The big risk is that things stay frozen while this gets figured out (weeks to months), which will have major knock on effects if people don’t have alternative sources of liquidity.
People put money in the bank because they need it liquid (generally!).
That said, your overall point is correct, and previously the way this has been handled FDIC wise is that they have another, larger bank buy them out to provide the short term liquidity while asset sales happen.
The loans SVB made are less liquid and are harder to market. The FDIC will try to find a buyer and may agree to backstop some losses to get a deal done. This won't take more than a couple weeks and might get done this weekend too.
What proportion is valid when the same problem keeps happening?
SVB collapsed and is the largest bank failure since the 2008 financial crisis.
It is unlikely to cause contagion (though some disagree) which means luckily the Fed won't raise interest rates to mitigate that risk (unless they also think there's risk of contagion, like some experts do).
This isn’t quite accurate. The FDIC statement said they would make an advance payment on uninsured deposits within the next week.
So, there’s a guarantee that there is some money beyond 250k coming in less than a week. My guess is the other commenter’s analysis is close. The FDIC will determine the absolute floor of the value of assets that SVB had, and that will be the basis of the advance payments.
That will be the foundation of liquidity that companies will have while they wait for the rest of the process to conclude.
The media is blowing this out of proportion bc it generates clicks.
The investors are blowing this out of proportion bc in the slim chance that the FDIC doesn’t get this resolved over the next week, their companies are at risk. And, helping their companies avoid that albeit small risk is their job.
I agree with you though. The most likely outcome is that almost everyone gets access to most of their funds next week.
The 16th largest US bank disappearing in 24 hours is not a molehill, particularly when it is the one that is the source of the check you depend on in existing in 6 days. Hope is not a strategy.
I don't understand why people like you don't see the writing on the wall.
Fractional reserve banking is the problem. If you don't see it, I don't have time to explain it.
Keep defending the establishment, they'll never save you.
even if I disagree with your assessment, it's pretty funny and pity
I don't disagree with you, but if you're going to bother disagreeing, explain your position.
SVB seems to have had a very concentrated set of customer relationships. For example, a startup might do its banking at SVB, and the startup's founder might do his/her banking at SVB. That include taking loans to buy houses as cars--because traditional banks don't "get" borrowers who look like a founder.
Now that startups can't make payroll (and some of the founder's personal deposits might be frozen), what if startup founders start defaulting on their loans?
So SVB's successor has to write down those assets... which makes it harder to pay out the deposits... which triggers more defaults... which results in writing down more assets. That could turn into a very nasty death spiral, particularly if it creates contagion that spreads to other banks.
They've got an additional ~70 billion in loans that are likely less liquid to fill the remaining 70 billion of deposits. It's less certain how much these are worth but they're at least worth something.
Net result is that depositors are losing 0-40% of their money. Much more likely that it's 0-15%. Which sucks but it's not going to kill an otherwise healthy company.