i totally agree with your comment. This has nothing to do with Hindenburg or any other short sale. It’s not like Hinderberg was the Federal Reserve and went after Adani for forgetting to keep their own backyards clean.
Here are the facts we know about SVB:
- They had funded the startup, so obviously the startup kept their account.
- Their deposits increased from about 60 billion to 220 billion. This is clear.
- What will the bank do with all this deposit? Their main business was funding startups. At the time, interest rates were near zero.
- Banks have decided to invest their excess cash, primarily by purchasing federal mortgage-backed securities. These carry minimal credit risk, but may carry significant interest rate risk. This was the sound thing to do at the time to invest in these securities. They are all long term.
- Investments were in long-term mortgage-backed securities with a maturity of more than 10 years and not short-term government or mortgage-backed securities with a maturity of less than 5 years. This created a mismatch between assets and liabilities.
- Borrowing costs have risen as a result of the Federal Reserve starting to raise interest rates. That meant tech startups had to put more cash into paying down debt. At the same time, they were struggling to raise new venture capital funding. This caused the startup to withdraw its deposits in its early stages.
- To meet the increased demand for cash by companies, companies were forced to sell long-term securities at discounted prices. This resulted in a loss of 1.8 billion.
- When this news came out, everyone panicked and wanted to withdraw their deposits. It was a typical bank crackdown, and the only thing SVB could do was shut down. This is exactly what we saw when adani stock fell and the lower circuit hit there was no way to end when yes bank was put under moratorium by his RBI , I personally experienced the same. Only then did I see that there were only sell orders and not a single buy order.
If any bank in this world becomes distraught, no bank, no matter how powerful, has enough liquidity to meet all the needs of its customers, and must close. This is the biggest risk a bank as a business faces. When there was so much news about SVB, people came to his small SVC Co-Op bank in India, which has nothing to do with SVB, and asked for their deposits back. Co-op Bank had to inform them that they have nothing to do with SVB. This is how sensitive banking is.
This is what happened with SVB. My only quibble is what happened to the Federal Reserve that was monitoring these banks when they were selling these bonds. The SVB could have approached the Fed and demanded a loan or something, instead of selling these bonds and actually taking a loss. The Federal Reserve could have let them bridge finance or something. This didn’t make sense to me why they didn’t go to the Fed first.
In India, all banks are under constant surveillance thanks to RBI monitoring. Co-op banks were out of scope a few years ago, but are now also under oversight mechanisms. So much bad news was reported, but the RBI often came out and put these bad rumours to rest.
The good news is that depositors get their money back. From what I’ve read, there have been no scams or failed investments, so I think anyone who buys this bank is in a better position.
Depositors’ money has been saved, which is their right, but the impact is felt by individuals as 53% of SVB is owned by mutual funds and 1.61% by private stakeholders. can be The rest is held by FI – (I really don’t care much for this category).In MF, Vanguard owns 10% and Blackrock owns his 5.18. There may be an indirect impact as the majority of retail publics in the US invest in funds.
Disclaimer: These are what I’ve read in various publications and could be absolutely wrong.
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The Federal Reserve has now announced this facility.
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Are your deposits really guaranteed?
“The U.S. banking system has more than $22 trillion in assets. The FDIC has $124.5 billion on its balance sheet and a $100 billion line of credit from the U.S. Treasury. It only covers 100%.The size of a Silicon Valley bank.One bank.Let it sink.”
FDIC – similar to DICGC found in India. Each bank must have his FDIC insurance, which automatically covers all depositors. This is what the FDIC FAQ says.
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Q: How can I enroll in deposit insurance?
A: Depositors are not required to apply for or purchase FDIC Deposit Insurance. Coverage is automatically applied each time a savings account is opened with an FDIC insurance bank. If he wishes to insure the funds with the FDIC, please deposit the funds into his FDIC insurance bank account and ensure that the deposit does not exceed the insurance limit for that category of ownership.look “Is my account insured by the FDIC?” Learn more about the types of insurance products covered by FDIC insurance and the amount of deposit insurance available under various FDIC titles and capacities. each.
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In India, if a bank is covered by DICGC, all customers automatically get 5 deficit standard cover.