A very non scientific measure is how the normally non reactive, stay the course Bogelheads are reacting. On a day when the markets are down big time no Bogelhead would think of posting anything about it. They know that they would be blasted by the “stay the course
“ group think. But since Thursday night at 11;40pm the “Silicon Valley Bank fails” thread now has 564 posts. I would say that the fear meter is redlined.
'Course, we don't know what it may mean, but 'redline' is a decent term.
Investors need to wake up to why SVB can fail even after all the banking regulations are put in place after 2008's GFC. Now other banks including the banking arm of Schwab are being reviewed.
Indeed. And what about GUMMINT regulators????? But always: as soon as there are new regulations, there are scumbags who uncover new chickenshit ways AROUND them. Forever and ever, amen.
Blame SVB Bank failure on HTM (hold-to-maturity) accounting. HTM portfolio isn't marked -to-market and that is legally allowed.
AFS (available-for-sale) portfolio is marked-to-market.
Not just banks, but financials are allowed to do this accounting trick. But it helps banks a lot because they hold lots of Treasuries and agency MBS. SVB had a large HTM portfolio, and then as rates rose, and the AFS portion kept piling up losses, it shifted MORE from AFS to HTM.
Reverse shifts aren't easy.
People saw that if HTM was marked to market, SVB was operating with negative equity since September. All that needed was some trigger for the run, and some say that rumors of it going under spread like wildfire on Twitter this week. And it happened.
Worrisome thing is that this can happen to almost 2 dozen banks right now.
"Federal authorities are seriously considering safeguarding all uninsured deposits at Silicon Valley Bank, weighing an extraordinary intervention to prevent what they fear would be a panic in the U.S. financial system, according to three people with knowledge of the matter, who spoke on the condition of anonymity to describe private deliberations.
Officials at the Treasury Department, Federal Reserve, and Federal Deposit Insurance Corporation discussed the idea this weekend, the people said, with only hours to go before financial markets opened in Asia. White House officials have also studied the idea, per two separate people familiar with those discussions
The plan would be among the potential policy responses if the government is unable to find a buyer for the failed bank. The FDIC began an auction process for SVB on Saturday and hoped to identify a winning bidder Sunday afternoon, with final bids expected by 2 p.m. ET, according to two people familiar with the matter."
... let's see. Asian markets and futures open in a little over 2 hours' time, so presumably there will be some type of announcement beforehand...?
More @ https://www.cnbc.com/2023/03/12/fed-fdic-discussing-backstop-to-make-svb-depositors-whole-and-stem-contagion-fears-source.html
I figured the Fed would be involved behind the scenes. Maybe even the possibility of an emergency meeting + some additional action. But it’s unlikely. Could spook markets more and also confirm publicly how irrational they’ve been.
Forsyth speculates in Barron’s that they’ll only hike 25 bp at their next meeting. 60% probability based on the futures markets. I’ll bet that probability has risen since he wrote. I’m thinking perhaps no hike at all. Then there’s the political heat that’s soon to reign down on them. Warren fired a salvo at Powell’s testimony last week.
It’s curious that Powell is an attorney by training - not an economist as most Fed chairs have been.
Janet Yellen says the federal government won't bail out Silicon Valley Bank, will bail out depositors...
March 12, 2023, 2:08 PM ET
I haven't thought about the discount window since the GFC....which suggests they're more than a bit worried about systemic risk/contagion?
These firms were strapped for cash and started withdrawing money from SVB.
To fund these redemptions, SVB sold a $21bn bond portfolio for a $1.8bn loss on Wednesday.
Silicon Valley Bank disclosed plans to sell $2.25bn in common equity
and convertible stock on Thursday to shore up its balance sheet.
This effort collapsed and the stock for the bank's parent (SIVB) lost 60% that day.
California's banking regulators shut down Silicon Valley Bank on Friday and put it into receivership
under the Federal Deposit Insurance Corporation (FDIC).
SVB did a poor job of matching assets to potential liabilities.
It invested in longer-term bonds which suffered significant losses as the Federal Reserve raised rates.
Under accounting rules, these bonds were classified as "held-to-maturity" securities.
Although there were large losses, SVB didn't have to recognize them since the bonds were carried at cost.
Regulators may consider changing the classification for bank's bond portfolios
to "available for sale" which represents the market value.
Updated March 12, 2023 4:09 pm ET
SVB Bank's capital raise filing and efforts hit the market on the day of Silvergate collapse, and that just became DOA.
I don't often listen to Bove, but I think he's on to something here -- when individuals see that they're being offered pissant amounts of interest on their money by the bank in an age where can get 4 or 5% from treasuries (and that fact is making frontpage news daily), is it any wonder folks are feeling 'discontented' and looking to move their money?
Excerpts from an article in The Guardian:
Heavily tech oriented, it was down 3 to 4% but was not open Friday, so this reflects all news since Thursday
"So far, Silicon Valley Bank seems like an outlier, given its unique circumstances and unusual client base — it had very few typical retail customers, as JPMorgan’s Michael Cembalest wrote in a note to investors on Friday. But there is already nervousness about some other small and regional banks."
"In the immediate term, the most pressing problem this presents is for Silicon Valley itself: Venture capital firms that used the bank may struggle to gain access to their money — and possibly that of their limited partners, including pension funds, that had forwarded money intended for investments. This, in turn, may make it hard to fund current and new investments — or to rescue other companies inside and outside their portfolios.
DealBook is already hearing about secondary sales of private shares to fund both businesses and individuals."
EDIT: Probably, not looking like the green open will hold for long.
EDIT AGAIN: Up again on rescue news, so .... *makes popcorn*
BBG: Signature Bank closed by state regulators
I don't know anything about SBNY other than it's troubles started a year ago. It's stock is down 77% in the last year
As of Dec. 31, Signature had $110.4 billion in total assets and $88.6 billion in total deposits, according to a securities filing
- Garfield Reynolds on BBG.
PS - There’s one in every crowd.
And re: rforno: LizAnn Sonders said that Silicon Valley Bank is the perfect example of "something breaking." Yup. And now, Signature Bank.