ratio of like 20+ to 1. No bank has sufficient liquidity to meet its obligations if a moderate amount of customers turned up and asked for their money back. 

Sir, your patronising nature is making you look silly. I don't know what your background is, but as someone who has worked for a number of banks in ALM departments you're not right. (Well, not entirely anyway)

The entire post-2008 liquidity and capital rules particulary in Europe are designed to deal with more than 'a moderate amount of customers turning up and asking for their money back' for a relatively prolonged period. You're right in the instance that if pretty much everyone came and demanded their money back then there would be a problem.

mongoose2009

gold in money

everything else is a promise

london21

The markets tomorrow will be impacted.

Shedman

I see on BBC news website that Bank of London have submitted a bid for the UK part of SVB
and that Barclays may be considering a bid as are (per Sky News) OakNorth Bank and a ME bank.  

Hopefully this will help sentiment on stock market tomorrow

wmb194

Shedman said:

I see on BBC news website that Bank of London have submitted a bid for the UK part of SVB
and that Barclays may be considering a bid as are (per Sky News) OakNorth Bank and a ME bank.  

Hopefully this will help sentiment on stock market tomorrow

SVB UK appears to be minuscule : "Silicon Valley Bank’s branch in the U.K. became a separate bank subsidiary requiring its own capital and more intensive local regulation in August last after it reached 100 million British pounds, equivalent to $120.3 million, of insured small business deposits, according to the parent company’s 2022 annual report."

https://www.wsj.com/articles/bank-of-england-shuts-silicon-valley-banks-u-k-subsidiary-5a2e5b94

Edit: This makes it smaller than the smallest building society, the one branch Penrith with a balance sheet of £127m at the end of 2021.

MikeJXE

Shedman said:

I see on BBC news website that Bank of London have submitted a bid for the UK part of SVB
and that Barclays may be considering a bid as are (per Sky News) OakNorth Bank and a ME bank.  

Hopefully this will help sentiment on stock market tomorrow

And on Sky news

HSBC and J P Morgan are interested 

mears1

Albermarle said:

mark_cycling00 said:

Monday midday could be a good trough to buy into.

Just after the "I'm getting out now!" Posts on here...

I would guess the trough might be a bit earlier, around 10.00.

Why 10.00am or Midday guesses?  Would not benefit fund buyers as much as ETF buyers? 10.00 am would be better as 11.00am is often the cut off for trading and allows for a more relaxed lunch!