3/10/2023: Government Should Guarantee at Least 90% of Uninsured SVB Deposits

SVB failed

db @tier10k

🫡 Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. fdic.gov/news/press-rel…

fdic.govFDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, CaliforniaFDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California

The Silicon Valley Bank situation quickly deteriorated and now the bank is shut down by the regulators. The bank is closed today and will reopen next Monday. Account holders with <$250K deposits with SVB will be able to withdraw the full amount next Monday. For accounts that have more than $250K+ of deposits, they will get the $250K and an "advanced dividend” plus a receivership certificate. It’s unclear if they will get their full deposit back. I would have never thought that SVB could go down so quickly. It’s tragic.

Joseph Wang @FedGuy12

Looks like the $150b of their deposits are uninsured. That means those people could lose everything if it goes under. They have an incentive to RUN.

Apparently, SVB has $150B of uninsured deposits. I don’t think it’s a good idea for the Fed to hang these uninsured depositors out to dry. Many startups who bank with SVB might be forced to shut down or lay off people if nothing is being done over the weekend. If we look at SVB’s balance sheet at the end of 2022 closely, they had $212B of assets and $195B of liabilities. If we mark down their held-to-maturity portfolio by 20%, their equity holders will be wiped out. But they should still have enough to pay back their $174B (I supposed $24B is insured) of deposits in full at the expense of the corporate bond holders and other subordinate debt holders. Even if the bank turns out to be insolvent, I still think the government should at least pay out 90% of the $150B uninsured deposits next Monday and the rest can be paid out if there’s any residual value left after the assets are sold off. From SVB’s financials, it looks like they can easily recoup $135B (90% of $150B) from their $212B assets. If the government doesn’t do anything about the $150B uninsured deposits over the weekend, this thing can quickly snowball and have many downstream effects. $150B is a pretty big number for the bank clients to absorb. Something needs to be done and I can’t think of any reason why the Fed won’t step in for this situation.