First, since we’re comparing numbers to each other, you should go back before Wednesday to get a real number for pre-run market cap, it’s about 2.5x that. Not that it really matters.
Second, just so we’re clear is your point that the holders of that $6B-$15B of useless paper won’t care because it’s less than $150B? At the end of the day, you don’t care what percent of the bag you’re holding, just that you’re holding it.
No, the point is that shareholders of the bank are investors in the bank, and investment comes with the risk of loss. Depositors in a bank are not investors in that bank.
> Depositors in a bank are not investors in that bank.
No, they’re not. But until just now depositors in any other bank assumed the risk for any deposit in excess of $250K… and if these depositors weren’t morally different than the depositors that would absolutely have lost their wealth in excess of $250K when their chosen bank did a stupid thing, then they’d have paid the piper just like you and I would have.
These special depositors are getting special treatment and aren’t suffering what countless non-special depositors have suffered… the rules are changing because of who took the risk, that’s the very definition of moral hazard at work.
Was it? I think I read somewhere that this bank had an unusually large share of depositors over the deposit insurance limit, or in other words a high share of uninsured deposits.
Yes but that doesn't mean they would lose everything over the insured limit. If I owe you 1M but only have 950k to give you that's a lot better than having only 100k, in which case you'd end up with 250k.
Ok, but assuming the numbers above are correct, 150B in uninsured deposits - 5B in market cap firesale = 145B that SVB apparently didn’t have the cash on hand to repay.
If every depositor walks in first thing Monday morning and withdraws their bad bet in their (apparently single) chosen bank’s management, the customers of all other banks are now on the hook for 145B… which ultimately means everyone on the planet can expect to pay more for their haircuts.
No, GP is just foolishly conflating liabilities and assets and bank deposits and enterprise value among other issues if you read this and their other comments.
tl;dr - GP doesn’t have a clue what they are saying.
With the number of ELI5 guides all over the internet on the SVB situation, this level of willful ignorance you displayed here is just sad. Seriously, stop talking out your arse and go educate yourself, even a little, first.
What is the shortfall once all the assets of the bank are sold though? It's not like anyone is putting $150B into this to make sure those deposits are made whole.
You can't say that right now, I'm not sure anyone can. The government is literally writing a blank check because they don't yet know how much it's going to cost to fix.
Everyone seems to be operating under the idea that while their liquidity came into question the underlying assets were and are strong-- if that were true they would have found a private sector solution early in the weekend. Waiting until 6pm on Sunday and a second regional bank collapsing to announce "oops, all bailouts!" seems like an open admission we're in the early stages of another banking crises.
> the underlying assets were and are strong-- if that were true they would have found a private sector solution early in the weekend
One does not follow the other. The triggering problem here were unmatched maturities of assets and liabilities, i.e. liquidity crunch. They have created that liquidity by selling some assets at a loss and tried to recoup that loss from investors.
But that was not the problem. The problem was now-imminent bank run, potentially requiring up to ${total-deposits } liquidity injections and unclear future then. Once VCs told their portfolio companies to pull out svb was effectively toast.
Bigger bank with more cash could have bought them, fixing liquidity issue. This didn't happen, suggesting that there's problems with bank's assets, not just liquidity.
Yes and no. There were 4 stages in this drama. 1. Build up where books became imbalanced 2. Imbalanced maturities draining liquidity 3. Liquidity issues being prominently voiced causing bank run 4. Aftermath.
Once the situation evolved from stage 2 to stage 3, the liquidity hole expanded from ${gap-in-maturities} to roughly ${total-deposits} and that is only to contain immediate issue, fixing books would have possibly required additional capital.
You are probably right, a bigger bank with liquidity could have saved SVB at stage 2. However, the situation evolved from stage 2 to stage 3 too quick for any meaningful deal to take place while still in stage 2.
As far as coverage has stated so far, the underlying assets ARE solid...
Problem is they're just not even a good investment compared to brand new fed bonds / bills of short / long (might have that backwards) due to the now MUCH HIGHER interest rates. They locked in at historically low rates, and had a bank run on their free reserves.
I'm sorry, I don't follow the logic here. Do you mind elaborating?
I see some correlation between SV remote working and COVID, but don't understand how mortgage backed securities play into this. Are you suggesting higher inflation on the way, lower property values, higher rates, and that it was intentional?
Nobody has to put in anything other than confidence. Given enough time the bank already has plenty of assets--the whole point of the feds saying "all deposits will be made whole" is to stop the panic withdrawals and thus obviate the need to sell those assets.
As I see it, market cap/valuation _should_ resemble the price you'd need to pay to buy a company, but it often is not. E.g. a company has marketcap of 10B, but has 30B in liquid cash on hand. It's clear it cannot be bought for 10B. Or the other way around, the company has 30B in liabilities -- the company should pay you 20B to be bought.
Second, just so we’re clear is your point that the holders of that $6B-$15B of useless paper won’t care because it’s less than $150B? At the end of the day, you don’t care what percent of the bag you’re holding, just that you’re holding it.