Silicon Valley Bank collapse

[TLO]

I was wondering where they will put it?

OK, so if I take my millions out of Silicon Valley Bank and put it into AIB. Now I am worried about AIB, but where do I go with it?
I can't take it out in dollar notes and keep it under the bed.

Brendan

An Post/State Savings will let an individual put €250k on deposit. Apparently a company can put €5m on deposit. For higher amounts, one presumably should find a bank with the strongest balance sheet, and which is likely to be considered systemic, aka too big to fail.

For the US market, the likes of Bank of America or Citibank probably fit the bill. In Ireland, it's Bank of Ireland and AIB.

 

[joe sod]

It's what happened in the UK with the LDI debacle.

But the central banks already large holders themselves of government bonds, that was how they depressed interest rates.
Then in this case they also need to buy the bond holdings of the banks .
Is this not a problem, I understand that alot of the Irish government bonds mature in 2030. Theoretically bringing this to its logical conclusion the only effective buyer of the bonds will be the central banks . This will be what happens if inflation and interest rates keep rising?

 

[tecate]

But the central banks already large holders themselves of government bonds, that was how they depressed interest rates.
Then in this case they also need to buy the bond holdings of the banks .
Is this not a problem, I understand that alot of the Irish government bonds mature in 2030. Theoretically bringing this to its logical conclusion the only effective buyer of the bonds will be the central banks . This will be what happens if inflation and interest rates keep rising?

It "works" for the Japanese...

 

[skrooge]

I was wondering where they will put it?

OK, so if I take my millions out of Silicon Valley Bank and put it into AIB. Now I am worried about AIB, but where do I go with it?
I can't take it out in dollar notes and keep it under the bed.

Brendan

Not all banks are equal. And why limit it to one bank... I might not get the best deposit rate on the market but better to forgo some interest versus loosing a large chunk of the balance.

With my imaginary corporate millions I would be looking for a bank that is less reliant on corporate funding (retail funding is good) and less up to their neck in bonds.

Striking how much of an outlier SVB bank was (easy with hindsight admittedly)

https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/silicon-valley-bank-failure-amv.pdf

 

[Duke of Marmalade]

Here is a key take-away from that JPM report.

The irony of SIVB is that most banks have historically failed due to credit risk issues. This is the first major one I recall where the primary issue was a duration mismatch between high quality assets and deposit liabilities. As shown below, being flooded with deposits from fast-money VC firms and other corporate accounts at a time of historically low interest rates might have been more of a curse than a blessing • I wonder whether Fed models on systemic risk incorporate the possibility that some banks would be duped into thinking that QE-induced rates prevailing in 2020 represented fair value, and would load up on them

I have emphasised what really surprised me. I know no-one who thought bond prices with those QE induced yields were fair value. How did such a major institution get "duped" by it.

 

[Protocol]

I understand most aspects of this bank's troubles, except one thing: why did they sell the bond assets at a loss? Why not hold until maturity?

 

[skrooge]

I understand most aspects of this bank's troubles, except one thing: why did they sell the bond assets at a loss? Why not hold until maturity?

Some depositors wanted their money - more than the bank had cash for. Not necessarily a bank run they might have wanted it for operating their own business. In order to be able to pay out svb needed to sell something hence why they were forced to realise a loss on the bonds.

 

[joe sod]

This crises still ongoing be interesting to see how it affects the bond markets and the demand for government bonds. The ntma sold 1 billion euros of irish government bonds at 3.2% just before the SVB crisis but they need to roll over 10 billion euros this year as they mature. Will they now have to pay alot higher interest rates in order to roll these over? Will financial institutions now require a bigger interest rate cushion in order to protect themselves from holding too many low interest rate government bonds

 

[wondering]

Reading about this around the web, many say there was money laundering.

 

[jpd]

The principal problem with SVB was very bad risk management on the part of the bank executives and management

 

[joe sod]

The principal problem with SVB was very bad risk management on the part of the bank executives and management

Yes I read a good article about it yesterday, they had a woman employed in risk management but she resigned last year and wasn't replaced for nine months also alot of corporate bonds not just government bonds and these were very difficult to sell quickly. However it showed how fast a bank run can happen in the modern era, $43 billion was withdrawn from the bank in 24 hours, no bank could sustain that. There were no queues outside the bank like 2007 with Northern Rock this was all withdrawn online. Maybe they will have to put withdrawal limits on all bank accounts to prevent a panic and a bank run like this one

 

[Towger]

There is a scene in Mary Poppins which should be compulsory viewing for bankers every few years.
The mistake I made with NR was I dropped in a withdrawal slip in person, as soon as it looked like they were in trouble. I should have waited and got my money in person. It was weeks before I got paid and in the meantime time the queues grew each day.

https://youtu.be/xE5klz0yUT0

 

[DazedInPontoon]

Debit Suisse being bought by UBS. Apparently shareholders taking a 75-80% haircut on the closing price on Friday.

 

[Brendan Burgess]

There is a scene in Mary Poppins which should be compulsory viewing for bankers every few years.

That is brilliant.

Back when I was campaigning against the lending practices of Irish Nationwide I put down a motion of no confidence in Michael Fingleton at the AGM. The Financial Regulator did not want it discussed because they thought it might spark a run on the bank. I was annoyed, but, in retrospect, they did have a point.

From memory, they told the board to put down a motion of confidence in Fingers instead.

Brendan

 

[DublinHead54]

Wow this contagion has spread fast.

 

[Sunny]

Additional Tier 1 bond holders giving out that their 17 billion of Credit Suisse notes are now worthless is priceless......Like seriously???

They have got a point about €3 billion going to shareholders though.....I don't know enough details about the deal but this does look like they are trying to bypass the capital structure.....

 

[joe sod]

Additional Tier 1 bond holders giving out that their 17 billion of Credit Suisse notes are now worthless is priceless......Like seriously???

They have got a point about €3 billion going to shareholders though.....I don't know enough details about the deal but this does look like they are trying to bypass the capital structure.....

The Saudi fund that had 10billion invested in the bank will also be big losers out of this.
What will this mean in the future for bonds, surely it will push up the interest rates more since investors will need to cover themselves for default risk. Will it also hamper the ECB ability to keep interest rates low for government bonds since now all bonds have higher risk and therefore need higher interest rates. We will never see zero interest bonds again after this.

 

[Duke of Marmalade]

Additional Tier 1 bond holders giving out that their 17 billion of Credit Suisse notes are now worthless is priceless......Like seriously???

They have got a point about €3 billion going to shareholders though.....I don't know enough details about the deal but this does look like they are trying to bypass the capital structure.....

Yes, plenty of discussion on that. AT1 bonds are apparently an invention borne of the GFC. They appear to allow, I think the authorities, to write them down to zero if certain capital ratios are not met i.e. not necessarily that the bank is insolvent. It only happened once before but the shareholders were also wiped out in that case. I think this is a first.

 

[Sunny]

Yes, plenty of discussion on that. AT1 bonds are apparently an invention borne of the GFC. They appear to allow, I think the authorities, to write them down to zero if certain capital ratios are not met i.e. not necessarily that the bank is insolvent. It only happened once before but the shareholders were also wiped out in that case. I think this is a first.

I see the ECB have distanced themselves from the move.....Strange one. Junior bondholders tend to be the most litigious investors as they will try and suck every cent out the process. Can't see how this can avoid Court Challenge unless there is something in Swiss Law. Apparently they had no covertible Tier 1 notes outstanding. It was all write off notes. So it did add complications but I still don't see how equity holders are entitled to anything here.

 

[MugsGame]

OK, so if I take my millions out of Silicon Valley Bank and put it into AIB. Now I am worried about AIB, but where do I go with it?
I can't take it out in dollar notes and keep it under the bed.

This seems to be the role of Treasury Management departments in larger companies, not sure if there are off-the-shelf solutions in Ireland for smaller entities.