Silicon Valley Bank failure

Cigarlover

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Wealthion had a guest on this afternoon who went into more detail. My takeaway is that the bank has plenty of assets but didn't hedge. Those assets are in longer duration bonds. So basically on a long enough timeframe 100% or so of the money is actually there but the bonds need to mature in order to access it. He thinks someone will come in and buy them up and the big depositors that are not insured will get some of their money back. maybe 70-80%. If the buyer can't get access to 100% of the value of the bonds for 5-10 years then obviously there is a discount applied to the purchase price to cover the costs of holding the bonds for the longer term.
He also thinks this is just an isolated incident from a regional bank that made some mistakes by not hedging. I won't claim to understand it all but my own opinion is a lot is being hyped up on this when in reality it is a smaller issue.

I did have GLD calls last week which I sold on Friday. No regrets. We may pop higher tomorrow but I don't see the higher price as being sustainable and by the next fed meeting they will still be raising interest rates and sending gold lower. Just my opinion.
 

Goldhedge

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DREIZIN EXPLAINS BANKING.​

A bunch of readers….. …..asked me to comment on the Silicon Valley Bank (SVB) situation. As on most other matters….. Mainstream talk around SVB….. …..is IDIOTIC……

click the link and read
 

Goldhedge

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Who thinks Monday morning at the banks is going to be interesting...?
 

nickndfl

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It reveals what USTs are really worth. They have become a mechanism that keeps the system running as long as people believe in the system.

Once confidence fails it won't take long to see Mad Max.
 

Wellsburg

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I have been wondering about this:

Let's say that Joe's Used Cars had $500K in checking at the bank. Bank goes bust and Joe only gets $250K back from FDIC insurance.

Joe also had a $500K credit line he used to finance most of his inventory. New Bank steps up and takes over Silicon's business, but decides not to honor credit lines until they process thousands of new applications. So, Joe is expected to continue to make payments on his old credit line but cannot access new funds for months while New Bank processes all of the new customers paperwork which could take months.

I bet Joe goes under with many other companies that depended on their relationship with Silicon.
 

Casey Jones

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I have been wondering about this:

Let's say that Joe's Used Cars had $500K in checking at the bank. Bank goes bust and Joe only gets $250K back from FDIC insurance.

Joe also had a $500K credit line he used to finance most of his inventory. New Bank steps up and takes over Silicon's business, but decides not to honor credit lines until they process thousands of new applications. So, Joe is expected to continue to make payments on his old credit line but cannot access new funds for months while New Bank processes all of the new customers paperwork which could take months.

I bet Joe goes under with many other companies that depended on their relationship with Silicon.
That's not a bug, it's a feature.

The whole idea is to destroy SMALL business, in favor of BIG, CONNECTED business. Joe's Used Cars is a pest and pestilence. Carvana and Vroom, are very, very good and creative...since the Right People can make money manipulating the stock, and since Congress-cretins can do insider-trading deals.

This is a victory of the Oligarch Class, IMO.
 

pmbug

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...
I bet Joe goes under with many other companies that depended on their relationship with Silicon.

That's the concern that has prompted the Fed, Treasury, FDIC, etc. to take action beyond the FDICs normal protocol. Most of SVB's clients were facing the abyss in not being able to make payroll in two days.
 

Buck

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lets just watch and see over the next few weeks who gets bailed out and who gets ignored....

nothing works without political intervention these days...and it's selective intervention at that


i've got the time...
 

Voodoo

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Be careful here guys, (well like obviously duh), but this may be smoke and mirrors from the FED. Remember that FDIC meeting and their plans all along have been for BAIL-INs. Martin Armstrong has another post, on the premium side, that says not so fast my friends.

They may be talking a big game here but the results for the depositors not pretty. In so doing creating a GIAGANTIC system failure.
 

Goldhedge

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Goldhedge

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‘This Is The Biggest Bailout In History’ | Jim Rickards​

72m ~ 1.5X speed

Best-selling author Jim Rickards returns to the podcast for the third time to share his views on the collapse of Silicon Valley Bank and why the intervention — especially the Federal Reserve’s new emergency lending program, the Bank Term Funding Program — is the biggest bailout in history.

Rickards is a New York Times bestselling author of Currency Wars: The Making of the Next Global Crisis and several other best-sellers, including The New Great Depression, Aftermath, The Road to Ruin, Death of Money, The New Case for Gold, and his newest bookSold Out: How Broken Supply Chains, Surging Inflation, and Political Instability Will Sink the Global Economy.

An investment advisor, lawyer, inventor, and economist, Rickards has held senior positions at Citibank, Long-Term Capital Management, and Caxton Associates. He is also the Editor of Strategic Intelligence, a widely-read financial newsletter.

0:00 Intro
1:00 Reaction to SVB, Signature Bank failures
1:54 The mistake Silicon Valley Bank made
4:12 Bond Math 101
4:45 The Fed is between a rock and a hard place
4:52 Huge unrealized losses on the bond portfolio at SVB
6:35 There already was leakage
9:33 Friday’s press release from the FDIC
12:50 Global ripple effects of SVB failure
14:50 Other banks had similar problems
17:08 Biggest bailout in history
23:00 Executive stock sales
24:11 There would likely have been lines at banks
25:00 The biggest crybabies were the billionaires
26:15 The banking system is effectively nationalized
32:00 This was risk management 101
39:46 The Volcker mistake
40:50 Inflation
42:30 You’ll see the Fed expanding the balance sheet
43:30 Name your poison
44:10 25bps at the next Fed meeting is the most likely scenario
44:55 This is the no drama Fed
45:45 ECB
46:10 It’s a global economy
47:00 Panics have two stages
47:30 Credit Suisse
52:10 A road to ruin
54:35 Each bailout was bigger than the one before
55:30 A front based on confidence
58:30 Deteriorating trust in institutions
1:07:27 Gold

 

Casey Jones

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I know Rickards has been around a long time...but it's hard to take a late-sixties dood with a mullet, seriously.

Bookmarked to watch in a few minutes.
 

nickndfl

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The problem is it exposed T bonds as not 100% guaranteed against loss. Everybody forgot about hedging when interest rate policy changed after
40 years of low rates.

Whoops, the music just stopped.
 

pmbug

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WASHINGTON – The Federal Deposit Insurance Corporation (FDIC) entered into a purchase and assumption agreement for all deposits and loans of Silicon Valley Bridge Bank, National Association, by First–Citizens Bank & Trust Company, Raleigh, North Carolina.

The 17 former branches of Silicon Valley Bridge Bank, National Association, will open as First–Citizens Bank & Trust Company on Monday, March 27, 2023. Customers of Silicon Valley Bridge Bank, National Association, should continue to use their current branch until they receive notice from First–Citizens Bank & Trust Company that systems conversions have been completed to allow full–service banking at all of its other branch locations.

Depositors of Silicon Valley Bridge Bank, National Association, will automatically become depositors of First–Citizens Bank & Trust Company. All deposits assumed by First–Citizens Bank & Trust Company will continue to be insured by the FDIC up to the insurance limit.

As of March 10, 2023, Silicon Valley Bridge Bank, National Association, had approximately $167 billion in total assets and about $119 billion in total deposits. Today's transaction included the purchase of about $72 billion of Silicon Valley Bridge Bank, National Association's assets at a discount of $16.5 billion. Approximately $90 billion in securities and other assets will remain in the receivership for disposition by the FDIC. In addition, the FDIC received equity appreciation rights in First Citizens BancShares, Inc., Raleigh, North Carolina, common stock with a potential value of up to $500 million.

The FDIC and First–Citizens Bank & Trust Company entered into a loss–share transaction on the commercial loans it purchased of the former Silicon Valley Bridge Bank, National Association. The FDIC as receiver and First–Citizens Bank & Trust Company will share in the losses and potential recoveries on the loans covered by the loss–share agreement. The loss–share transaction is projected to maximize recoveries on the assets by keeping them in the private sector. The transaction is also expected to minimize disruptions for loan customers. In addition, First–Citizens Bank & Trust Company will assume all loan–related Qualified Financial Contracts.

The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be approximately $20 billion. The exact cost will be determined when the FDIC terminates the receivership.

The FDIC created Silicon Valley Bridge Bank, National Association, following the closure of Silicon Valley Bank by the California Department of Financial Protection and Innovation. All of the deposits—both insured and uninsured—and substantially all assets and all Qualified Financial Contracts of Silicon Valley Bank were transferred to the bridge bank. The purpose of establishing Silicon Valley Bridge Bank, National Association, was to allow time for the FDIC to stabilize the institution and market the franchise.


The collapse of Silicon Valley Bank is set to cost the Federal Deposit Insurance Corporation's (FDIC) Deposit Insurance Fund about $20 billion – that's almost a sixth of the total pool of funds that insures US depositors.

As of December 2022, the Deposit Insurance Fund balance stood at $128.2 billion. ...

 

pmbug

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The winning bidder in the government's auction of Silicon Valley Bank's main assets received several concessions to make the deal happen.
...
But even after the deal closes, the FDIC remains on the hook to dispose of the majority of remaining SVB assets, about $90 billion, which are being kept in receivership.

And the FDIC agreed to an eight-year loss-sharing deal on commercial loans First Citizens is taking over, as well as a special credit line for "contingent liquidity purposes," the North Carolina-based bank said Monday.
...
The deal terms may be explained by tepid interest in SVB assets, according to Mark Williams, a former Federal Reserve examiner who lectures on finance at Boston University.

The government seized SVB on March 10 and later extended the deadline for its assets. Bidding had come down to First Citizens and Valley National Bancorp, Bloomberg reported last week.

"The deal was getting stale," Williams said. "I think the FDIC realized that the longer this took, the more they'd have to discount it to entice someone."

The ongoing sales process for another ailing lender may have cooled interest in SVB assets, according to a person with knowledge of the process. Some potential acquirers held off on the SVB auction because they hoped to make a bid on First Republic Bank, which they coveted more, this person said.
...

 

Casey Jones

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Took them two weeks to find a bank that was Woke enough to suit the government.

There were rumors...maybe it's addressed elsewhere here. Elon Musk proposed taking control of SVB, through one of his companies.

That was rejected out of hand...because Woke. Because Twitter. Because ESG.
 
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