Wolf Money(SVB summary)

 



All the informations from the experts across all news media. This is the current situation facing the bank. The US treasury had forcefully taken over the bank.

1.) The collapsed was due to mismatch of long term investment vs short term funding needs. The bank had a good chunk of their capital lock in long dated treasuries couple with the withdrawals of funds by institutional depositors. They have to sell their long dated treasuries and mortgage backed securities to meet the short term outflow of their deposit in process suffering a 1.8b loss on investment. The cash call of 2.25b sent the depositors fleeing. In layman term “a bank run”

2.) The year long interest rate increase by Fed cause those long dated bond to fall in value. Given the pressing needs to meet the withdrawing customers, they have to sell the bonds at a huge discount to realise the losses on their investment. Under normal circumstances, underwater long dated treasuries and mbs need not be marked to market if it is held to maturity.

3.) The bank had a different customers mix compared to a traditional bank. Most of their deposits belong to VC and tech firm. Uninsured amount is as high as 93% of their deposit which mean only 7% are fully cover by the 250k fdic insurance.  Our sdic(singapore deposit insurance corporation) covers 75k or 90% of deposit accounts. In short, the concentration risk to a few big institutional depositors cause the bank to have a liquidity crisis.

4.) The Fed is engineering a plan to make at least 30-50% of the uninsured deposit available to all the whales by Monday.

5.) Traditional banks are likely to benefit from the flight to safety 

6.) The crisis had affected the ability of VC, start up mostly in tech and crypto space of their ability to pay their expenses like payrolls and rent etc.

7.) Some vulture funds are rumoured to be circling around the SVB offering buyout to affected depositors of up to 70% of their deposit amount or at a minimum haircut of 30 percent. 

These are the things which I read online, they are not my view. I hope to be able to provide my reader a sense of what is going on surrounding SVB. Just be careful as situations are fluid and there are risks of contagion. God bless 🙏


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Disclaimers 

All investments is highly speculative in nature and involves substantial risk of loss. We encourage our reader to invest very carefully. We also encourage reader to get personal advice from your professional investment advisor and to make independent investigations before acting on information that we publish. Much of our information is derived directly from information published by companies or submitted to governmental agencies on which we believe are reliable but are without our independent verification. Therefore, we cannot assure you that the information is accurate or complete. We do not in any way whatsoever warrant or guarantee the success of any action you take in reliance on our statements. All information provided are for education only. Buyer beware,do you own due diligence.

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