The more important question of disclosure has to do with the so-called "held-to-maturity" book, which I want to start affectionally referring to as the "held-to-mortality" book, or the "head-in-the-sand" book.<p>These are all fancy ways of talking about accounting tricks that banks are allowed to employ in order to hide economic losses from their financial statements. Banks would argue that their accounting tricks are blessed by the priesthood of professionals accountants, so it's perfectly legal. Which it is. It is not obvious that real-time mark-to-market accounting would have made things any better, but pretending that massive economic losses were not real was not a sustainable trajectory as soon the accounting fiction (no losses) collided economic reality (the need to sell holdings, in order allow depositors to withdraw their cash demand deposits).<p>Given the panicy herd psychology of humans, it has long been argued (at least since as long as the collapse of Lehman Brothers) that "head-in-the-sand" accounting is preferable to mark-to-market in order to ensure the stability of the financial system. In laymen terms, sometimes it's better for the public not to know how bad things have gotten behind the scenes. That is a kind of common sense practice for governance, and it isn't going to go away. Ironically, the answer to the SVB collapse is that you should have less informed, less rich and less well connected depositors (i.e. tame and docile customers) if you want to reduce the risk of a run on your bank, which is obvious in retrospect.
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It would be good for everyone to understand that in taking his own money out, and encouraging others to do the same, Thiel was protecting himself while actively dooming hundreds of startups to failure. This was a choice to get his and screw everyone else."<p><a href="https://twitter.com/moorehn/status/1634973901230071809?t=RXVXptwhmLLvPMvahQ8lhA&s=19" rel="nofollow">https://twitter.com/moorehn/status/1634973901230071809?t=RXV...</a>
Dunno about insiders, but some old tweets called out trouble well before the fact:<p><a href="https://twitter.com/ByrneHobart/status/1628779894183272452" rel="nofollow">https://twitter.com/ByrneHobart/status/1628779894183272452</a><p><a href="https://twitter.com/RagingVentures/status/1615826088038473733" rel="nofollow">https://twitter.com/RagingVentures/status/161582608803847373...</a><p>EDIT: This tweet also proposes a timeline for the collapse based on one of those tweets -<p><a href="https://twitter.com/itsurboyevan/status/1634603869752766471" rel="nofollow">https://twitter.com/itsurboyevan/status/1634603869752766471</a>
The real question is why the regulators didn't notice.<p>Banking is far, far from a free market. Especially since 2008. There is heavy regulation, stress tests, etc.<p>People keep talking about how we need more/better regulations but none of that matters if the regulators look at a bank doing risky stuff and don't realize that it is doing risky stuff.<p>One of the reasons I'm glad about the government's announcement tonight is that I suspect there are a lot of other banks that are similarly exposed to the kind of duration risk SVB was, including First Republic, and now that people are looking for that the chance of further bank runs is pretty high.
There have been stories about the one SV honcho asking his portfolio to check their money at svb days before the chaos. Leading me to wonder; are there any laws or regulations against tipping off your friends that the bank you work at is in serious trouble? What happens when some depositors have insider information allowing them to act well in advance of a bank's problems becoming public? Aren't other depositors put at a disadvantage?
Chart KRE (regional bank ETF) against SIVB looking back the last year. You'll notice that SIVB starts to underperform the broader index around the Aug/Sept 2022 time-frame. (Underperformed by more than 30% between Aug-Dec 2022). This is a clear sign that not only insiders were aware by that time, but some savvy market participants were already betting against the company.
I’m interested in the fact that this all seems like a whole red flag factory in retrospect but no outsider really saw it coming. If there were people establishing bets against this bank they weren’t doing it on the open market. Options markets for SVIB were almost silent until two days ago.
Just because they didn't have a Chief Risk Officer doesn't mean they didn't have a risk management team. They MUST have had an Enterprise Risk Management team whose sole responsibility is to look at risk like this. The main role that the CRO would have is to pound on desks that something had to be done.<p>The biggest problem SVB had was a mismatch of duration between assets and liabilities. As interest rates started jumping, they should have acted on this by hedging or some other mitigation strategy. But this article's insinuations that people must have known as early as 2021 is ridiculous. The first rate hike was March 2022, and the subsequent one in May 2022 was already after the CRO ended her term.<p>For SVB to have problems, it needed 2 distinct problems: 1) interest rates had to rise and 2) customers had to start withdrawing funds. #1 started in March 2022, but I think #2 probably happened later than that. I think funding probably dried up Q3, which probably took startups as a surprise which forced them to burn more cash. By then interest rates started to ratchet up by 75 basis points at a time and the stock market hit their lows in October.<p>One possible scenario is that the ERM team flagged all this throughout 2022, but the CFO couldn't stomach the cost of hedging their portfolio and kept hoping for a reprieve or reversal.<p>Regardless, I think it's definitely possible that they knew something was wrong in Q3-22. The fact they didn't act until end of Q1-23 by selling off all their AFS assets in desperation is a evidence to me that they were holding out for hope and couldn't bear it anymore until the new CRO forced it. It doesn't seem conceivable to me that they had an entire ERM team that sat around with their thumbs up their asses not understanding the problems they had in the back half of 2022.<p>EDIT -<p>There's 3 other things I didn't think of but I just skimmed through their 10K.<p>1) They had the bulk of the HTM in Mortgage Backed Securities. In a falling rate environment, customers refinance, which means those loans get paid off, and their HTM asset gets converted into cash, which they need to redistribute back into another security. They could have used that cash to pay off depositors withdrawing their cash. But they could As rates go up, all the customers stopped refinancing, customers stopped buying new houses, and SVB wasn't getting those mortgages paid off, which probably cut into their cash.<p>2) Yes, startups must have been burning through cash, but I also how many of those customers pulling their funds out were just buying US treasuries or moving them into high interest products outside of SVB. This might have been a factor. I myself started buying US Treasuries for over half my portfolio now that 90-day T-bills are over 5%.<p>3) The 10K was filed on Feb 24, and SVB dumped their AFS portfolio on March 9. That's less than 2 weeks. There's no way that the auditors shouldn't have known about this sale, and they would have raised a huge stink if they knew. So either they were hiding all of this from the auditors, which sounds like fraud or something very acute occurred during those 2 weeks but I can't imagine what that is.<p>I'm going to be extremely interested to hear the reports from the inside because I'm sure people in SVB finance do not want to get pinned with the blame of this.<p>EDIT 2:<p>Found it. Moody's threatened to downgrade which forced the sale of AFS. So that explains it. So maybe everyone thought everything was okay and the surprise threat of the downgrade is what caused the house of cards to fall.<p><a href="https://www.cnbc.com/2023/03/11/silicon-valley-banks-demise-began-with-downgrade-threat.html" rel="nofollow">https://www.cnbc.com/2023/03/11/silicon-valley-banks-demise-...</a>
I tried reading a couple of articles but I'm missing the big picture. How much exactly are they in the hole?<p>I presume they have assets and loans to call upon. If you do the math, how much is it in the red?
So I keep seeing things like "insiders sold X amount at Y date, they must have known Z" but I thought that as an insider you can only sell a certain amount at certain times that are pre-defined before the true value of the sale could be known and before any future material events actually occurred. Could someone explain how this works?
What I'd like to know is why through the all of the posts and comments about this on here, the people responsible are never named. Who are/were the scoundrels running this bank, and why haven't they been run out of their homes and driven out of California with pitchforks?