I posted an article without comment and you commented.
There’s a story on CNBC that PNC Bank sent a notice of interest to FDIC about acquiring SVB, but decided to walk away after conducting the initial due diligence.
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Good point about it’s the little guys who get hurt.
My point was, and I have very little knowledge, was mostly the reasons the bank failed. Sounded like it didn’t need to.
Basically the only people who are going to get screwed are the shareholders and unsecured creditors.
If you own Vanguard Index funds, you’re taking a loss as they’re the biggest shareholders in 3 of their funds.
Seems like a lot of banks have a specific sector niche that could result in the same kind of issues if that specific sector has trouble. For example, “Bank of ABC County” or “XYZ Company Employees Credit Union” might get into a situation of losing deposits if ABC County has a localized economic downturn or XYZ Company has massive layoffs.
To clarify, investors in the Vanguard Index Funds get screwed but uninsured depositors are made whole?
In general, equity (stock) investors are behind creditors (bondholders) in terms of getting money out of a bankrupt company. If the bankrupt company is a bank, depositors (at least up to the FDIC limit) are at the front of the line. The FDIC and government’s priorities start with depositors and other effects on the wider economy (e.g. whether other bank runs may be triggered), with non-depositor creditors and equity investors being much less important.
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But wouldn’t uninsured depositors be the same as unsecured creditors in a bankruptcy as far as amounts over $250,000? So there has to be some sort of agreement as to the amounts paid out to all unsecured creditors?
Yellen only said the depositors were guaranteed access to their money on MOnday, no other creditors, investors, contractors.
Ah yes, picking winners and losers again. So much for no bailout. Did anyone even that statement seriously?
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The order of losers in a bank failure is predetermined, according to FDIC: When a Bank Fails - Facts for Depositors, Creditors, and Borrowers
The main discretionary aspect is whether uninsured depositors are fully paid out, or paid out only to the extent that there is money to pay them, and how soon they are paid out. But all depositors are paid before general creditors. Stockholders pretty much expect nothing since they are last in line (and if there is anything left for them, the bank would not have failed).
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This is the picking winners and losers part. The uninsured depositors will be made whole because the gov is setting up a government backed finance program. The bank’s assets aren’t being liquidated.
And if the fed is enacting a new loan/bank funding program where are those funds coming from?
“The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”
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Good news if you had Insulet (PODD) stock before last Friday. S&P has selected Insulet to replace SVB Financial (SIVB) in the S&P 500. Insulet was up 7% in extended session trading afterward, presumably due to S&P 500 index funds and those trying to get in before S&P 500 index funds buy the stock and drive up the price.
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Your post #106 seemed to be mostly concerned about stock investors being the losers versus uninsured depositors. Discretionary actions regarding uninsured depositors would not save the stock investors.
In any case, that action sends a signal from the FDIC/government that SVB is/was considered systemically important in that the likely costs to the economy* of a drawn-out liquidation were more than the cost of bailing out uninsured depositors. Yes, picking winners and losers with the goal of reducing the aggregate amount of loss.
*and government due to additional bank failures, lost tax revenue, etc.
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The action is setting a precedent that the gov will bail out any bank that fails and all their “no gov bailouts” posturing is lie. I’m not surprised. The fed has been lying to us for quite a while now. I mean inflation is transitory right.
And the taxpayers pay in one way or another. Many taxpayers are investors or pensioners in those funds that held SVB shares. And the fed loan funds are coming from somewhere. Just because congress doesn’t appropriate the funds for a straight bailout doesn’t mean the taxpayers aren’t paying.
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Well, it was congress who picked the winners and losers when they enacted the FDIC act.
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They’re not following the FDIC Act. Yellen is picking the winners and losers. The fact that no bank wanted to buy SVB says quite a bit. If SVB can borrow money to pay the uninsured depositors they can borrow to pay other creditors as well.
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Looks like the FDIC believes that the cost of a bailout of uninsured depositors will be less than the cost of not doing so (additional bank runs and failures, loss of tax revenue as some businesses fail and lay off their employees, etc.). Once SVB failed, there will be costs to the taxpayers one way or another – do you think that the FDIC should not use the discretion that it has to minimize the aggregate costs?
The SIVB shareholders lose no matter what. Remember, shareholders are last in line, and if there is anything left for them, the bank would not have failed.
Oh, there is still going to be a drawn out liquidation. The FDIC will, as receiver, try to recover all it can from SVB. Long and drawn out.
I’m saying that if the government is intervening then all the creditors should be made whole not just the uninsured depositors. They’re not liquidating the bank’s assets and people are getting paid pennies on the dollar.