If anyone has Netflix Adam Conover did a special about the government where he went to a FDIC practice of them bailing out a bank.
Yeah, technically speaking the government doesn’t guarantee anything about those uninsured assets. Realistically, it’s much more likely that the receivership certificate gets paid out. The scenario where 93% of $161 billion just disappears is extremely unlikely.
Basically first the FDIC takes ownership of the bank and all its assets. They did that already.
Then they make sure there is an absolute guarantee that all the insured assets are given back to the people who deposited them. That’s going to happen Monday.
For the uninsured assets they give everyone a certificate so they know how much.
Then the FDIC sells off all the bank’s remaining assets. After selling everything they see how much money they have. Then everyone can cash in their receivership certificates to get their fair portion of whatever is there.
So if the FDIC sells all the bank’s for half price, everyone who deposited at the bank loses half of their uninsured assets.
From what I heard earlier:
It’s entirely possible they sell the bank’s assets for 100% of what they are worth, and nobody loses anything.
Since it was a lot of long-term US bonds which are presumably still good, could uninsured depositors get the option to receive like 50% (or whatever) now, or the full amount over 10 years?
Nobody is doing that. These are the checking accounts for companies. They need money to make payroll. What if I took a significant portion of your money from your checking account and put it in a long term investment? For a lot of people that’s going to make them miss their mortgage, miss their bill payments, etc. It’s cold comfort that after devastating suffering and poverty for 10 years the money would come back.
On top of that, the overwhelming majority of the customers are this bank are startup companies. They don’t have significant revenues. They have money from investors. That’s why the bank wasn’t doing so well. Investors stopped investing as much, and money was only going out, not in.
In the startup world there’s a thing called runway. Just like a plane only has so many meters of runway before it has to take off or crash. A startup has so much cash from investors. Before they spend the last cent the company has to become self sufficient, get another round of funding from investors, or fold.
Three years of runway would be considered a lot. Ten years is unheard of. If you have ten years of runway, you’re not a startup, you’re a company that’s off the ground with actual revenues. If you take half of a startups already-raised money and hide it away for ten years, you just cut their runway in half. They were unlikely to last ten years to begin with, and now they’re even less likely.
The people who invested that money would also be very upset. They invested $X million in a startup. They wanted to make a risky investment that could pay out big. If you cut the runway in half, you’ve basically guaranteed that they are going to lose the half of the investment the company still has because its chances of taking off are now so much worse. And you’re going to take the other half of their money and invest it in a nice safe bond? They could have done that themselves.
Good points.
One thing I am reading about is lack of diversification of clients of the bank, and also lack of diversification in investments by the bank.
Is there also a lesson here about putting all your deposit eggs in one basket? Maybe Venture Capitalists R Us shouldn’t have had all their investees use the same bank.
Diversification is usually something people think about when investing, not in banking. There’s so much trust in the US banking system, which is exactly why the FDIC exists. That trust is one of the pillars that makes our economy so stable.
Just as an example, a colleague in Lebanon was commenting how all the banks there have really big problems that make this problem look small.
Everyone used that bank for 40+ years and it was just normal. Nobody even remotely considered this possibility until it happened. Just like you wouldn’t consider this a possibility if you open a normal old checking account with whatever local bank you have in your area.
In fact, since banking choice was not considered a risk, lack of diversification in this case was actually a feature. It was convenient for all the people in the same industry to use the same bank. I think you’ll see that in other industries as well where many similar companies with similar needs are customers of the same bank.
Now we got some numbers coming in.
The CEO is in deep shit, possibly did crimes?
And now vultures are circling to help former customers with some financing.
Someone claims to have seen it coming, and even shorted it. They didn’t say how much they made. The answer is they probably got $265 per share. But how many shares did they sell short?
Uh oh! The spillover!
https://twitter.com/corncommunist/status/1634570955488915456
Looks to be accurate from the SVB website:
In particular, the most interesting disclosure is [SVB] didn’t have a Chief Risk Officer for much of 2022, and (from what I can gather) doesn’t explicitly communicate this to shareholders until the 2023 Preliminary Proxy is filed on March 8, 2023.
Signature Bank, a bank I’m at least slightly familiar with because I have encountered it in NYC, also failed. The FDIC is handling both Signature Bank and Silicon Valley Bank in effectively the exact same way.
Everyone who had money deposited at the banks will be made whole. The money will all be available Monday. That’s tomorrow! Taxpayers won’t lose anything. The FDIC gets money from the sale of the banks remaining assets, and also from insurance premiums paid by banks that still exist. The FDIC is, after all, an insurance company. The only people who are going to eat shit are the shareholders of these banks. Or, at least the ones left holding shares at the end of the day. The ones who got out ahead of time will hopefully be punished for crimes, but that’s up to the SEC and/or DoJ.
This is great for me personally because my employer can make payroll. It’s also great for the country and world because it reinforces trust in the US banking system. It should also prevent there from being meritless runs on other banks. It also brings the eye of oversight upon banks all over to make sure they don’t fuck up in these same ways. This could be a weekend of troubles that has a long term positive outcome.
Really the execution by FDIC, Federal Reserve, and Treasury here has been as perfect as can realistically be expected. If I was president I’d sincerely be getting ready to hand out medals.
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I didn’t realize the FDIC ran takeovers like a secret operation! About a small-time bank failing back in 2009:
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In my imagination the employees at the FDIC are training hard every single day for a disaster that almost never comes. And then with it does finally come after years of practice, they go full Trigger anime.
If only all the government agencies were like that.
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I can’t find a clip on YouTube, and I know I mentioned it earlier in the thread. However, The G Word with Adam Conover on Netflix has a segment of an FDIC training session where they take over a bank for these situations.
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I liked that episode, and it was quite interesting to watch them run through the training scenario.
I listen to his podcast, Factually, and I recently was listening to the episode where he discussed making that series (The G Word) and what it was like trying to reach out to the various government organizations that he highlighted in different episode. He said most of them were very wary of the publicity and that a show wanted to come in and learn what they do and how they work, fearing it would be something like the Daily Show where they make them look foolish. But as he made them understand that his goal was to showcase how important the work the government does then they relented and ended up giving him more access than he expected in many cases.
Just watched a Zoom meeting put on by the Utah tech business community to discuss what we know about how things unfolded with SVB and what the State and local banks were getting ready to do before the Fed announced their actions Sunday evening. Also on the call were the US Senators from Utah to provide their input about what conversations were and are happening at the Federal level. A comment Senator Romney made, somewhat in passing, about SVB was interesting in the potential implications of this line of thinking: “they were investing in US treasuries, the safest thing they could be doing.”
I mention this because it would be nice if all the pro-business Republican Congresspeople took note of the disruption and concern over just these two banks failing and consider what will happen at a much much larger scale if they allow the Federal Government default on its debt. I can’t say that I am hopeful, but maybe this situation can serve as a wake up call about how the financial system can quickly impact business and economic stability.
I don’t believe any Republican can act in good faith in any situation.
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