SVB was seized by the feds this morning. Bank stocks under pressure. Are these signs of another series of bank troubles to come? Looks like Powell might get his wish of a recession, finally.
I know somebody who works there. It’s been a rough day for them.
small nit: local news said it was California regulators that shut it down and put the FDIC in control.
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Yup, that’s correct. My initial info came from breaking news blurbs. The stories have been updated since then.
Trouble for startups…
https://www.cnn.com/2023/03/10/tech/silicon-valley-bank-tech-panic/index.html
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Several other regional banks also look to be under significant stress. Contagion?
Perhaps this news will send depositors back to looking at bank financial strength ratings*, like during previous times when bank failures were in the news…
*Veribanc, Bauer Financial, etc.
Recent 8-K:
Other SEC filings:
https://ir.svb.com/financials/sec-filings/default.aspx
“Now that the bank has folded, I just want to know what happens next,” Ashley Tyrner, founder of health food delivery company FarmboxRx, told CNN in an e-mail. “The FDIC covers 250K, but am I going to recover my whole 8 figures?”
Hmmm, that’s why there is a $250k limit per account, to limit the liability of the FDIC. A borrower can actually have up to 5 accounts, so $1.25M in insurance.
What happens now is that the FDIC will either sell the assets as a going concern (and the buyer gets to cherry pick the assets it wants) and close all the contracts that aren’t of use to the buyer. If there is no buyer, it will sell off the assets to bulk buyers, usually in an auction, and close the accounts by paying off the balances.
It is always the regulator (in this case California) who gets the order to close the bank and then the FDIC steps in to manage the closing and assets. What is unusual is that the FDIC tries to close banks at 5 pm on a Friday, take the weekend to organize, and then reopen on Monday morning as the new bank/FarmboxRxowner. They must have thought they couldn’t wait until Friday afternoon (that it was THAT bad).
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Very sad. The 8 figures she referred to is the $$ her company raised, not her own money. Some startups caught in this mess will not make payrolls, today or on the 15th.
I understand, but that’s the way insurance works. Businesses (or individuals) can open multiple accounts at multiple banks, but that isn’t convenient so they take a risk by putting all their money into one account at one bank.
Or they can pick one of the ‘Too Big to Fail’ banks. Insurance limits are the same but they are unlikely to close the banks. Service and rates may not be as good.
Yup, that’s right. SVB was THE bank for startups to keep their money in. The reputable bank where there everyone’s money was. Or so they were told. BofA and such were just not cool.
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Let’s hope not, but nobody knows. The Black Swan events Taleb writes about often start with a small crack in the edifice somewhere and then spread in ways nobody anticipated.
I don’t think many banks are at risk. California regulators will keep an eye on similar banks, what kind of assets they have as security, etc.
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“The question was whether clients would opt to remain with the bank or trigger a classic bank run. Fears about an institution’s possible insolvency can become self-fulfilling if enough customers pull their money out of the bank.”
It is a classic.
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Best movie ever.
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The startup my DD does part time work got their money transferred out of SVB yesterday but many others will have their funds outside FDIC insured limit frozen indefinitely
Goskid has several start up clients that had their $$$ in SVB. Has been stressful to say the least.
Scary for CA start up economy…and also the huge amount of wineries that had their $$$ in SVB…
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This was not a tiny bank, apparently. It was 16th largest in the US and second largest to fail. There will be ripples. Fingers crossed, not tsunami sized.
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On March 8, there was an attempted stock offering described in this filing: