[rvnx]

If they find a way to agree with the creditor to exchange the cash against shares, they won't owe anything. These shares are backed by long-maturity treasuries, MBS and future business of the bank.

Then the new owners of this bank, can decide whether to liquidate long-maturity treasuries at a loss, or raise new capital, or just wait it out.

[dragontamer]

Depositors and bondholders get the money first.

The reason SVB collapsed is because there's not enough treasuries to possibly even pay depositors, let alone bondholders or shareholders. If there were enough treasuries to pay shareholders, then the bank run wouldn't have happened in the first place. (The bank run on Thursday was caused by the sudden realization that there might not be enough money at the bank).

A buyout / successful auction is the best case scenario. If some bank out there is willing to buy SVB and make all their depositors whole again, then win/win for everybody.

[rvnx]

The problem is that they invested in 10 years duration bonds, instead of 0-3 months or 1 year duration.

This essentially means, that if interest rates raise, then temporarily (the time of the duration of the bond) the bond may be worth less because there are new bonds which are more attractive to the investor.

Once the bond matures, then the full sum is returned to the holder of the bond.

[PeterisP]

The bond is worth less not temporarily but permanently. The (low) market price of such a bond is appropriate - it might rise (if the current interest rates fall), but it might as well fall even more (if the current interest rates rise even higher). Sure, in nominal dollars you get the 'full' amount back after xx years, but a 203x-dollar is worth less than 2023-dollar, and the market price of that bond reflects the markets' current best estimate on how much less that future dollar is worth.

You can't make whole the current depositors by saying that they'll get the same quantity of 203x-dollars (because you owe them 2023-dollars which are worth more), you can't make whole the current depositors by trading the future claims on these 203x dollars (i.e. bonds) to someone else because the price you can get is not enough to make them whole; and you can't make whole the current depositors by paying them back in year 203x their dollars with market-rate interest because you don't have enough assets to cover that market-rate interest, only the low, low interest that SVB fixed last year or before.

[pseudo0]

That assume that the bank can keep their depositors while offering uncompetitive interest rates on deposits. For example, a bank that bought 3-12 month t-bills could offer depositors 4% interest on their savings accounts and still make a profit. Why would anyone leave their deposits with SVB for the next ten years if they can only afford to offer 1.5%, because they made a bad bet on long duration bonds?

Sure, banking has a fair amount of inertia, but eventually people realize that they are leaving FDIC insured money on the table.

[toast0]

> Why would anyone leave their deposits with SVB for the next ten years if they can only afford to offer 1.5%, because they made a bad bet on long duration bonds?

Chase is still offering 0.01% on savings accounts, and somehow has deposits. 1.5% is generous compared to that, even though it's much less than you can get with a little shopping around.

[dragontamer]

Sure, but $46 Billion left the bank on Thursday.

The bank run already happened, so the bank has to sell those bonds for a loss to meet its obligations to their depositors. Because of the interest rate changes, they are forced to sell those 10Y and 30Y bonds for a 20% loss (or greater).

As such, the bank is underwater. FDIC is looking for a buyer who is willing to lose a little bit of money in the short term, but maybe gain some customers in the long term.

----------

There's no time to wait 10 Years. The bank needed the money 3 days ago.

[zhte415]

The interest rate is the opportunity cost of investing elsewhere. Why would someone buy a bond at a 1% discount when they can buy the exact same bond at a 2℅ discount?

Aside from not making large unmatched unhedged yield curve bets, not marking portfolio prices to market was a problem for SVB.

[Spooky23]

It does owe something. They have a cash flow problem, because the bank made a poor risk management decision and when big money people like Thiel figured it out, they had their minions and companies run the bank. If you have $100 in cash and a $1M house and you owe me $10k, I’m gonna put a lien on your home and liquidate it for my money.

Now the people who missed the memo are crying about it. Guys like Sacks have taken to Twitter to cry and whine about how they are like poor farmers or whatever.

The reality is the FDIC is good at what it does, and it’s probably best to wait until tomorrow before getting hot and bothered about it. If you want to get angry, ponder how the people who coordinated the bank run got the information used to trigger it.

[stanleydrew]

What incentive does someone like Thiel have to induce a run at SVB?

[toast0]

Primarily, his portfolio companies have an incentive to have access to their deposits.

He probably gains reputation by advising people to get out of a bank that fails. Although he probably advised them to use it in the first place.

[Spooky23]

It’s not an incentive thing. It’s a major player creating a panic.

[modeless]

This is exactly what Bitfinex did. Funny to see the same solutions proposed for actual banks.

[melenaboija]

What was the equivalent to the treasuries in this comparison?

[modeless]

Their remaining assets after they were hacked. They gave everyone's account a 36% haircut and issued a kind of equity to "cover" the rest. I guess it ended up working for them because they're still around, but personally I wouldn't touch Bitfinex with a ten foot pole.

And I think I read that SVB's losses this week exceeded their cumulative profits since inception so it seems likely that even 100% ownership of the company wouldn't be valuable enough to make their customers whole.

[rvnx]

It's not a good solution to give pieces of equity and/or claims on future cash distributions, but it sounds better than forcing to liquidate everything in a rush immediately.

Another way could also be to apply when you are withdrawing the money:

1st yr: 10% withdraw fee

2nd yr: 9% withdraw fee

3rd yr: 8% withdraw fee

etc

with the rate adjusting down every year.

[modeless]

Or, you could liquidate everything now and give people cash today that they could choose to put into treasuries themselves, earning a rate much better than your proposed lockup fee schedule. That sounds much faster and simpler and ultimately better for everyone.