128B or 1.27% reserve. The FDIC stops charging insurance fees when reserves hit 2-2.5%
By contrast the CDIC (Canadian equivalent) has reserves of 5-7% of total insured deposit base.
Banks forclosed so far have had 520B+ in assets. 128B would be 20% loss on assets.
Definitely hard to say if there are enough funds available or not.
The LOC, JPM got from the federal reserve for FRC to take on its assets was 50B (probably more market risk management than needed). At least 13B in write downs on FRC (10% of the reserves). They seemed to have mostly Real Estate and treasury assets.
SVBs loan book seemed to be much less healthy than FRC. Something like 15-20% of its loans where early stage tech with high yields + warrant coverage. These where kinda like junk bond loans in terms of target yields and expected default rate. A core assumption in their lending model seemed to be that VCs would keep writing cheques for their non profitable portfolio companies so that debt would get serviced in perpetuity. So I assume loss from SVB will be much larger.
Have a look at office vacancy rates vs last commercial real estate crisis in the 1990s. There are unfortunately alot more mark to market losses coming on loans that both large and small banks have made with interest rates at these levels.
Banks are very slow to mark assets to market. And there is a significant lack of transparency in terms of what assets they actually own. Alot of these RE assets only get marked down when they get sold and the bank incurs a loss. The HTM losses where known on balance sheets where these are all unknown for investors.
Gonna be very interesting as this unfolds. Likely more slowly over the next year or so, but I have definitely been surprised of the pace so far.
Found this link interesting.
128B or 1.27% reserve. The FDIC stops charging insurance fees when reserves hit 2-2.5%
By contrast the CDIC (Canadian equivalent) has reserves of 5-7% of total insured deposit base.
Banks forclosed so far have had 520B+ in assets. 128B would be 20% loss on assets.
Definitely hard to say if there are enough funds available or not.
The LOC, JPM got from the federal reserve for FRC to take on its assets was 50B (probably more market risk management than needed). At least 13B in write downs on FRC (10% of the reserves). They seemed to have mostly Real Estate and treasury assets.
SVBs loan book seemed to be much less healthy than FRC. Something like 15-20% of its loans where early stage tech with high yields + warrant coverage. These where kinda like junk bond loans in terms of target yields and expected default rate. A core assumption in their lending model seemed to be that VCs would keep writing cheques for their non profitable portfolio companies so that debt would get serviced in perpetuity. So I assume loss from SVB will be much larger.
Have a look at office vacancy rates vs last commercial real estate crisis in the 1990s. There are unfortunately alot more mark to market losses coming on loans that both large and small banks have made with interest rates at these levels.
Banks are very slow to mark assets to market. And there is a significant lack of transparency in terms of what assets they actually own. Alot of these RE assets only get marked down when they get sold and the bank incurs a loss. The HTM losses where known on balance sheets where these are all unknown for investors.
Gonna be very interesting as this unfolds. Likely more slowly over the next year or so, but I have definitely been surprised of the pace so far.
https://www.fdic.gov/news/press-releases/2023/pr23013.html#:~:text=FDIC%2DInsured%20Institutions%20Reported%20Net,Billion%20in%20Fourth%20Quarter%202022