Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

How much fear is in the air about SVB and the greater implications?

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.
«134

Comments

  • Hi @larryB Thank you for that indicator. I've not looked at that board for a long time.
    'Course, we don't know what it may mean, but 'redline' is a decent term.
  • I visit Bogeheads once in a long while. Group thinking is a nice way to describe them.

    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.
  • edited March 2023
    "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.
  • edited March 2023
    Everybody now knows about the arcane HTM vs AFS accounting.

    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.
  • edited March 2023
    Per WaPo just 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
  • People saw that if HTM was market 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.
    @yogibearbull, think that accounts for the financial sector that fell almost twice as much as the S&P500 this week. Value-oriented funds/ETFs having higher % exposure to financial sector are impacted more.
  • edited March 2023
    Wow! That’s big! Thanks @rforno.

    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.:)
  • larryB said:

    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.

    You are right. I had taken the link off my favorites bar but went back today with the same curiosity. The long thread I found had the OP being belittled for simply asking about money markets on behalf of his mother (or aunt, I don't remember which).
  • @Anna…. The Bogelhead group think often strongly rebukes those who question the BH manifesto. If you are foolish enough to ask a question that has been asked before you are told” search is your friend” I find the threads about plumbing, HVAC, cars and other random topics to sometimes be useful. But even they are weirded out by the unfolding crisis. OTOH,,, just saw a neighbor at the park across the street. We always stop and chat. A Berkeley history grad and a broadly knowledgeable fellow. SVB was not on his radar. We talked about pizza in great detail today.
  • edited March 2023
    Janet Yellen: NPR:

    Janet Yellen says the federal government won't bail out Silicon Valley Bank, will bail out depositors...


    March 12, 2023, 2:08 PM ET
    Treasury Secretary Janet Yellen says the U.S. government won't bail out Silicon Valley Bank as it did with other financial institutions during the 2008 financial crisis, but she noted that regulators are working to ensure people and businesses with money in the failed bank would be made whole.

    Personal comment: An interesting distinction, and one that I originally argued for in another thread.

    "The reforms that have been put in place means that we're not going to do that again," Yellen said when asked about a bailout during a Sunday appearance on CBS's Face the Nation.

    "But we are concerned about depositors and are focused on trying to meet their needs," she added.

    The fate of Silicon Valley Bank, or SVB, and its customers had been up in the air over the weekend, days after federal regulators took control of the institution following a "run" on the bank by depositors.

    Customers had been flooding the bank with requests to withdraw their money, and earlier last week SVB said it had to sell bonds at a steep loss in order to meet those requests. That announcement worsened the panic over SVB's financial situation and led to even more withdrawal attempts until regulators stepped in.

    The collapse of SVB marks one of the largest failures of an American bank since the 2008 global financial crisis.

    SVB had carved out a niche in the banking sector by lending to tech startups, but the recent financial problems facing the tech industry put a strain on the bank, and caused its stock price to tank.

    Yellen said that, despite the collapse of SVB, she believes the overall American banking system "is really safe and well-capitalized" and "resilient."

    The Federal Deposit Insurance Corporation said on Friday that all insured depositors would have full access to their insured funds no later than Monday morning. The agency also said it would pay uninsured depositors an "advance dividend" in the next week, and that depositors would be sent a "receivership certificate for the remaining amount of their uninsured funds."

    An independent federal agency, the FDIC doesn't use taxpayer money to insure deposits, but rather is funded through premiums paid by member banks and savings associations.

    Regulators in the United Kingdom were also working on a plan to ensure that customers of SVB's UK branch were paid.

    The bank's collapse has left tech companies and other SVB customers in limbo, and it's even caused headaches for others not directly connected to the bank, such as Etsy sellers who were told they may see delays in receiving payments because the online marketplace uses SVB to make some payments.
  • Per BBG .... FED: The Federal Reserve is considering easing the terms of banks’ access to its discount window, giving firms a way to turn assets that have lost value into cash without the kind of losses that toppled SVB Financial Group, write Bloomberg’s Hannah Levitt, Sridhar Natarajan and Matthew Monks.

    I haven't thought about the discount window since the GFC....which suggests they're more than a bit worried about systemic risk/contagion?
  • Damned right they are. Very worried.
  • edited March 2023
    The primary clients of Silicon Valley Bank (SVB) were technology startup firms.
    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.
  • More... from the WSJ:

    Updated March 12, 2023 4:09 pm ET
    In addition, regulators are considering more extraordinary measures such as deeming the failure of SVB to be a systemic risk to the financial system, people familiar with the matter said. That could give regulators more flexibility to backstop uninsured deposits.

    A U.S. plan that soothes nerves about access to uninsured deposits—most of the bank’s deposits are sizable enough that they don’t carry Federal Deposit Insurance Corp. protection—could tamp down the crisis and limit any impact on the economy as the Federal Reserve focuses on combating inflation by raising interest rates.

    But failing to swiftly clarify how SVB’s customers can access funds, make payroll and conduct business risks broader economic consequences and threatens to complicate the Fed’s monetary policy decisions.

    “I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” Treasury Secretary Janet Yellen said in an interview on Face the Nation on CBS Sunday.
  • edited March 2023
    Many were puzzled late last year when Silvergate tapped the FHLB for multibillion dollar liquidity loan, and not the Fed Discount Window. Of course, The FHLB was easier then. But there was a lot of questioning of the FHLB's action because it is supposed to support housing, and what was it doing providing support for a crypto bank under a bank run. As it happened, the FHLB called its loan few days ago, just before Silvergate collapsed, and may very well have been the trigger for Silvergate.

    SVB Bank's capital raise filing and efforts hit the market on the day of Silvergate collapse, and that just became DOA.
  • BBG: "Dick Bove at Odeon Capital Group LLC notes “that reduction in bank deposits and the sharp negative reaction in the financial markets to the SVB developments suggest a deeper discontent with the banking industry’s treatment of their clients and investors.”

    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?
  • I just received this from First Republic Bank:

    To Our Valued Clients,

    In light of recent industry events, the last few days have caused uncertainty in the financial markets. We want to take a moment to reinforce the safety and stability of First Republic, reflected in the continued strength of our capital, liquidity and operations.

    Our capital remains strong. Our capital levels are significantly higher than the regulatory requirements for being considered well capitalized.

    Our liquidity remains strong. In addition to our well-diversified deposit base, we continue to have access to over $60 billion of available, unused borrowing capacity at the Federal Home Loan Bank and the Federal Reserve Bank.

    We are here to fully serve you. We stand ready to process transactions and wires, fund loans, answer questions and serve your overall financial needs — as we do every day.
    For almost 40 years, we have operated a simple, straightforward business model centered on taking extraordinary care of our clients. We have successfully navigated various macroeconomic and interest rate environments, and today we have among the industry’s highest rates of client satisfaction and retention.
    FWIW...
  • Echoes from Europe...

    Excerpts from an article in The Guardian:
    The UK government is scrambling to secure an emergency deal to protect Britain’s tech and life sciences sectors from major losses after the collapse of Silicon Valley Bank (SVB), as financial markets braced for further volatility after the biggest bank failure since 2008.

    The prime minister, Rishi Sunak, and the chancellor, Jeremy Hunt, signalled on Sunday that they were exploring a range of options, including an emergency fund that could provide a cash lifeline to support startups, as bidders put their hat in the ring for a potential takeover of the UK subsidiary.

    Hunt warned that fledgling businesses across the tech and life sciences sector were at “serious risk” if deposits were wiped out by the collapse of SVB UK.

    The US treasury secretary, Janet Yellen, said on Sunday there would be no bailout for Silicon Valley Bank, but that the Biden administration was working closely with regulators to help depositors caught up in its collapse.

    UK authorities were understood to be considering a private bailout. Representatives of SVB’s UK subsidiary have reached out to lenders including NatWest, Barclays and Lloyds Banking Group to gauge interest in a potential takeover of the British operations.

    British clearing bank the Bank of London confirmed on Sunday night it had submitted a rescue bid for the UK arm, alongside a group of private equity firms. “Silicon Valley Bank cannot be allowed to fail given the vital community it serves,” said Bank of London’s chief executive, Anthony Watson.
  • edited March 2023
    D

  • edited March 2023
    Old_Joe said:

    I just received this from First Republic Bank:


    [snip]
    Our liquidity remains strong. In addition to our well-diversified deposit base, we continue to have access to over $60 billion of available, unused borrowing capacity at the Federal Home Loan Bank and the Federal Reserve Bank.
    [snip]

    The client base for SVB was predominantly tech startup firms (non-diversified).
    Management didn't ensure there was adequate liquidity due to the mismatch
    of assets and potential liabilities.
  • It's like my Dad told me.... you're going to be fed a lot of stuff in your life.... you're gonna have to decide if you're going to swallow what they are feeding you...

    Dunno

  • For what it is worth, the only stock market open today ( until Asia opens in a bit) was Israel

    Heavily tech oriented, it was down 3 to 4% but was not open Friday, so this reflects all news since Thursday
  • edited March 2023
    Andrew Ross Sorkin writes in NY Times DealBook:

    "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."


    Link (paywalled)

  • edited March 2023
    US index futures opening higher at the Asian open 1800 NYC time....hopium?

    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
  • But.. but.. but...   "Wells Fargo says buy Signature Bank, the ‘last game in Crypto-town’"
  • "We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer," Treasury, Federal Reserve, and FDIC said in a joined statement.

    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
  • The rapid rise of interest rates (to combat inflation) coupled with bank risk practices not adapting to the new reality shows that "the Fed broke the economy without realizing it."

    - Garfield Reynolds on BBG.
  • edited March 2023
    Where does the government get all this money to cover depositors not covered by FDIC insurance?

    PS - There’s one in every crowd.
  • hank said:

    Where does the government get all this money to cover depositors not covered by FDIC insurance?

    Ring the bell. Question of the year.

    And re: rforno:
    rforno said:

    The rapid rise of interest rates (to combat inflation) coupled with bank risk practices not adapting to the new reality shows that "the Fed broke the economy without realizing it."

    - Garfield Reynolds on BBG.

    LizAnn Sonders said that Silicon Valley Bank is the perfect example of "something breaking." Yup. And now, Signature Bank.
Sign In or Register to comment.