Everyone now knows that SVB's depositors will be bailed out by the federal government, but SVB's shareholders will not. Given that SVB's losses exceed its equity capital, it's likely that SVB shareholders will get... nothing. By implication, the common stock of all other banks in a similar situation are also worth... nothing.
Baseless speculation, but I wouldn't be surprised if some withdrawals are just moving money around to spread risk. High confidence, but high withdrawals?
Why wait for something to get given back when you can take it back right now? Dealing with insurance is always a bitch, especially if they have to pay. They'll drag it out years.
I think the point still stands: why keep your money in a bank known to be insolvent? What is the upside? Especially if you already have an account at a bigger bank.
Not a lot of upside, but on the other hand you don't have to deal with all the hassle to switch banks. Even as a private person, I don't relish the idea of switching my bank. I have quite a number of autopayments set up. My salary also goes automatically in my bank account. If I switch it would take me days to set up everything again. I imagine a small/medium company would go through this, but times 100. If you are short on manpower (and who isn't nowadays?), then you have better things to do.
The upside is that the bank you keep your money in doesn’t go out of business. Why keep your money there in the first place if you don’t get some kind of service you like from the bank?
I feel the exact opposite as you. Now that essentially 100% of deposits are guaranteed indefinitely, there is only downside to withdrawing.
For the same reason people went to SVB in the first place: better deals. JP Morgan won't give you the same below-market home-financing deals in return for you working with them exclusively at your startup.
It's not clear what was meant by "other banks" above. If "other banks" means a large percentage of all of them, the FDIC doesn't have the cash on hand. Sure there may be appropriations from somewhere else, but that could take awhile.
a “run” can simply be a wake up call to wealthy people with hundreds of thousands or millions in some 0% earning checking account to funnel that money into a money market or t-bills earning 4-5%.
that would alone create some outflow even if the reason is not panic
I happened to check what my citibank savings account pays these days...0.12% interest. Not that I keep any significant amount of money there, anyway. I would if they would pay remotely close to competitive interest rates, but I guess they're banking on most people being too dumb to realize that they can get 4-5% more on their money if they take 5 min to open an account elsewhere.
That dynamic, known as cash sorting, had already been going on for several months, and appeared to be stabilizing.
If anything, I think the events of the last few days could reduce it somewhat. Better to have your funds safe earning little in a Big 4 bank than somewhere else with higher rates but now perceived to be risky.
There doesn't need to be a run, a bank will be closed by FDIC if it is insolvent.
And in SVB's case, a very small amount of withdrawals was enough to trigger insolvency. (As it forced the bank to sell, and thereby mark-to-market it's long-term treasuries.)
SVB had $45B withdrawals on their $175B deposit base. That is not a small amount of withdrawals.
JPM has $500B of cash and cash equivalents on their $3T deposit base. Of which only ~$34B is in actual cash. Even JPM would fall (without Fed backstop) if JPM had that much withdrawals as a percentage of deposit.
> SVB had $45B withdrawals on their $175B deposit base. That is not a small amount of withdrawals.
Almost all of those withdrawals happened after the bank was insolvent.
SVB had to sell all of their available securities to cover day-to-day customer withdrawals (The problem with being the bank of choice for startups is that they aren't making any money, aren't getting any new investments, but are still spending money.)
The bank run started after SVB started dipping into its underwater long-term securities, and borrowing money, and doing emergency fundraising.
A more diversified bank (Like any of the big four) would avoid this problem, because their regular day-to-day activity would be a ~net-zero balance of withdrawals and deposits. SVB was uniquely vulnerable because of its undiversified customer base, where normal customer activity pushed it towards insolvency.
But one of the new facilities announced yesterday is designed to keep that from happening to the other banks... If they have this liquidity problem due to long-term bonds, they can now turn those into cash for a year without paying interest.
Seems like there won't be that many banks with such large average account sizes (which is probably one component of being in a similar situation). First Republic touts their large average account sizes though.
Most community banks aren't in a similar situation though. This is mostly caused by panic, not reality. If people didn't panic about SVB eating a loss, even it wouldn't have likely failed. Now people are not using logic and causing panic across the board. Mostly caused by VC tech bros going around stirring up things in a hope to get a bailout. That's why the Fed/Treasury/FDIC stepped in this morning to hopefully instill confidence.
This is mostly caused by panic, not reality. If people didn't panic about SVB eating a loss, even it wouldn't have likely failed
That's not "reality" though. The phenomenon of people "panicking" (ie acting sensibly when their savings are at risk and getting them out while they still can) is a fundamental part of the crisis-process of any bank when it is badly managed.
Saying "well if people just ignored history and group psychology and hope nothing bad will happen and risk all their savings by doing nothing, then nothing bad will happen" just isn't remotely realistic.
> people didn't panic about SVB eating a loss, even it wouldn't have likely failed
Silvergate, SVB and Signature were insolvent. This wasn't a fire sale prompting a decline in their asset values, i.e. classic illiquidity. It was their assets being worth less than their liabilities. If it were purely a liquidity issue, they could have borrowed at the Fed's discount window. (As First Republic appears to be doing.)
SVB was literally insolvent though. Not only that, but they couldn't put together a rescue stock sale - it fell through. This was not a bank run caused by panic, but a run caused by an already failed, insolvent institution.
"Most community banks aren't in a similar situation though. This is mostly caused by panic, not reality."
Nothing prevents panic from overriding reality at other banks.
Of course, but the underlying books aren't the same, the SVB problem was fairly unique. Once the panic is over, most all other regional banks will be fine. The only way they will fail is if the mob creates additional panic for either a false perception or a political gain (bailout.) That's basically what happened on Friday.
Isn't the fact that people are panicking part of the reality of the situation? Or do we exclude human behaviour from financial calculations. Am I stupid for predicting other people will panic?
SVB shares are worth $0 because there was a run on the bank and the US Government did not step in to save the bank, only the depositors.
If the same thing happens to other banks - everyone withdraws, they shut down and the government steps in - the assumption is that their equity will eventually be worth $0 too. So, everyone sells at >$0.
> SVB shares are worth $0 because there was a run on the bank and the US Government did not step in to save the bank, only the depositors.
And there was a bank run because the investors panicked and caused the share price to plummet. Depositors saw stock plummeting, got nervous and pulled out. If this type of thing spreads to other banks we'll have a bad time.
Hence, the US government stepping in to ensure both depositors are made whole, and (more importantly) saying that the banks can redeem their underwater treasury bills at par (up to some limit under some circumstances obviously).
Hopefully this isn't too little, too late. There are already a few regional banks with share prices getting hammered in the market this morning regardless of the intervention.
