Bank failures, bank runs and other musings | Page 3 | General financial discussion | Discussion forum

COIN said
The U.S. Federal Reserve/government will have to do a bailout of some sort.

"When the losses approached $4 billion, the federal government of the United States feared that the imminent collapse of LTCM would precipitate a larger financial crisis and orchestrated a bailout to calm the markets.…

Not for Silicon Valley Bank.

Silicon Valley Bank doesn't have a margin call on something like $100 billion of government bonds that LTCM did. That much government bonds coming onto the bond market all at once would crash the bond market and spike interest rates. The US government intervened so those margin-called bonds could be sold gradually.

Silicon Valley Bank only has around $10 to $20 billion of government bonds. No forced liquidity now as withdrawals are now gated by FDIC to the insured portion of deposits only.

This is from a bloomberg article on Mar 10. Its a good summary of what happened. Still the speed of its collapse stunt even the professionals.

Morale of the story:
Never trust a bank CEO when they ask its depositors to remain calm. Depositors have basically 2 days to get out in this case.

"WHY DID SVB PROVE SO VULNERABLE?

Several factors came together to cause its distress. Some of those are unique to SVB, while others are the source of broader worries in banking. Behind most of them are the rapid interest-rate increases pushed through over the last year by the U.S. Federal Reserve to tame the highest inflation in decades. One consequence of those hikes that hit SVB especially hard was the sharp downturn in the high-flying tech companies that had been the source of its rapid growth; most banks have broader customer bases. As venture capital dried up, SVB’s clients tapped their deposits to withdraw cash they needed to keep going.

WHAT HAPPENED AFTER THOSE WITHDRAWALS?

To keep up with the wave of withdrawals, SVB had to sell assets — including, crucially, bonds that had lost a substantial portion of their value. That produced $1.8 billion in losses that wouldn’t have hit the bank’s balance sheet had the bonds been held to maturity. Here, too, SVB’s funding structure had made it particularly vulnerable. All US lenders park a chunk of their money in Treasuries and other bonds, and the Fed’s hikes made those existing bonds less valuable because of their low yields. But SVB took it to a different level: Its investment portfolio had swelled to more than half its total assets, far above the norm."

Dean said
.
Janet says; "No Bailout" . . .

CBC News Link ➡ https://www.cbc.ca/news/world/silicon-valley-bank-bailout-yellen-treasury-1.6776510

.
It'll be interesting to see how the markets react on Monday. It could be another 'Bargain Day' for Canadian Bank stocks.

Dean

  

There should not be, there is very little systematic risk. FDIC already announced the assets will be auctioned off. My pure guess is maybe those over the limit will take up to a 30% haircut, maybe less.
They do have solid assets that will cover all depositors if held to maturity. Just not the liquidity to survive that long.

Doubt depositors will lose anything at all. Its relatively cheap for the spendthrift government to make sure depositors are made whole and would help prevent sympathy runs on other banks.

AltaRed said

You got it right as just announced by Yellen. It won't cost FDIC much as they will simply hold on to the bonds until maturity. The bigger question is the loan book in terms of whether it is worth 100 cents on the dollar or something a bit less.  

So depositors will make whole, shareholders get wipe out, bond holders will most likely get something back but won’t know how much and when for a while.
Not a bad ending, and Yellen’s claim it’s not a bail out still stands too.

Wonder if this might lead to higher GIC and lower HISA rates as certain stress test scenarios suddenly take central stage in Canadian backrooms. Conversely fixed rate mortgage rates might move back to premium over variable.

Smaller players may feel the need to bump rates higher just to attract more deposits, in case they need it and while its still "cheap"

Also it will be interesting to find out how much of each Cad bank's deposits are uninsured, personal vs business accounts too.

Every entity of SVB would be involved by definition. They are subsidiaries/divisions of SVB and have to be taken over by the regulators of each country to avoid confiscation of assets by the FDIC et al. HSBC just bought the UK assets of SVB for 1 pound.

Why would Canadian banks be exposed to SVB and/or SVB Canada? OR do you mean some other Schedule 2 (foreign owned subsidiaries) banks like SVB Canada might be at risk due to insolvency of their parent?

A couple of points.
1) SVB Canada shut down by OSFI
2) Assets of SVB U.K. purchased for $1 by HSBC.