The #SVB triggered a #bankcrisis plus a #digitalcurrencycrisis that might be much complex than peopleβs understanding.
@berbrand
According to sources, the FDIC is looking to chop up Silicon Valley Bank and find buyers, rather than a quick sale of the bank. This is bad for startups as risk assets are left behind. A full bailout is desperately needed ASAP!
Here are updates since my last posts (that I will link down below in the comments):
The bottom line of why they collapsed was because they had poor risk-management. Instead of just buying short-dated T-bills or depositing with the Federal Reserve they bought long-duration fixed-income securities. This caused an asset-liability mismatch β> liquidity issues β> bank run β> collapse.
They then failed to manage their interest-rate risk by simply not hedging their exposure at all, they had $120 billion worth of securities. When interest rates went up they took a massive $1.8 billion loss on their available-for-sale (AFS) bond portfolio. They had $80 billion in bonds with an average yield of 1.5%. This is criminal risk-management but this is also a massive regulatory failure.
Itβs highly unlikely this spreads to the biggest banks. SVB collapsed because they had the highest-risk deposit base along with the lowest bank-loan to deposit ratio among U.S banking peers. The big banks are in way better shape than 2008 due to regulation and capital buffers. They actually stand to βbenefitβ from this by taking market share.
Nearly half of all US venture capital-backed startups did indeed hold banking relationships with SVB. Garry Tan the CEO of Y Combinator called the fallout an “extinction level event for startups”. “These depositors will not survive weeks or months without some sort of plan from the govt.”
Over 95% of SVB’s deposits are NOT insured by the FDIC (due to being over the $250,000 limit). That is over $160 billion in uninsured customer deposits. This is awful for early-stage companies that were simply just looking for somewhere to hold their cash for operations.
Now for the βinterestingβ stuff:
Just days before the collapse, executives sold millions of dollars of stock: Gregory Becker, CEO sold 11%, Michael Zucker, General Counsel – 19%, Daniel Beck, CFO – 32%, Michelle Draper, CMO – 25%
Unbelievably their Chief Administrative Officer was the CFO of Lehman Brothers’ when it collapsed. They also went months without a Chief Risk Officer. Yes, really.
Silicon Valley Bank was hailed as one of βAmericaβs Best Banksβ by Forbes magazine just about a month ago. They ranked 20th out of 100.
Itβs now quite likely that a big bank buys them up next week. Elon Musk even said heβs open to the idea of buying them.
SVBβs CEO was on the San Francisco Federal Reserveβs Board, heβs not anymore for pretty obvious reasons.
Meanwhile in Los Angeles
Iβve never seen a bank run in Brentwood Los Angeles in over 40 years β this is at first republic bank branch. People standing in rain pic.twitter.com/k31PqqpyO3
And in NYC <<Signature Bank was closed by its state chartering authority, officials said, adding that depositors will be made whole and no losses will be borne by taxpayers. Shareholders and unsecured debtholders will not be protected, and senior management has been removed.
At more than $110 billion in assets, Signature Bank is the third-largest bank failure in U.S. history. The second-largest such failure came Friday from Santa Clara-based Silicon Valley Bank. Signature Bank is among the main banks for the cryptocurrency industry,Β according to CNBC.>>
Risky Bet on Crypto and a Run on Deposits Tank Signature Bank
Regulators said keeping open the 24-year-old institution, which held deposits from law firms and real estate companies, could threaten the financial systemβs stability.
The massive debate now is around whether the should get bailed out by the Fed or not. This has massive implications for the depositors which are companies and major VCβs in Silicon Valley.
Monday will be massive. Stay Tuned.
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Emanuele Bertoli 