I feel like a very likely outcome on Monday is that the FDIC announces a buyer, SVB depositors realize they're going to be made whole, and all the panic subsides.
Their shareholders are already panic selling (FRC down 36%), their bonds appear to be sinking, and few private parties wants to throw good money after bad. When you have to put out an emergency statement to reassure everyone of your creditworthiness, it's already gone.
I do agree that First Republic is in a much better situation relatively to SVB, but illiquidity and insolvency risk is real. I don't really see a reason why any business or individual with more than $250K shouldn't be wiring funds out ASAP, unless you're feeling extra charitable and want to be the bail-in to those who run before you.
There is nothing to lose, other than setting up new accounts.
SVB though sounds like nobody should go to jail it was just really bad investment decisions.
I’m sure the SEC will have some questions about that.
https://fortune.com/2023/03/10/silicon-valley-bank-ceo-greg-...
Everyone saying "they will be made whole" is completely missing the fact that money has a time value. There's nothing "made whole" about getting access to your money weeks or months from now.
Look at history and for example what happened to WaMu. It was literally one day.
Then again last time I thought this I had a contact text me joking he was preparing to learn Korean because his bank was probably going to get bought by Koreans. Seemed like it was just a matter of time to wait until Monday to see what the higher ups had decided.
You can guess where this contact was working. Until that Monday.
You mean like Roku, who was keeping $500MM at a depository institution instead of in T-bills or a money market fund.
https://www.fhlbboston.com/fhlbank-boston/rates#/long-term
If a bank’s portfolio of long-term fixed income instruments has a mark to market value that is $27bn less than their hold-to-maturity value, and the bank borrows $27bn at market rates to cover the shortfall, they will pay approximately, wait for it, $27bn (present value) in net interest while waiting for maturity to happen.
If the bank can manage to borrow the money in the form of non-interest-bearing deposits for the entire term of these instruments, then, sure, they’ll end up okay, because they will effectively make enough money on these deposits to cover their losses.
But the whole industry of non-interest-bearing deposits is a bit odd. When interest rates are around 2% and banks are offering maybe 0.75% interest, it may not be worth their clients’ time to try to earn interest. But when FDIC-insured banks are paying 3-4.5%, convincing a client to keep holding $2M in a non-interest-bearing account instead of spending an hour a week shuffling assets between checking and savings is a much harder sell, and much of those $27bn of required profits may well end up in the pockets of a bank’s customers. Which makes the effective value of the bank’s equity look bad, and maybe negative, and the bank may be toast.
Put another way, if you are actually insolvent, credit at market rates cannot make you solvent unless you have some other source of profit.