Update from Silicon Valley Bridge Bank CEO
svb.comIt's quite an ingenious situation.
- FDIC guarantees that every deposit at these banks up to an unlimited amount will be paid out by the US government.
- Because of that guarantee, the bank run stops and people leave their money there (and in fact deposit more).
- Because of the influx of cash the bank solves its liquidity issues and the government doesn't actually have to spend a single penny.
In theory all of this works. But the next question is – how far will this go? Will FDIC do the same for every bank in the country? Can they all just start taking more and more risk? Do customers not need to care about how well their bank is run, because ultimately the US government is everyone's bank?
Did we just accidentally invent a fully socialized national banking system?
> Did we just accidentally invent a fully socialized national banking system?
Not if the profits still go private interests.
The standard way of doing big business in the USA for quite some time has been “socialize the costs, privatize the profits”. So on the face of it this doesn’t seem new.
If I were head of a smaller or regional bank, I’d be running for the lawyers, because I would find it very hard to believe that FDIC would extend their offer in a fair and reasonable manner to smaller banks. If they don’t, it’s arguably a form of extortion, using mandatory fees on small banks to only protect big ones. How would that be legal?
To avoid legal hot water, the FDIC may find themselves to equally protect every bank which might quickly turn out regrettable…
> Did we just accidentally invent a fully socialized national banking system?
According to Kevin O’Leary, YES. He also makes a point about how the management was "idiotic" because if they had just gone to JP Morgan, or Wells Fargo, or another big bank - and said, "hey, we got a short term cash problem with a lot of treasuries," they almost certainly could have come to a very low-interest loan arrangement that would have prevented this outcome.
> He also makes a point about how the management was "idiotic" because if they had just gone to JP Morgan, or Wells Fargo, or another big bank
I’ve read a similar sentiment elsewhere about their inability to raise the necessary amount without hitting full panic button.
Whether idiotic or not, the CEO sold before this. Maybe there’s a bigger play
Apologies if I'm missing something, is this discussing the new Bank Term Funding Program or some other guarantee?
(edit: I see the phrasing "fully protected by the FDIC" -- this might be the general idea that depositors won't lose anything, but not literally that FDIC is officially extending insurance, I think?)
Anyway, for the BTFP, I think it is generally available to all banks. Seems to allow borrowing against underwater assets at par value, at roughly 4.6% interest.
https://www.federalreserve.gov/newsevents/pressreleases/file...
While it came together over the weekend[1] there are some guardrails -- including that it only applies to collateral that was already owned at the time of announcement (so far...).
[1] based on zero evidence, I wouldn't be surprised if they have stuff like this war-gamed and sketched out in case
late followup, it might indeed be that FDIC removed insurance limits for these two banks?
I had seen the first round of announcements around receivership certificates https://www.fdic.gov/news/press-releases/2023/pr23016.html
I'm not sure on the time of that but the Fed press release the evening of the same day has the exception and "all depositors will be made whole" phrasing:
https://www.federalreserve.gov/newsevents/pressreleases/mone...
Run your bank off a cliff, require every rule be broken to save your bacon, and now ask people to reline your coffers with more deposits. Absolutely stunning...
On second thought - SVB is apparently the safest place on the planet to park enormous amounts of cash. Why would you not deposit everything here? The Government will just save you if SVB screws it up again... right? Absolutely zero risk in parking everything with SVB... what a great signal to be sending the public.
It isn't really the same bank nor the same CEO
The result is the same. SVB has infinity insurance on all deposits, provided courtesy of the tax payer.
This is a naked attempt to pump the value of SVB assets, and seek a less-than-fire-sale to another institution.
All of the funds are provided from a fund the banks pay into. There is no taxpayer money supporting the depositors.
This is the biggest lie you will ever read (not you specifically, but this pitch).
The funds will be recovered from special bank assessments, which means you and I will pay to bail out SVB and Signature via increased bank fees and more over the next decade. Not to mention the FDIC is guaranteeing depositors will be made 100% whole, which means again, you and I are guaranteeing the deposits if this special bank assessment comes up short or falls through.
So no, taxpayer money is not directly used - that part is true. But it is patently false that taxpayers will not be paying to bail these banks out.
It's a giant political game being played... avoid the look of a recession no matter what. Don't even speak the dreaded "B" word...
The depositors will be paid back by their own money. The money hasn’t disappeared anywhere. It still exists, and the bank will still make a profit as the MBSes it paid into will continue returning money to the bank. It will simply make a profit that’s less than what it could have made with the same shareholder equity with way less risk in other investments. Which is why shareholders got wiped out.
This was a classic bank run. A combination of the concentration of depositors from a single industry, massive swings in the monetary flow of that industry, poor investment decision making, and having regulations loosened on it meant that SVB saw far too many short term depositors call for their money and had too much of that money tied up in long term investments.
The government has the liquidity and the reputation that is needed to prevent this from becoming a problem.
The cost that is being borne by the taxpayers is the cost of people depositing money in smaller industry focused banks, which have greater risk, and lower efficiency. If you really wanted to eliminate the cost, the solution would be to have everyone deposit their money in a handful of Too big to fail banks, which would almost certainly be cheaper and more efficient, but is also a bad economic system because of the political power those entities gain.
> in a handful of Too big to fail banks
Like SVB?
The red carpet was rolled out to prevent anyone form being harmed by SVB... and zero lessons will be learned and we'll just do it all again, but with a different name this time.
Everything that happened meant SVB was supposed to fail and drag down all of it's high-flying customers with it. Yet... here we are, pretending this isn't a taxpayer guaranteed big bank bailout during a looming election cycle with record inflation we're also pretending isn't real.
Politics makes things... insane.
Don’t all banks have that right now?
On paper, only SVB.
In practice, we just saw that the US government will gladly retroactively change the rules to insure any amount of money. For all practical purposes, trillions of dollars in deposits became insured by US tax payers this week.
And that's on top of the totally-not-QE BTFP facility they conjured up. That is available to all insured banks who have any underwater asset that they wish to move to the Fed's balance sheet at par for a mere ~5% per year.
> For all practical purposes, trillions of dollars in deposits became insured by US tax payers this week.
By the FDIC, not the tax payer.
Said insurance is paid for by bank customers. The union of bank customers and taxpayers is 1.
No, though all banks now have protection against the HTM assets fire-sale conditions which caused SVB to fail, which, from the perspective of stockholders, executives, and non-depositor creditors is a lot better than infinite deposit insurance, because its a lot stronger protection against failure (which wipes out those three groups), even if its not a stronger protection for depositors if failure happens anyway.
No, only SVB and Signature enjoy infinity insurance. Everyone else that played by the rules gets a measly $250k max...
> No, only SVB and Signature enjoy infinity insurance.
No, only the balances of SVB and Signature at the time of the failure of the former banks have that. There’s no prospective guarantee inheritable by an acquirer. (Admittedly, any bank that could reasonably bid for them, especially for SVB, would probably independently qualify for the systemic risk exception itself if it suddenly failed, but also any bank that could reasonably bid wouldn’t be in any near term risk of that, either.)
SVB may be called something different today, and probably something different in the near future, but we all know what we're talking about here.
Like I said downstream - if my bank fails next year (or 10 years from now) and I do not get infinite deposit insurance - then where are we? Just the well connected get special treatment? Seems so...
> Like I said downstream - if my bank fails next year (or 10 years from now) and I do not get infinite deposit insurance - then where are we?
In the exact same place we’ve been for the last 15 years (much longer, really, because the last crisis wasn’t the start of this, either), between the time the systemic risk exception was announced for three large banks, and all the bank failures in between where it was not invoked.
A place where the FDIC guarantees $250K per depositor per ownership category per bank but tries to facilitate takeovers that protect uninsured balances and where, with the Treasury and President, might protect something more, if the conditions for the systemic risk exception are determined to apply.
The systemic risk exception has existed since at least 1950, was invoked as far back as 1980, and was easier to invoke (the FDIC could do it on its own) prior to 1991. It was also less necessary prior to 1991, since the FDIC could facilitate a sale even when doing so was more expensive than a payout of only the insured accounts until the least cost rule was put into the law in 1991, and in fact, since the 1960s, the general policy was to, where possible, facilitate a buyout by another bank to protect all depositors even when the cost to the Deposit Insurance Fund was greater than a payout of insured balances.
The arguments about the use of full-protection via the systemic risk exception for SVB fundamentally changing things is just, completely, historically ignorant.
It is disingenuous to say something required a SRE, will be guaranteed 100% by the government (ie. tax payers) - and then also claim it is not a bailout.
I am not putting words in your mouth - that is the logic the government is feeding everyone today.
It is also disingenuous to claim a techy bank that catered to the tech sector posed an imminent risk to the entire banking system, ie the systemic part of the SRE. A bunch of tech elites and big tech companies would have been burned - and some failover would have happened certainly, but this was not a system issue, it was bad choices made explicitly by banking executives at some specific banks.
It is also disingenuous to claim no tax payer money is involved when it is in fact tax payers that are providing all the guarantees here, bear future risks, and ultimately will pay for it with bank fees and more.
The entire thing is a political exercise. Don't look behind the curtain... because it might all topple over.
> It is disingenuous to say something required a SRE, will be guaranteed 100% by the government (ie. tax payers) - and then also claim it is not a bailout.
The whole FDIC system (with or without the systemic risk exception) is a system of bailouts of depositors paid for by assessments on banks (which, sure, are a kind of targeted tax, and thus constitute funding “by the taxpayers”.)
Other than the fact that your earlier points are indefensible, I’m not sure what the point of responding in thread with such a sudden radical shift of topic is, though.
> It is also disingenuous to claim a techy bank that catered to the tech sector posed an imminent risk to the entire banking system, ie the systemic part of the SRE.
I dunno, more than $100 billion in uninsured deposits, largely he operational accounts of a large number of businesses (not isolated to the tech sector, but mostly either geographically in the region of the bank or in the tech sector or both), which given the nature of the asset situation of the bank could be expected to either be resolved quickly at a very low percentage of face value or extremely slowly at a better percentage, would have massive knock-on effects on the businesses involved, there employees and investors, their creditor (ultimately, in large share, other banks), etc. Is it a different character of systemic risk, in some regards, than other previous invocations? Sure. But while there are clusters of similar case, systemic risks tend to be different from each other in details.
> A bunch of tech elites and big tech companies would have been burned - and some failover would have happened certainly, but this was not a system issue, it was bad choices made explicitly by banking executives at some specific banks.
The “systemic” in “systemic risk” refers to the scope and nature of the effects of the risk materializing, not the nature of the cause of the risk. The systemic risk exception is not about blame, its about the effects of inaction.
> It is also disingenuous to claim no tax payer money is involved when it is in fact tax payers that are providing all the guarantees here, bear future risks, and ultimately will pay for it with bank fees and more.
Maybe. Again, this is just a radical shift of topic.
> The entire thing is a political exercise.
Yes, acts of government are by definition political exercises. This is not, even slightly, in dispute. Are you just looking for random things unrelated to the earlier discussion to try to get into an argument about now?
In writing yes, but the FDIC always makes depositors whole somehow. Otherwise the banking system would collapse.
If some bizarre scenario were to happen (a failure of two of the big four) which the FDIC couldn’t recover, in the words of Dwight Schrute, “you’ve all been dead for weeks”.
> but the FDIC always makes depositors whole somehow.
This lie keeps getting repeated, but while it usually manages to do that (by facilitating a buyout, often before or over a business day – sometimes longer in calendar time because of a weekend – when the bank is closed), it doesn’t always, even when it facilitates a buyout rather than being forced to create a takeover bank.
When it does takeover without facilitating a buyout, it never protects uninsured deposits without invoking the systemic risk exemption.
> Otherwise the banking system would collapse.
Well it does where the banking system would collapse, that’s literally the point of the systemic risk exception.
> the FDIC always makes depositors whole somehow. Otherwise the banking system would collapse.
When was the last time any of this happened?
That's a loan, not insurance. Not the same thing, and a bank in SVB's situation last week would not be able to pay back a loan anyway.
> On second thought - SVB is apparently the safest place on the planet to park enormous amounts of cash. Why would you not deposit everything here? The Government will just save you if SVB screws it up again… right?
I mean, SVB (and every other bank except those three) wouldn’t exist today if people treated the three banks the government decided to invoke the systemic risk exception for [0] in the last financial crisis that way, so, I’m going to guess the market will also not treat SVB that way.
[0] Two of which didn’t end up needing the exception to actually be used because the mere announcement of the decision facilitated other resolutions.
Is that a fair assessment or just a knee jerk reaction to first reading?
How long will the FDIC make this unlimited protection available to SVB++? Is it just long enough to calm everyone down, and then in a few weeks/months release a very quite announcement that the guarantee is going back to the original $250k? If it is new gov't policy that all accounts every where are guaranteed for ever, then that's a huge banking shift that seems like something that would require a bit of congressional approval. But that's just me not knowing a damn thing about how the FDIC decisions like this are made
If my bank fails next year, and I don't get infinite deposit insurance - where are we then?
The fact that the FDIC website still says $250k cap is amazingly laughable. It's either unlimited for everyone every time, or it's $250k for everyone every time.
The reality is - it's infinite deposit insurance if you are well connected. Let that sink in folks.
obviously this is a rhetorical question, but are you really going to be hurt by the $250k cap? really?
If so, maybe it's time for a better banking plan than "all eggs in one basket"
The point is not whether or not I personally would be hurt by this, or rather the metaphoric I, for the matter.
The point is the rules where changed mid-game to protect a bunch of very well connected people that played extremely loose with the "rules" and will suffer zero consequences as a result - because my personal dollars are being used to protect them.
Regarding the $250k cap in general - in my opinion, it's far too low. It's lower than the average price of a house in a large amount of the country.
To be clear, who are the people that "played extremely loose" in your ire? The bank management or the individual bank account holders that had more than $250k in the accounts?
What does the price of a house have to do with the cash-on-hand bank accounts of the average citizen?
This is not the same bank.
It’s the Silicon Valley BRIDGE Bank. The one that was created by the government after shareholders were wiped out and the execs were fired, and new management was appointed.
Of course, a lot of operations, data, tech will continue. How else would they ensure customers etc are provided access to their funds and are able to carry out their regular banking services.
"The number one thing you can do to support the future of this institution is to help us rebuild our deposit base, both by leaving deposits with Silicon Valley Bridge Bank and transferring back deposits that left over the last several days."
Nah I’m good
> depositors have full access to their money and both new and existing deposits are fully protected by the FDIC. This action by FDIC effectively means that deposits held with SVB are among the safest of any bank or institution in the country.
Effectively there are two banks (Silicon Valley Bridge Bank, N.A. and Signature Bridge Bank, N.A.) with de facto unlimited FDIC insurance, as there's explicit guarantee for all existing and new deposits.
There is no way this is permanent, right? What's the end goal of this? Rebuild confidence in SVB and then return to normal insurance?
I think the first step they have to do if there is any hope of a successful relaunch, is a full rebrand.
Surely this is the ideal time for planning to split SVB into multiple banks, if the actual intent is to diversify risk (well is it?).
Why do regulators never split banks up? [0] For people who talk so much about managing risk. Reminiscent of GHW Bush's complaint about eating broccoli.
Also, talking about concern about job losses and wider economic impact, compare to in 2020/1 when Congress was fetishizing daily about stimulus packages to save the airline industry, yet long-distance coach companies Greyhound/Boltbus and Megabus were simply quietly allowed to cease business.
[0]: https://www.americanbanker.com/news/regulators-willing-to-br...
> 1/17/2023 The Office of the Comptroller of the Currency and other regulators would consider breaking up big banks that repeatedly fail to correct bad behavior, according to acting Comptroller Michael Hsu.
> Though financial regulators have long had the power to split up banks for incessant violations, Hsu's remarks at the Brookings Institution on Tuesday were the most explicit warning in recent memory of regulators' willingness to break apart large, chronically delinquent financial institutions.
I heard that they often split them for sale, so no single bank has to carry the full risk of another bank run because of low customer confidence.
My guess is they are probably looking for a buyer, who will likely roll everything into their offering. So, the more they can get back, the higher the sale price.
Which makes for fewer banks and more consolidation. That sounds like it has its own risks, echos of "too big to fail"
I think they should reuse some brands that are available again instead of wasting a new name. I could suggest MCI, Charter, Blackwater, etc as all names that would be befitting for these "oops" rebrands.
Somewhere between "$250k" and "infinite" would have been less moral hazard. Feels like we've set a dangerous precedent, but only for depositors who are politically connected and can instill panic. When does the de facto unlimited FDIC insurance expire/ When does Silicon Valley Bridge Bank go back to normal?
Second: IIUC, any shortfall in making SVB depositors whole will come from a levy on the rest of the banking system (and maybe small (<$400m) clawbacks from execs' share sales). How much will that levy cost the rest of us? Can it be legally or politically challenged? Are any Congressmen challenging it? (Where are the libertarian Republicans on this?)
When was the last time non politically connected depositors lost money from their checking accounts?
The only “moral hazard” being created here is encouraging people to deposit money in smaller banks.
If the govt hadn’t created the “moral hazard” then people and businesses would simply have chosen to do all their banking with the much safer big banks like Chase and Citibank.
The reality is that Americans don’t want all banking to be concentrated in the hands, but smaller banks are significantly more risky and inefficient. Depositing money in the smaller banks and not just the top handful is the “moral hazard” that has been created by government intervention.
> When was the last time non politically connected depositors lost money from their checking accounts?
Many times. The typical uninsured depositor in bank failures from 2008 to today got about 75 cents on the dollar.
Depositors in IndyMac in 2008 got 50 cents on the dollar.
> The only “moral hazard” being created here is encouraging people to deposit money in smaller banks.
Or everyone, nationwide, starts moving every penny they have into whichever bank, anywhere, offers the highest interest rates, without regard to how they accomplish that. Let's call it "risk intensification".
The only appropriate thing to do would be to levy a haircut on only the uninsured deposits elsewhere in the banking system. And that's already unfair because it should be retroactive to some degree.
The rest have already been paying for this insurance all along. Wouldn't make sense to levy a fee on fire insurance policyholders when someone without fire insurance has their house burn down.
In widely underreported news, before anyone blames looser regulations, Barney Frank of the Dodd-Frank Act fame was literally on the board of Signature Bank, which also collapsed. He also has stated the regulation reduction under the last administration has nothing to do with this situation, whatever you make of that.
I read that there was only one person on the board with experience in banking. Is this normal for the board of a bank?
Does that mean that tech companies should only have tech literate people on their boards?
> bring back to money to our bank
This guy really thinks people are THAT stupid?
Tim Mayopoulos <https://www.linkedin.com/in/timothy-j-mayopoulos-56972a45/> is
* a complete outsider to SVB
* formerly with FDIC
* ran a consumer banking-tech startup until joining SVB
* ran Fannie Mae for six years after the 2008 financial crisis
* high-level experience at BofA and Deutsche Bank
He sounds like about as ideal a person to run the new SVB as imaginable.
IMHO, it feels like at minimum the regulators should have required that in exchange for reduced oversight for banks in the $50-$250B range - they should have reduced FDIC coverage for depositors and have been required a form to be filled out by existing and new customers to notify them of this reduction in coverage.
[1] https://www.wsj.com/articles/barney-frank-pushed-to-ease-fin...
The regulators are not the ones who negotiated away oversight.