[Finance] SVB - New banking crisis looming?

[B-right-on]

Not been reported that much but on Friday the 16th largest ban in the US went bust, Silicon Valley Bank.

SVB had over $200 billion of assets. Nearly 50% of ALL US Venture Capital backed businesses bank with SVB. And 44% of this year’s venture-backed technology and healthcare IPOs, also bank with SVB.

The US FDIC insurance (like our FSA) covers upto $250k but well over 90% of all customers deposited exceed $250k. That means a whole raft of new businesses are about to run out of money

The ramfications of this could be enormous.

Reminds me of 2007 when New Century Financial (which was the US's largest subprime mortgage loan provider) filed for bankruptcy and that was the canary in the coalmine for the whole 2007/8 Banking Crises.

So is SVB another canary?

 

[Lenny Rider]

Even at 58 I’ve still got a degree of naivety, effectively what happens when a bank goes bust?

Do all the people literally lose all their money? Or is there some form of insurance to protect some of the funds?

What happens to the loans/mortgages that the said bank have made to people/companies?

 

[KZNSeagull]

Silicon Valley Bank: Offer made for UK arm of failed US lender

UK firms have been warned they might not be able to pay staff from Monday without intervention.

www.bbc.co.uk

 

[Weststander]

Financial press writers seem very relaxed about it, for example.
https://news.sky.com/story/silicon-...-banks-according-to-finance-ministry-12831589

2007 / 2008 was built on colossal US mortgage lending that should never have happened, then repackaged as derivatives and sold to major financial institutions across the West. A pack of cards, which some experts predicted.

As a result of that banks now have far better capital ratios, stress tested.

 

[B-right-on]

Even at 58 I’ve still got a degree of naivety, effectively what happens when a bank goes bust?

Do all the people literally lose all their money? Or is there some form of insurance to protect some of the funds?

What happens to the loans/mortgages that the said bank have made to people/companies?

FDIC insurance covers the first $250,000. After that its lost.

Unfortunately there are companies losing tens and hundreds of millions of $. There are a lot of these 'new' companies now with serous financial problems.

 

[B-right-on]

Financial press writers seem very relaxed about it, for example.
https://news.sky.com/story/silicon-...-banks-according-to-finance-ministry-12831589

2007 / 2008 was built on colossal US mortgage lending that should never have happened, then repackaged as derivatives and sold to major financial institutions across the West. A pack of cards, which some experts predicted.

As a result of that banks now have far better capital ratios, stress tested.

So was SVB. It was the 16th largest bank in the USA and was the 2022 Bank of The Year.

Doesnt stop a run on a bank like SVB had where they had to fire sale their bonds and other assets.

Dont forget that after the 2007 New Century Financial diaster, two months later Ben Bernanke, the then head of the US Central Bank, said the problem was ‘CONTAINED’. Look was happened with Lehman Bros etc a few months later.

 

[sparkie]

Even at 58 I’ve still got a degree of naivety, effectively what happens when a bank goes bust?

Do all the people literally lose all their money? Or is there some form of insurance to protect some of the funds?

What happens to the loans/mortgages that the said bank have made to people/companies?

Some of the money will be protected.

A major issue is if a company that banks there has a monthly payroll of greater than the protection level then some employees won't get paid at the end of the month. And then unless the company can bring in enough revenue to cover month 2 it just gets worse.

 

[sparkie]

 

[Weststander]

So was SVB. It was the 16th largest bank in the USA and was the 2022 Bank of The Year.

Doesnt stop a run on a bank like SVB had where they had to fire sale their bonds and other assets.

Dont forget that after the 2007 New Century Financial diaster, two months later Ben Bernanke, the then head of the US Central Bank, said the problem was ‘CONTAINED’. Look was happened with Lehman Bros etc a few months later.

I remember the chain of events and institutions failing on either side of the Atlantic, as if it was yesterday. Also the years leading up to it, Greenspan was a God, for (said now in hindsight) the 2001 to 2007 loose monetary policy creating a vast bubble of asset values and debt. Lehman Brothers were heavily involved in the subprime bad debts and their balance sheet was riddled with tricks on investors/regulators.

Lessons I thought were learnt:

 

[Comrade Sam]

I assume tax payers will bail out the guarantees. What a clever system that capitalism is. Meanwhile Aramco made $161 billion profit.

 

[B-right-on]

I remember the chain of events and institutions failing on either side of the Atlantic, as if it was yesterday. Also the years leading up to it, Greenspan was a God, for (said now in hindsight) the 2001 to 2007 loose monetary policy creating a vast bubble of asset values and debt. Lehman Brothers were heavily involved in the subprime bad debts and their balance sheet was riddled with tricks on investors/regulators.

Lessons I thought were learnt:

View attachment 158253

As long as fractional reserve banking is used by bank, the whole house of cards is one 'run' away from a disaster imo.

With fractional reserve banking, if you have £1,000 in savings, that bank can then lend £10,000 out in loans or buy £10,000 of bonds etc...

All is fine until you decide to withdraw your £1,000 because then the bank needs to get rid of £10,000 in loans or sell £10,000 of assets.

SVB had a run where investors pulled out hundreds of millions because of a concern, then they had to get off billions in liabilities in 24 hours. They couldn't so collapsed.

 

[Weststander]

As long as fractional reserve banking is used by bank, the whole house of cards is one 'run' away from a disaster imo.

With fractional reserve banking, if you have £1,000 in savings, that bank can then lend £10,000 out in loans or buy £10,000 of bonds etc...

All is fine until you decide to withdraw your £1,000 because then the bank needs to get rid of £10,000 in loans or sell £10,000 of assets.

SVB had a run where investors pulled out hundreds of millions because of a concern, then they had to get off billions in liabilities in 24 hours. They couldn't so collapsed.

Said with sincerity, are you tempted to transfer your pension and ISA investment choices into gold or cash asap, to allay your fears?

I’m generally slow to react, probably like most folk. For example I didn’t react at all in Feb/Mar 2020. Whereas a wealthy friend with 15x my modest investments lucked out as Cazenove reacted incredibly swiftly when Covid caused the first death in Italy.

 

[beorhthelm]

was following as fall out from the takedown of crypto friendly bank Silvergate. they are/were completely solvent and above board 3 days ago, however they got look at as suspect and some orgs started pulling cash forcing them to sell long date bonds. these trade a discount to nominal value, so when sold the balance sheet has a hole.

US have announced emergency measures to support the bank already. so hopefully this has been contained, otherwise by gold and beans on Monday. gold opening is flat, bitcoin heavily sold off on Friday has recovered this evening.

 

[beorhthelm]

Some of the money will be protected.

A major issue is if a company that banks there has a monthly payroll of greater than the protection level then some employees won't get paid at the end of the month. And then unless the company can bring in enough revenue to cover month 2 it just gets worse.

this seems to be the largest market fear, overlooked normally. risk that now its been higlighted, companies will pull some money from banks to others to cover monthly expenses. that will be a signifcant shock wave through the banking sector.

 

[beorhthelm]

I remember the chain of events and institutions failing on either side of the Atlantic, as if it was yesterday. Also the years leading up to it, Greenspan was a God, for (said now in hindsight) the 2001 to 2007 loose monetary policy creating a vast bubble of asset values and debt. Lehman Brothers were heavily involved in the subprime bad debts and their balance sheet was riddled with tricks on investors/regulators.

Lessons I thought were learnt:

View attachment 158253

lessons were learnt problem is to do with interest rates now much higher than the bond rates locked into a few years ago. not subprime but gov bonds and similar are worth less than getting a new bond or bank rate at today's rates. awkward.

 

[LamieRobertson]

I assume tax payers will bail out the guarantees. What a clever system that capitalism is. Meanwhile Aramco made $161 billion profit.

That well known capitalist country China seems to have its share of problems with a property ‘bubble’

 

[StonehamPark]

My employer (Canadian) had a chunk of change in SVB.
Luckily they had already spread their money across 3 banks, otherwise I'd likely have been out of a job by now.

Will be interesting to see what happens in my dept. over the next week or so. We've already had 20% lay-off's this year, this could potentially trigger more for us.

 

[lasvegan]

I assume tax payers will bail out the guarantees. What a clever system that capitalism is. Meanwhile Aramco made $161 billion profit.

Do you propose communism as the alternative, comrade?

 

[BadFish]

Another 20 years of austerity for you chaps then.

f*** me you are still experiencing the fall out from 2008 and another looms on the horizon.

When they said they were going to make boom and bust economy a thing if the past they didn't mean get rid of the boom.

 

[Goldstone Guy]

lessons were learnt problem is to do with interest rates now much higher than the bond rates locked into a few years ago. not subprime but gov bonds and similar are worth less than getting a new bond or bank rate at today's rates. awkward.

Can you explain this more? I get that as yields go up, bond prices go down. Interest rates/yields are higher now than a few years ago, so bond prices are lower (I think that's right?). Why is that a problem in this situation?