“Get woke, go broke” the Silicon Valley edition
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Banking humor
Imagine raising $100m for your AI enabled dog washing app - and your bank sets it on fire before you can
Maybe if SIVB identifies as Ukraine, Biden will give them $100B
A: Stop running around screaming like this banking crisis is 2008.
B: You’re right, it’s not 2008.
B: It’s 2007.
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Good WSJ coverage
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There was a certain someone who liked to obsess over bank ratings. I figured it might be fun to see what these banks were rated:
Silicon Valley Bank:
- Weiss: B
- Bauer: Unavailable
- Ken’s Health Rating: A
Signature Bank:
- Weiss: B
- Bauer: Unavailable
- Ken’s Health Rating: A
What have we learned? In the fullness of time, these ratings are junk. They might be one indicator with respect to solvency, but they are certainly not gospel.
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They try to. The ones who lose money are the ones who try poorly.
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I know it’s 2007 b/c that that’s the last time we bought our new house in PHX. Now we’re doing it again since my parents are moving in. Deja vu, I hope not
FRC, First Republic out of CA, had lines for people trying to cash out this weekend, put out various emails to their customers about how stable their finances were, etc. They’re down -65% this morning even despite announcing tons of liquidity measures backed by the new Federal fund, JPM credit lines, etc.
I bought a little, way too early. given they’re in the $20s now.
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and so it begins? Interested that Biden says taxpayers aren’t on the hook. How’re these not “bailouts”? Doesn’t FDIC does have a Treasury backstop?
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of course the taxpayer is on the hook - whenever there’s a bailout, someone always pays. Biden and the FDIC are using a slight of hand on their wording to suggest there’s not an explicit taxpayer funded bailout.
Instead, the FDIC will charge all banks more fees to cover the bailout of the large depositors (>$250k) in the two failed banks SIVB and SBNY. And then your bank will charge you more, or pay you less interest, so somehow they pass along the extra costs. This will be easier for them since every bank is in the same situation in terms of having higher costs.
As for the FDIC, yes, if their insurance fund for <$250k depositors ran out in a wider banking crisis, I would fully expect Congress to appropriate more money for that fund, which would come from the taxpayers at large.
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So here’s a technical question. Presumably, those banks dont have the assets to pay the large uninsured deposits in full. So is that calculated after the sub-$250k accounts are resolved, so there is no FDIC insurance claim? Or is the deficit applied proportionally to all deposits, with the accounts under $250k then having the shortage covered by insurance?
I think this anecdotal evidence is getting blown out of proportion and potentially causing even more panic. The lines had stupid or ignorant people who don’t have a lot of money and don’t know how FDIC works. I’m guessing the line was for ATM, which not only has a daily withdrawal limit, but also a limited amount of cash in it. And even if the branch was open, branches also have a limited amount of cash on hand and may not let you withdraw many thousands in cash without a request made in advance.
The word you’re looking for is sleight.
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Not so sure about that. I work at a MegaCorp in Silicon Valley and there’s plenty of internal discussion on whether they will survive or not. I think they will, but lots of people asking if they should go in and close their accounts. Even though there are insured FDIC limits, people are worried about not being able to access their money for an extended period.
On the news they showed several FRB locations with lines out the door waiting to talk to bankers, presumably to close their accounts. I think there’s a big domino effect here. Several other banks have issued statements to members letting them know “everything’s OK here” but people are still freaking out.
FWIW when I found out people were going to their banks to close accounts because of SVB, I thought it was hilarious. Many people I know don’t even have anywhere near the FDIC limits.
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But that’s the thing with FDIC takeovers – the agency or the new owner swoop in on a Friday and everyone’s insured deposits are available by Monday. There is no extended period.
The account owners may be rightly concerned about opening a new account at another bank, but there’s no point in closing an existing account, and even less point standing in line to do that. Closing the accounts and withdrawing money becomes a self-fulfilling prophecy. It’s unnecessary and counterproductive for insured deposits.
Again, ignorance and stupidity for the most part. The only excuse to stand in that line and talk to a banker is to get your funds under the limits (by adding POD or Joint owners or opening separate accounts with POD/Joint and spreading the money around). But that should be done as soon as limits are exceeded, not when the risk of bank failure materializes.
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I’m actually kind of curious how this works in practice though. Do you get a check from the FDIC’s temporary bank (in this case, NB of Santa Clara) or do you have to do something like ACH or wire transfer your money out? Does your ATM card work? What about things like pending bill payments, etc? Does your online account still function to show a balance and gather statements? I bet getting a 1099 from these guys for next year’s tax season is going to suck.
I agree with you that the people waiting in lines are idiots - it is not 1929 where people want to withdraw stacks of bills. But if I had an account at this bank, I can assure you I’d be trying to figure out how to get my cash out of there as quickly as possible.
Most of the time, another bank just takes over and there’s barely a blip from the customer’s perspective. 2008/09-ish, I had accounts at 3-4 banks that failed, and it worked like any acquisition. It was announced which bank had taken over, and 6-12 months later accounts were eventually rolled into the acquiring bank’s platform.
If there is no buyer to take over, I believe I’ve read that the FDIC mails a check. So there is a minor delay. No clue how they handle accounts with 6- and 7-figure balances.
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Don’t get me wrong, I understand how it works and would not be worried at all if I was within the FDIC limit. I’m just trying to explain the rationale people have in doing these bank runs. I personally know people that are closing their accounts because they think the FDIC will drag their feet and take forever to get access to their funds.
And you’d literally be part of the problem. To me, getting any money out would only make sense if you needed it so badly that you couldn’t wait a few days for that FDIC check.
They’re required by law to pay out insured amounts as soon as possible, which supposedly takes a few business days. Uninsured balances could take many months while they unwind and sell the assets.
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