I keep reading comments like this, but I've seen no well sourced material saying that the FDIC is raising rates.
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).
No one has published what kind of discount the gov't applied to the assets it is leveraging to make uninsured SVB depositors whole. For all we know the government correctly forecast the likely future losses, allocated some extra assets from the SVB carcass, and functionally prepaid those maybe rate increases.
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.
FDIC took over because SVB failed to make a margin call Thursday 9 March. Not having the money today while operating as a going concern, and having the money never after a liquidation, are different things.
No, that is not known at this time. It will take a few years to fully wind down the assets so as of right now no one knows if recovery will be <100%, 100% of deposits, or >100% of deposits (in which case general creditors may get some money).
The only thing we can be certain of is shareholders are wiped out and general creditors will take a significant haircut.
I is pretty clear they are underwater from their SEC filings. You know what exactly what their assets are and what their the fair market value of their securities. They reported the fair market value of their underwater loans.
I guess the FED could have bullied some banks into buying the securities at a higher rate, but the books themselves are transparent.
The market fluctuates. If those assets are held to maturity most will payoff without losses... even some of the subprime mortgage dreck from 2007 ended up recovering, SVB's assets are far less impaired.
If you can recover full capital from a selloff, SVB wouldn't be insolvent in the first place. The reality is that you can't, which is why we are here. The haircut is probably, also, deeper than 1-10% because otherwise SVB would have borrowed this money against its own "capital". Clearly, that was not possible too. The haircut seems to be quite big but there is no information whatsoever about how big the losses are.
Nope. The haircut was only severe because of the immediacy of the bank run. With more buffer (presumably the new holders of SVB's assets have more cash!) and no bank run fears, those assets will eventually mature to their full value. The "haircut" only applies if you're forced to take the marked-to-market value today.
You're conflating two reasons why an asset might be worth less now, but more later:
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.
> if the FDIC's current funds can't cover the bill
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.
> I've seen no well sourced material saying that the FDIC is raising rates
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.
Minus the assets they recovered from SVB which will probably cover most of it given they were just illiquid, not fraudulent. All those bonds didn’t just disappear.
They don’t have enough treasuries to cover deposits even if they could liquidate them for par value. They’re also holding a bunch of startup loans which I doubt are going to fetch the valuation they assigned to them on their balance sheet, otherwise they would’ve been acquired whole by one of the big banks. Nobody put in a bid for the whole book of business, there must be a good reason for that. Not wanting to assume the credit risk of SVBs loan portfolio is a reasonable guess.
The value of those bonds is less than what it says on the balance sheet. They were not able to sell them at price X meaning they are no longer worth that much. The rate on those bonds is less than inflation, meaning keeping them to maturity won't recover original value.
You know what else is below inflation? The rates SVB has to pay its depositors. As long as the rate is > 0, which is the rate SVB will pay its depositors, there’s no reason the Feds should take any hits.
As long as the rates on the bond are > than the rates SVB is paying its depositors it will be fine.
What’s the delta though? Nobody seems to be able to quantify how much this is, but still are able to muster outrage over some unknown amount of harm done to them as bank users.
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.)
> 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
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.
The public does know the current value of all securities, and of several different buckets. Yes, these market values will change at different rates for individual assets, and we dont have a list of every stock, bond, and loan.
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.
Like I said above, you won't have a crystal clear number but you have some brackets on the fair market value. The assets under management belong to the account holders so you can zero them out. You can zero out the shareholder value which is zero. This mainly leaves there other cash assets and physical assets.
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.
> they were evasive or hiding things in their financial reportings are 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.
>And I disagree with the “within a billion or two,” though do think within a few tens of billions is accurate.
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.
Janet has just declared that. The Banana court will determine whether you are worthy of full insurance or not. As a bank. I wouldn't be surprised if we have more of these in the future, that the insured parties will be favored too. "Oh, we are only covering X and Y, because they are systemically important to the rest of the economy".
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).