[arcticbull]

That chart would probably be more useful if expressed as the shortfall between assets and deposits. It's not really a huge issue if a bank with $1T in assets has a $1M shortfall but the regulators will sure a shit still close it down.

[mike_d]

Almost all failed banks (including SVB) in recent history held more assets than deposits. Liquidity is the issue.

Imagine you take your $10 million fortune and convert it all into gold bars and hide it under you bed. Then you order a pizza. When the pizza guy shows up, even though you are "rich," you are also in that moment broke and can't pay for the pizza. Not only will the pizza guy not take gold, you can't find someone to convert your gold into cash before the pizza guy gives up and leaves.

[beebmam]

Except instead of just leaving, the pizza guy sues you and the state takes your gold bars under your bed and sells it to pay the pizza guy. Not saying this is a bad or good thing.

[Scoundreller]

... and sells it ASAP for any price, as long as it's more than the cost of the pizza. No need to wait until tomorrow to get market value when you can recover your losses today.

[swatcoder]

That analogy only works when your gold is obviously worth a lot more than your pizza bill.

For SVB, the knock on the door is more like a loan shark coming by to call in for their return. You have gold under the mattress that is sometimes worth plenty, but it’s value isn’t determined until it sells and it isn’t looking to square up with what’s due.

[rtkwe]

Isn't the thing they got caught out on mainly TBills though? So the metaphor falls apart again because they have a practically guaranteed value just with a long time horizon.

[swatcoder]

The value at maturity doesn’t matter. It’s not like they were going to sit on them for the whole term anyway. They’re just an asset that’s usually fairly stable and that usually stays that way over a certain window, and so they’re actively traded and have a market value based on those characteristics.

In their case, the market value of the TBills that they purchased slipped too much. Because that’s just paper value and could have recovered or been been balanced for eventually, it might not have been an issue without a run of withdrawls. But buzz hit that they were in an unexpectedly and unisually fragile position, and that made people start the run that broke them.

[jefftk]

> It’s not like they were going to sit on them for the whole term anyway

Really? Most of the reporting has described them as having a crisis in part because lots of treasuries that they had classified as "held to maturity" needed to be reclassified as "available to sell" which required marking them to market.

[swatcoder]

That’s just accounting. They reclassified now because they were having a crisis, but of course they would have reclassified later when it was advantageous.

They weren’t trying to tie up their funds in extremely low-yield assets for the next decade. They were parking it somewhere that made their books work until they could move it somewhere else.

[greenthrow]

Your assertion about SVB does not match up with all the information out there, which indicates they do have a shortfall of at least $1.5B.

I don't know why HN seems to have locked into this meme that SVB does not have a shortfall. It does not reflect reality.

[vikramkr]

The shortfall only occurred because they had to sell their assets before maturity, and the value of those assets have decreased. If they were able to hold them to maturity there wouldn't have been a problem - they still pay out the same amount of money at the end - but right now people are willing to pay less for future money than they used to. So if they spend 90 bucks on a bond that matures in 5 years and pays 100 bucks, if they were able to hold for 5 years, they'd still have gotten their hundred. But, both the accidental run (no new vc money while companies keep spending their deposits) and the actual run on thursday meant they had to get that cash back now, and today people might only be willing to pay 80 bucks for that bond that still pays 100 bucks 4 years from now, so they lose 10 bucks. This is why if there was no run, there was no shortfall, but because there was a run, there was shortfall.

[oarabbus_]

This seems like a rather exaggerated framing to absolve SVB of any responsibility for what happened, and is not accurate.

SVB overleveraged into long-term bonds in 2021 when interest rates were at an all time low. A financial institution/bank normally would hold a mix of maturities in their fixed-income holdings - 1 year, 3 year, 10 year - to maintain liquidity and reduce insolvency risk.

"If they were able to hold them to maturity there wouldn't have been a problem" does not make any sense - it's as if your company told you just wait an extra month for your paycheck, there won't be a problem. And then you told the mortgage lender to forget about this month's payment - if they just wait until next month, there won't be a problem.

Not to mention they had well over a year's advance notice to do _something_ because they knew exactly by how much their assets would decline in value. In March 2022 the Fed announced the decision to raise rates and continuing to do into 2023. By Sept they had announced the terminal rates would be over 4%, and have continued to openly increase that target since then.

Bond prices moving inversely to interest rates is Econ 101; anyone (at SVB) could've quite literally calculated their ~$25B 10-year 1.8% notes would drop by _at least_ $5B in 2023 before the terminal rate is even reached.

The run was the result of a clearly impending liquidity issue due to lack of near-maturation assets, not the other way around.

[vikramkr]

Why would my explanation read as absolving them of responsibility? The folks running the bank are professional bankers. They took a position that massively exposed them to interest rate risk and market cycle risk (when all of their clients are concentrated in a single industry!). As I said, they'd have been fine if they didn't need to cash in on those bonds or if interest rates stayed low. Making that assumption that they wouldn't need to sell (i.e. deposits would keep coming in) was obviously very stupid and failing to hedge interest rate risk (when high interest rates might directly lead to lower deposits because of the vc/startup client base!) is an even higher level of stupid that led to the whole thing collapsing in 48 hours. That doesn't invalidate that the bonds are still good/they have assets greater than deposits (though obvioust rhere could be fraud/devaluation when they try to sell) and that the FDIC has a pretty good chance of getting most people's money back (eventually, hopefully).

[rcme]

The main cause of the issue was that deposits increased so much over the pandemic and then decreased a lot simultaneously with a huge spike in interest rates. The Fed and the government have (unintentionally) engineered a banking crisis. A lot of banks are having liquidity issues now.

[peter422]

Yes they don't have a shortfall as long as there wasn't a bank run and they'd have time to unwind their long term bonds.

But they don't have time and did have a bank run, and therefore they do have a shortfall.

I think you might be able to argue that the bank itself had enough intrinsic value beyond it's ledger which could make up the shortfall, but that's all in the eye of the beholder who might want to buy them. We'll really see whether this is the case or not based on whether they have a new owner on Monday or they don't.

[tshaddox]

There’s still a big difference between being 10 cents short on your pizza bill and being $10 short.

[dylan604]

um, i'm sorry, but if i'm the pizza dude and i show up at your house where you offer to pay for the pizza in 1 bar of gold (sorry, we don't make change), then i'll gladly take that deal and pay for the damn pizza myself.

of course, we've already done all of the tests to prove it is gold and not lead dressed up in sheep's clothing

[lazide]

No bank with $1T in assets will ever have a shortfall of only $1m - it’s too easy to shuffle things around to move the problem forward another day or whatever.

A bank the size of SVB has a whole team that does that - it’s just a necessary part of operating at that scale.

Blowups like SVB happen when an entire team of financial experts have tried everything - and have nothing left they can do.

Then it blows up big, because all their other moves ‘come due’ at once.

[paulddraper]

I agree.

Also, the shortfall is never tiny (else there wouldn't be a failure) not is ever large (else there would have been a failure sooner).

So there is some standardized range.

[igonvalue]

The article has an entire infographic titled "Most banks held more assets than deposits at the time they failed".