Snippet of article written by ALFONSO PECCATIELLO (ALF) -substack
"banks with assets below $250 billion (and a few more requirements) are not subject to the tighter regulatory scrutiny like big banks: no liquidity ratios (LCR), no net stable funding requirements (NSFR) forcing you to diversify your funding base and light stress tests. This allowed SVB to run wild with its investment portfolio and funding base concentration.
SVB’s management repeatedly lobbied to increase the cap for lax regulatory scrutiny and conveniently remained 20-30 billion below the $250 billion threshold?
It is hard to deny a decent amount of moral hazard was at play here
SVB was not applying basic risk management practices, and exposing its investors and depositors to a gigantic amount of risk.
Economically speaking, a $120 bn bond portfolio with a 5.6y non-hedged duration means that every 10 bps move higher in 5-year interest rate lost the bank almost $700 million.
100 bps? $7 billion economic loss.
200 bps? $14 billion economic loss.
Basically the entire bank’s capital wiped out.
As the tech/IPO boom faded, deposits stopped coming in 2022.
Recently, depositors started taking their money away and forced SVB to realize this huge losses on bond investments to service deposit outflows.
The concentrated nature of the deposit base and awful risk management meant SVB went belly up real quick. Many people are now calling for a blanket bailout.
But the evidence that moral hazard was at play are too big to be ignored.
And we should not reward moral hazard."
Author speaks to incompetence and/or moral hazard. Notes that in DEC 21, SVB DID HEDGE their portfolio but NOT in DEC 22.
Oy Vey.
what other banks are being run like this? Whiskey Tango Foxtrot.

Team - I have to ask though, why did Schwab get hammered more so than most other financial instituitons last week?
I am more than nervous (although that is my nature...big propenent of Andy Grove Intel, only the paranoid survive)...what does the market know that we might not? Shoot first, ask questions later?
Schwab's capitalization ration was lower than both SVB and FRC...gives me pause..although SCHW likely has a more diverse deposit base...not sure, I just don't like to see the down 25% stock in a week...
Best,
Baseball Fan

For shorter term cash needs I was advised to put it into an FDIC insured bank deposit account. This should be insured up to 250K. I need to call Schwab tomorrow but I believe you can do this at Schwab. .... Joe and RForno I am curious— are you keeping your bank funds at Schwab for covering short term needs?

I keep maybe 10-15K in my credit union account at any one time for regular/routine expenses (and a cushion!) - which mostly is my paycheck and/or one-off payments/honoraria .....but anything above that, plus the rest of any idle cash goes into Schwab and t-bills. If I need to make a big purchase or payment I just sell the t-bills and ACH the proceeds back into my checking account.

In 2022, 34 banks were required to undergo the Fed stress-tests (pg 13). All passed. Top Category I has 8 banks. https://www.federalreserve.gov/publications/files/2022-dfast-results-20220623.pdf
2023 stress-tests are in progress.
One unintended consequence of the SVB Bank failure may be that uninsured US bank deposits may move soon to the these banks. The SVB Bank also had several overseas branches, and foreigners are confused how can their money have problems in a bank from the richest country in the world. I have only seen the UK move fast on containing the fallout in the UK.
It is also unfortunate that many startups (not just in CA, but across the US and several foreign countries) were required to hold substantial deposits at the SVB Bank as part of their startup funding through the VCs + SVB Bank. This even if they had concerns or reservations about the SVB Bank.
Scenes from First Republic Bank in CA on Saturday (lining up for deposits or withdrawals?), https://twitter.com/CitizenFreePres/status/1634691876178780160
https://twitter.com/DailyMail/status/1634701406761529344

The rags are putting out lists of who they deem to be at risk of fallout from SVB. Most of the banks are ones I don't hear people saying they use. But Ally is on most lists that I have seen and has been popular. This messy list is from MSN since it isn't behind a paywall. I wonder if making such lists produces a run on the banks.

10 banks that may face trouble in the wake of the SVB Financial Group debacle

Here are the 10 showing contracting margins over the past year, or the smallest expansions of margins:
Bank Ticker City Net interest income/ avg. assets – Q4 2022 Net interest income/ avg. assets – Q3 2022 Net interest income/ avg. assets – Q4 2021 One-year contraction or expansion
Customers Bancorp Inc. West Reading, Pa. 2.61% 3.10% 4.03% -1.42%
First Republic Bank San Francisco, Calif. 2.28% 2.53% 2.50% -0.22%
Sandy Spring Bancorp Inc. Olney, Md. 3.10% 3.34% 3.29% -0.19%
New York Community Bancorp Inc. Hicksville, N.Y. 2.10% 2.06% 2.20% -0.11%
First Foundation Inc. Dallas, Texas 2.35% 2.98% 2.41% -0.07%
Ally Financial Inc. Detroit, Mich. 4.04% 4.20% 4.09% -0.05%
Dime Community Bancshares Inc. Hauppauge, N.Y. 2.98% 3.20% 2.95% 0.03%
Pacific Premier Bancorp Inc. Irvine, Calif. 3.34% 3.34% 3.27% 0.07%
Prosperity Bancshares Inc. Houston, Texas 2.72% 2.78% 2.65% 0.07%
Columbia Financial Inc. Fair Lawn, N.J. 2.69% 2.78% 2.60% 0.09%
Source: FactSet

Thanks @MikeM & @Sven for the additional thoughts. Glad the robo worked Mike. My guess is that consumers staples held up better than most of the market Friday. And, of course bonds ripped higher. @Derf - “deer in the headlights” - Yes, for sure! / I was comfortable buying a bit Friday because exactly 1 week earlier I’d sold risk assets “across the board” as I put it in @Crash’s thread - “Or Does this belong in fund discussions …. “. Had raised fixed income to 20%. After Friday’s buys fixed is around 19.25% which is still on the high side compared to 6-12 months earlier. (Don’t make too much of that number because the various allocation / balanced funds also hold fixed income.)
It’s hard for even me to prefer riskier investments to cash or short term high quality bonds at the moment. One thought is that if I had a big slug in cash yielding 5-7% and if the markets or my favorite funds bounced 15-20% over 3 months, than I’d face the prospect of moving into equities at a more expensive price. And that income from 3 months worth of cash might amount to 2 or 3% annualized. No one knows of course. Just to say that avoiding the dash to cash isn’t quite as dumb as it appears on the surface.

I am puzzled by how few accounts were insured. Here's why:
About fifteen years ago, I worked for a small company in the SF Bay Area that was building up cash to purchase a permanent home. Folks on that end of the company were not happy with the treatment they were getting from Wells Fargo. So they went shopping around. They ended up going with Bank of Marin, because it claimed that it could break up the large sum into more than one insured deposit account.
Another example of this would be where I have my taxable investment account. The sweep account is not a money market fund, but an FDIC insured deposit account. While it is not a feature that I have been able to enjoy,

the last time I checked, they advertised that they could break my hoard of spondulicks into multiple accounts if I bought a winning lottery ticket, and needed to park the cash.

So. if this is still legally possible, why wasn't it being done at SVB?
I doubt I have command of the terms of art that would get a meaningful response out of google, but rather an inundation of advertising from banks.

Well, I'm not the only one who questions the present banking oversight/systems failure situation.
Edited excerpts from a current Wall Street Journal article:

Silicon Valley Bank’s failure boils down to a simple misstep: It grew too fast using borrowed short-term money from depositors who could ask to be repaid at any time, and invested it in long-term assets that it was unable, or unwilling, to sell.
In addition, nearly 90% of SVB’s deposits were uninsured, making them more prone to flight in times of trouble since the Federal Deposit Insurance Corp. doesn’t stand behind them. The Federal Reserve was the primary federal regulator for both banks.
“A $200 billion bank should not fail because of liquidity,” said Eric Rosengren, who served as president of the Federal Reserve Bank of Boston from 2007 to 2021 and was its top bank regulator before that. “They should have known their portfolio was heavily weighted toward venture capital, and venture-capital firms don’t want to be taking risk with their deposits. So there was a good chance if venture-capital portfolio companies started pulling out funds, they’d do it en masse.”
To be sure, banks regularly borrow short-term to lend for longer periods of time. But SVB concentrated its balance sheet in long-dated assets, essentially reaching for yield to bolster results, at the worst possible time, just ahead of the Federal Reserve’s rate-hiking campaign. That left it sitting on big unrealized losses, making it more susceptible to customers pulling funds.
The banking industry as a whole had some $620 billion in unrealized losses on securities at the end of last year, according to the Federal Deposit Insurance Corp., which began highlighting those late last year.
Another regulatory issue: accounting and capital rules that allow banks to ignore mark-to-market losses on some securities if they intend to hold them to maturity. At SVB, the bucket holding these securities—consisting largely of mortgage bonds issued by government-sponsored entities—is where the biggest capital hole is.
The idea behind such a bucket is that it insulates an institution from short-term price volatility. The problem this poses is two-fold.
First, a bank may not be able to hold such securities to maturity if it faces a cash crunch, as happened at SVB. Yet selling the securities would force the bank to recognize potentially massive losses.
Second, the treatment of the securities means banks like SVB are discouraged from selling when losses emerge, potentially causing problems to fester and grow. That appears to have been the case at SVB and many other banks as rising interest rates in 2022 caused large losses in bond markets.
Banks have an additional incentive to pile into Treasurys. They have to hold less capital against such holdings, supposedly because they are risk-free. However, this means banks are holding less capital to absorb losses, and Treasurys can lose value due to changes in interest rates.
Others said monetary policy over the past decade played a role. The Fed “suppressed the yield curve and made it very clear to the banking industry that [it] would do this for a considerable period,” said Thomas Hoenig, former president of the Federal Reserve Bank of Kansas City and former vice chairman of the FDIC. “So bankers are making decisions based on that message and based on that policy, and they fill their portfolio up with government securities of varying maturities, and they say they’re going to hold them to maturity.”
That suggests the need for regulators to take a broader view of the risks in the financial system.

Goldman Sachs offers a high yield savings account that pays 3.75% and is FDIC insured. I am considering this option.
Marcus will give you and and existing customer who refers you an extra 1% for three months. See if someone will send you a referral code if you're planning to do open an account there.
https://www.marcus.com/us/en/savings/high-yield-savings/referral

Thanks very much for starting the thread. I had the same exact concern as you and have had discussions over the weekend with 2 friends who work at a major money center bank and also for a large U.S. mutual fund. I was advised to put my funds into short term treasuries as @rforno and @Old_Joe are doing. For shorter term cash needs I was advised to put it into an FDIC insured bank deposit account. This should be insured up to 250K. I need to call Schwab tomorrow but I believe you can do this at Schwab. If you are concerned about your bank funds at Schwab (and I frankly don’t know if you should be) you could open an FDIC insured savings account. Goldman Sachs offers a high yield savings account that pays 3.75% and is FDIC insured. I am considering this option. Joe and RForno I am curious— are you keeping your bank funds at Schwab for covering short term needs?

What is "government induced erosion"? It's not bank failures. SVB failed because it made a bad call on interest rates (i.e. that they would remain relatively stable indefinitely). Not because "indefinitely" didn't last forever and the Fed raised rates.
Yogi gave some places to put money - T-bills, or perhaps Treasury MMFs. Or put the money into TBTF banks. No matter what one does with cash, one will lose value to inflation. The only question is how much. And corporations are willing to eat those costs.
In Europe, during NIRP (Negative Interest Rate Policy), it was even worth their while to dump their cash into negative paying bank accounts.

As a result of the different pace of pass-through [of ECB rate changes], an increasing number of investment grade banks and more generally sound banks start charging negative rates on corporate deposits after the start of the NIRP. A few banks even lower the interest rate on corporate deposits below the policy rate. Importantly, sound banks do not experience deposit outflows even if they charge negative rates. On average, deposits increase during the NIRP period, as is consistent with high demand for liquidity and safe assets

https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2289~1a3c04db25.en.pdf

Hi Mike- well, from what I've gathered so far, the main problem at SVB was a loss of confidence by major depositors, who had chosen to leave uninsured (more than 250k... in fact, much more than 250k) money at SVB. So a number of those large depositors started removing their money on the QT, which worked until, inevitably, word started to get around, and then of course a flood of deposit removals turned into a classic "bank run".
Now evidently SVB was actually running a pretty reasonable operation: they didn't invest their deposit money in anything shaky- they invested it in "ultra safe" US Treasury stuff. As explained elsewhere in this thread, the market value of that Treasury stuff deteriorated, mostly because of the Fed's continuing increase in rates, which eroded the present market value of that that Treasury stuff. The ultimate maturity value of "that stuff" wasn't affected- just the present value. But SVC needed to cash in some of that ultra safe stuff now, in order to meet the withdrawal demands.
You can see the slippery slope here- the more SVC had to sell, the less they had to meet withdrawal demands. Fade to black.

Related from early Friday after the FDIC seizure:
Former Treasury Secretary Lawrence Summers warned that there will be “severe” consequences for the innovation sector of the US economy if regulators don’t smoothly work out the collapse of Silicon Valley Bank.
“It certainly is going to have very substantial consequences for Silicon Valley — and for the economy of the whole venture sector, which has been dynamic — unless the government is able to assure that this situation is worked through,” Summers said on Bloomberg Television’s “Wall Street Week” with David Westin.
Earlier Friday, regulators stepped in and seized the bank known as SVB after it mounted an unsuccessful attempt to raise capital and saw a cash exodus from the tech startups that had fueled its rise. The lender had plowed the tens of billions of dollars it took in from venture-capital-backed startups into longer-term bonds, a move that led to massive losses.
The Federal Deposit Insurance Corp., which has been appointed as SVB’s receiver, only insures bank deposits of up to $250,000. But a large share of the money deposited at SVB was uninsured: more than 93% of domestic deposits as of Dec. 31, according to a regulatory filing.
“There are dozens, if not hundreds, of startups that were planning to use that cash to meet their payroll next week,” according to Summers, a Harvard University professor and paid contributor to Bloomberg Television. “If that’s not able to happen, the consequences really will be quite severe for our innovation system.”
Summers said he hoped that regulators will be “aggressive about containing the problem and containing possible contagion.”
“I don’t think this is a time for moral-hazard lectures or for talk about teaching people lessons,” he said. “We have enough strains and challenges in the economy without adding the collateral consequences of a breakdown in an important sector of the economy.”
The sudden implosion of SVB delivered a deep blow to a sector already reeling from layoffs, falling stock prices and diminishing funding for startups. The bank is most known for its financing in the venture capital community but also serves as a financial supermarket for tech executives, providing mortgages on mansions, personal lines of credit and financing for vineyards.
Treasury Secretary Janet Yellen earlier in the day convened a meeting of top regulators, after which she issued a statement saying that the US banking system “remains resilient” and that regulators “have effective tools” to address developments around Silicon Valley Bank.
For his part, Summers said, “I don’t think this is likely to be a broadly systemic problem.”
The hammering of SVB’s stock triggered a broader selloff in US lenders, with the KBW Bank Index tumbling 16% for the week — the worst selloff since the March 2020 Covid shock to the financial system.
Summers said it doesn’t now look like the biggest banks had the kind of mismatch between the kind of deposits SVB had and “the ways in which they had invested their money in longer-term bonds.”
Earlier Friday, Summers said that “there may be a need for some consolidation” in the banking sector as a result of the latest developments. That could then pose a test for regulators, he said.
A number of Democrats have pushed to limit bank mergers. For example, Senate Banking Committee Chair Sherrod Brown last year called for “ensuring that bank mergers, if approved, serve American families, small businesses, and communities – not Wall Street and big corporations.”
Summers warned that “one of the mistakes the authorities could make would be — out of a fear of consolidation coming from some kind of populist concern about concentration — blocking combinations that would ultimately operate in the direction of financial stability.”
“That’s something I think that we’re going to need to be attentive to going forward,” the former Treasury chief said.
--

Well, after hearing from the MFO community, I've changed the title of this post, as well as my mind. The demise of SVB is multilayered and many faceted, and evidently the commonly encountered "greed and stupidity" factors were a major factor after all, as usual.
Below is a section containing severely abridged excerpts from a long article in The Washington Post.
From that section this excerpt is most pertinent to a question that I have:

The FDIC is expected to sell the bank’s remaining assets and use the proceeds to pay the uninsured depositors.

In more common banking situations the problem is that the value of bank loan assets has been significantly reduced by deterioration in the market value of those assets. That is not the case with Silicon Valley Bank- evidently their problem is mostly due to the deterioration of the PRESENT VALUE of otherwise secure government paper.
Question: If a significant source of the problem is that Silicon Valley Bank was forced, by a depositor bank run, to sell US Gov't securities at a loss because their current value is less than their maturity value, why would the FDIC or any other "rescue" authority do that? Rather than take an immediate loss, why wouldn't a "rescue authority" provide immediate funding equal to the actual maturity value of the underlying assets, and then retain those assets until they actually mature, thus minimizing the loss due to the maturity problem?
Excerpts from the WashPo article-

Federal officials faced growing pressure Saturday to bail out even the biggest customers of the collapsed Silicon Valley Bank, igniting a ferocious political debate over Washington’s role in tamping down potential threats to the broader U.S. financial sector.
Companies that did business with Silicon Valley Bank are already warning that the bank’s failure may force thousands of layoffs or furloughs, and prevent many workers from receiving their next paycheck.
Some experts worry that large numbers of companies could move to transfer their money from regional banks similar to SVB to safer giant commercial banks Monday, leading to a fresh round of destabilization.
“All the choices are bad choices,” said Simon Johnson, an economist at MIT who previously served as chief economist of the International Monetary Fund. “You don’t want to extend this kind of bailout to people. But if you aren’t doing that, you face a run of really big — and really hard to predict — proportions.”
But officials at the FDIC — which, in a stunning move Friday, took over Silicon Valley Bank during normal trading hours — are facing some calls to go beyond giving smaller customers their money back.
On Friday, the FDIC said in a statement that... uninsured depositors with accounts bigger than $250,000 — would get some of their money back, but it did not specify how much. Uninsured depositors make up the overwhelming majority of the bank’s customers.
A slew of federal regulators — including those with the FDIC, Federal Reserve and Treasury Department — have scheduled a number of private briefings with top lawmakers since the bank’s collapse, including members of the House Financial Services Committee, which oversees banking, according to two people familiar with the matter who spoke on the condition of anonymity to describe the conversations.
Unwinding the bank’s balance sheet will begin in the next few days if the FDIC can’t find another bank to take over all of SVB’s business. Customers who had uninsured deposits will receive some amount of money back by next week, the FDIC said, without specifying how much. The FDIC is expected to sell the bank’s remaining assets and use the proceeds to pay the uninsured depositors.
SVB held roughly $150 billion in uninsured deposits, according to the company’s latest financial statement, issued late last month. That amounts to more than 93 percent of the firm’s deposits, Bloomberg News reported. Many of the deposits came from wealthy venture capitalists or tech firms that Washington would face certain fury for aiding, although the precise percentage held by businesses is unknown. Roku, California vineyards and philanthropic efforts backed by venture capitalists were all among the firms that had money at SVB.

FDIC offers former SVB workers 45 days of employment (2pm EST, Saturday).

Like many others here we use Schwab as our primary financial house. We have no exposure to their banking arm other than a checking account, but I have no idea how or if a problem within the banking arm might possibly spread into the brokerage arm.
In addition to a couple of fund holdings and stock holdings the great majority of our other assets at Schwab are in bank CDs and short-term (2-year max) US Treasuries. No one bank carries anything close to the 250k FDIC limit, and none of the CDs are with the Schwab Bank, so that's about as safe as reasonably possible.
Assuming the worst possible situation... a failure of Schwab bank taking down the brokerage also, I'm wondering how and how long it might take for the mess to be reasonably brought under control. What entities, government and otherwise, would be involved in trying to take care of a situation like that? Who would be responsible for sorting out all of the ownership issues with respect to Schwab brokerage assets?

@hank, I use several VG LifeStrategy funds (static 60/40 and 40/ 60 allocation) and a target date 2025 (60/40 with a glide path) as my benchmarks. Not perfect but workable over longer time period over say 6 months. I don’t invest in them either.
This week has not been easy, but diversification reduced the drawdown. I am glad to see that bonds finally did not correlate to stocks as they fell:
1. All equity funds are in red, 2%
2. All balanced funds are also in red about 1%, except for VWINX +0.29%.
3. All investment grade bonds are up 1.5%. Bond loan funds loss 0.2%
4. Commodity futures funds are up 0.5%
5. Alternates are down slightly.
Will have more CDs and T bills maturing for the remaining year. Think bonds will have better chance of making decent gain yield wise. Not as confident on stocks as they face more pressure with the coming higher rates.

SVB 5 year chart, if you don't mind using Google Finance

@orage
I think Bloomberg said that SVB was just under the $50 Billion limit when the campaign started to raise the limit to $250 Billion. In 12/2022 it was at $210 Billion, so he would probably have started another lobbying campaign to raise the limit again.
Lots of both parties feeding at the trough, too.

BTW
"Chief Executive Officer Greg Becker sold $3.6 million of company stock under a trading plan less than two weeks before the firm disclosed extensive losses that led to its failure.
The sale of 12,451 shares on Feb. 27 was the first time in more than a year that Becker had sold shares in parent company SVB Financial Group, according to regulatory filings. He filed the plan that allowed him to sell the shares on Jan. 26."