Silicon Valley Bank Bailout vs. Student Debt Reduction

[GoCommiesGo]

So the head of the bank successfully lobbied to change the asset value of the too big to fail banks to 250b when SVB had 204b(ish) in assets. The CEO is Greg Becker who was in the CFO of Lehman Brothers during their collapse. 🤔 
 

Their security backstops were in long term low yield treasury bonds. They didn’t reallocate when interest rates changed and now are screwed.

 

It seems like the a bank that specializes in risky investments made risky choices and will likely be purchased by a larger bank or have the assets liquidated to cover excess depositor accounts. At some point risky and poor behavior has to be addressed and things have to fail. 
 

[tshile]

I would also say, to the idea of bailing people out beyond the 250k number… that’s what the 250k number is. 
 

that is your bailout. 

[PeterMP]

2 hours ago, The Evil Genius said:

I'm not a fan of Mark Cuban but I do think he makes some interesting points, the first being that the 250k limit is too low.

Of course..Cuban does have a short memory.

 

 

Not my expertise at all, but if the assets in the long run will pay (i.e. "The Fed effectively is providing cash to end the run, and in return getting long dated assets that will pay at maturity , and for the risk assets , should offer some positive return as well. SVB didn't buy failing assets. No run, and they survive"), then shouldn't other entities be willing to buy those assets now and then in liquidating the bank enough money be made to make at least the vast majority of the deposits good?

 

It seems hard to argue that SVG has bought assets have value (not failing that will offer some positive return) and the FDIC needs to do much other than to step in and make sure things are liquidated reasonably.

 

(Also, for forcing companies to break their money up between different banks.  It'll be a "tax" on larger companies and actually encourage more diversity (more competition) in the banking industry.  You want to run/own a larger company, then deal with putting your money in lots of different banks, take the risk of having it not be insured, or find another way to deal with things.)

Edited March 12, 2023 by PeterMP

[GoCommiesGo]

9 minutes ago, tshile said:

I would also say, to the idea of bailing people out beyond the 250k number… that’s what the 250k number is. 
 

that is your bailout. 

I feel bad that they may lose money in excess of 250k, but why would you keep that much in an account, as individual?

[PeterMP]

I'll add if they are going to increase the insurance on deposits, they should make it a tiered system where the bank decides how much deposits are insured for.  But the more the insurance on the deposits, the more oversight (more paper work) and a larger percent of money deposited has to be kept as cash reserves.

 

A large increase (e.g. $2.5 million) on the insured deposits is going to create a banking industry that is more tilted to favoring the wealthy/big corporations.

[TradeTheBeal!]

 

[Cooked Crack]

 

 

[Fergasun]

Why didn't these companies have their payroll and other accounts in Treasury backef MMFs?  Sure, it takes a couple days to go in and out of... but it's absolutely secure and safe...

[tshile]

4 hours ago, GoCommiesGo said:

I feel bad that they may lose money in excess of 250k, but why would you keep that much in an account, as individual?

But also at some point in time personal responsibility sets in. 
 

it’s not the governments job to bail people out because a bad thing happened. 
 

and if the financial industry didn’t work so hard to get regulations removed or loosened, I’d have more room in my heart to consider a bailout. Privatized gains and socialized losses is bull****. 

[skinsmarydu]

I see now how beneficial my General Business class in my sophomore year of high school was.  Jeez. 

[bearrock]

Bailout and deposit protections are different issues imo.  250K is the insured deposit for which the banks are mandated to pay insurance premiums to the FDIC. That's an insurance payout, not bailout.

 

Setting aside the fact that the law already allows FDIC to guarantee all of uninsured deposits in case of concern of systemic fallout (which is being floated apparently), allowing quick access to portion of deposits that will almost certainly be covered by asset liquidation is not a bailout, that's just practical policy to ensure that deposits are not unnecessarily tied up.

 

One of the fallout

was apparently a payroll processor had an account at SVB and the account they use to facilitate payroll payments was frozen, along with their customers' payroll funds deposited a few days ago.  It's unreasonable and detrimental to efficiency to expect customers to do due diligence on their service provider's banks.  At some point, it is just better to eat the cost to hold up the general sentiment that money deposited in US banks are safe.

[The Evil Genius]

 

[TradeTheBeal!]

Feels prudent and well-considered.
 

Thank goodness that drunken bum Mnuchin isn’t pulling the strings right now.

[Dr. Do Itch Big]

The fdic thing is a little more complicated too. 
 

if an person has a trust account and 3 beneficiaries than that account is fdic covered up to 1 million. Also you can have one for each deposit type like for 1 for checking savings CDs etc. 
 

if the bank had competent people bankers than they would be preventing from people being covered
 

At least my buddies at chase would have you covered. 

Just now, Dr. Do Itch Big said:

The fdic thing is a little more complicated too. 
 

if an person has a trust account and 3 beneficiaries than that account is fdic covered up to 1 million. Also you can have one for each deposit type like for 1 for checking savings CDs etc. 
 

if the bank had competent people bankers than they would work hard on people being covered
 

At least my buddies at chase would have you covered. 

[Destino]

My initial reaction is that I like the governments approach.  Make depositors whole immediately so that faith in the banking system remains strong.  We do not want deposits in major banks to feel like a gamble, it helps no one and causes many problems.  Debt and investments however, are already well understood to carry risk.  The company going belly up is exactly that risk.  Not a fun day for those folks but all of us understand that’s a possibility. 
 

senior management shouldn’t see an additional penny until absolutely everyone owed anything is paid.  If that never happens, so be it.  

[bearrock]

Didn't know that FDIC could assess the cost of covering uninsured deposits to other banks.  Seems like a good solution among the available options.

[bearrock]

http://Silicon Valley Bank Fails After Run on Deposits https://nyti.ms/3T5K9jw

 

Quote

Some banking experts on Friday pointed out that a bank as large as Silicon Valley Bank might have managed its interest rate risks better had parts of the Dodd-Frank financial-regulatory package, put in place after the 2008 crisis, not been rolled back under President Trump.

 

In 2018, Mr. Trump signed a bill that lessened regulatory scrutiny for many regional banks. Silicon Valley Bank’s chief executive, Greg Becker, was a strong supporter of the change, which reduced how frequently banks with assets between $100 billion and $250 billion had to submit to stress tests by the Fed.

 

 

[ixcuincle]

 

[CjSuAvE22]

17 minutes ago, ixcuincle said:

 

how is SVB getting bailed out??

[Fergasun]

They are bailing out depositors over the $250k limit, not the bank.  Per the press release, any losses will be assessed to other banks (not sure if legal.... the other banks may challenge).

 

So think of it like the other banks pulled a bad community chest card.

[PleaseBlitz]

Here is a good article on the 2018 deregulation, commonly referred to as "2155."

 

https://prospect.org/economy/03-13-2023-silicon-valley-bank-bailout-deregulation/

 

Quote

The most important part of the Crapo bill was Section 401, which increased by fivefold the threshold for enhanced regulatory standards, from $50 billion in assets to $250 billion. Silicon Valley Bank’s CEO, Greg Becker, lobbied explicitly for this change. It meant that banks under $250 billion would not be subject to additional stress tests and heightened capital and liquidity requirements. SVB topped out around $200 billion, after growing rapidly in the past few years.

 

The final rule for enhanced regulatory standards said that all banks eligible for them would have to “hold a buffer of highly liquid assets based on projected funding needs during a 30-day stress event.” The rules in the Federal Register say: “In general, the more a company relies on short-term funding, the larger the required buffer will be.” As Daniel Davies explains, this was the part of Dodd-Frank designed to prevent bank runs, ensuring that banks have both the structural funding necessary to carry out operations and the emergency funding to handle sudden withdrawals.

 

Silicon Valley Bank had an unusually high amount of its assets placed in long-term government and mortgage securities, creating a mismatch and, yes, a reliance on short-term funding, namely those deposits that could be withdrawn at any time.

 

Its rapid growth was also a function of the Crapo bill, since it removed the regulatory hurdles banks would encounter by growing larger. Indeed, banks immediately started scooping up rivals, and the consolidation led to risk-taking affecting a wider class of customers.

 

[PokerPacker]

30 minutes ago, Fergasun said:

They are bailing out depositors over the $250k limit, not the bank.  Per the press release, any losses will be assessed to other banks (not sure if legal.... the other banks may challenge).

 

So think of it like the other banks pulled a bad community chest card.

Are they getting bailed out, or are they getting fronted the money while SVB's assets are getting sold off to cover them?

[bearrock]

Lol at Mike "Crapo" bill.  Some truth in advertising right there

[Fergasun]

Quote

Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

 

This is the Fed Action:

Quote

 

The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.

With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.

 

So the Fed is once again stepping in as a lender of last resort.  

 

We need a law to clawback bonus money from CEO and CFO and other Senior Executives in cases like this.   I think there is something shady about they way this one bank is such s lynch pin of funding for Silicon Valley.  Bribes, kickbacks, loans not available to the average person. 

[PleaseBlitz]

25 minutes ago, Fergasun said:

We need a law to clawback bonus money from CEO and CFO and other Senior Executives in cases like this.   I think there is something shady about they way this one bank is such s lynch pin of funding for Silicon Valley.  Bribes, kickbacks, loans not available to the average person. 

 

Elizabeth Warren called for this in her NYT Op-ed.  It's paywalled, so I won't post it.