blackface
Member
- Joined
- Apr 11, 2020
- Messages
- 169
Regulators have stepped in. SVB deposits are now being held by California FDIC and they will be made available to depositors on Monday. Tbd to see who gets a haircut.
SVB (Silicon Valley Bank) is one of the main lending platforms for the venture capital (VC) ecosystem. Their stock dropped 80% today causing bank stocks to lose ~$80 Billion in value. Depositors are (rightly) panicking and withdrawing their assets. This could trigger a death spiral.
At a high level this is what happened / is happening:
Context
1. SVB has grown immensely over the last 2 years with deposits going from $85 Bn to $200+ Bn. As the VC / startup ecosystem grew they basically gained a **** ton of deposits.
2. they used the cash inflows to double the number of outstanding loans to $66 Bn
3. they grew their securities portfolio by 7x, primarily agency MBS (mortgage backed securities issued and guaranteed by US government agencies)
Problem
4. the securities are mostly classified as HTM (hold to maturity) which means they aren't obliged to mark them to market
5. they bought their agency MBS at the top of the credit market so they now have mark to market losses of $15.9 Bn
6. they only have $11.5 Bn of common equity
7. so they are basically insolvent but because they don't need to mark to market the HTM assets they can keep operating.
Today
8. they sold their AFS (available for sale) securities today (which they have to mark to market) for $1.8 Bn loss to raise capital
9. they also issued new shares to the tune of $500 M to increase liquidity
Future Problem
10. if depositors take their money out they will have a huge asset liability mismatch
11. not sure how this works in relation to reserve requirements but it's basically a run on the bank and when liabilities> assets + equity they go bust
12. all the startups that didn't pull their money out of SVB early get ****88 and go bust because their money disappears
SVB (Silicon Valley Bank) is one of the main lending platforms for the venture capital (VC) ecosystem. Their stock dropped 80% today causing bank stocks to lose ~$80 Billion in value. Depositors are (rightly) panicking and withdrawing their assets. This could trigger a death spiral.
At a high level this is what happened / is happening:
Context
1. SVB has grown immensely over the last 2 years with deposits going from $85 Bn to $200+ Bn. As the VC / startup ecosystem grew they basically gained a **** ton of deposits.
2. they used the cash inflows to double the number of outstanding loans to $66 Bn
3. they grew their securities portfolio by 7x, primarily agency MBS (mortgage backed securities issued and guaranteed by US government agencies)
Problem
4. the securities are mostly classified as HTM (hold to maturity) which means they aren't obliged to mark them to market
5. they bought their agency MBS at the top of the credit market so they now have mark to market losses of $15.9 Bn
6. they only have $11.5 Bn of common equity
7. so they are basically insolvent but because they don't need to mark to market the HTM assets they can keep operating.
Today
8. they sold their AFS (available for sale) securities today (which they have to mark to market) for $1.8 Bn loss to raise capital
9. they also issued new shares to the tune of $500 M to increase liquidity
Future Problem
10. if depositors take their money out they will have a huge asset liability mismatch
11. not sure how this works in relation to reserve requirements but it's basically a run on the bank and when liabilities> assets + equity they go bust
12. all the startups that didn't pull their money out of SVB early get ****88 and go bust because their money disappears
