Related ongoing thread:

FDIC Takes over Silicon Valley Bank - https://news.ycombinator.com/item?id=35096877 - March 2023 (737 comments)

The bank has officially failed, as per FDIC.

"Silicon Valley Bank is the first FDIC-insured institution to fail this year."

https://www.fdic.gov/news/press-releases/2023/pr23016.html

One thing to bear in mind is that "failing" is not binary.

The story seems to be that SV put all their deposits into 10 y bonds in 2021. I'll use that as an approximation.

A 10Y bond will usually move about 8x as much as the underlying interest rate (it's called "duration"). So if SVB did nothing but buy these bonds and sit on them, then they would have lost about 36% on these (8 x 4.5% rate movement). That's a lot but also better than losing everything. And you'd hope the bank wasn't idiotic enough to take no precautions: no hedging of IR changes, putting all assets into just that.

My finger in the air haircut would thus be maybe 15-20% loss of deposits, if this simplified model has anything to do with reality. That's a lot but also means depositors get 80-85% of their money back.

It's possibly pushing the limits of my toy model here but a 10Y bond bought in 2021 is now only an 8Y bond, because time has passed. So instead of 8x you get more like 6x and the pessimistic haircut number is thus 29%.

I'm feeling like this is early days of a disaster in Silicon Valley. We're at the first or second domino teetering right now. I hope a Sequoia or KPB will step up and save the bank, otherwise a lot of their portfolio investments are about to start missing payrolls.

In hindsight they shouldn't have bought those MBSs, should have foreseen the coming inflation and the following interest rate hikes, and of course shouldn't have said those words yesterday.

However, sad to see what looks to be another government caused implosion.

- First, via the massive government stimulus COVID19 SVB got enormous amount of deposits in 2020/2021. They have to put that money to work, and the traditional lending it back out was not going to work, the market was already flooded with money from the government. So they sadly locked themselves in those MBSs.

- Then the gov finally reacts to their own stimulus and zero interest rates programs and they rapidly raise interest rates in attempts to lower inflation.

- And as a result, the MBSs that SVB holds are underwater in mark to market. Investments into startups fall, so no more influx of customer deposits into SVB. And finally, due to the difficult market (and VC market), all the startups are drawing down their deposits rapidly through their current burn rate. And SVB ends belly up.

The FDIC / Fed are currently on-site working on SVB resolution.

I don't understand the incentive for a bank to buy them at this point, because any potential buyer might as well wait until the FDIC steps in to resolve the bank. Any banking wizards at HN who can explain the dynamics?

edit: At the very least, FDIC should issue a statement guaranteeing beyond the $250K/depositor limit sooner rather than later in order to stem some of the outflow.

Will all the private assets that have avoided markdowns since the downturn be forced to get re-valued when a new entity buys SVB?

They’d have to I assume to value their new books.

If yes that’s a lot of valuation haircuts.

What made SVB so attractive to startup founders? All the news reports I'm reading is saying that's their target customer.

What advantages did SVB provide that other brand named bank didn't? Wouldn't it have been safer to put your startup's money in Bank of America, or JP Morgan, etc? I've never heard of SVB until the crash.

It's over. "FDIC Takes over Silicon Valley Bank" https://news.ycombinator.com/item?id=35096877

Interesting. Looking at their website, I don’t get how SVB was supposed to work. Retail and commercial banks (as opposed to investment banks) make almost all their money from lending, especially against fairly safe assets like real-estate, but SVB doesn’t seem to have a lot of those kind of lending products advertised. Successful banks have deposits just because they need the transfers coming in to keep up liquidity in the payment system, and because they’re involved in the mechanics of lending (actually created as part of lending, not actually “lent out” themselves). But they generally don’t actually make any serious money from having deposits themselves (because there’s no good way to do that in a way that is risk-free enough)…

The lending keeps money coming in (repayments), makes money (interest), etc. - so how was SVB supposed to make money and maintain liquidity without much of that?

Startups with good VC and investor relationships will most likely make payroll and pay bills through short term loans from the investors until they can access their funds.

But it is a good lesson in money management…something about eggs and just one basket?

Not looking good.

https://twitter.com/FedGuy12/status/1634031134505066496

I think that this should turn out OK for depositors, hopefully soon. It seems that while the bank essentially has no equity if you mark to market, assets and liabilities are about equal. That means that they have enough money to pay depositors, but no reserve.

Given this, it's pretty attractive for a buyer. The buyer just needs to provide some capital to bring the reserves back into compliance.

Very curious to understand how this works. For all intents and purposes, if the bank was unable to raise capital, it is at least nominally bankrupt. What value would another entity find in a bank that has failed?

To be fair, the government may find value in shoring this bank up. That's a different story. The bank will be essentially nationalized at that point.

And there. They’re Wachovia’d/Bear’d. Big stuff, they were bigger than IndyMac and almost as big as WaMu. I doubt banks will actually start going bankrupt but it’s certainly concerning, the European IBs are important to watch

Turns out the 500mn PE sale to General Atlantic has fallen through.

Someone realized the emperor has no clothes. Its only a matter of time that rest of the crowd realizes that emperors court doesn't have clothes either.

I'm wondering did SIVB hedge the risks properly? Can't imagine that they are hugely net long/short on some assets.

Are SVB's books plainly fraudulent, or are they just in a very tight spot because they borrowed too long? That is: is SVB actually a worthwhile asset if you have plenty of liquidity to weather the storm that SVB could not on its own?

Banks and exchanges are practically licenses to print money. It really doesn't take much to run their profitably. All you have to do is not get too greedy and you can have an almost neverending trickle of profits.

How do these keep blowing up?

11:41 AM - SVB has officially failed, and is in receivership.

My prediction. Startups with lines of credit / venture debt won’t be able to move all money out under terms of those deals and will be the bag holders when bank run takes SVB to zero by Tuesday next week.

Chess move: Stripe to acquire SVB.

They should have bought bitcoin instead. Oh wait, silvergates also in trouble

How is it possible for SVB to not have a bank run at this point?

Literally who?

that was fast

SVB is officially been closed and is in FDIC process. Real bank stocks are all up today, so that tells you all you need to know.

Not your keys, not your coins.

This stuff makes crypto exchange drama look like child’s play.