Silicon Valley Bank Collapse

[suntan]

Well that was fast.

[Darell_n]

Mods, please move this thread to the Ask Zenops forum.

[killramos]

Never heard of him

[Xtrema]

2nd biggest in US history.

https://www.cbc.ca/news/business/sil...lure-1.6775730

[Sentry]

The tech industry as a whole is due for a good crash I reckon, it's too bloated with non innovators currently.

[ZenOps]

"At the time of its failure, Silicon Valley Bank, which is based in Santa Clara, Calif., had $209 billion US in total assets, the FDIC said."

Phew, I wonder how much if all of the money will be printed to cover the FDIC insurance. I feel sorry for the millionaires with more than $250,000 deposited.

USD is only USD if the bank you use has it. Time to stock up on CS:GO cases instead, haha.

[ZenOps]

Inevitable. On a side note: Ontario has brought back "shop" as a course requirement for high schoolers because tech is done and baked because of AI.

[ExtraSlow]

So, can someone eli5 or lulwut or coles 9r something?

[rage2]

Reddit had a good explanation. 2 part from Thursday before, and Friday.

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 $61.76n 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. If the bank held these investments to maturity and they would be guaranteed a profit, but if they sold early they would have to sell at market value.

This would be okay except that when the fed started raising interest rates last year, the market 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 withdraw from their accounts more quickly. SVB was concerned they would be forced to sell their long term assets early in order to support these withdrawals which would mean taking a huge loss.

Yesterday SVB announced a fire sale: they sold pretty much everything they could sell in order to raise cash, protect 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 provide enough buffer to avoid selling their long term investments. Their long term portfolio, called "hold to maturity" (HTM), had big unrealized losses and they really, really did not want to realize them. They aren't the only ones; in total, as of the end of 2022, banks were holding 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.

There were reports of withdrawals on Friday exceeding $60b.

[Sentry]

These """long term investments""" mentioned were mortgage backed securities lol

Edit:
https://www.forbes.com/sites/jamesea...h=5ab825d15603

[ExtraSlow]

Did they have many consumer accounts or mostly business?

[pheoxs]

Gotta be pretty dumb to buy 10 year bonds at record low rates. Really can’t understand who thought that was a good idea.

[Buster]

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Gotta be pretty dumb to buy 10 year bonds at record low rates. Really can’t understand who thought that was a good idea.

Bonds are a market, so the reason the rates were low is because people/institutions were buying them.

[ZenOps]

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Gotta be pretty dumb to buy 10 year bonds at record low rates. Really can’t understand who thought that was a good idea.

Germans buy bonds at negative rates all the time. It is exactly this fear that in an emergency (or war) funds from regular banks will simply not exist to withdraw.

In Britain, you could have had all the money in the world - but if you forgot your ration card, no bacon for you.

[CompletelyNumb]

Monday will be a bloodbath. Twitter should be fun.

[suntan]

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Gotta be pretty dumb to buy 10 year bonds at record low rates. Really can’t understand who thought that was a good idea.

2% > 0%

And because a lot of people thought inflation was never going to happen ever again.

[ZenOps]

Over 93% uninsured deposits. Which normally would not be possible, but Covid rules.

If its roughly $200 Billion affected, they might have just vaporized $185 Billion.

[killramos]

Don’t worry. Elon to save the day

https://twitter.com/elonmusk/status/...0%2Fframe.html

[pheoxs]

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2% > 0%

And because a lot of people thought inflation was never going to happen ever again.

The bank primarily deals with Silicon Valley businesses depositing their investment capital. Why the fuck would they lock that in a 10 year bond is the issue. I’m not saying don’t use the money, I’m saying don’t lock it up for a decade.

[suntan]

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The bank primarily deals with Silicon Valley businesses depositing their investment capital. Why the fuck would they lock that in a 10 year bond is the issue. I’m not saying don’t use the money, I’m saying don’t lock it up for a decade.

I said, a lot of people thought inflation was never going to happen ever again.