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Silicon Valley Bank: Difference between revisions
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{{a|disaster|}}So much ink has been spilled you don’t — yet — need more of it from the JC, except to mention how nice it is that, suddenly , every bot account on [[Twitter]] has an opinion, suddenly, about [[duration mismatch]] and moral hazard. | {{a|disaster|{{disaster roll|SVB memeplex}}}} | ||
So much ink has been spilled you don’t — yet — need more of it from the JC, except to mention how nice it is that, suddenly, every bot account on [[Twitter]] has an opinion, suddenly, about [[duration mismatch]] and moral hazard. | |||
==Was it a bailout?== | ==Was it a bailout?== | ||
Seeing as the depositors were paid out by bailed-in bank debt holders and shareholders, and a FDIC call on its levy fund. So, no, we don’t think | Seeing as the depositors were paid out by bailed-in bank debt holders and shareholders, and a FDIC call on its levy fund. | ||
So, no, we don’t think this was really a bail-out, in the sense that fat-cat bankers are once again exercising their [[Rubin trade]]<nowiki/>s and walking away with all the money. This time, they are not. Three classes of banker have been penalised: (a) term debt lenders, since they are bailing in the depositors; (b) Silicon Valley Bank and its shareholders, since they have all gone [[titten hoch]], and (c) the wider banking community, who contribute to the FDIC insurance fund and who might, if it runs out, be shipping a mean old levy that will make them weep and moan. The people who do okay out of this are the depositors — yes, yes, they are horrid techbros, see below — but in the great lore of bank capital structure they are still retail depositors, and entitled to be treated like they are [[Little old ladies|little old ladies of the law]]. | |||
This might cause the investing community to reappraise the credit standing of bank term debt — make it more expensive, since it is effectively subordinated to deposits — but that is probably the truth of the matter anyway. It might also encourage banks to shift their weighting between term debt and deposits ''towards'' deposits, as they’ll be cheaper. | |||
==Those depositors== | ==Those depositors== | ||
Yes | Yes, the depositors were all techbros and VCs; no, we shouldn’t feel sorry for them; yes, and it is okay (privately) to exalt in their distress at being so stupid. For, you may well ask, fairly, what the ''hell'' any company thinks it is doing leaving hundreds of millions on call deposit, and not sticking it into an instrument with a better yield. | ||
Most banks will gladly sweep excess credit balances into money market funds or some such thing overnight (indeed you might ask why SVB wasn’t encouraging the depositors to do this given it was transparently shipping deposit funding it did not want or need). | |||
===Concentration of, and correlation between, depositors is a significant risk=== | ===Concentration of, and correlation between, depositors is a significant risk=== | ||
You get the sense that no-one really thought about depositor correlation as a risk before. Who knew retail punters talked to each other? But this is now a real risk, and this is not the first time we have seen it rear its ugly head: the [[GameStop]] fiasco was exactly the same: the dumb, passive bovines in cattle class suddenly got together on Reddit to stick it to the man. It is like a millennial version of ''Animal Farm''. | |||
===Deposits really are flakey=== | ===Deposits really are flakey=== | ||
Since they can be removed at once, deposits are a ''really'' flakey balance sheet liability. | Since they can be removed at once, deposits are a ''really'' flakey balance sheet liability. | ||
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Making deposits effectively super-senior — giving them priority over term debt — helps generate that sense of confidence. | Making deposits effectively super-senior — giving them priority over term debt — helps generate that sense of confidence. | ||
Insurance | |||