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Possible US Banking Collapse Inbound?

Humphrey Bogart

Humphrey Bogart

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Most people shouldn't panic.

"Deposit insurance is one of the significant benefits of having an account at an FDIC-insured bank—it’s how the FDIC protects your money in the unlikely event of a bank failure. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category."

FDIC: Deposit Insurance
 
Brad Sallows said:
Most people shouldn't panic.

"Deposit insurance is one of the significant benefits of having an account at an FDIC-insured bank—it’s how the FDIC protects your money in the unlikely event of a bank failure. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category."

FDIC: Deposit Insurance
Click to expand...

www.reuters.com

UK finance minister and Bank of England work to contain SVB fallout

Britain's finance ministry and the Bank of England are working to minimize the disruption that could arise from a collapse of the UK arm of Silicon Valley Bank , which has been seized by U.S. regulators, the ministry said on Saturday.
www.reuters.com www.reuters.com

I'm more worried about cascading in to other industries that were already tight for cash.
 
A whole bunch of venture capitalists and crypto bros are at risk of getting smoked… But so too are a whole lot of startups run by normal people whose payrolls and investment capital moves through SVB. I wouldn’t be surprised to see a federal stabilization and bailout in this particular case.

My understanding is SVB took in a large volume of deposits during the pandemic, and leverage invested it into treasuries that at the time had decent yields, but that are now worth far less with interest rates up. The need to sell T bills at great discount to cover withdrawals basically torpedoed their liquidity and forced them to realize losses on those now less valuable bonds. And so, the crash.

It’s (was?) a very large bank, and disproportionately important in the financing of the tech sector. And I wouldn’t be surprised if a lot of companies with military / intelligence significance face potential ruin here. That might be an impetus for intervention.

Gonna be interesting to see how this plays out. So far I haven’t read much suggesting there’s a very great fear of contagion, but I won’t pretend I have any expertise in how this may develop or spread.
 
brihard said:
A whole bunch of venture capitalists and crypto bros are at risk of getting smoked… But so too are a whole lot of startups run by normal people whose payrolls and investment capital moves through SVB. I wouldn’t be surprised to see a federal stabilization and bailout in this particular case.

My understanding is SVB took in a large volume of deposits during the pandemic, and leverage invested it into treasuries that at the time had decent yields, but that are now worth far less with interest rates up. The need to sell T bills at great discount to cover withdrawals basically torpedoed their liquidity and forced them to realize losses on those now less valuable bonds. And so, the crash.

It’s (was?) a very large bank, and disproportionately important in the financing of the tech sector. And I wouldn’t be surprised if a lot of companies with military / intelligence significance face potential ruin here. That might be an impetus for intervention.

Gonna be interesting to see how this plays out. So far I haven’t read much suggesting there’s a very great fear of contagion, but I won’t pretend I have any expertise in how this may develop or spread.
Click to expand...
1929?
 
brihard said:
A whole bunch of venture capitalists and crypto bros are at risk of getting smoked… But so too are a whole lot of startups run by normal people whose payrolls and investment capital moves through SVB. I wouldn’t be surprised to see a federal stabilization and bailout in this particular case.

My understanding is SVB took in a large volume of deposits during the pandemic, and leverage invested it into treasuries that at the time had decent yields, but that are now worth far less with interest rates up. The need to sell T bills at great discount to cover withdrawals basically torpedoed their liquidity and forced them to realize losses on those now less valuable bonds. And so, the crash.

It’s (was?) a very large bank, and disproportionately important in the financing of the tech sector. And I wouldn’t be surprised if a lot of companies with military / intelligence significance face potential ruin here. That might be an impetus for intervention.

Gonna be interesting to see how this plays out. So far I haven’t read much suggesting there’s a very great fear of contagion, but I won’t pretend I have any expertise in how this may develop or spread.
Click to expand...
Apparently SVP has enough assets that even with their unrealized losses becoming realized, they will apparently be able to give everyone their money by next week. The payroll companies have started informing their clients that while people will be delayed in getting paid, they will nonetheless get paid.
 
That's what I read too. It's important to make a distinction between bankruptcy (not having assets to cover all debts) and a failure to maintain sufficient liquidity (meaning you can't pay what you are supposed to pay right now for lack of accessible funds).

From what I read they ran into the second scenario, which ultimately is a good thing for the depositors but will nevertheless make this particular bank disappear from the ecosystem.
 
dapaterson said:
They apparently lobbied heavily to change liquidity rules about five years ago.
Click to expand...
Animated GIF
 
brihard said:
A whole bunch of venture capitalists and crypto bros are at risk of getting smoked… But so too are a whole lot of startups run by normal people whose payrolls and investment capital moves through SVB. I wouldn’t be surprised to see a federal stabilization and bailout in this particular case.

My understanding is SVB took in a large volume of deposits during the pandemic, and leverage invested it into treasuries that at the time had decent yields, but that are now worth far less with interest rates up. The need to sell T bills at great discount to cover withdrawals basically torpedoed their liquidity and forced them to realize losses on those now less valuable bonds. And so, the crash.

It’s (was?) a very large bank, and disproportionately important in the financing of the tech sector. And I wouldn’t be surprised if a lot of companies with military / intelligence significance face potential ruin here. That might be an impetus for intervention.

Gonna be interesting to see how this plays out. So far I haven’t read much suggesting there’s a very great fear of contagion, but I won’t pretend I have any expertise in how this may develop or spread.
Click to expand...
This is basically it. Interesting they announced this on a Friday so the market was closed all weekend.

Apparently the Fed has stood up an emergency task force and convened a meeting for Monday morning.

Will be interesting to see what happens when the bell rings tomorrow.
 
brihard said:
My understanding is SVB took in a large volume of deposits during the pandemic, and leverage invested it into treasuries that at the time had decent yields, but that are now worth far less with interest rates up. The need to sell T bills at great discount to cover withdrawals basically torpedoed their liquidity and forced them to realize losses on those now less valuable bonds. And so, the crash.
Click to expand...
Yes. Add in the speed at which bad news can be spread (among stakeholders) electronically.

Turns out something like 93% of deposits don't qualify for FDIC insurance coverage. Tsk.

A bailout so far looks unnecessary. The main lesson: ordinary people ought to work up their own short-term emergency savings to cover interruptions in their income streams.

10-10-6: 10% of gross income to long-term (retirement) savings; 10% to short-term (unforeseen exigencies) savings; enough ready cash (deposit-insured, preferably in more than one institution) to cover 6 months' essential expenses. Paycheque-to-paycheque is a self-inflicted risk.
 
Brad Sallows said:
The main lesson: ordinary people ought to work up their own short-term emergency savings to cover interruptions in their income streams.

10-10-6: 10% of gross income to long-term (retirement) savings; 10% to short-term (unforeseen exigencies) savings; enough ready cash (deposit-insured, preferably in more than one institution) to cover 6 months' essential expenses. Paycheque-to-paycheque is a self-inflicted risk.
Click to expand...

You’re in a very privileged financial position if you think this is an option everyone has. It’s fine to say ‘paycheck to paycheck is a self inflicted risk’ from a position of financial comfort and security, but it’s not congruent with earnings versus expenses for a lot of people, particularly with the rampant inflation this past year.

SVB served a lot of startups that have to run very lean. A lot of the founders of those startups are scrimping everywhere they can, and barely paying themselves, if at all. In many cases, the terms of startup financing dictate that they have to bank through a particular institution, or spreading their account holdings across institutions may not have been viable. A lot of early employees receive relatively low pay, in hopes that equity stakes that form part of their compensation will bring them wealth when the business succeeds. Are these choices? Yes. But they’re also the exact choices that are necessary to achieve the capitalist dream of startup enterprise that, I think, you personally are quite fond of.

The people actually running and working for the startups and small businesses that now see their liquidity locked up aren’t at fault here. This is a failure of banking deregulation, and careless business practices on the part of a major bank. Federal intervention won’t save Silicon Vally Bank as it currently corporately exists (nor should it), but it may be crucial to saving a great many small businesses that have done nothing wrong. This is a plethora of small businesses getting royally screwed by shoddy practices at one big business.
 
A person doesn't have to follow conservative financial advice. Living to the limit of means is a choice, albeit one everyone seems to have reasons for.
 
brihard said:
This is a failure of banking deregulation, and careless business practices on the part of a major bank. Federal intervention won’t save Silicon Vally Bank as it currently corporately exists (nor should it), but it may be crucial to saving a great many small businesses that have done nothing wrong. This is a plethora of small businesses getting royally screwed by shoddy practices at one big business.
Click to expand...
Unexpected inflation overturning the expectations on otherwise customarily conservative long-term investments isn't a failure of deregulation or shoddy practices.
 
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