{"id":41219,"date":"2023-03-12T23:26:35","date_gmt":"2023-03-12T23:26:35","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=41219"},"modified":"2023-03-13T01:48:23","modified_gmt":"2023-03-13T01:48:23","slug":"svb-update","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2023\/03\/12\/svb-update\/","title":{"rendered":"SVB update"},"content":{"rendered":"

SVB Financial Group (SIVB) reported Thursday that it needed to raise $2.5 billion to cover losses on security investments. Its subsidiary, Silicon Valley Bank was closed Friday, with regulators appointing the FDIC as administrator.<\/p>\n

Total liabilities of the group are $195 billion, according to its last report, including $173 billion of deposit liabilities. The FDIC guarantees deposits up to $250,000 but many silicon Valley tech companies and hedge funds had far larger deposits at SVB. Assets consist of $74 billion in net loans after provisions and $121 billion in securities investments, including $92 billion of mortgage-backed securities (MBS).<\/p>\n

It appears that the bank suffered capital losses due to its maturity-mismatch: investing in longer-term securities which they funded with far shorter-term deposit liabilities and loans. This a typical bank scenario, borrowing short at low rates and lending long to profit from the interest rate margin. Steep rate hikes by the Fed scuppered the bank’s strategy, with interest margins turning negative as short-term rates spiked.<\/p>\n

The FDIC are auctioning the failed Silicon Valley Bank, with bids due late Sunday afternoon.<\/p>\n

Treasury Secretary\u00a0Janet Yellen\u00a0suggested in an interview that a bailout is out of the question<\/a> but regulators are discussing the creation of a backstop for uninsured deposits.<\/p>\n

Conclusion<\/h2>\n

We consider it unlikely that uninsured deposit holders will incur losses. Even if we double the capital shortfall to $5 billion, this represents only 2.6% of total liabilities. The bank is worth more than the sum of its assets as a going concern, with a strong client base amongst tech companies and hedge funds in the greater San Francisco area. We expect auction bids to reflect this.<\/p>\n

If strong bids fail to materialize, regulators are likely to organize a rescue by a consortium of banks — as has been done many times in the past — backed by incentives from the Fed\/Treasury (despite Yellen’s protestations).<\/p>\n

This was not a liquidity crisis, with the bank holding large amounts of readily-marketable securities — this was a solvency issue.<\/p>\n

Other regional banks may have been similarly impacted by the sharp rise in interest rates and we expect the Fed to hold a review (stress test) to assess the impact of rate hikes on other banks, to allay market fears.<\/p>\n

The long-term impact is that financial market nervousness will remain high, with banks increasingly reluctant to lend to their peers other than through (secured) repo markets. The problem is far wider than just banks, with many highly-leveraged hedge funds and private equity firms having gorged themselves on cheap debt. If there is going to be a crisis it is likely to emerge from the unregulated shadow banking sector — as has happened many times before* — and not from the regulated banking sector.<\/p>\n

We are edging closer to a credit contraction that would precipitate a recession.<\/p>\n

Latest News<\/h4>\n

From Wolf Richter<\/a>, March 12:<\/p>\n

….Now we got it officially, in a joint announcement by Yellen, Fed Chair Jerome Powell, and FDIC Chairman Martin Gruenberg. The bailout of uninsured depositors has arrived, so now all depositors of Silicon Valley Bank and Signature Bank, which was shut down today, will be made whole, not just insured depositors. The banks that are still standing can borrow from the Fed under a new facility. But investors in failed banks are on their own.<\/p>\n

\u201cAfter receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13,\u201d the statement<\/a> said.<\/p><\/blockquote>\n

Notes<\/h4>\n

* Shadow banks precipitating a financial crisis go as far back as 1907, when collapse of the Knickerbocker Trust caused a widespread banking crisis that led to creation of the Federal Reserve in 1913. The LTCM collapse of 1998 is another such example. More recently, the sub-prime crisis of 2008 led to the absorption of highly-leveraged major investment banks into the regulated banking system.<\/p>\n","protected":false},"excerpt":{"rendered":"

SVB Financial Group (SIVB) reported Thursday that it needed to raise $2.5 billion to cover losses on security investments. Its subsidiary, Silicon Valley Bank was closed Friday, with regulators appointing the FDIC as administrator. Total liabilities of the group are $195 billion, according to its last report, including $173 billion of deposit liabilities. The FDIC … <\/p>\n

Continue reading “SVB update”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,34],"tags":[369,1351,3094,5820,5133],"class_list":["post-41219","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-us-canada-countries-regions","tag-bank-run","tag-fdic","tag-shadow-banking","tag-silicon-valley-bank","tag-svb-financial-group-sivb"],"yoast_head":"\nSVB update - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"SVB update - the patient investor\" \/>\n<meta property=\"og:description\" content=\"SVB Financial Group (SIVB) reported Thursday that it needed to raise $2.5 billion to cover losses on security investments. 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But it's not always an easy concept to explain or\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Commercial Bank Reserves at the Fed","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-06-06-bankreserves.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-06-06-bankreserves.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2024\/2024-06-06-bankreserves.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":41272,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/03\/17\/banks-commodities-warn-of-recession\/","url_meta":{"origin":41219,"position":3},"title":"Banks & Commodities Warn of Recession","author":"Colin Twiggs","date":"March 17, 2023","format":false,"excerpt":"The situation is evolving fairly rapidly. The MOVE index, reflecting 1-month bond market volatility, is still in the red zone above 150, warning of financial market instability. 10-Year Treasury yields continue to test support at 3.5%, signaling rising expectations of Fed rate cuts this year. The Fed injected close to\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"MOVE Index","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-03-16-move.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-03-16-move.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-03-16-move.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":45774,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/11\/29\/fed-stealth-liquidity-may-presage-early-rate-cuts\/","url_meta":{"origin":41219,"position":4},"title":"Fed stealth liquidity may presage early rate cuts","author":"Colin Twiggs","date":"November 29, 2023","format":false,"excerpt":"Commercial bank cash assets, representing reserves held at the Fed, reversed its down-trend after September 2022 -- when the UK gilt crisis occurred -- and is now edging higher, reflecting stealth liquidity support from the Fed and Treasury. Fed QT is reducing liquidity at the rate of $95 billion per\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Commercial Bank Reserves","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-28-bankreserves.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-28-bankreserves.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-28-bankreserves.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":7048,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/03\/18\/cyprus-deposit-insurance-and-moral-hazard\/","url_meta":{"origin":41219,"position":5},"title":"Cyprus: Deposit insurance and moral hazard","author":"Colin Twiggs","date":"March 18, 2013","format":false,"excerpt":"The outcry over Cyprus levy on depositors in defaulting banks raises the question: Why were depositors not more wary of where they deposited their funds? Not all banks are created equal. The reason is deposit insurance for deposits under \u20ac100,000 implied that the government would stand behind its banks and\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/41219","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=41219"}],"version-history":[{"count":5,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/41219\/revisions"}],"predecessor-version":[{"id":41225,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/41219\/revisions\/41225"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=41219"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=41219"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=41219"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}