Australian (ASX) Stock Market Forum

The collapse of Silicon Valley Bank

Silicon Valley Bank is one of the top 20 largest banks in the United States, providing banking services to many crypto-friendly venture firms. According to a Castle Hill report, assets from Web3 venture capitalists totaled more than $6 billion at the bank, including $2.85 billion from Andreessen Horowitz, $1.72 billion from Paradigm and $560 million from Pantera Capital.

Silicon Valley was shut down by California’s financial watchdog on March 10 after announcing a significant sale of assets and stocks aimed at raising $2.25 billion capital to shore up operations. The FDIC was appointed as the receiver to protect insured deposits. However, the FDIC only insures up to $250,000 per depositor, per institution and per ownership category.

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The collapse on Friday of Silicon Valley Bank — the second-largest bank failure in U.S. history — sent anxiety across the financial system and shook the tech industry, raising concerns about whether companies would be able to get their money back and pay their employees.

The federal government took over the bank after a surprise filing Wednesday night revealed that it had sold $21 billion in assets and was unloading stock to raise money. Here are some of the companies affected by the fall of Silicon Valley Bank, which was known for serving start-ups, tech companies and venture capitalists.
 
The U.S. Federal Deposit Insurance Corporation (FIDC) reportedly started an auction process on March 11 night for Silicon Valley Bank. Bids are allegedly open for just a few hours, before the process closes later this Sunday.
A) deep pocketed investment bank buys and honours deposits
B) specialist other player in tech space steps in, but is very selective.
C) no buyer is found. SVB assets are liquidated.

Stumbling Blocks

A) Most large US banks that possess the financial strength to acquire SVB lack the technical capacity. That’s because lending to venture capital firms is very different to traditional banking. Typically, bankers lend to firms that can demonstrate established cash flows, and which preferably have some assets to pledge as collateral for the loan.

But venture capital groups typically have negative cash flows (because their revenue isn’t enough to cover the costs involved in building the business and their spending on research and development exceeds their revenues). Some are even pre-revenue.

As a result, most large US banks will legitimately be able to argue that they simply don’t have the necessary skills to be able to run an SVB.


B) Other venture capital banks will be tempted to sit back and watch the carnage from the SVB collapse, knowing that they’ll likely be able to cherry-pick SVB customer and lending teams.
 
"The total of these unrealized losses, including securities that are available for sale or held to maturity, was about $620 billion at year end 2022. Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry."
 

US Says All SVB Deposits Safe, Creates New Backstop for Banks​

  • Actions will fully protect all SVB depositors’ money, US says
  • Fed creates program to lend against collateral pledged at par

US financial regulators moved on Sunday to protect depositors’ funds following the collapse of Silicon Valley Bank and set up a new financial backstop, seeking to stem fears that households and businesses would flee smaller lenders.
 

US Says All SVB Deposits Safe, Creates New Backstop for Banks​

  • Actions will fully protect all SVB depositors’ money, US says
  • Fed creates program to lend against collateral pledged at par

US financial regulators moved on Sunday to protect depositors’ funds following the collapse of Silicon Valley Bank and set up a new financial backstop, seeking to stem fears that households and businesses would flee smaller lenders.
from what i read only 3% of SVB customers fell into the FDIC protected ' group , meaning either larger deposits or accounts that weren't defined as 'savings accounts '

maybe greater clarity will come later ( or not )
 
from what i read only 3% of SVB customers fell into the FDIC protected ' group , meaning either larger deposits or accounts that weren't defined as 'savings accounts '

maybe greater clarity will come later ( or not )
Here is a better article, I will post it in full.
The US federal government said all Silicon Valley Bank clients will be protected and have access to their funds, just days after the bank failed and sent its customers panicking. A second US bank, Signature, was also closed on Sunday.

The Treasury Department, Federal Reserve and FDIC announced steps on Sunday (US time) designed to protect the bank’s customers and prevent more bank runs.

“This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the agencies said in a joint statement.
Regulators also closed New York-based Signature Bank on Sunday.

Silicon Valley Bank customers will have access to their deposits starting on Monday, US officials said on Sunday, as the federal government announced actions to shore up deposits and stem any broader financial fallout from the sudden collapse of the tech startup-focused lender.
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The boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, in consultation with President Joe Biden, approved the FDIC’s resolution of SVB, according to a joint statement from US Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chairman Martin Gruenberg on Sunday evening.
The move will not lead to losses by American taxpayers and all deposits will be made whole, the statement said.
“Today we are taking decisive actions to protect the US economy by strengthening public confidence in our banking system,” the statement said. “This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”
The Federal Reserve also said Sunday it would make additional funding available through a new Bank Term Funding Program, which would offer loans up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.

State regulators closed New York-based Signature Bank on Sunday.

The US Treasury Department and other bank regulators said in a joint statement on Sunday that all depositors of Signature Bank will be made whole, and “no losses will be borne by the taxpayer.” The Signature failure is the third-largest in US history.
New York banking regulators appointed the Federal Deposit Insurance Corporation as receiver for later disposition of the bank’s assets.

Signature Bank reported deposit balances totaling $US89.17 billion as of March 8. As of December 31, it had approximately $US110.36 billion in assets, according to New York state’s Department of Financial Services.
Earlier, Yellen had said she was working with banking regulators to respond after SVB became the largest bank to fail since the 2008 financial crisis.
She also ruled out a government bailout.
“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen told the CBS News Sunday Morningshow.
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out...and the reforms that have been put in place means we are not going to do that again,” she said.

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In March 2020 when the coronavirus pandemic and lockdowns triggered financial panic, the Federal Reserve announced a series of measures to keep credit flowing by lowering borrowing costs and lengthening the terms of its direct loans.
By the end of that month, use of the Fed’s discount window facility shot up to more than $US50 billion ($75.5 billion).
Through the middle of last week, before SVB’s collapse, there had been no indications of usage picking up, with Fed data showing weekly outstanding balances of $US4 billion to $US5 billion since the start of the year.
Although the Federal Deposit Insurance Corporation (FDIC) protects deposits of up to $USUS250,000, there have been worries about SVB deposits above that level, one source said, adding that many smaller businesses were at risk of being unable to pay staff.

Reuters, Bloomberg
 
Here is a better article, I will post it in full.
The US federal government said all Silicon Valley Bank clients will be protected and have access to their funds, just days after the bank failed and sent its customers panicking. A second US bank, Signature, was also closed on Sunday.

The Treasury Department, Federal Reserve and FDIC announced steps on Sunday (US time) designed to protect the bank’s customers and prevent more bank runs.

“This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the agencies said in a joint statement.
Regulators also closed New York-based Signature Bank on Sunday.

Silicon Valley Bank customers will have access to their deposits starting on Monday, US officials said on Sunday, as the federal government announced actions to shore up deposits and stem any broader financial fallout from the sudden collapse of the tech startup-focused lender.
Loading
The boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, in consultation with President Joe Biden, approved the FDIC’s resolution of SVB, according to a joint statement from US Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chairman Martin Gruenberg on Sunday evening.
The move will not lead to losses by American taxpayers and all deposits will be made whole, the statement said.
“Today we are taking decisive actions to protect the US economy by strengthening public confidence in our banking system,” the statement said. “This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”
The Federal Reserve also said Sunday it would make additional funding available through a new Bank Term Funding Program, which would offer loans up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.

State regulators closed New York-based Signature Bank on Sunday.

The US Treasury Department and other bank regulators said in a joint statement on Sunday that all depositors of Signature Bank will be made whole, and “no losses will be borne by the taxpayer.” The Signature failure is the third-largest in US history.
New York banking regulators appointed the Federal Deposit Insurance Corporation as receiver for later disposition of the bank’s assets.

Signature Bank reported deposit balances totaling $US89.17 billion as of March 8. As of December 31, it had approximately $US110.36 billion in assets, according to New York state’s Department of Financial Services.
Earlier, Yellen had said she was working with banking regulators to respond after SVB became the largest bank to fail since the 2008 financial crisis.
She also ruled out a government bailout.
“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen told the CBS News Sunday Morningshow.
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out...and the reforms that have been put in place means we are not going to do that again,” she said.

Loading
In March 2020 when the coronavirus pandemic and lockdowns triggered financial panic, the Federal Reserve announced a series of measures to keep credit flowing by lowering borrowing costs and lengthening the terms of its direct loans.
By the end of that month, use of the Fed’s discount window facility shot up to more than $US50 billion ($75.5 billion).
Through the middle of last week, before SVB’s collapse, there had been no indications of usage picking up, with Fed data showing weekly outstanding balances of $US4 billion to $US5 billion since the start of the year.
Although the Federal Deposit Insurance Corporation (FDIC) protects deposits of up to $USUS250,000, there have been worries about SVB deposits above that level, one source said, adding that many smaller businesses were at risk of being unable to pay staff.

Reuters, Bloomberg
since Signature has closed shop as well , i would expect a smattering of smaller banks ( probably too small to mention in mainstream media ) to follow

so from my reading in the GFC next should be the institutions that were holding derivatives ( and sureties ) to these two closed banks , will the US then step in to stop the contagion ( like they did to save AIG , and others )
 
Is the US kicking the can down the road again by bailing out failed banks, or is this different?
i am guessing it will be status quo ( bail-outs for the big cap. mates ) , but not betting all my bikkies that way

i see some interesting claims by some ASX-listed companies that the FDIC will protect all deposits , which seems to be differing from various US citizens understanding of the FDIC act
 
As usual, need to go to foreign independent media to find why this happened. People should stop reading Newscorp.

Yep. Further reading here:


Is the US kicking the can down the road again by bailing out failed banks, or is this different?
Its containment. There needs to be trust in the system or people will bank run ducatis list of banks.
People are already pulling funds and swapping to the big banks.
 
Rather than speculation, it's worth a look at the actual bank, and a "colossal failure of bank regulation", by a state body.

are Signature and SVB classed as 'colossal' banks neither are the largest US bank left to fail ( i believe Washington Mutual holds that trophy )

however we are now seeing a trickle of announcements of businesses impacted by the SVB failure , will the trickle become a heavy flow
 
Yep. Further reading here:



Its containment. There needs to be trust in the system or people will bank run ducatis list of banks.
People are already pulling funds and swapping to the big banks.
good luck of that , some of those big banks have been fined multiple times
 
i notice reports on SVB deposits , but haven't seen ( so far ) about companies with ( undrawn ) lines of credit , that might have a ripple effect .
 
I'm guessing you don't understand what a line of credit is.
i do and i also understand many of the customers do not have the weight to keep them open in tense situations especially now the FDIC has formally taken control of SVB

now SOME SVB will find some credit facilities elsewhere , but some may not ( because rivals will be more cautious and selective )
 
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