They typically have a pretty even handed and fair process for divvying up what’s left of the uninsured deposits. Which pretty much pisses everyone off.
Right, I guess my thinking is that they need to say that everyone will be made whole or we could see some real ugliness. What’s fascinating to me beyond the dynamics of possible bank runs in smaller banks is the fact that if the fed does in fact make everyone whole, the optics are terrible because people that want to criticize are going to say that taxpayer dollars are going to Silicon Valley billionaires, and that’s true enough, but as Mike S points out, there are thousands or tens of thousands of small businesses that are depositors there, and giving them $400k and a pat on the ass just isn’t going to work.
I’ve seen all sorts of threads on Twitter by small business owners, not necessarily in California, not necessarily California type businesses, who say We bank with these people and if we don’t get our money back we are fucked. Maybe we need to consider something beyond a one size fits all deposit insurance policy, because I do feel it’s more urgent for Mike S’s vineyard to be able to make payroll than I do for some VC billionaire to be made whole on the $600k they had parked in the bank because they forgot about it. And that’s not because I want to punish rich people, it’s because I understand the economics of it.
Anyway, Trumpy went and deregulated banks, so in addition to attempted coup d’etats and toxic train derailments we also get Northern Rock style bank runs. Thanks, Trumpy! Trump’s the grift that keeps on giving, sort of like herpes.
I think we’re beyond the point where herpes can legitimately decry this comparison.
In the face of such calumny herpes would issue a blistering rebuttal.
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It now seems that a group of venture capitalists started the run on SVB because they could.
Functional government is an incredible thing.
Imagine having a government that acts like it’s supposed to.
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Good news this morning that the feds are going to cover all deposits at SVB, which should be available today. My boss is one of those folks and this morning he’s in a hell of a lot better mood than when we chatted Friday. We also started bottling this morning, so I’m sure he’s grateful just to have something else to focus on.
There’s another regional bank out here, First Republic, and the rumor is they may be in seriously bad shape as well. People were allegedly lining up outside the branch in Napa before it opened to withdraw their money. What a time to be alive.
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This is unequivocally good news.
Now about those student loans…
Glad to hear those at SVB will be made whole. Lost in this is that other banks are suffering as a result of SVB’s collapse. Signature Bank of New York also failed today from the panic of SVB’s failure. Like SVB, most of the assets were not FDIC insured, and they were heavily invested in crypto. That’s now two of the biggest three bank failures in history happening in the last few days.
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It’s almost as if regulations aren’y always a bad idea.
What regulations would have prevented this?
Trump reduced stress testing in 2018 and that additional testing may well have prevented it.
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I’m not a banking guy, but what exactly where they allowed to do differently? My understanding is they were heavily invested in crypto, so as that collapsed, it created a run to liquidate. How does stress testing work in that sense? Would they have not been allowed to leverage so much in crypto?
Some of the key changes that made were:
- Increasing the asset threshold for “systemically important financial institutions” or, “SIFIs,” from $50 billion to $250 billion.
- Immediately exempting bank holding companies with less than $100 billion in assets from enhanced prudential standards imposed on SIFIs under Section 165 of the Dodd-Frank Act (including but not limited to resolution planning and enhanced liquidity and risk management requirements).
- Exempting bank holding companies with between $100 billion and $250 billion in assets from the enhanced prudential standards.
- Limiting stress testing conducted by the Federal Reserve to banks and bank holding companies with $100 billion or more in assets.
SVB had holdings of $40 billion, and so was relieved of many of the duties imposed by Dodd-Frank including, notably, liquidity requirements, risk management and stress testing.
If we’re going to be expected to bail out these banks when they fail, we should have a bigger say in how they’re run, no?
Stress testing is where the Fed comes up with a doomsday sort of scenario to judge how well a bank can cover its assets. I work for a mid sized bank and when we had to do them it was big deal, our big shots bragged about it a lot in corporate emails because it speaks to a bank’s reliability.
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So if I understand this scenario…
SVB (and Signature) held the assets of many wealthy folks, who were also heavily invested in cryptocurrency. When crypto began to fail, these wealthy investors began to withdraw their money from SVB creating a liquidity crisis. Stress testing would model what would happen in such an event, and would have required them to be more liquid? Is that about the long and skinny of it?
In a nutshell yes.
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I’m reading where SVB had close to $200B in assets.
And I don’t necessarily disagree, I’m asking honest questions.
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Of course, the Fox News crowd is pushing the narrative that SVB failed because of their “woke agenda”.
Silicon Valley Bank pushed ‘woke’ programs ahead of collapse (nypost.com)
“These banks are badly run because everybody is focused on diversity and all of the woke issues and not concentrating on the one thing they should, which is, shareholder returns,” Marcus said.
The businessman blamed the Biden administration for pushing companies and banks to consider global warming over shareholder returns, resulting in catastrophic economic pitfalls."