Sunday, March 12, 2023

Bailout or Bust, Baby!

The sudden collapse of Silicon Valley Bank shocked the financial world last week.  To say many companies got caught with their pants down is an understatement.  Roku alone stands to lose half a billion dollars it deposited at the bank.  SVB is the 16-largest bank and the largest collapse since 2008. The Financial Times provided a pretty clear and concise explanation on how the bank fell apart so quickly:

The rapid collapse of SVB has stunned the venture capital and start-up community, many of whom now face uncertainty about the fate of their bank accounts and business operations. SVB provided banking services to half of all venture-backed tech and life sciences companies in the US and played an outsized role in the life of entrepreneurs and their backers, managing personal finances, investing as a limited partner in venture funds and underwriting company listings.....

SVB spectacularly unravelled in that bank run, but its fate had been sealed almost two years earlier. In 2021, at the height of an investment boom in private technology companies, SVB received a flood of money. Companies receiving ever larger investments from venture funds ploughed the cash into the bank, which saw its deposits surge from $102bn to $189bn, leaving it awash in “excess liquidity”. Searching for yield in an era of ultra-low interest rates, it ramped up investment in a $120bn portfolio of highly rated government-backed securities, $91bn of these in fixed-rate mortgage bonds carrying an average interest rate of just 1.64 per cent.

 While slightly higher than the meagre returns it could earn from short-term government debt, the investments locked the cash away for more than a decade and exposed it to losses if interest rates rose quickly. When rates did rise sharply last year, the value of the portfolio fell by $15bn, an amount almost equal to SVB’s total capital. If it were forced to sell any of the bonds, it would risk becoming technically insolvent. The investments represented a huge shift in strategy for SVB, which until 2018 had kept the vast majority of its excess cash in mortgage bonds maturing within one year, according to securities filings.

One person directly involved in the bank’s finances attributed the policy to a change of leadership within SVB’s key finance functions in 2017 as its assets marched towards $50bn, a threshold above which it would be labelled a “systemically important” lender subject to greater regulatory scrutiny. The new financial leadership began to shift an ever greater percentage of excess cash into long-term fixed-rate bonds, a manoeuvre that would appease public shareholders by bolstering its overall profits, albeit only slightly.

But it appeared blind to the risk that cash pouring in was a symptom of low interest rates that could reverse if they rose. Central banks often increase rates to tamp overexuberance among investors, decisions that generally lead to a slowing of investment in speculative companies such as technology start-ups. SVB’s bond portfolio was exposed to rising rates and so too were its deposits.

“We had enough risk in the business model. You didn’t need risk in the asset/liability management profile,” said the former executive, referring to the bank’s ability to sell assets to meet its liquidity needs. “They missed that entirely.”

 As a venture capital investment bubble began to inflate in early 2021, Nate Koppikar, a partner at hedge fund Orso Partners, began studying SVB as a way to bet against the industry at large.

 “The problem with the business model is that when capital dries up, the deposits flee,” said Koppikar. “It was one of the best ways to short the tech bubble. The fact this bank failed shows that the bubble has burst.” Rest of article.
Kingfish note: Now the Fed is looking at making all depositors whole.  Why even have and FDIC or coverage limits?
Of course, maybe the Fed should bail out the depositors as it was the Fed that created this crap with artificially low interest rates that in turn created bubbles. 


Anonymous said...

But…but… they gave money for diversity. So everything is alright…right??!!??

Anonymous said...

Bailout is coming. Rate hikes are ending. Inflation soon to be surging. 3% is the new 2%.

Anonymous said...

Both banks that collapsed have invested in Bitcoin.


Anonymous said...

I too would like to socialize all my losses without penalty and to be made whole again. I identify as I bank now.

Anonymous said...

Bailout of deposits probably the least bad outcome. Bailout of shareholders, never again!

Anonymous said...

The Fed ended reserve requirements in March 2020, basically allowing banks to do whatever with ALL deposits. It’s crazy.

Anonymous said...

The hedge funds guys made millions “shorting” SVB. Now Uncle Sugar has to bail out the depositors. See how this works!

Anonymous said...

Jamie Dimon of JP Morgan was able to effectively distract from his Jeffrey Epstein related legal troubles by getting a few of his junior interns to start spreading rumors that SVB was somehow more insolvent than other banks (they aren't, this is how fractional reserve banking works) and JP Morgan (allegedly) triggered the bank run.
I am uncertain if this will backfire on Dimon. I don't see many of his fellow Epstein-connected money masters circling the wagons to defend him. However, the MSM isn't breaking their necks to report the connection... yet.

I guess as long as TPTB they keep the Dimon/Epstein/SVB discussion contained to only substack and ZH, and off CNBC and CNN, they can keep the sheeple in the dark.

Sort of like the MSM has kee tthe sheeple in the dark about the Twitter Files.

Anonymous said...

Oh noes! It is as if the scions of Creatures from Jekyll Island who have survived on QE for the last decade and a half, suddenly realize that they didn't get enough lucre from the Scamdemic and must create another crisis to squeeze more QE from the taxpayer-backed Central banks!

Anonymous said...

SVB has assets on hand equivalent to deposits. Debt holders and equity holders go to zero, depositors get paid. There is ZERO risk to the Fed on this.

Anonymous said...

March 8, 2022....Biden signs executive order to move us toward a "cashless" Central Bank Digital Currency.

Anonymous said...

7:42 A Mississippian complaining about the MSM keeping people "in the dark" lol

The jokes write themselves.

Anonymous said...

Where the hell is the PERS haircut guy?

Anonymous said...

Tales From The Crypt-O?

Anonymous said...

Gossip and political propaganda in these comments.
The bank will not be bailed out.
More than one( at least two we know about) seem to trigger the TWO bank failures.
The irony is that so many of you are comfortable with your livelihoods and futures being controlled by a small number of billionaires and you politics aids and abets their further enrichment.
If you are a blue collar worker or farmer or small business owner, you are deluded if you believe you will benefit from all the "deregulation" and "tax cuts".
Fine ideas with good intentions when you don't let the crooked and incompetent use it to make ill gotten gains legal.
Ya got conned.

Anonymous said...


Death by ESG lending and woke involvement
Coming to a bank and corporation near you!

Anonymous said...

The SVB was a huge donor to dem PACs, so it stands to reason that the Fed and the other dems would do everything to make things whole again. Remember, the FDIC isn't for the "little people."

Anonymous said...

March 13, 2023 at 10:31 AM
Conversely, what new moral hazard is in play if all depositors a guaranteed thier deposits? Does that mean bank managers can run wild with risk and "bet the bank" knowing full well the Fed will save the depositors?

Anonymous said...

Do any banks keep enough on deposit to cover their un-insured deposits ?

Anonymous said...

Feb 3, 2017 - Trump begins rollback of Dodd-Frank financial regulations

Anonymous said...

Redirect Ukraine $ or money given to cover Hunter Bidens defense $ spent for cover up

Anonymous said...

I wonder if 7:42 would be willing to share his information related to Epstein, other than parenthetically.

Yes...It's time for all you big time investors to sit for a haircut. A board can be put across the arms of the chair for you short people.

Anonymous said...

What 11:19 said.

Why bother with the FDIC depository insurance limit of $250k in theory if in actuality the limit does not exist. What is the point?

Anonymous said...

Local democrat commies want more inflationary handout spending, more debt, more dependency and bigger government.

Contrary-wise, less regulation and lower taxes incentivize more investment, more opportunity, more prosperity, more independence and more freedom from bureaucrat tyranny! Kennedy, Reagan and Trump proved it true.

Anonymous said...

When it comes to the term "bailout" what the Fed SAYS is for public consumption, (i.e. the poor suckers); what the Fed DOES is for the big so-called venture capitalists (i.e. those who gamble with YOUR money)

Anonymous said...

Where will the solution be found?

Not from this troll farm

Anonymous said...

What 12:13 said. More of Trump's bullcrap coming back to bite us.

A bank as large as SVB might have managed its interest rate risks better had parts of Dodd-Frank not been rolled back under Trump in 2018. Among other things, it removed the requirement that banks with assets under $250 billion submit to stress testing by the Fed, and changed requirements for the amount of cash they had to keep on their balance sheets to protect against shocks.

Of course the SVB leadership (which lobbied Trump for the deregulation) is now looking for a bailout from taxpayers.

Anonymous said...

12:13 Dodd and Frank were idiots. Nuff said.

Anonymous said...

@2:07 - Trump was the bigger idiot. Enough said.

Anonymous said...

Former Rep. Barney Frank (D-MA), who famously co-authored the 2010 Dodd-Frank financial reform law in response to the 2008 financial crisis, served as a director of Signature Bank, which failed Sunday

No one in, on, amongst, around, or related to anything having to do with the words "Silicon Valley" have any support or allegiance to Donald Trump. The Dems trying to make this about him is laughable. More laughable is the Biden administration cowering and promising to make it right for his rich donors and even making a visit quicker than anyone did to Palestine, OH, tells you all you need to know.

Anonymous said...

1:35 Why didn't Pelosi et al reverse Trump's horrible Dodd-Frank revision plan in the years they had full control?

You kinda sound like a Jackson resident blaming Dale Danks for the water woes.

Anonymous said...

Frank was on SVB board and lobbied Trump to increase systemic risk exemption from banks of $50B in assets to $250B in assets.

Anonymous said...


Can’t you see that 7:34 AM literally put pinks in their comment?

Some people on this blog do know basic HTML!

It’s only a 30+ year old programming language that has been taught in public schools for the last 20 years!

Anonymous said...

Lot of political comments here. In all honesty, the bank’s investments weren’t hedged. Therefore, they had to sell a bunch of bonds for dirt cheap to stay liquid (and had no floor) when clients started pulling their funds… leading to a run on the bank. This is just poor banking and investment management not politics or Dodd Frank. In fact, both failed banks had well over their regulatory deposit requirements.

But… carry on with your dimwit political opinions.

Kingfish said...

The FT article spelled it all out pretty good, I thought. Most banks are only 25% in bonds, I think SVB was 60% in bonds.

Didn't help it didn't have a Chief Risk Officer for nine months last year. Here is Fidelity's analysis: report

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