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Comment by drgath | Hacker News Reader

Have we yet deviated from FDIC rules? I don’t think so, even with what Yellen says. My limited understanding of the situation is that the assets to cover everything is there, they’re just tied up in long-term treasuries.

From the FDIC’s site:

> As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits.

For simplicities sake, let’s just assume 100% of the assets are actually there, but it’ll just take varying years for everything to mature. So, what’s next? FDIC finds a buyer for the assets, perhaps a private bank or a a pseudo-government body who has the ability to wait till maturity, and in the meantime, everyone gets all their deposits. That’s not a “bailout”, and is following the rules.

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Magically using billions of federal money to hold assets to maturity is a bailout. If hypothetical JPMorgan is willing to pay for the (ie) bonds $20B, but they "support" $25B of deposits... that $5B is a bailout. Even if in 10 years those bonds would be worth $25B.

> So, what’s next? FDIC finds a buyer for the assets, perhaps a private bank or a a pseudo-government body who has the ability to wait till maturity, and in the meantime, everyone gets all their deposits.

Yes, that's happens in the ideal case. However, due to the rise in interest rates, the market value of SVB's assets is likely lower than $175B at the moment; so it might prove challenging for FDIC to find a buyer for these assets at the required price to give everyone their deposits back. Even well-capitalized entities that have the capital to refund depositors now and the ability to wait till maturity will not pay the face value for these bonds, as they can get a better return by investing that money somewhere else (such as treasuries).

> the market value of SVB's assets is likely lower than $175B at the moment

Deposits are less, too. We won’t have a good picture of their balance sheet until later.

That's true, I should've said that the market value of SVB's assets is likely lower than their deposits at the moment. Of course we don't know for sure, but if the market value of assets exceeded deposits, they wouldn't have had to close down.

> we don't know for sure, but if the market value of assets exceeded deposits, they wouldn't have had to close down

They would have borrowed at the Fed’s discount window if it did. That’s the systemic solution to illiquidity. The FDIC is a fix for insolvency.

the ability to wait till maturity = takes billions in losses

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