Do you have some reliable source about it?
(NOT a "look at it logically" or "here's how my health insurance works, why would the FDIC be different", or "do your own research" or anything else that's some random internet comment - I'm looking for real meat about this claim).
Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
In other words, if the FDIC's current funds can't cover the bill, an extra fee will be levied on banks to make up for it.
The problem, as it were, isn't some lurking or hidden loss, it's arguably that these answers aren't currently available and we don't have the slightest idea in the public what will happen if profits result from the bailout venture. This shouldn't be a "heads-I-win-tails-you-lose" redux.
The only thing we can be certain of is shareholders are wiped out and general creditors will take a significant haircut.
I guess the FED could have bullied some banks into buying the securities at a higher rate, but the books themselves are transparent.
1. Illiquidity. For example, there might be few people anywhere in the world with the expertise to accurately value some weird loan to a startup. If those prospective buyers are busy or undercapitalized, then the market may become inefficient, with best bids well below FMV. If we wait for those expert buyers to research the startup's credit risk, to raise more money themselves, etc., then the bids will eventually come back up to FMV. This is the classic "It's a Wonderful Life" style bank run, and was an important dynamic in 2008.
2. Time value of money. Assuming positive interest rates, a dollar later is worth less than a dollar now. The NPV of a given cash flow will remain constant, which means that its current value will increase steadily with time. When interest rates increase, the NPV of a future cash flow decreases, and the FMV of the corresponding asset decreases. This isn't a market inefficiency. If you assume that money is lent at interest and no riskless arbitrage opportunities exist, then it's just how money works.
The SVB's problem was #2. There's a liquid and orderly market for their assets, trading at prices close to those predicted by a simple NPV calculation; that price is just lower than the SVB wished. Hold-to-maturity accounting allowed them to ignore that, but that didn't change the economic reality.
The FDIC's current funds were $128.2 billion on December 31 2022
SVD had ~$200 billion of deposits December 31 2022 - but obviously had significant withdrawals prior to being taken over. Likely < 100 billion remained.
Beyond the special assessment, they almost certainly need to raise a new assessment to cover $250k+ deposits. Full insurance can't be on a discretionary basis.
As long as the rates on the bond are > than the rates SVB is paying its depositors it will be fine.
For the Treasuries, this is known but not public. For the MBS, a theoretical value is known but not public. (The federal government has to sell these securities. It doesn't make sense to announce the holdings so they can be front run.)
They state clear as day that they had 91 billion of securities, currently worth 76 billion in their hold to maturity portfolio.
In their avalable for sale (AFS) portfolio, they had 28 billion, currently worth 26.
They break it all down by asset type, MBS, treasuries, foreign debt, ect. They break it down by the duration, eg <1yr, 5-10, 10+ yrs
There is no mystery. I dont know why people keep saying this.
Check out page 124 onward if you are curious: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000719739/f36fc4d...
Yes, categorically. No, not specifically. 5 and 10 years produce different answers, particularly with current convexity. (It is fine if you're trying to get broad-grained answers.)
Potential buyers over the weekend got a list of CUSIPs. The public does not get that until ex post facto.
We still have a very good understanding of the "delta" and the magnitude of the loss, if not with crystal clarity.
Nearly all of the unrealized loss was in securities more than >10 years. They had 15.1 billion in unrealized HTM losses. 14.7 billion of this had a maturity >30
9 billion is agency MBS
2 billion in agency collateralized mortgage obligations
2.3 billion in commercial mortgage backed securities, and
1.2 in municipal bonds and notes.
They actually have relatively few treasuries, and none in their HTM portfolio. Unrealized losses on treasuries are ~1 billion, And mostly treasuries from treasuries less than 12 months ( contrary to what most people report).
I really recommend actually looking at their filing. It is extremely detailed.
https://d18rn0p25nwr6d.cloudfront.net/CIK-0000719739/f36fc4d...
That doesn’t matter, because they’re federally backed. But it’s a crucial difference to appreciate less than one week after a run.
I'm not willing to do it to win a hn debate, but there's enough public information to estimate the size of their hole within a billion or two.
Claims that they were evasive or hiding things in their financial reportings are off base. Claims that it would be impossible to get an idea of their Financial losses are also off base.
Nobody (in this thread) claimed this? And I disagree with the “within a billion or two,” though do think within a few tens of billions is accurate. The problem isn’t the specificity of the filing per se but the delay; that isn’t the balance sheet anymore.
It is clear from the statement that we are almost entirely talking about 30 year MBS purchased in 2021.
3% 30yr MBS were about $105 throughout 2021. These were about $89.2 at the end of 2022 (10-k filing), and about $89.4 today.
You might say, "but they may have put it 30yr MBS!". The thing is, you can validate this by the ammount they lost from 2021 to 2022. It also doesnt make much of a difference if they bought slightly different rate MBS at 2.5% or 3.5%, as they track pretty closely. Lastly, MBS value havent changed much since the time of the 10-k filing.
To get "a few tens of billions" difference, they would have had to tripple their losses on MBS in a time when MBS value has been stable.
Buy Banana futures while it's still cheap.
Since 1933.
It always has been.