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Bank failures, bank runs and other musings
March 13, 2023
5:50 pm
AltaRed
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butterflycharm said

It is an intertwined economy. And that was a question.  

I can think of no reasons for Canadian banks to be affected* by SVB Canada. They wouldn't have deposited funds in SVB Canada nor would they have loaned money from SVB Canada.

It is a different story for those investors and businesses that would have had accounts with SVB Canada. OSFI taking over protects against the collapse of, or the freezing up, of the accounts.

* Except to the extent CDIC might have to cover losses and up the insurance premiums to the rest of their members.

March 13, 2023
6:27 pm
dougjp
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AltaRed said

I can think of no reasons for Canadian banks to be affected* by SVB Canada. They wouldn't have deposited funds in SVB Canada nor would they have loaned money from SVB Canada.

It is a different story for those investors and businesses that would have had accounts with SVB Canada. OSFI taking over protects against the collapse of, or the freezing up, of the accounts.

* Except to the extent CDIC might have to cover losses and up the insurance premiums to the rest of their members.  

I read somewhere today that SVB Canada has no CDIC insurance covered deposits.

" We may never pass this way again " - Seals & Crofts

March 13, 2023
6:34 pm
Norman1
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There isn't much for CDIC insurance to insure. According to OSFI, the Silicon Valley Bank branch in Canada doesn't have any individual or business deposits:

Silicon Valley Bank is headquartered in the United States and operates in Canada as a Foreign Bank Branch based in Toronto that is supervised by the Office of the Superintendent of Financial Institutions (OSFI). Its business in Canada is primarily lending to corporate clients. This branch does not hold any commercial or individual deposits in Canada.

However, a Canadian business could be in bind if it was approved for a loan from the bank and the funds were going to be advanced this week.

March 14, 2023
7:53 am
butterflycharm
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Norman1 said
However, a Canadian business could be in bind if it was approved for a loan from the bank and the funds were going to be advanced this week.  

How?

March 14, 2023
8:53 am
RetirEd
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butterflycharm:

- Isn't there a business account insurance program that CFO's purchase as part of their job's basic duties? or they don't exist and FDIC $250k is it?

I'm not precisely certain what insurance you are thinking of, but corporate executive's and director's insurance primarily covers the butts of the principals involved. Corporate liability is the corporation's responsibility.

My understanding of this is derived from my past co-op and non-profit involvement.

As Norman1 noted, SVB Canada didn't hold deposits. The UK purchaser of the corporate remnant took a (relatively safe) gamble at collecting outstanding loans due SVB. SVB's receivers (and insurers) got out of the legal and financial hassles of dealing with the Canadian business, in the process giving up claim to the owed amounts. One hopes most of those waiting on loans to arrive would be able to arrange alternate financing before the poop hit the propeller.

RetirEd

We're mostly Canadian-based here, yes? I take it most of us have heard of Flair Airlines' (some of their airplanes) being seized by a venture-fun creditor? Short-term cash-flow hiccups can be a female dog!

RetirEd

March 14, 2023
11:30 am
savemoresaveoften
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RetirEd said
Short-term cash-flow hiccups can be a female dog!  

Liquidity problems are always capable of killing a corporation quick and decisive, whether it's a good or bad corp, and whether it has good or bad products.
It's a quick death spiral.

March 14, 2023
11:35 am
HermanH
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With Twitter facilitating near-instantaneous communication, SVB went down in a single day. I suspect almost any bank (regardless of how solid or liquid it is) could be just as susceptible, if a rumour/gossip is given sufficient traction via Twitter.

March 14, 2023
12:01 pm
savemoresaveoften
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HermanH said
With Twitter facilitating near-instantaneous communication, SVB went down in a single day. I suspect almost any bank (regardless of how solid or liquid it is) could be just as susceptible, if a rumour/gossip is given sufficient traction via Twitter.  

actually more like 2-3 days. I saw threads and guru like Peter Thiel to warn people not to keep their money since last Wed if I remembered correctly. But yeah within a week for sure.

https://www.businessinsider.com/peter-thiel-founders-fund-pulled-cash-svb-before-collapse-report-2023-3

March 15, 2023
6:18 am
Norman1
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Norman1 said
However, a Canadian business could be in bind if it was approved for a loan from the bank and the funds were going to be advanced this week.  

butterflycharm said
How?

Just think what would happen if one was approved for a mortgage on a home purchase and, one week before closing, the lender is shutdown by OSFI or CDIC.

March 15, 2023
10:23 am
Rail Baron
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Are any of the sages on this site surprised by the relative stability of GIC and HISA rates in light of all the upheavals in the banking sector?

No major changes have appeared on rates posted here, unless I have missed them, while all heck has been breaking loose across the financial sector.

March 15, 2023
5:08 pm
butterflycharm
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Norman1 said

butterflycharm said
How?

Just think what would happen if one was approved for a mortgage on a home purchase and, one week before closing, the lender is shutdown by OSFI or CDIC.  

Probably no one would have a problem finding a mortgage lender. There are many lenders that process in a day or two even. Maybe other types of loans would become an issue.

March 15, 2023
6:02 pm
COIN
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The SVB debacle reminds me of Home (caused by a silly comment by OSC) and Pace (fraud).

March 15, 2023
6:51 pm
butterflycharm
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COIN said
The SVB debacle reminds me of Home (caused by a silly comment by OSC) and Pace (fraud).  

It doesn't make sense. Either bank liquidity rules are too relaxed which point to a wider system issue or something is not public yet.

So the liquidity rules which says they should buy bonds became the problem itself? Doubt this is a system flaw by mistake.

March 16, 2023
5:55 am
Bill
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I've seen enough to observe that rules where there's no, or virtually no chance of, meaningful enforcement (or sleeping, lazy or corrupted enforcers) don't mean much.

March 16, 2023
6:11 am
savemoresaveoften
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butterflycharm said

So the liquidity rules which says they should buy bonds became the problem itself? Doubt this is a system flaw by mistake.  

Its nothing like that.
SVB is essentially running a curve risk that is bigger than other banks, via matching short term liability (deposits which pays short term interest) with long term assets (buy bonds, which are now under water after Fed tightening cycle past 12 months).
No banks can withstand a 20% deposit withdrawal over a 3 day period, no matter how strong the requirements are. And SVB was within bank regulation requirement too.

March 16, 2023
10:20 am
HermanH
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savemoresaveoften said No banks can withstand a 20% deposit withdrawal over a 3 day period, no matter how strong the requirements are. And SVB was within bank regulation requirement too.  

Exactly. I doubt that even CIBC, BNS, or RBC could survive a rate of withdrawal of that magnitude. IIRC, banks only keep about 5% of deposits on reserve.

March 16, 2023
2:01 pm
Wayno
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https://www.cbc.ca/news/business/first-republic-bank-rescue-30-billion-1.6781237

Several big U.S. banks come to the rescue of First Republic Bank

Deposits worth $30 billion US went to First Republic from 8 of U.S.'s biggest lenders

First Republic Bank has received $30 billion US in deposits from several big banks, the banks said in a statement on Thursday, as part of a rescue package for the lender.

JPMorgan Chase & Co, Citigroup, Bank of America Corp, Wells Fargo & Co, Goldman Sachs Group, Morgan Stanley and others are involved in the rescue, according to the statement.

Founded in 1985, First Republic had $212 billion US in assets and $176.4 billion US in deposits as of the end of last year, according to its annual report.

About 70 per cent of its deposits are uninsured, above the median of 55 per cent for medium-sized banks and the third highest in the group after Silicon Valley Bank and Signature Bank, according to a Bank of America note.

March 16, 2023
2:14 pm
Wayno
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https://www.theglobeandmail.com/investing/markets/indices/INX/pressreleases/15143100

Stocks Surge on Rescue Plan for First Republic Bank
The S&P 500 Index ($SPX) (SPY) Thursday closed up +1.76%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.69%.

Bank stocks Thursday recovered from early losses and moved higher after the biggest U.S. banks agreed to deposit $30 billion with First Republic Bank to boost liquidity in the lender. JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo will contribute $5 billion of deposits each, while Goldman Sachs and Morgan Stanley will put in $2.5 billion. In addition, PNC Financial Services Group, Bank of New York Mellon, Truist Financial, US Bancorp, and State Street will each contribute $1 billion

March 16, 2023
7:34 pm
butterflycharm
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savemoresaveoften said
No banks can withstand a 20% deposit withdrawal over a 3 day period, no matter how strong the requirements are. And SVB was within bank regulation requirement too.  

Probably right to say that no bank keeps 20% cash as they go by the rules which allows them to invest away over 90%.

Probably wrong to say no matter how strong requirements are they won't withstand a 20% run.

Had they made the requirement to have 30% cash on hand then a 20% run would not have been an issue. So it is possible to have different rules. They invested within the rules sounds like and if that is so then the rules are the issue.

From all this, CNY or RUB might come ahead?

March 16, 2023
8:27 pm
mordko
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Eh… Nope.

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