Silicon Valley Bank Failure

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Maddy
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Silicon Valley Bank Failure

Post by Maddy » Fri Mar 10, 2023 3:42 pm

From a Twitter thread from yesterday:

"Most people don't realize how crucial Silicon Valley Bank is. Billions of dollars in venture debt. Untold amounts of warrants and convertible notes in early-stage firms. If SVB fails, this could be the Lehman moment for the startup world."
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Re: Silicon Valley Bank Failure

Post by vnatale » Fri Mar 10, 2023 4:14 pm

Maddy wrote:
Fri Mar 10, 2023 3:42 pm

From a Twitter thread from yesterday:

"Most people don't realize how crucial Silicon Valley Bank is. Billions of dollars in venture debt. Untold amounts of warrants and convertible notes in early-stage firms. If SVB fails, this could be the Lehman moment for the startup world."


I was just about to put this here in a separate topic but then saw you'd already put something here regarding it.

It also somewhat ties into prior discussions we've had about buying CDs from banks and the viability of FDIC insurance. I'm not sure where this bank is initially chartered but for banks deemed Massachusetts banks there is another layer of depositor insurance on top of FDIC coverage.

https://www.msn.com/en-us/money/persona ... be15&ei=10

Customers locked out of Mass. branches as nation's 16th largest bank collapses
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Re: Silicon Valley Bank Failure

Post by Maddy » Fri Mar 10, 2023 5:02 pm

Genevieve Roch-Decter, CFA
@GRDecter

Only 2.7% of Silicon Valley Bank deposits are less than $250,000.
Meaning, 97.3% aren't FDIC insured.
Ouch.
Less than 3 percent of accounts have less than $250,000? Who the heck was depositing money there?
Last edited by Maddy on Fri Mar 10, 2023 6:52 pm, edited 1 time in total.
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Re: Silicon Valley Bank Failure

Post by Xan » Fri Mar 10, 2023 6:24 pm

Maddy wrote:
Fri Mar 10, 2023 5:02 pm
Genevieve Roch-Decter, CFA
@GRDecter

Only 2.7% of Silicon Valley Bank deposits are less than $250,000.
Meaning, 97.3% aren't FDIC insured.
Ouch.
Less than 3 percent of accounts have less than $25,000? Who the heck was depositing money there?
That is crazy.

But, it doesn't mean 97.3% isn't FDIC insured. It could be that 97.3% of accounts have $250,001 deposited, in which case virtually 0% is uninsured.
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Re: Silicon Valley Bank Failure

Post by Mark Leavy » Fri Mar 10, 2023 6:26 pm

Maddy wrote:
Fri Mar 10, 2023 5:02 pm

Less than 3 percent of accounts have less than $250,000? Who the heck was depositing money there?
Most of the accounts at SVB are were business accounts. Generally high tech startups out of Silicon Valley. For many businesses, $250K liquid cash on hand is not nearly enough to handle normal cash flows. Payroll, paying suppliers, 3 month float on accounts receivables, etc. You could argue that these companies should have split their working capital across 15 different banks, but that is a logistical nightmare and probably frowned upon if SVB also happened to be one of your VC funders.
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Re: Silicon Valley Bank Failure

Post by vnatale » Fri Mar 10, 2023 6:42 pm

This is what exists in Massachusetts. Anything similar to it in other states?

https://www.difxs.com/DIF/Home.aspx

Welcome to the Depositors Insurance Fund (DIF).
The DIF is a private, industry-sponsored insurance fund that insures all deposits above Federal Deposit Insurance Corporation (FDIC) limits at our member banks. The DIF has been insuring deposits since 1934.
All DIF member banks are also members of the FDIC. Each depositor is insured by the FDIC to at least $250,000. All deposits above the FDIC insurance amount are insured by the Depositors Insurance Fund (DIF).

The combination of FDIC and DIF insurance provides customers of our member banks with full deposit insurance on all their deposit accounts. No depositor has ever lost a penny in a bank insured by both the FDIC and the DIF.

DIF insurance coverage requires no applications or special forms. Depositors automatically receive this added insurance benefit at no cost whenever they make a deposit to a new or existing account at a DIF member bank.
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Re: Silicon Valley Bank Failure

Post by Mark Leavy » Fri Mar 10, 2023 10:14 pm

Xan wrote:
Fri Mar 10, 2023 6:24 pm
But, it doesn't mean 97.3% isn't FDIC insured. It could be that 97.3% of accounts have $250,001 deposited, in which case virtually 0% is uninsured.

As of 12/31/22 SVB had $173 Billion in deposits. $152 Billion were uninsured. Total of deposits over and above $250K per account.
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Re: Silicon Valley Bank Failure

Post by Xan » Fri Mar 10, 2023 11:11 pm

Mark Leavy wrote:
Fri Mar 10, 2023 10:14 pm
Xan wrote:
Fri Mar 10, 2023 6:24 pm
But, it doesn't mean 97.3% isn't FDIC insured. It could be that 97.3% of accounts have $250,001 deposited, in which case virtually 0% is uninsured.

As of 12/31/22 SVB had $173 Billion in deposits. $152 Billion were uninsured. Total of deposits over and above $250K per account.
Thanks, Mark. Wow. That's got to be deflationary doesn't it?
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Re: Silicon Valley Bank Failure

Post by Mark Leavy » Fri Mar 10, 2023 11:48 pm

Xan wrote:
Fri Mar 10, 2023 11:11 pm
That's got to be deflationary doesn't it?
It puts the Feds in a tight spot.

SVB (and a lot of other regional banks) were not able to write enough high quality loans to offset all of the depositor's funds. So they bought long dated treasuries. And didn't hedge them with interest rate swaps. And over leveraged. And because of some accounting anomalies, the treasuries were put on the balance sheet as "Hold Until Maturity" and they couldn't easily be rotated into shorter term Treasuries.

And then the unimaginable happened. Rising interest rates. Kaboom.

A lot of regional banks are in the same position.

If the Feds raise rates, more banks go under.
If they don't raise rates, inflation stays high.

Hard to know at this stage whether this event is deflationary or not.

In the short term, I would expect another (possibly large) run on the banks come Monday as every CFO in the country moves cash above $250K into 3 month treasury bills.
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Re: Silicon Valley Bank Failure

Post by Mark Leavy » Sat Mar 11, 2023 12:40 am

Mark Leavy wrote:
Fri Mar 10, 2023 6:26 pm
..., but that is a logistical nightmare and probably frowned upon if SVB also happened to be one of your VC funders.

Ha! I was just guessing earlier, but ... good guess.

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Re: Silicon Valley Bank Failure

Post by Maddy » Sat Mar 11, 2023 6:30 am

It's being reported that Circle, the second largest issuer of Stablecoin, held something like $10 billion in cash reserves at SVB.
https://www.coindesk.com/markets/2023/0 ... lley-bank/
U.S.-based stablecoin issuer Circle held a part of its USDC stablecoin’s cash reserves at Silicon Valley Bank as of Jan. 17, according to the firm's latest attestation.

USDC is the second-largest stablecoin on the market, with a $43 billion circulating supply that is fully backed by government bonds and cash-like assets.

According to Circle’s January reserve report, the firm held some $9.88 billion of cash deposited at regulated banks to back USDC’s value. According to Circle's website on March 10, cash deposits in the reserves amounted to $11.1 billion.
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Re: Silicon Valley Bank Failure

Post by Maddy » Sat Mar 11, 2023 7:30 am

Here is a partial list of depositors who didn't get out in time:

USDC - Crypto Stablecoin run by Circle - Silicon Valley Bank is one of six banking partners Circle uses for managing the ~25% portion of USDC reserves held in cash. While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle & USDC continue to operate normally.

ROKU - Roku had 26% of its cash, $487 million with Silicon Valley Bank

BLOCKFI - BlockFi has $227 million in "unprotected" funds in Silicon Valley Bank, according to a bankruptcy document, and may be in violation of U.S. bankruptcy law.

RBLX - Roblox said 5% of its $3b cash and securities balance is held at SVB.

DNA - Gingko Bioworks: Only the cash balance of the company's wholly-owned subsidiary Zymergen Inc. is held in deposit accounts at SVB, representing approximately $74M or 6% of the company's cash and cash equivalents as of December 31, 2022

RKLB - RocketLab USA had about $38 million in its accounts with the bank, representing about 7.9% of the startup’s cash and equivalents

LC - Lending Club warned about potentially losing funds on deposit at SVB of $21 million, said amount isn't material to its liquidity position or capital levels, and doesn't pose a risk to the group's business or operations.

PAYO - Payoneer: Of the company's approximately $6.4B in total cash balances as of December 31, 2022, less than $20M is held at SVB

PTGX - Protagonist Therapeutics considers its exposure to any liquidity concern at SVB to be limited, given that cash held at SVB is approximately $13 million as of March 9, 2023.

ACHR - Archer Aviation entered into a $20 million loan with SVB in 2021, $10 million of which is due for repayment in 2023

COHU - Cohu announced that it has deposit accounts with SVB with an aggregate balance of approximately $12.3M, which is approximately 3.8% of the company's total cash and investments.

IGMS - IMG Biosciences: 'As of March 10, 2023, the Company holds less than $5.0 million in deposits at SVB. Therefore, the Company believes it does not have any material exposure to any liquidity concerns at SVB.'

RYTM - Rhythm Pharmaceuticals announced that it has deposit accounts with SVB with an aggregate balance of approximately $3.4 million, which is approximately 1.1% of the Company's total cash and cash equivalents.'

SYRS - Syros Pharmaceuticals discloses that, as of March 10, 2023, it has two deposit accounts at Silicon Valley Bank. One of these accounts has a balance of less than $250,000, and the other has a balance of approximately $3.1 million pursuant to a letter of credit that the Company was required to provide to its landlord in connection with the execution of the lease for its corporate headquarters...

EYPT - EyePoint Pharmaceuticals currently maintains a de minimis amount of cash, in the single digit millions of U.S. dollars, with Silicon Valley Bank (SIVB)

ATRA - Atara Biotherapeutics currently maintains an account at Silicon Valley Bank (“SVB") holding cash deposits of approximately $2 million, which amount the Company considers to be immaterial to its liquidity.'

ISEE - Iveric Bio currently maintains a de minimis amount of cash and cash equivalents, in the low single digit millions of U.S. dollars, with Silicon Valley Bank ("SVe").'

VERA - Vera Therapeutics currently holds approximately 1.2% of its cash and investments with SVB. Accordingly, the Company considers its risk exposure relating to SVB to be minimal.

XFOR - X4 Pharmaceuticals had approximately 2.5% of its cash deposits with SVB.

CTMX - CytomX Therapeutics does not consider its exposure to any liquidity concern at SVB to be significant. The cash held at SVB in CytomX’s operating CTMX account is at or near the FDIC-insured limit of $250,000. CytomX also maintains a deposit account at SVB under a standby letter of credit issued pursuant to its office lease for approximately $917,000.'

AXSM - Axsome Therapeutics has material cash deposits with SVB.

WVE - Wave Life Sciences aggregate amount of the company's cash and restricted cash held at SVB is approximately $1.5M.

JNPR - Juniper Networks maintains operating accounts at SVB with a minimal cash balance of less than 1% of the company's total cash

QS - QuantumScape has very limited exposure to SVB, with only a low single digit percentage exposure relative to both the Company's total liquidity and total assets.

https://www.zerohedge.com/markets/recor ... gative-1bn

Bringing it closer to home, it's being rumored that Etsy has informed its vendors that payments are being put on hold indefinitely as a result of the failure of SIVB.
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Re: Silicon Valley Bank Failure

Post by vnatale » Sat Mar 11, 2023 8:12 am

Mark Leavy wrote:
Sat Mar 11, 2023 12:40 am

Mark Leavy wrote:
Fri Mar 10, 2023 6:26 pm

..., but that is a logistical nightmare and probably frowned upon if SVB also happened to be one of your VC funders.



Ha! I was just guessing earlier, but ... good guess.


Mark Cuban.png


It's totally usual for a business that borrows from a bank to be required to maintain its main bank account with that bank.

From a Libertarian perspective then does not this fall upon the borrower for choosing that particular bank to borrow money from?
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Re: Silicon Valley Bank Failure

Post by vnatale » Sat Mar 11, 2023 12:52 pm

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Re: Silicon Valley Bank Failure

Post by glennds » Sat Mar 11, 2023 2:24 pm

Mark Leavy wrote:
Fri Mar 10, 2023 11:48 pm


In the short term, I would expect another (possibly large) run on the banks come Monday as every CFO in the country moves cash above $250K into 3 month treasury bills.
That's a massive amount of money.
I wonder what effect it might have on the treasury and short term debt markets to experience a sudden epic buy volume like that.
I guess we'll find out.
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Re: Silicon Valley Bank Failure

Post by Maddy » Sat Mar 11, 2023 3:07 pm

From Jim Rickards:
The behavioral and complex dynamics of bank runs and crypto runs are identical with one important difference: Banks have the Fed behind them, cryptos don't.
From Tom Luongo:
Lots of smoke here that SVB was a directed hit against another stablecoin and the [crypto] infrastructure.
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Re: Silicon Valley Bank Failure

Post by Mark Leavy » Sat Mar 11, 2023 7:17 pm

glennds wrote:
Sat Mar 11, 2023 2:24 pm
That's a massive amount of money.
I wonder what effect it might have on the treasury and short term debt markets to experience a sudden epic buy volume like that.
I guess we'll find out.
Fortunately, a lot of corporate CFO's aren't as on the ball as we would like to imagine. Certainly there will be some heavy action come Monday morning, but it's possible that the Feds will come to their senses and intervene before the large majority of CFO's get on the stick and do something. If the Feds don't make some sort of announcement to raise FDIC or ??? then I would fire any CFO that didn't immediately setup a system to overflow money into T-Bills.

Some people aren't waiting until Monday. Lines around the block at First Republic in Napa, CA.
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Re: Silicon Valley Bank Failure

Post by Maddy » Sun Mar 12, 2023 10:03 am

Hedge funds are offering to buy startups’ deposits stranded at Silicon Valley Bank for as little as 60 cents on the dollar, pitching expensive but crucial lifelines to founders unable to access their cash after the lender collapsed yesterday, people familiar with the matter said.

Firms better known for investing in distressed debt, including Oaktree, one of the people said, are fanning out to startups in the wake of the bank’s failure and seizure by the Federal Insurance Deposit Corp. on Friday. Its collapse left hundreds of startups — as well as the venture funds that backed them — unable to access their cash to meet payroll and other expenses.

Bids range from 60 to 80 cents on the dollar, the people said, reflecting a range of expectations for how much of the uninsured deposits — those that exceed the FDIC’s $250,000-per-customer cap — will ultimately be recovered once the bank’s assets are sold or wound down.
https://www.semafor.com/article/03/11/2 ... alley-bank
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Re: Silicon Valley Bank Failure

Post by Maddy » Sun Mar 12, 2023 12:58 pm

The more I read, the more I realize how deeply involved this bank was in the whole ESG thing. https://www.breitbart.com/clips/2023/03 ... r-returns/

One astute guy on the internet asked a very good question: How many pension funds were required to invest in this bank and in the numerous "woke" causes with which it was intertwined? How many funds abdicated their fiduciary duties to do so?

It's being rumored that Sweden's largest pension fund, Alecta, has been decimated by the fallout of this collapse. Confirmed 3/13/22 https://www.thegatewaypundit.com/2023/0 ... on-friday/
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Re: Silicon Valley Bank Failure

Post by glennds » Sun Mar 12, 2023 1:09 pm

Mark Leavy wrote:
Fri Mar 10, 2023 11:48 pm


And then the unimaginable happened. Rising interest rates. Kaboom.

A lot of regional banks are in the same position.

If the Feds raise rates, more banks go under.
If they don't raise rates, inflation stays high.
Jerome Powell not feeling irie this weekend

I imagine Bernanke sipping margaritas knee deep in ass.
Most wouldn't wish ill on their successor, but the "there but for the grace of God go I" is a pretty sweet high.
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Re: Silicon Valley Bank Failure

Post by Mark Leavy » Sun Mar 12, 2023 3:06 pm

One of the OG forum founders here sent me a link to this video.

If you want to listen to a recount of how the SVB collapse played out for startup founders on Thursday and Friday - it is accurate. Pretty much a play by play of how it went down for my partners and I.

We're not nearly as exposed as some and were able to control the damage by jumping on it early. Some cleanup to do next week, but all good. My partners and I can float payroll until the company funds are recovered.

A lot of other companies (and their employees) may not be making payroll.
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Re: Silicon Valley Bank Failure

Post by Maddy » Sun Mar 12, 2023 3:41 pm

Some interesting observations from Bill Ackman:
The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan, @citi or @BankofAmerica acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs). These funds will be transferred to the SIBs, US Treasury (UST) money market funds and short-term UST. There is already pressure to transfer cash to short-term UST and UST money market accounts due to the substantially higher yields available on risk-free UST vs. bank deposits. These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions. The increased demand for short-term UST will drive short rates lower complicating the @federalreserve
’s efforts to raise rates to slow the economy. Already thousands of the fastest growing, most innovative venture-backed companies in the U.S. will begin to fail to make payroll next week. Had the gov’t stepped in on Friday to guarantee SVB’s deposits (in exchange for penny warrants which would have wiped out the substantial majority of its equity value) this could have been avoided and SVB’s 40-year franchise value could have been preserved and transferred to a new owner in exchange for an equity injection. We would have been open to participating. This approach would have minimized the risk of any gov’t losses, and created the potential for substantial profits from the rescue. Instead, I think it is now unlikely any buyer will emerge to acquire the failed bank. The gov’t’s approach has guaranteed that more risk will be concentrated in the SIBs at the expense of other banks, which itself creates more systemic risk. For those who make the case that depositors be damned as it would create moral hazard to save them, consider the feasibility of a world where each depositor must do their own credit assessment of the bank they choose to bank with. I am a pretty sophisticated financial analyst and I find most banks to be a black box despite the 1,000s of pages of @SECGov filings available on each bank. SVB’s senior management made a basic mistake. They invested short-term deposits in longer-term, fixed-rate assets. Thereafter short-term rates went up and a bank run ensued. Senior management screwed up and they should lose their jobs. The @FDICgov
and OCC also screwed up. It is their job to monitor our banking system for risk and SVB should have been high on their watch list with more than $200B of assets and $170B of deposits from business borrowers in effectively the same industry. The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks’ access to low-cost deposits. This administration is particularly opposed to concentrations of power. Ironically, its approach to SVB’s failure guarantees duopolistic banking risk concentration in a handful of SIBs. My back-of-the envelope review of SVB’s balance sheet suggests that even in a liquidation, depositors should eventually get back about 98% of their deposits, but eventually is too long when you have payroll to meet next week. So even without assigning any franchise value to SVB, the cost of a gov’t guarantee of SVB deposits would be minimal. On the other hand, the unintended consequences of the gov’t’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday. Otherwise, watch out below.
https://twitter.com/BillAckman/status/1 ... 8919368704
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Re: Silicon Valley Bank Failure

Post by glennds » Sun Mar 12, 2023 4:58 pm

Maddy wrote:
Sun Mar 12, 2023 3:41 pm
Some interesting observations from Bill Ackman:

***
https://twitter.com/BillAckman/status/1 ... 8919368704
In 1991 when Bank of New England failed, the FDIC stepped in and insured all depositors including those over the (then) $100,000 limit. They did so for the exact reasons your quote describes, namely to prevent panic among depositors that would spread throughout the financial system.
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Re: Silicon Valley Bank Failure

Post by Mark Leavy » Sun Mar 12, 2023 5:33 pm

Feds just closed Signature Bank out of NYC.

Major Kudos to the treasury department intern that used the leet URL.
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Re: Silicon Valley Bank Failure

Post by Mark Leavy » Sun Mar 12, 2023 5:50 pm

glennds wrote:
Sun Mar 12, 2023 4:58 pm
In 1991 when Bank of New England failed, the FDIC stepped in and insured all depositors including those over the (then) $100,000 limit. They did so for the exact reasons your quote describes, namely to prevent panic among depositors that would spread throughout the financial system.
Since then, there have been about 10 bank failures (out of hundreds) where the depositors were not made whole. I think the average was about 50% of the uninsured assets returned after liquidation.

That said, I expect that SVB depositors will eventually be made whole. The problem is the timing. If there is no concrete reassurance coming quickly (i.e. the 48 hour window mentioned in Maddy's post) then I expect some issues....

The Fed is doing a lot of posturing right now, so I assume that they understand what is at stake. We'll see.
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