Silicon Valley Bank (SVB) Collapses

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FDIC took them over this morning:
https://www.fdic.gov/news/press-releases/2023/pr23016.html

This post on reddit sums up the situation pretty well:
Answer: at an ELI5 level, Silicon Valley Bank (SVB) is a bank that focuses on providing services to startups and entrepreneurs. Many companies use it to hold funds that they receive from venture capitalists.

In 2021, the market was soaring and startups were getting tons of money. They put this money in SVB, which went from holding $61.76bn at the end of 2019 to $189.20bn at the end of 2021.

Banks normally make money by loaning out a portion of the money they hold, but SVB was getting so much money that they couldn't loan out fast enough. So instead, they bought a bunch of long term investments, the majority of which will mature in 10+ years.

This would be okay except that when the fed started raising interest rates last year, the value of these long term assets fell hard. Simultaneously, tech and startups also started to struggle with the rate hikes (see: all the big layoffs) and pull from their deposits more quickly. By the end of 2022 deposits were down to $161 billion.

Yesterday SVB announced a fire sale: they sold pretty much everything they could sell in order to raise cash and balance out all those long term assets and improve financial health metrics. They sold over 21 billion worth of investments and are trying to raise 3 billion more.

Investors and Venture Capitalists were shocked and concerned about why they had to do this and why they had to do it now. Some VCs told their startups to pull their money out of SVB or to keep no more than 250k in the bank (which is how much is insured by the FDIC).

This has raised concerns of starting a run on the bank. SVB is theoretically fine right now, but if all of these startups try to pull their money out they won't be.

Edit to update with what happened this morning:

SVB is clearly not fine anymore; in fact, regulators ordered them to close this morning. It appears the bank run was very, very fast and overwhelmed them quickly. Shareholders will get nothing.

Its size makes it the second largest bank to ever fail, the first being Washington Mutual which collapsed in 2008.

Deposits insured by the FDIC will get their money back Monday morning, but as of their last filing 93% of the bank's $161 billion deposits were uninsured. However, based on SVB's liquidation plan, it is likely that all deposits will be returned eventually (probably next week).

Companies who banked with SVB are struggling to pay their employees today. Notably, Rippling (a company that manages payroll and HR services for other companies) has said that their payments flow through SVB, so any company that uses Rippling will probably have a delay in payment.

Are any other banks at risk? It's hard to say. The crux of the issue is that SVB sold their "available for sale" (AFS) portfolio to raise liquidity but had major unrealized losses in their "hold to market" (HTM) long term port that they really, really did not want to realize. They aren't the only ones; in total, as of the end of 2022, banks held about $620b of unrealized losses in their AFS and HTM ports.

Most larger banks have relatively smaller amounts of unrealized losses, but smaller regional banks may be at risk which is why $KRE (an ETF of regional banks) has dropped so much.



SVB was well-regarded in the Startup, VC and Life Sciences communities - about 1/2 of those companies banked with SVB and they were very supportive of the unique financing needs that those communities needed.
 
FDIC took them over this morning:
https://www.fdic.gov/news/press-releases/2023/pr23016.html

This post on reddit sums up the situation pretty well:




SVB was well-regarded in the Startup, VC and Life Sciences communities - about 1/2 of those companies banked with SVB and they were very supportive of the unique financing needs that those communities needed.

Ya. The held a lot of Treasury bonds which became less valuable as rates increased so they were starving of capital.
 
I always look at companies "ratings" the day of a big decline. Hope the guys and gals at CFRA feel good about their 3 star rating of SIVB
sivb.jpg
 
Big national banks are in great shape. Industry non consumer specific may not be and can be expected to fail and keep failing as the economy comes back down out of clouds of fake money fairytales.
Back to normal over the next year or two. If there is a such thing as normal in an increasingly fake money economy.
It’s been a house of cards for a long time now, and for the last two decades, every catastrophe that comes along the Fed Paul’s another trick out of their pocket to make life easier for Americans than it should be
The thing is sooner or later the price has to be paid
 
Only up to $250K.
Fidelity's cash management account uses a sweeps system whereby deposits are swept to one of 5 different banks in $245K increments (there are 26 banks who participate), all FDIC insured for $250K meaning balances in the CMA are not only distributed to different banks (in case there are liquidity issues) but also FDIC insured for up to $1.25M.
 
Yep and one month ago a certain stock celebrity was pumping their stock telling viewers to buy buy buy.

He is quiet at the moment.




He is a clown and should be permanently off the air.

Im not surprised this bank failed, theres way too much toxic assets and investments, leverage, debt, etc..

There were lots of BUY ratings on this trash.
 
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FDIC took them over this morning:
https://www.fdic.gov/news/press-releases/2023/pr23016.html

This post on reddit sums up the situation pretty well:




SVB was well-regarded in the Startup, VC and Life Sciences communities - about 1/2 of those companies banked with SVB and they were very supportive of the unique financing needs that those communities needed.


You're correct but they also were known to live on the edge of the knife with investments. Amazingly to me that heavy 48hrs of trying to raise cash & sell not only brought no takers but increased the already heavy run on em. Would love to know the actual length of time they saw it coming.....
 
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