More pain. Bitcoin (down 63% this year) and Ethereum (down 68% this year) are holding the Alamo at the moment.
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Does this have read across to other Crypto companies or specific to this one?
Yeah, some ruling. Those with interest bearing accounts donāt own the underlying asset but non-interest-bearing accounts are owned by the account holders. Guess it is all in the terms. I do know that if one is buying fractional Bitcoins and not taking possession of the coin itself, the exchange does āownā that Bitcoin. Not sure how that would work in bankruptcy. People might want to buy in full coins and download to their own wallet. Probably the only āsafeā 
bet.
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Telsa stock price now at 120 down from a peak of 400 2 years ago. This occured in the context of EVs taking off a rate far better than projected. The IEA estimate they now represent 10% of the global cars on the road, after previously predicting we wouldnāt hit that until 2030. The market share has tripled, increasing from 10 million to 30 million cars on the road.
McKinsey have found it is cheaper to kill children in pairs, so they have revised their proposal to ākill 4 children and sell the 7th chair.ā
Second largest bank failure in U.S. history. The cause is an eye opener.
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Pretty staggering how small the percentage of total deposits insured is. Roku may have lost up to 25% of their cash when all is said and done.
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Their Dec balance sheet is a public document. At that time they had 173B of deposits and 193B of short and long term paper assets, collective of purchased securities, illiquid securities (only 3B) and loans to debtors. Looking at that, youād have to think depositors will get most and maybe even all of their money eventually, as this things sorts itself out.
But it doesnāt smell right. Press reports state the bankās assets were mostly Treasuries and mortgage paper, but the financial statements also say they held derivatives, and they do not report the total amounts of each class. I mean, this thing failed in far less time than it took Bear Stearns or Lehman to crater.
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That WSJ piece is one worth reading skeptically.
This is very different from the questions about bad lending that haunted the 2008 financial crisis.
As money flowed into banks during the pandemic, buying the shortest-term Treasurys or keeping the money in cash would have insulated them from the risk of rising interest rates. But it also would have depressed their income.
These two comments read very differently once you add in the key piece of the story the WSJ write up excludes - the recent relaxation of regulations. Under the Dodd-Frank regulations put in place after the 2008 collapse, this bank would not have been able to leverage itself so much, even with so called āsafeā investments. Ever since those went in place, bankers have complained that the regulations affected too many banks and were too burdensome on smaller banks whose failures would not cause systemic faults the way Lehmanās did. SVB were big lobbyists forwarding this idea and finally got their wish in 2018 when the regulation was changed to remove much of the oversight from these midsized banks. What they did in response to those relaxations is exactly why the were in a position where they needed to raise capital to pay out their customersā withdrawals and why clients got nervous.
The WSJ story explains the mechanics of the story, but not the heart of it. Regulations were put in place to ensure banks were better bolstered to be able to actual pay out the clientsā withdrawals. The industry spent 10 years fighting it, finally won, immediately acted to over leverage themselves and collapsed once market conditions changed. Of fucking course the WSJ would completely ignore that in their explainer of what happened.
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A friend with more direct banking experience than I have pointed out something interesting - despite being 15th largest by asset value, SVB was quite small in terms of the lending business and cash flow. Essentially, they had a lot more money than they actually had business. That loans to debtors was a much smaller proportion of assets than would be conventional - which all things being equal would suggest they were solid. But it meant cash flow was well below what one would expect, there just wasnāt that much there to cover the leverage and as VC rounds have dried up, nothing to offset the asset shrinkage they failed to anticipate. It is absolutely bizarre to see a bank fail despite no significant credit default anywhere else in their chain.
The tldr version was that SVB were fat, lazy bankers not really doing what bankers do other than collecting fees for holding other peopleās money.
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Oddly, their Chief Administration Officer is/was a guy by the name of Joseph Gentile. He was CFO of Lehman Brothers in the years leading to its collapse.
His next interview could be interestingā¦
Given remotely from a country without an extradition treaty with the U.S. Iām sure heāll find new work soon, though.
SVB really isnāt levered at all. See @Arminiusās post above. They got into trouble by having far too high a percentage of non-insured deposits. Weird that they didnāt hit pause on withdrawals or have some limit to the amount that could be withdrawn in a day. They were only trying to raise $2B, which isnāt very much, considering their asset base. That suggests depositors should receive around 98% of their funds ultimately.
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They werent leveraged because of loans, but because of how much of their clientās deposits they spent on their own investments. Investment that lost money and left them a liquidity problem they needed to address by publicly disclosing their needed a capital injection. This was a move they wouldnt have been able to make without the relaxation of the regulations that were put in place to prevent this.
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It actually is a form of leverage, I suppose, but no one ever thinks of it in terms of short-term T-bills.
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That is a somewhat misleading way of framing it though - the investments were in the second safest asset class there is. It just bizarrely incompetent to have locked that much into a mediocre bet on short-term interest rates. Usually when we think of investments that lose money, in this era we think of stupid crypto and the like.
To be honest, I am not sure that the original Dodd-Frank would have caught this, not sure. I donāt think the authors of that regulation ever envisioned a bank failure scenario quite this fucking stupid.
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SVB claimed to have been in compliance with Basel III capital requirements. One does wonder if a Dodd-Frank type of stress test would have highlighted the risk of sudden deposit flight in a situation where most of the bankās assets are fairly safe Treasuries and mortgage securities. Not sure weāve seen a bank failure like this one before.
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