This whole fiasco is an important exercise in why you don't put all your eggs in one basket. Good to have cash on hand and even silver/gold for long term and also a separate bank account elsewhere. While FDIC is suppose to protect from this sort of thing, the protection is not instant, and in some cases it is non existent.
Over under on the marketing dropping 5% Monday?
Another SVB walk through with Sascha
"No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,"
Yellen rules out bailout for SVB: "We're not going to do that again"
They are bailing out depositors not the bank. They shareholders and unsecured creditors get nothing.
You made all valid points. But it isn't limited to just SVB. Many, many banks are in a similar situation where their bonds are worth far less than they hoped. As long as the customers don't make a run, they'll be fine. But I expect another wave of bank failures. Hopefully, it will be small and contained.I've spent 33 years in consumer and commercial banking. You are supposed to manage rate risk with short term duration bonds (90 day), hedges, etc. This is money you have to have ready on demand for withdrawal requests.
If you watch the video posted by Biostud above, it provides one reason why SVB failed (besides a concentrated customer base of tech startups vs mom and pop depositors):
They mentioned two types of holdings to invest customer deposits -
1)Bonds held for sale which are marked to market quarterly (they were forced to liquidate at a loss because the mix held longer term bonds which lost too much value)
2)Bonds held for investment which are longer term and kept on the books at face value until paid back in full.
The bank liquidated all the bonds held for sale and effectively lost over $1 billion in customer money. They had to raise capital to cover the loss. Unfortunately nobody came forth to buy the securities.
Overnight, people with millions of dollars at the bank realized they needed to get all their money out before everyone else causing a bank run. Now the bank was really screwed because they would have to liquidate all their bond holdings at a big loss.
The regulators knew that with no new capital and not enough money to cover all deposits (thank fractional reserve banking), THE BANK WAS TOAST. So they shut it down during working hours which is unheard of. They usually get shut down over a weekend.
July 2022:To clarify, you should only be looking at bigger banks with a diverse income stream. A lot of small banks make the vast majority of their profits from refis and mortgages. Those banks will be hurting immensely for a few years.
Banks really do not do well when interest rates rise.
The banking industry is sitting on a mountain of unrealized losses.The current interest rate environment has had dramatic effects on the profitability and risk profile of banks’ funding and investment strategies. First, as a result of the higher interest rates, longer term maturity assets acquired by banks when interest rates were lower are now worth less than their face values. The result is that most banks have some amount of unrealized losses on securities. The total of these unrealized losses, including securities that are available for sale or held to maturity, was about $620 billion at yearend 2022. Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry.
The banking industry is sitting on a mountain of unrealized losses.
I wonder what the next domino is to fall. First Republic Bank? Their stock also took a major dive on Friday. People are reporting major lines at ATMs trying to get their money out.
Edit: I'm saying it should just be coverage for all amounts of cash deposits. I realize the US doesn't guarantee that in writing. But it's generally accepted that they would for decades.
Schwab fell 12% today?!?
What?
I have 6 figures there