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[catcherintherye]

I'm not sure anybody really needs a 'bailout' - some kind of bridging facility to provide liquidity to SVB customers until SVB is bought and/or their assets are sold would be sensible. Customers may only end up receiving 90c on the dollar depending on how the assets are sold but that's the risk you take when you have large uninsured amounts deposited with a relatively small bank.

But who fronts the loan, and what is the risk of getting that capital back?

 

[Mrk]

But who fronts the loan, and what is the risk of getting that capital back?

That's the question that I think we'll see answered over the next few days. The big banks could easily do it between them (with very healthy interest rate on the loans), which would be the best option. Failing that, between the Fed and the US govt, I'm sure they could also come up with a fairly low-risk way of doing it too.

 

[catcherintherye]

That's the question that I think we'll see answered over the next few days. The big banks could easily do it between them (with very healthy interest rate on the loans), which would be the best option. Failing that, between the Fed and the US govt, I'm sure they could also come up with a fairly low-risk way of doing it too.

Maybe issuance of some short term bonds?

 

[Mrk]

Maybe issuance of some short term bonds?

Yep, or the Fed could encourage the big banks to step in by acting as a guarantor if for some reason SVB's assets can't be realised.

In theory, unless this results in a nation-wide bank run or huge volatility in treasury prices, the chances are depositors will get most of their funds back in time. So it would be very easy for a bank like JP Morgan to provide a facility to SVB depositors that provides them with 25% of their SVB deposit as cash with a very tasty interest rate until the SVB deposits are returned.

 

[catcherintherye]

Yep, or the Fed could encourage the big banks to step in by acting as a guarantor if for some reason SVB's assets can't be realised.

In theory, unless this results in a nation-wide bank run or huge volatility in treasury prices, the chances are depositors will get most of their funds back in time. So it would be very easy for a bank like JP Morgan to provide a facility to SVB depositors that provides them with 25% of their SVB deposit as cash with a very tasty interest rate until the SVB deposits are returned.

What has triggered the run? Do people think the bank is over exposed and its assets are marked up too high?

 

[Mrk]

What has triggered the run? Do people think the bank is over exposed and its assets are marked up too high?

I think in this case their downfall was due to the nature of their client base - as soon as 1 VC tells a startup he's backing to withdraw their cash, that spreads like wildfire in the idiosyncratic world of California. Additionally, some VC's sit on 50+ startups boards, so if they're telling all of their startups the same thing = bank run.

 

[catcherintherye]

I think in this case their downfall was due to the nature of their client base - as soon as 1 VC tells a startup he's backing to withdraw their cash, that spreads like wildfire in the idiosyncratic world of California. Additionally, some VC's sit on 50+ startups boards, so if they're telling all of their startups the same thing = bank run.

And they initially started withdrawing cash, because access to capital has become a lot more difficult?

 

[Mrk]

And they initially started withdrawing cash, because access to capital has become a lot more difficult?

Yes it appears their clients had been withdrawing more cash than usual for some time which prompted SVB to sell US treasuries at a loss to be able to keep up with withdrawals, which they then proposed to cover with a capital raise - this then resulted in the panic.

It's all very irrational in hindsight - but then again, most bank runs are.

 

[catcherintherye]

Yes it appears their clients had been withdrawing more cash than usual for some time which prompted SVB to sell US treasuries at a loss to be able to keep up with withdrawals, which they then proposed to cover with a capital raise - this then resulted in the panic.

It's all very irrational in hindsight - but then again, most bank runs are.

I suppose what underpins all banks is confidence.

I dont think it helps when banks lend to businesses that dont turn a profit, almost exclusively so.

 

[LinekersLegs]

I'm not sure anybody really needs a 'bailout' - some kind of bridging facility to provide liquidity to SVB customers until SVB is bought and/or their assets are sold would be sensible. Customers may only end up receiving 90c on the dollar depending on how the assets are sold but that's the risk you take when you have large uninsured amounts deposited with a relatively small bank.

From analysis I’ve seen the worst case looks to be 80c but fairly decent asset quality (if can hold to maturity) so expect would eventually end up higher.

However SVB, whilst not being one of the mega banks, wasn’t that small a bank - it was 16th largest in the US, similar in size to Morgan Stanley, and its failure is the 2nd biggest US bank failure in history after Washington Mutual.

FRB: Large Commercial Banks-- December 31, 2022

If uninsured depositors there can take ~ 10% haircut on balances then going to be lots of people looking at the many banks smaller than SVB - I imagine a lot of regional bank CFOs/CEOs are having an interesting weekend.

 

[LinekersLegs]

 

[LinekersLegs]

 

[LinekersLegs]

 

[LinekersLegs]

https://fedguy.com/wp-content/uploads/2023/03/image-2.png

First republic has an advantage that SVB did not in that it can take its assets to the new Fed facility to trade for cash to meet deposit withdrawal requests but going to be very interesting to see how much is moving out despite the Fed defacto guarantee to make uninsured depositors whole.

 

[LinekersLegs]