Silicon Valley Bank failure

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GIM2 Refugee
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What a surprise huh? I also read that 93% of the Baanks assets exceeded the FDIC insurance maximums...ouch

Silicon Valley Bank Chief Executive Officer Greg Becker sold $3.6 million of company stock under a trading plan less than two weeks before the firm disclosed extensive losses that led to its failure.
Silicon Valley Bank Chief Executive Officer Greg Becker sold $3.6 million of company stock under a trading plan less than two weeks before the firm disclosed extensive losses that led to its failure.
While Becker may not have anticipated the bank run on Jan. 26 when he adopted the plan, the capital raise is material,” said Dan Taylor, a professor at the University of Pennsylvania’s Wharton School who studies corporate trading disclosures. “If they were in discussion for a capital raise at the time the plan was adopted, that is highly problematic.”

In December, the SEC finalized new rules that would mandate at least a 90-day cooling-off period for most executive trading plans, meaning that they can’t make trades on a new schedule for three months after they take hold.

Executives are required to start complying with those rules on April 1.
This story is big enough that it warrants it's own thread.

The Fed's rising rates set us up the bomb:
If you’re just catching up, here’s what happened: Silicon Valley Bank lost $1.8 billion in the sale of U.S. treasuries and mortgage-backed securities that it had invested in, owing to rising interest rates. The bank is also contending with shrinking customer deposits, given that its customer base of largely startups has far less money right now to park at a financial institution.

Because it’s in this spot, it decided to raise a bunch of money to safeguard its business. The plan was to sell $1.25 billion of its common stock to investors, $500 million in convertible preferred shares, and $500 million of its common stock in a separate transaction to the private equity firm General Atlantic. The apparent goal was to project that the bank was being conservative and raising this money to stabilize itself.

Oh, though, how it backfired, and who can be surprised, given it issued its announcement about these plans just as the crypto bank Silvergate was announcing that it was winding down operations.

You might imagine that someone at Silicon Valley Bank would have paused to think: “Hmm, maybe today is not the right time to declare that we’re shoring up our balance sheet.” Evidently, they did not. Instead at the end of the market close yesterday, they put out a convoluted press release that was received so badly that it was almost comical. Except that Silicon Valley Bank is a trusted financial partner to many startups and venture firms that are now nervously scrambling to figure out what to do.

Mini bank run ensued making SVB balance sheet hole even worse:
All told, customers withdrew a staggering $42 billion of deposits by the end of Thursday, according to a California regulatory filing.

By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing, and failed to scrounge enough collateral from other sources, the regulator said.

This is a massive bank failure:

FDIC is on the case and has set up a bridge bank to ensure that insured deposits are made whole:
For Immediate Release

WASHINGTON – Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.

All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.

Silicon Valley Bank had 17 branches in California and Massachusetts. The main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023. The DINB will maintain Silicon Valley Bank’s normal business hours. Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear. Under the Federal Deposit Insurance Act, the FDIC may create a DINB to ensure that customers have continued access to their insured funds.

As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.

Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959.

The FDIC as receiver will retain all the assets from Silicon Valley Bank for later disposition. Loan customers should continue to make their payments as usual.

Silicon Valley Bank is the first FDIC-insured institution to fail this year. The last FDIC-insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.

Unfortunately, a large percentage of SVB accounts are uninsured (above the $250K FDIC insurance limit):
SVB Financial Group's Silicon Valley Bank had a relatively high amount of uninsured deposits as it courted tech workers and venture capital firms. The FDIC said on Friday the amount of uninsured deposits at the bank was “undetermined,” likely complicated by the rush of bank customers to remove uninsured funds. But data submitted to the FDIC by the bank at the end of 2022 showed that 89% of its $175 billion in deposits were uninsured.

SVB might just be the tip of the iceberg as the Fed's rising rates will pressure the balance sheets of small and regional banks:
While SVB may be the poster child for the difficult banking environment, it is far from alone. The Federal Deposit Insurance Corporation (FDIC) estimates U.S. banks have more than $600 billion in unrealized losses generated by rising interest rates.

"Typically, this is not seen as an issue as banks can wait until maturity and thus not realize a loss," CFRA analyst Alexander Yokum said Thursday.

"However, if deposit outflows accelerate, banks could be forced to liquidate securities at a substantial loss, as displayed today by SIVB."

Treasury Dept is concerned:
U.S. Treasury Secretary Janet Yellen said Friday she’s tracking a number of banks as Silicon Valley Bank has faced major problems.

This could force the Fed to pause and/or pivot their rate policy. They walk a fine line now choosing whether to either fight inflation (raise rates) or save bank balance sheets (hold or lower rates).

There are also some contagion fears around the USDC stablecoin which held assets at SVB:
Circle’s USDC, the second-largest stablecoin, with $43 billion market capitalization, held an undisclosed part of its $9.8 billion cash reserves at failed Silicon Valley Bank.

If USDC lost significant money at SVB, they might be forced to sell a large tranche of Treasuries...

Aside from Circle/USDC, there are a lot of (non-financial sector) companies that are facing similar financial issues if they had all their eggs in the SVB basket (far exceeding the FDIC insurance limit).
The sudden collapse of Silicon Valley Bank has thousands of tech startups wondering what happens now to their millions of dollars in deposits, money market investments and outstanding loans.

Most importantly, they're trying to figure how to pay their employees.

"The number one question is, 'How do you make payroll in the next couple days,'" said Ryan Gilbert, founder of venture firm Launchpad Capital. "No one has the answer."
However, unlike a typical brick-and-mortar bank — Chase, Bank of America or Wells Fargo — SVB is designed to serve businesses, with over half its loans to venture funds and private equity firms and 9% to early and growth-stage companies. Clients that turn to SVB for loans also tend to store their deposits with the bank.

The Federal Deposit Insurance Corporation, which became the receiver of SVB, insures $250,000 of deposits per client. Because SVB serves mostly businesses, those limits don't mean much. As of December, roughly 95% of SVB's deposits were uninsured, according to filings with the SEC.

But the process is much more convoluted for uninsured depositors. They'll receive a dividend within a week covering an undetermined amount of their money and a "receivership certificate for the remaining amount of their uninsured funds."

"As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors," the regulator said. Typically, the FDIC would put the assets and liabilities in the hands of another bank, but in this case it created a separate institution, the Deposit Insurance National Bank of Santa Clara (DINB), to take care of insured deposits.

Clients with uninsured funds — anything over $250,000 — don't know what to do. Gilbert said he's advising portfolio companies individually, instead of sending out a mass email, because every situation is different. He said the universal concern is meeting payroll for March 15.

Gilbert is also a limited partner in over 50 venture funds. On Thursday, he received several messages from firms regarding capital calls, or the money that investors in the funds send in as transactions take place.
One founder, who asked to remain anonymous, told CNBC that everyone is scrambling. He said he's spoken with more than 30 other founders, and talked to a finance chief from a billion-dollar startup who has tried to move more than $45 million out of SVB to no avail. Another company with 250 employees told him that SVB has "all our cash."

Possible trading malfeasance issues...

Executives were selling personal holdings of SVB stock:
The CEO of Silicon Valley Bank (SVB) sold more than $3.5 million in stocks weeks before the tech lender collapsed on Friday morning, federal filings show.

A February 27 filing with the U.S. Securities and Exchange Commission (SEC) shows that SVB President and CEO Greg Becker sold $3,578,652.31 in common stock two weeks before SVB was shut down by federal regulators on Friday morning. The $3.5 million accounted for 10 percent of the stocks he had, since he sold 12,451 of his roughly 98,000 shares.

A separate SEC filing shows that the bank's Chief Financial Officer Daniel Beck also sold $575,180 in stocks that the same February day.

There is a possibility that man of the large depositor's might get a bit of a haircut on the other hand the Government tends to consider those types with its too big to fail theory. I think many of us have held PMs with the thought that eventually the Government can not print enough fiat to bail out the big guys. This is a somewhat long and graphic loaded article posted at the link site

Folks times like this remind me if you have balances ar your broker, bank or other financial institution the insured limit is $250,000

Silicon Valley Bank Collapses, 93 Percent of Deposits Not Insured! What Now?​

Regulators shut down Silicon Valley Bank today following a run on deposits.
Deposits Not Insured

Part of what made SVB unique is its client base—the vast majority of its customer's accounts were too big for full FDIC insurance (though recent deposit flight probably reduced the share). Waiting on the FDIC to see how many uninsured deposits are left and if they can be made whole.

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I merged @Edsl48 thread from the politics forum with this one.

Silicon Valley Bank chief pressed Congress to weaken risk regulations​

Eight years before the second-largest bank failure in American history occurred this week, the bank’s president personally pressed Congress to reduce scrutiny of his financial institution, citing the “low risk profile of our activities and business model”, according to federal records reviewed by the Lever.

Three years later – after the bank spent more than half a million dollars on federal lobbying – lawmakers obliged.

On Friday, California regulators shut down the Silicon Valley Bank (SVB), a top lender to venture capital firms and tech startups, and the Federal Deposit Insurance Corporation took it over, following a bank run by its customers. The bank reportedly did not have a chief risk officer in the months leading up to the collapse, while more than 90% of its deposits were not insured.

Full article:

Oops! Should I care? The comments are comedy gold...

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Circle’s USDC instability causes domino effect on DAI, USDD stablecoins​

Other popular cryptocurrencies, such as USDT and BUSD, continue to maintain a 1:1 peg with the U.S. dollar.

By Arijit Sarkar
Mar 11, 2023 10:44 AM
View original

The stablecoin ecosystem felt an immediate effect as USD Coin (USDC) depegged from the U.S. dollar due to a subsequent sell-off after Silicon Valley Bank (SVB) did not process $3.3 billion of Circle’s $40 million transfer request. Given USDC’s collateral influence, major stablecoin ecosystems followed suit in depegging from the U.S. dollar.

Dai (DAI), a stablecoin issued by MakerDAO, lost 7.4% of its value due to USDC’s depegging. As of June 2022, $6.78 billion worth of DAI supply was collateralized by $8.52 billion worth of cryptocurrencies, confirms data from Statista.

DAI’s total crypto assets used for on-chain collateralization as of June 27, 2022. Source: Statista

One take away...........keep an emergency stash of cash. Ya never know.
Here's an interesting take on the situation. It's one man's opinion (typed up at a Starbucks) so take it fwiw and dyodd.

SVB Bailout Could Immediately Solve Global Security Problems​

What is the common denominator in the recent port congestion crisis and current Taiwan security crisis, global food crisis, global energy crisis, US military PACOM logistics crisis, the Silicon Valley Bank Crisis, Ukraine War? What’s at the core of China’s strength and power? Ships! In this raw, unedited (we apologize for the grammar and spelling) emergency editorial Captain John Konrad explains an immediate solution to all these seemingly unrelated problems: returning Silicon Valley (SV) to its shipbuilding and naval research roots.

By John Konrad (gCaptain) In recent discussions led by prominent Venture Capitalists (VCs) and influencers like David Sachs, there has been talk of Silicon Valley Bank’s (SVB) failure creating a financial contagion that could spread across the entire financial system. While some argue that SV startups are essential in America’s competition with China, others believe that these claims are being used to strengthen their case for a government bailout. However, it’s important to note that the nation doesn’t need another TikTok clone to compete with China, we need innovation in defense and logistics. Moreover, the possibility of a bailout engineered by tech billionaires seems likely, given their wealth and power. While this may seem cynical, there is a solution that can benefit the nation and public good: returning the valley to its roots. By doing so, we can engineer a bailout that benefits not just the tech elite, but strengthen the nation as a whole.


Two huge risks to watch this week:

1. SVB business customers are unable to make payroll. Massive layoffs (estimated at 120,000).

2. Panic lines at SVB branches Monday morning trigger a loss of confidence nationwide in hundreds of mid-sized banks.

SVB’s 44-Hour Collapse Was Rooted in Treasury Bets During Pandemic​

(Bloomberg) -- Greg Becker sat in a red armchair at an invite-only conference in Los Angeles last week, legs crossed, one hand cutting through air. Most Read...
By Brian Chappatta
Mar 11, 2023

(Bloomberg) -- Greg Becker sat in a red armchair at an invite-only conference in Los Angeles last week, legs crossed, one hand cutting through air.

Most Read from Bloomberg
“We pride ourselves on being the best financial partner in the most challenging times,” SVB Financial Group’s chief executive officer told the Upfront Summit on March 1, a day before his firm was up for Bank of the Year honors at a London gala.

Just a week later, it all fell apart.

SVB’s collapse into Federal Deposit Insurance Corp. receivership came suddenly on Friday, following a frenetic 44 hours in which its long-established customer base of tech startups yanked deposits. But its fate was sealed years ago — during the height of the financial mania that swept across America when the pandemic hit.

US venture capital-backed companies raised $330 billion in 2021 — almost doubling the previous record a year before. Cathie Wood’s ETFs were surging and retail traders on Reddit were bullying hedge funds.

Crucially, the Federal Reserve pinned interest rates at unprecedented lows. And, in a radical shakeup of its framework, it promised to keep them there until it saw sustained inflation well above 2% — an outcome that no official forecast.

SVB took in tens of billions of dollars from its venture capital clients and then, confident that rates would stay steady, plowed that cash into longer-term bonds.

In doing so, it created — and walked straight into — a trap.

The bad news is after they sell bank assets the depositors might get 50 cents on the dollar.

The good news is each depositor gets to select between a new clock radio or a set of steak knives.

Short-sellers make $600m in one day on Silicon Valley Bank crisis​

Argonaut Capital CEO Barry Norris: 'Contagion will depend on how long it takes before the endgam​

Silicon Valley Bank’s share plunge has left European banking stocks reeling as Deutsche Bank and Societe Generale dropped by over 6% on 10 March. Getty Images

Friday March 10, 2023 1:41 pm

Short-sellers have made millions by betting big against Silicon Valley Bank after its parent company SVB Financial Group suffered a multi-billion dollar hit in securities sales.

SVB Financial Group launched a $1.8bn share sale on 8 March to cover a post-tax loss of $1.8bn caused by a larger-than-expected decline in deposits, which led to its stock plunging 60% on 9 March.

Somehow he LOOKS like a Club Fed inmate, already.

As for his "ask": IT'S A (expletive) JOB, YOU BUFFOON!

YOU were to make decisions on policy to keep the doors open. YOU BLEW IT.

MY job was to evaluate loan apps, or prepare weekly balance reports, or file papers, whatever.

Now you have no money to PAY ME.


If there are No SVB Bailouts, Will There Be Financial Armageddon?​

Bill Ackman wants bailouts of Silicon Valley Bank, theorizing massive repercussions if not. I expect some haircuts, then the world will go on.
Ackman's View

"The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks’ access to low-cost deposits. .... the unintended consequences of the gov’t’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday. Otherwise, watch out below."

No Bailout Proposals? Really?

Evans said no one was proposing a bailout. He was wrong.

Twitter post/thread is about 6 tweets long:

Bank run fear might be permeating the public consciousness now.
Twitter post/thread is about 6 tweets long:

Bank run fear might be permeating the public consciousness now.

How old is the FDIC again? They've never raised the amount that I can remember and nor do they have any money to raise the amount.
Ackerman is a 100% self interested asshole, but that doesn't necessarily mean he's wrong...

Financial regulators are discussing two different facilities to manage the fallout from the closure of Silicon Valley Bank if no buyer materializes, according to a source close to the situation.

One way that the regulators would step in would be to create a backstop for uninsured deposits at Silicon Valley Bank, using an authority from the Federal Deposit Insurance Act, according to the source. The move would also touch the systemic risk exception that allows the Fed to take extraordinary action to stem contagion fears. ...
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