SVB failure (1 Viewer)

[MT15]

This seems to be generating a lot of talk among the on-line tech set. I don’t really care why it failed or about the nuts and bolts, but I found the immediate calls for a government bail out of investors fascinating. This guy’s thread makes a great set of points about it.



There’s an entire thread, not too long, well worth reading.

 

[efil4]

We are about to learn more in the coming days as to how this all came to be.

Happy to engage with you on this subject later today (or whenever things slow down). As you can imagine things are incredibly busy, so it will be hard to find time.

Just know, Biden blaming “Big Banks” for this is like Grandpa blaming rock and roll, and weed for the uptick in crime.

There is more to this than what you are hearing.

that is actually what I mean. I’m for letting the banks fail. Those people are eroding whatever trust happens to be left in our financial system.

there is always more....always. But what tends to come out early, is what is "unspun".

SVB holding MBSes, after 2008, is simply unacceptable.

Avoiding stress tests? unacceptable.

deregulation in banking is the root cause of all of this. If we remove the safeguards, its human nature to exploit any and all weakspots in the name of profits.

its really that simple.

 

[el caliente]

Did Peter Theil cause this?

Would SVB have failed if there hadn't been a run by depositors last week?

I don’t think so. If anything he just showed us how bad SLVB was.

 

[samiam5211]

I don’t think so. If anything he just showed us how bad SLVB was.

SVB wasn't making risky investments.

There isn't a bank in the country that wouldn't fail if half of their biggest depositors tried to get their money at the same time.

 

[el caliente]

SVB wasn't making risky investments.

There isn't a bank in the country that wouldn't fail if half of their biggest depositors tried to get their money at the same time.

I’m not saying they were banking Ponzi companies, but they were banking companies with piss poor risk ratings, and they did that so that they could build up their balance sheet, specifically on the equity side.

When I worked at Wells they had us do meet ups at HQ in SF. You would get bankers from all over the bank to break bread, and learn how others are conducting business.

I was put in a group with a guy from TMT (tech), and we discussed what risk ratings our clients had. My clients were commodity firms, and our clients typically had a risk rating of 35-42 (scale is 1- perfect - 80- Kyri Irving). This guy started laughing and said that his clients lived in the 70-75 space. SVB lived in that space where their clients were bankable, but still had risk ratings of 70+.

 

[MT15]

There is chitchat on Twitter that Thiel was responsible for the SVB run, somehow, and that he did it on purpose to cause a financial panic.

I certainly don’t know enough to say one way or another, but that is what is being posited on line.

 

[el caliente]

Something that is also being overlooked in this run on the banks is that unlike 08/09, now everyone for the most part can withdraw funds all from their phone. Sure you had people in line at banks this weekend, but most of them probably could have withdrawn their cash from their couch, and saved themselves the exposure to concert ticket crowd.

That is a major contributor to so much money flowing out of these institutions at such an unprecedented rate.

 

[el caliente]

There is chitchat on Twitter that Thiel was responsible for the SVB run, somehow, and that he did it on purpose to cause a financial panic.

I certainly don’t know enough to say one way or another, but that is what is being posited on line.

I don’t know what to make of that other than SLVB not stress testing their balance sheet. You have to have triggers in place where if something like that occurs you are able to call certain loans,’or you can’t allow a person to withdraw all that cash at one time. If his withdrawal caused this, then SLVB didn’t have those safeguards in place.

If his reason for doing that was to cause a financial panic, well, good luck finding another bank to ever touch him. Maybe he can take up financing with an institution in Russia or China.

 

[MT15]

I don’t know what to make of that other than SLVB not stress testing their balance sheet. You have to have triggers in place where if something like that occurs you are able to call certain loans,’or you can’t allow a person to withdraw all that cash at one time. If his withdrawal caused this, then SLVB didn’t have those safeguards in place.

I’m not up on all this - but evidently there was some sort of proclamation somewhere by Thiel that people think caused the run. Somewhere on line or in some sort of industry chat or something.

It’s absolutely just a rumor at this point as far as I know - but he supposedly profited in some way, and/or wants to cause a banking crisis in order to profit in some way.

 

[MT15]

Just went back into Twitter and see this. I’d like to know the full story of that Iceland deal, sounds great!

 

[el caliente]

I’m not up on all this - but evidently there was some sort of proclamation somewhere by Thiel that people think caused the run. Somewhere on line or in some sort of industry chat or something.

It’s absolutely just a rumor at this point as far as I know - but he supposedly profited in some way, and/or wants to cause a banking crisis in order to profit in some way.

This is where the Fed needs to step in and call the waters. Fear mongering is profitable as fork. Our fear isn’t fear mongering. As a matter of fact our firm told us on Thursday not to talk down about SLVB, and not to solicits business from our clients who have accounts with SLVB. At first I wasn’t sure, but it’s all for a reason (you don’t want to shovel dirt on, or lead to the closing of another financial institution), and it has worked out remarkably for us (over the last 8 hours we have transferred in over 9 figures in checking, savings, investment, and brokerage accounts).

 

[el caliente]

Just went back into Twitter and see this. I’d like to know the full story of that Iceland deal, sounds great!

Is he referring to the country’s bankruptcy?

I’m all for what he is suggesting.

 

[MT15]

This is an example of the Thiel blaming:

 

[MT15]

 

[efil4]

meh...banks pay into. Where do banks get the funds to pay into? banking fees.

Ever been to a non-bank atm? lol

But in all seriousness, it will get passed along to consumer. Always does.

 

[samiam5211]

So if people start to believe that the government is going to insure all of their deposits now, could banks start just offering crazy rates on deposits like 8% interest on savings and even checking accounts and make really risky investments, and create something like a Ponzi scheme where they just make really risky bets and hope they win enough to keep from failing, and if they do eventually fail, at least they (the owners) made money along the way?

It would make people more likely to give them money even if they don't trust the people running things if the government is there to guarantee their money is safe.

 

[coldseat]

So if people start to believe that the government is going to insure all of their deposits now, could banks start just offering crazy rates on deposits like 8% interest on savings and even checking accounts and make really risky investments, and create something like a Ponzi scheme where they just make really risky bets and hope they win enough to keep from failing, and if they do eventually fail, at least they (the owners) made money along the way?

It would make people more likely to give them money even if they don't trust the people running things if the government is there to guarantee their money is safe.

This opinion piece kind of goes into that. The first half of the piece goes into the reasoning that if the government was going let any bank fail, it would have allowed SVB to fail because of the limited risk to the overall economy. But it didn't allow that to happen by bailing out the depositors, so it's safe to say that it won't allow any bank to totally fail. Basically we have socialism for banks now.

===========
.........

The point here is not that the rescue was misguided. There’s a strong argument that entrepreneurs should be able to form companies, raise capital and park the funds in a bank without having to worry about whether the cash will be safe. Start-ups ought to focus on inventing products, not diligencing banks.

Rather, the point is that if Silicon Valley Bank’s rugged, entrepreneurial depositors get bailed out, then all future depositors will get bailed out when the next bank failure inevitably rolls around. The clients of other failing midsize lenders will surely be less capable of coping without government help.

So it’s time to abandon the notion that banks have to manage themselves prudently to attract deposits. Zero depositor losses equate to zero discipline on bankers. Henceforth, the only guarantee of sound behavior will be sound regulation.

This is alarming, because the collapse of Silicon Valley Bank illustrates how flawed even the better regulators are. In 2008, some of the mayhem could be blamed on forum shopping by troublemakers: If they housed their risky business in an insurance company or an obscure mortgage shop, they would be regulated by weaker agencies. But Silicon Valley Bank was supervised by the Federal Reserve, supposedly the most expert and independent of all overseers.

Moreover, with the unfair benefit of hindsight, Silicon Valley Bank was festooned with red flags. As the lender at the heart of the 2021 tech bubble, it was bound to experience a boom-bust cycle. Sure enough, its public disclosures recorded a doubling in its deposit base as the party crescendoed — a clear warning sign. Add in the past year’s spike in interest rates, and it should have been obvious that the bank’s bond portfolio had lost value. The grim conclusion is that Fed supervisors just don’t ask tough questions until it is too late.

But there is a solution. After the 2008 crisis, the Fed began to conduct regular stress tests on the largest lenders. These tests are a way of routinizing the act of asking questions: Would the bank remain sound if the economy experienced a recession, the dollar fell sharply or oil prices spiked? The lesson from last weekend is that even medium-sized banks need this sort of attention.

During the Trump years, policy shifted in the opposite direction. Congress rolled back some of the post-2008 safeguards, and the Fed decided there was no need to burden midsize lenders unduly. But if depositors won’t discipline the bankers, regulators must do so. Otherwise, bailouts will become dizzyingly common — and far more expensive to the economy than proper regulation.
============

https://www.washingtonpost.com/opinions/2023/03/13/silicon-valley-bank-bailout-regulation/

 

[samiam5211]

This opinion piece kind of goes into that. The first half of the piece goes into the reasoning that if the government was going let any bank fail, it would have allowed SVB to fail because of the limited risk to the overall economy. But it didn't allow that to happen by bailing out the depositors, so it's safe to say that it won't allow any bank to totally fail. Basically we have socialism for banks now.

===========
.........

The point here is not that the rescue was misguided. There’s a strong argument that entrepreneurs should be able to form companies, raise capital and park the funds in a bank without having to worry about whether the cash will be safe. Start-ups ought to focus on inventing products, not diligencing banks.

Rather, the point is that if Silicon Valley Bank’s rugged, entrepreneurial depositors get bailed out, then all future depositors will get bailed out when the next bank failure inevitably rolls around. The clients of other failing midsize lenders will surely be less capable of coping without government help.

So it’s time to abandon the notion that banks have to manage themselves prudently to attract deposits. Zero depositor losses equate to zero discipline on bankers. Henceforth, the only guarantee of sound behavior will be sound regulation.

This is alarming, because the collapse of Silicon Valley Bank illustrates how flawed even the better regulators are. In 2008, some of the mayhem could be blamed on forum shopping by troublemakers: If they housed their risky business in an insurance company or an obscure mortgage shop, they would be regulated by weaker agencies. But Silicon Valley Bank was supervised by the Federal Reserve, supposedly the most expert and independent of all overseers.

Moreover, with the unfair benefit of hindsight, Silicon Valley Bank was festooned with red flags. As the lender at the heart of the 2021 tech bubble, it was bound to experience a boom-bust cycle. Sure enough, its public disclosures recorded a doubling in its deposit base as the party crescendoed — a clear warning sign. Add in the past year’s spike in interest rates, and it should have been obvious that the bank’s bond portfolio had lost value. The grim conclusion is that Fed supervisors just don’t ask tough questions until it is too late.

But there is a solution. After the 2008 crisis, the Fed began to conduct regular stress tests on the largest lenders. These tests are a way of routinizing the act of asking questions: Would the bank remain sound if the economy experienced a recession, the dollar fell sharply or oil prices spiked? The lesson from last weekend is that even medium-sized banks need this sort of attention.

During the Trump years, policy shifted in the opposite direction. Congress rolled back some of the post-2008 safeguards, and the Fed decided there was no need to burden midsize lenders unduly. But if depositors won’t discipline the bankers, regulators must do so. Otherwise, bailouts will become dizzyingly common — and far more expensive to the economy than proper regulation.
============

https://www.washingtonpost.com/opinions/2023/03/13/silicon-valley-bank-bailout-regulation/

I've decided that money is like God. It's real as long as enough of us keep believing it's real.

 

[MT15]

I think the difference will be this: bailing out depositors is a good thing; also good would be removing the bank executives with appropriate penalties to be determined.

In the case of SVB I’m reading that shortly before the run, executives were given unusually large bonuses and the chief executive recently sold several million worth of stock. This sound suspiciously jail-y and criminal charges may be warranted. I don’t know if that’s actually what would happen, but it could serve as a warning to future banking executives. Even if this wasn’t criminal, it was possibly immoral and/or unethical and maybe these executives should be barred from holding trust positions in financial institutions.

Also, if Thiel indeed coordinated a run on SVB, that should be investigated. If he had concerns, he should have communicated privately with regulators and/or the bank to get those concerns addressed. It should especially be investigated if he was able to profit in some way from SVB’s failure.