Early Retirement Extreme Forums

Posted: **Sun Mar 12, 2023 11:38 am**

I am a cofounder of a SV startup, we have several million sitting in a bank account (NOT SVB - but another small bank catering to startups). We looked at the list of banks designated as "SIFI" and decided to move our cash runway over to one of those ASAP.

It seems to me like everyone else is going to be thinking along the same lines. Good for JPM but what happens to all these small banks. More bank runs? I don't want to find out, I'm just moving what we have to somewhere I know the feds will backstop.

Most early stage startups have a few million in the bank from a fund raise and its a slow drip of removing a chunk of the cash each month to pay payroll. You raise money at the next round and top it up. Eventually you either get a business model that works, or you sell or you run out and wind down. That's just how all of these software companies work it takes a while in the process of building the initial product.

It's infuriating that literally all we are trying to do is store cash safely in an account and pay employees over a long period of time. Not looking to take risk, not looking to do anything fancy. Just store the cash and pay out. And then your bank goes and messes up their one job.

Posted: **Sun Mar 12, 2023 6:49 pm**

https://home.treasury.gov/news/press-releases/jy1337

PRESS RELEASES
Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC
March 12, 2023

Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. 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.

After 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. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.

Posted: **Sun Mar 12, 2023 6:57 pm**

US regulators bail out SVB customers, who can access all their money Monday::

Treasury Secretary Janet Yellen on Sunday instructed the Federal Deposit Insurance Corporation to guarantee Silicon Valley Bank customers will have access to all of their money starting Monday.

And another one:

Regulators close New York’s Signature Bank, citing systemic risk

The banking regulators said depositors at Signature Bank will have full access to their deposits, a similar move to ensure depositors at the failed Silicon Valley Bank will get their money back.

...

Signature is one of the main banks to the cryptocurrency industry, the biggest one next to Silvergate, which announced its impending liquidation last week. It had a market value of $4.4 billion as of Friday after a 40% sell-off, according to FactSet.

Posted: **Sun Mar 12, 2023 7:31 pm**

How is the bailout of depositors not "borne by the taxpayer"? Where is the money coming from?

Posted: **Sun Mar 12, 2023 7:34 pm**

theanimal wrote: ↑
Sun Mar 12, 2023 7:31 pm
How is the bailout of depositors not "borne by the taxpayer"? Where is the money coming from?

That is mentioned here.

Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

Posted: **Sun Mar 12, 2023 7:48 pm**

So SVB is a bank who didn’t hedge any of their interest rate risk, who literally did not have a Chief Risk Officer, who was coincidently sized just a hair under the bank size that would require way more stress testing and oversight, and whose top leadership made some conveniently timed stock sales right before all this came to light? Also “2nd largest bank failure” is only in nominal terms as far as I can tell. Kind of a useless statistic if you aren’t going to inflation adjust or factor in some other sort of ratio that shows the bank’s size compared to the overall sector.

If you want to hear more of a deep dive on the subject from people who have expertise from working within commercial banks, you can listen to this podcast: https://podcasts.apple.com/us/podcast/t ... 0603785699

I have friends that work in commercial banking who often lost business because SVB would undercut their loans with terms that didn’t seem to make sense. Now we are starting to see the other shoe drop.

Posted: **Sun Mar 12, 2023 7:53 pm**

On the bailout of depositors, this article is interesting: BankThink Will FDIC keep protecting failed banks’ uninsured deposits?

Non-paywalled version here: https://web.archive.org/web/20190428230 ... d-deposits

Although it's not widely known or well understood, since the IndyMac failure in July of 2008, the Federal Deposit Insurance Corp. has, whenever possible, protected uninsured depositors in failed banks from any loss.

...

The FDIC protects the uninsured depositors in a failed bank by executing a purchase-and-assumption, or P&A, transaction whereby a healthy bank assumes all of the deposits — uninsured as well as insured — of the failed bank as well as some of its assets in return for a payment from the FDIC equal to the amount of deposits assumed minus the value of the assets assumed. Occasionally the acquiring bank will pay a small premium for the acquired deposits, which modestly reduces the cost of the failure to the FDIC.

The FDIC can protect uninsured depositors when doing so can be justified under the statutory least-cost resolution test. Given the highly subjective estimates that must be factored into this test, the FDIC apparently can justify protecting uninsured depositors in most failures.

Also the Fed did something else today: Federal Reserve Board announces it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors

To support American businesses and households, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.

The Federal Reserve is prepared to address any liquidity pressures that may arise.

The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.

Posted: **Sun Mar 12, 2023 8:05 pm**

FWIW, analysts from some big banks gave SVB positive grades as recently as a few days ago, so there was clearly people asleep at the wheel at a few different levels. Again, SVB was failing to do Banking 101 and instead chose to lever themselves up to interest rate risk in 2021 because why would rates ever rise?

Posted: **Mon Mar 13, 2023 12:22 am**

theanimal wrote: ↑
Sun Mar 12, 2023 7:31 pm
How is the bailout of depositors not "borne by the taxpayer"? Where is the money coming from?

It gets electronically created with some button clicks. Technically, dilutes all usd holders (inflation), usa tax payers are necessarily usd holders as they’re required to pay taxes in usd.

Posted: **Mon Mar 13, 2023 7:46 am**

theanimal wrote: ↑
Sun Mar 12, 2023 7:31 pm
How is the bailout of depositors not "borne by the taxpayer"? Where is the money coming from?

Hint: It's in the name (Federal Deposit Insurance Corporation). Each bank pays regular [insurance] premiums into a general fund that covers the payouts if/when some bank fails. This premium is a percentage of the total number of liabilities the bank has and paying the premium is part of the banks' cost of doing business just like any other type of insurance. As per the accounting identity, the shareholders of the bank may also carry some of that risk. IOW, the cost is ultimately borne by all banking customers and investors in general (as the cost of premiums everywhere go up and banking earnings go down) and the shareholders of the failing banks who likely lose their entire investment as equity is wiped out.

Posted: **Mon Mar 13, 2023 8:26 am**

jacob wrote: ↑
Mon Mar 13, 2023 7:46 am
Hint: It's in the name (Federal Deposit Insurance Corporation). Each bank pays regular [insurance] premiums into a general fund that covers the payouts if/when some bank fails.

Are you sure? I may have misunderstood. It looked to me like a universal FDIC guarantee was not agreed to, but I could be wrong. According to the WSJ OpEd from last night:

The Fed is acting as it should as a provider of liquidity to all comers. But it’s going further and offering one-year loans to banks against collateral of Treasurys and other fixed-income assets. The Fed will value these assets at par, which means banks don’t have to sell their assets at a loss. The Fed is essentially guaranteeing bank assets that are taking losses because banks took duration risk that Fed policies encouraged. This too is a bailout.

Posted: **Mon Mar 13, 2023 8:42 am**

Yeah. I held some Citibank shares that lost around 1000x their value in 2009. I can still go to Citibank and use the ATM and all my money was still in my checking account. But my stock had been devalued by some kind of reverse split. I still own the shares.

At the time it was said that this would cause inflation or the taxpayer would pick up the bill. But years passed and that didn’t happen. I think the money follows complex paths. It’s not like it’s dumped from helicopters. COVID relief was more like helicopter money than 2008 bailout money.

I have always wondered if there was some button clicks that could just fix this stuff that were being pressed periodically. A family friend who owns a community bank always joked (and his employees joked) “don’t worry we can always put a zero behind that number” suggesting they could bail me out with a button press. My feeling was all banking is like this since the Roman era. It’s just marks on a ledger and trust. The actual money is far off earning interest or non existent. Or confidence may be a more appropriate word. It all works up to the point when it doesn’t.

Posted: **Mon Mar 13, 2023 8:53 am**

Sclass wrote: ↑
Mon Mar 13, 2023 8:42 am
It’s just marks on a ledger and trust. The actual money is far off earning interest or non existent. Or confidence may be a more appropriate word. It all works up to the point when it doesn’t.

With twitter + FedNow (coming this summer) a slight shift in confidence by a few people could trigger a flurry of instant transfers and chaos. It will be interesting.

Maybe this is their way of ushering in the regulation and structural changes needed before rolling out FedNow?

Posted: **Mon Mar 13, 2023 9:01 am**

@Ego - There are two things going on here. One is the FDIC covering the deposits at the [two] failing banks which is business as usual.

However, since SVB a bigger failure than usual, there's a fear of contagion/people losing their minds and so there's a second program from the Federal Reserve (a different institution) aimed at providing liquidity to avoid a more widespread panic induced collapse. Normally, banks can secure short term loans at the discount window for 90 days. This is apparently not enough these days, so now there's a new program (called the Bank Term Funding Program) which extends lending to 1 year. Banks can borrow cash from the Fed using the bank's holdings of treasuries and other agency debt as collateral (at par). That money still has to be paid back at which point it disappears back into the thin air from which it was created just like with the discount window. This is how reserve banking works. What's potentially problematic here is that the rules change in an ad hoc fashion based on politics and media. Lots of people jumping on this crisis as an opportunity to make a statement. The question is how big a crisis is this really? It's tiny compared to 2008 or 2020.

Posted: **Mon Mar 13, 2023 9:23 am**

The regional banking sector is getting hammered this morning.

Posted: **Mon Mar 13, 2023 10:23 am**

I may have missed out on BAC at -7% earlier today, but don’t have tons of dry powder these days as I’ve been spending a bit on house expansion and renovation

Posted: **Mon Mar 13, 2023 12:09 pm**

My local bank just sent me an “everything is totally fine” email. Which, you know, nothing inspires more confidence than someone telling you not to worry!

For reference, as someone well under FDIC limits, I am actually not at all worried for my own personal wealth except as it relates to my crypto assets on centralized exchanges, since the government seems to shutting down all the banks that deal with crypto companies.

Edit: missing word

Posted: **Mon Mar 13, 2023 1:11 pm**

Sclass wrote: ↑
Mon Mar 13, 2023 8:42 am

At the time it was said that this would cause inflation or the taxpayer would pick up the bill. But years passed and that didn’t happen. I think the money follows complex paths. It’s not like it’s dumped from helicopters. COVID relief was more like helicopter money than 2008 bailout money.

Wasn't 2008 bailout mostly loans (to help with liquidity) that were paid off within a couple of years? So, very much not like the COVID relief helicopter money.

Posted: **Tue Mar 14, 2023 10:12 am**

This will increase the money supply and boost inflation. Any banks outside of the protection of this new program will be under pressure. There may be more or worse problems outside the USA. However, the new bailout program may not be enough to prevent domestic bank failures in the US. Banks holding old low interest bonds will come under even more pressure as inflation continues.

Posted: **Fri Mar 17, 2023 6:36 pm**

Looks like it wasn't just those wacky tech bros at SVB. The responses seem to be growing larger and more drastic by the hour.

Early Retirement Extreme Forums

Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails

Re: Silicon Valley Bank fails