Counterpoint: This WSJ Article [1] and their latest 10Ks confirm that:
- Their actual assets market-to-market (sold on the fair market) is about $26 bln less than the amount they're carried at on their books. This is as of year end 2022, probably more today.
- This would wipe out all their equity, loans, and start hitting depositors.
- If there was a bank run, First Republic probably would not be able to meet all depositors.
- First Republic in some ways is in worse shape that SVB. SVB had all their assets in medium duration (10 year) treasuries. First Republic has a lot more 30 year mortgages they gave people at ultra low 2% interest rates. Today 30 year mortgages are 6%, which means if they tried to resell these loans they'd get more than 50% off.
- Personally, I know of at least a couple of HNWIs who pulled funds other than $250K today. Who can blame them -- what's the upside if you have more than $250K in? First Republic relies on wealthy deposits, and these are not insured.
All true, but they have a $60b debt facility to draw down on before they'd consider liquidating their HTM bond portfolio. Given that they have $120b in uninsured deposits diversified across a disparate client portfolio, it seems like they're truly in a much stronger position than SVB.
I feel like a very likely outcome on Monday is that the FDIC announces a buyer, SVB depositors realize they're going to be made whole, and all the panic subsides.
> - If there was a bank run, First Republic probably would not be able to meet all depositors.
That's true for all banks, even JP Morgan Chase. Every single one of them has some withdrawal limit, past which they are screwed. And that limit is definitely lower than 100% of deposits.
Why would they sell the mortgages now? Why not just hold them. When they originated and funded the loan they did it with deposits or fed funds, why not just hold and collect the payments?
If there is a run, then selling is actually the worst thing to do because theoretical losses become irreversible actually losses. It’s highly likely interest rates will go down in a year or two but.
> This is about as strong as a signal they could put out to stop a possible run.
Or a desperation signal, which might actually trigger a run. Like what happened with SVB.
The minute the CEO of SVB tried to reassure investors and told them everything would be ok if they just kept their deposits with them, immediately everyone started withdrawing.
Are the “safe” banks all putting out statements about the strength of their financials? They probably don’t feel like they really need to say anything. They feel safe, and that’s what keeps them safe. The moment they panic, their clients panic.
Another interpretation is that this is generally how the FDIC likes to do things: take over on Friday and reopen on Monday. Not sure that will happen in this case but the regulators get two days to prepare to reopen, which at least in recorded US history is seamless and without risk for retail depositors.
The title is mine; given that this is an 8-K filing, there is no built-in title. First Republic Bank, a San Francisco regional bank that's seen its stock affected by the Silicon Valley Bank collapse and is often compared to SVB, filed this with the SEC today (Friday) to reassure investors (and clients) that its situation is different from SVB's.
In general, if anyone wants to go through all the recent 8-K filings, this is what SEC EDGAR is for. Here's a link that'll bring up all recent 8-K filings by date and time, descending:
In general, I would expect a ton of 8-Ks on Monday the 13th for companies to release information on their exposure to SIVB, particularly if their exposure is minor or non-existent.
Thanks for that. I find it interesting that so many of the companies filing SVB-related 8-Ks (even if to say "we have no/minimal deposits with SVB") are biotech/pharma. Traditional tech gets most of the attention, but SVB has been the Bay Area's biotech banker as much as anyone else, and thanks to its specialized wine practice is probably even more dominant in that sector.
I’m not super well informed about this space, but my understanding was that SVB’s issue wasn’t that its depositors were from the tech sector, but rather that it had put a ton of capital into investments that are significantly less valuable (on the open market today) now than they were a year ago due to increasing interest rates.
I’m curious how the tech sector matters here specifically?
The tech sector has been withdrawing money in aggregate (because they continue paying payroll and rent but haven't been raising as much money recently) which increases liquidity pressure, and furthermore tech depositors are more skittish due to experience with FTX and thus prone to panic bank runs. They also have larger average account sizes, way beyond FDIC limits, which makes them more likely to need to withdraw money to protect their cash.
SVB did have some issues with losses but they likely were still solvent; the bigger issue was just a lack of liquidity and a sudden bank run - 45 billion (out of ~175 billion in deposits) was withdrawn in a single day before they ran out of liquidity.
The tech sector isn’t an issue in itself, it’s that (1) all their deposits all came in at once because it’s one sector, so there was a huge demand surge for deposit interest, leading to a supply shortfall of loans they could issue and hence kinda desperately parking the money somewhere, which ended up putting their risk balance off kilter (bonds with interest rate risk); (2) all of their depositors (aka creditors) talk to each other and listen to the same people, so bank runs happen really fast. Compare this to First Republic bank: demand for deposit interest does not surge dramatically because there is finite liquid cash needing to be deposited and so one sector getting a cash infusion comes at the cost of another. It smoothes out. Plus their customers don’t all talk to each other and behave like worst-case bank runners.
All sectors are pretty highly correlated in the cash they have on hand and how they behave with it. It would be equally risky to be a bank that only deals with oil companies. Nevertheless it offers efficiencies for acquiring new customers and new business, so banks do it.
The big concern is the contagion spreading. All banks are vulnerable to failure if deposits are taken out quickly, especially in this market where assets have taken a huge hit over the last 12 months.
FRB wants people to believe the contagion is limited to tech and that they have limited exposure to it, so that folks don’t take deposits out en masse. If people start to think that it’s unstable, then they’ll take money out and it’ll be a death spiral like SVB.
If First Republic could say they could meet all depositor demands, they would have. But instead this is the most they can say to stave off a run.
And to their credit, the fact that they're not tech heavy means the tech firms pulling from SVB aren't likely as scarred and pulling from First Republic. But First Republic has a ton of HNWIs too who are not insured.
This isn't Bank of America serving mom and pops, it's rich people who will pull and are uninsured by FDIC.
Matt Levine reports that the reason they had to buy those low-yield investments that plummeted is because it’s tech-sector customers had too much money in the boom times. Too much deposits means they need to buy a lot of something, and in the boom times that was low-yield stuff.
It matters because recent underperformance in the sector led to the initial deposit outflows in the first place. If you’re concentrated heavily in a single sector, you’re likely to see higher correlations in the behavior of your depositors.
Every asset is a risk. Banks should have right to do exactly two things. Keep their customers saving and issue loans. There's plenty of risks even in that activity. Every other thing bank does is just piling up risk to unreasonable levels.
"Trading in Pacific West, Western Alliance, and First Republic were stopped due to volatility after they all initially fell 40 to 50 percent. Trading was also briefly stopped in Signature Bank after its shares fell nearly 30 percent. Several of those banks sought to reassure the market by putting out statements highlighting their differences from SVB in terms of asset and depositor base."
I'd really like to know where people are withdrawing their money from these banks to. They're not taking suitcases of cash, so it must be flowing to some other financial institutions. Is it going to traditional big banks (BofA, Wells, Chase, etc.)?
Yes -- all the people I know withdrawing from small banks are going to Chase or Morgan Stanley. These largest banks have to mark-to-market their losses and have a lot of cash (short duration) assets, and are literally too big to fail.
idk how many companies are doing this right now, but recurring investment on 4 week T-bills are safe, can absorb arbitrary amounts of cash, and yield much more than the large banks. But it can take a bit to set up a TreasuryDirect account.
I’m thinking our diversified stock portfolio is safe (in that the number of shares we hold should not change, and it’ll go back up before we need the money decades from now).
I’m hoping that’s not naive.
I’m curious about Wealthfront’s strategy of spreading savings across many partner banks to get $2M in FDIC insurance per account though.
I'm sorry buddy, but this is no longer about tech or bonds. This is more about whether you can survive a withdrawal storm. This is more about whether someone will back you up with credibility.
It’s whether or not they have HTM assets that will bring them under if they have a run on the bank. A lot of the depositors are rich Silicon Valley residents and they may get spooked and pull their money. That’s the issue in this phase of the contagion.
Ahhh yes. History doesn’t repeat, it rhymes. And, this limerick reminders me of the post-1985 S&L crisis. But, no banksters go to jail anymore. Thing is, once it’s no longer politically tolerable through threats and fear mongering and some blackmail, eventually the government will bail them out again for another rinse - wash - repeat cycle. The schedule is likely as prior. Warnings. Government involvement. Followed by a market crash (a la 1987), and maybe even both a stock market and bank holiday for a time in the hopes back door dealings can paper over the concerns until they re-open. It’s either a cliche or a trope at this point. Not sure which. The FED knew what its rate increases would do to its member banks. If you don’t think the regulators have direct knowledge of balance sheets of its members, there’s this oceanfront property in Arizona you might be interested in purchasing. It also knew which banks could withstand it (either through no or private or public or both private and public assistance) and voted in favor of the chosen winners, result will be greater consolidation with the majors always coming out on top in the end and the smalls and mids either bellying up or taken over / bought out at pennies on the dollar. Double win for the majors. It’s an old playbook and publicly available script given the data (deemed mildly trustworthy). Good luck all.
Contagion. People are nervous that other banks are as insolvent as SVB. And even if those banks aren’t, nervous people making a bank run could replicate this. And if another bank falls, then another it would increase velocity and spread more rapidly until every bank is wiped out.
Thank god, a single source of good news is better than none. Does anyone have an aggregate view of the LCR / NSFR metrics across U.S. banks? I'd love to see the risk trend here at a wider scale than single bank disclosures like this one.
Why? Because I'm really nervous that SVB was in no unique situation -- after all VCs / Startups share a lot of low confidence and low cash traits in common with other investors.
It's trippy to see my own tiny contribution to tidal waves like this:
> First Republic’s funding relies in large part on wealthy individuals who increasingly have a range of options to seek higher yields on their cash at other financial institutions as interest rates have risen.
Over the last year I kept my FRC checking account at 100 (not the real number). A month back or so I dropped it down to 50 and moved the other 50 into T-Bills.
As a long time customer of First Republic, I know them to be sound and very well managed. They are not Silicon Valley, which is also a good bank with a very valuable franchise I expect money center banks to be vying to acquire from the FDIC shortly, with some undertakings from FDIC, and all depositors to be protected. These two banks are very different in their balance sheets. As to First Republic, the concern is way overblown and I'm going to buy some First Republic stock tomorrow, as this price is ridiculous now.
As a customer of FRB, I know this to be a very sound and well run bank. They also have strong relationships with customers. This is not a Silicon Valley Bank story. I am going to buy some of their stock tomorrow, as it is an amazing buy at this price.
[+] [-] metacritic12|3 years ago|reply
- Their actual assets market-to-market (sold on the fair market) is about $26 bln less than the amount they're carried at on their books. This is as of year end 2022, probably more today.
- This would wipe out all their equity, loans, and start hitting depositors.
- If there was a bank run, First Republic probably would not be able to meet all depositors.
- First Republic in some ways is in worse shape that SVB. SVB had all their assets in medium duration (10 year) treasuries. First Republic has a lot more 30 year mortgages they gave people at ultra low 2% interest rates. Today 30 year mortgages are 6%, which means if they tried to resell these loans they'd get more than 50% off.
- Personally, I know of at least a couple of HNWIs who pulled funds other than $250K today. Who can blame them -- what's the upside if you have more than $250K in? First Republic relies on wealthy deposits, and these are not insured.
[1] https://archive.is/QuOSD#selection-335.147-335.315
[+] [-] fairity|3 years ago|reply
I feel like a very likely outcome on Monday is that the FDIC announces a buyer, SVB depositors realize they're going to be made whole, and all the panic subsides.
[+] [-] twblalock|3 years ago|reply
That's true for all banks, even JP Morgan Chase. Every single one of them has some withdrawal limit, past which they are screwed. And that limit is definitely lower than 100% of deposits.
[+] [-] resource0x|3 years ago|reply
If everyone knows this, why keep your money there? Tech exposure has nothing to do with it. "In a bank run, he who runs first, runs best".
[+] [-] unknown|3 years ago|reply
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[+] [-] digitaltrees|3 years ago|reply
If there is a run, then selling is actually the worst thing to do because theoretical losses become irreversible actually losses. It’s highly likely interest rates will go down in a year or two but.
[+] [-] obblekk|3 years ago|reply
This is about as strong as a signal they could put out to stop a possible run.
[+] [-] nico|3 years ago|reply
Or a desperation signal, which might actually trigger a run. Like what happened with SVB.
The minute the CEO of SVB tried to reassure investors and told them everything would be ok if they just kept their deposits with them, immediately everyone started withdrawing.
Are the “safe” banks all putting out statements about the strength of their financials? They probably don’t feel like they really need to say anything. They feel safe, and that’s what keeps them safe. The moment they panic, their clients panic.
I guess we’ll see what happens.
[+] [-] robbiet480|3 years ago|reply
[+] [-] huitzitziltzin|3 years ago|reply
[+] [-] alfalfasprout|3 years ago|reply
[+] [-] unknown|3 years ago|reply
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[+] [-] TMWNN|3 years ago|reply
[+] [-] MrFoof|3 years ago|reply
https://www.sec.gov/cgi-bin/browse-edgar?action=getcurrent&d...
In general, I would expect a ton of 8-Ks on Monday the 13th for companies to release information on their exposure to SIVB, particularly if their exposure is minor or non-existent.
[+] [-] TMWNN|3 years ago|reply
[+] [-] JshWright|3 years ago|reply
I’m curious how the tech sector matters here specifically?
[+] [-] ummonk|3 years ago|reply
SVB did have some issues with losses but they likely were still solvent; the bigger issue was just a lack of liquidity and a sudden bank run - 45 billion (out of ~175 billion in deposits) was withdrawn in a single day before they ran out of liquidity.
[+] [-] cormacrelf|3 years ago|reply
The tech sector isn’t an issue in itself, it’s that (1) all their deposits all came in at once because it’s one sector, so there was a huge demand surge for deposit interest, leading to a supply shortfall of loans they could issue and hence kinda desperately parking the money somewhere, which ended up putting their risk balance off kilter (bonds with interest rate risk); (2) all of their depositors (aka creditors) talk to each other and listen to the same people, so bank runs happen really fast. Compare this to First Republic bank: demand for deposit interest does not surge dramatically because there is finite liquid cash needing to be deposited and so one sector getting a cash infusion comes at the cost of another. It smoothes out. Plus their customers don’t all talk to each other and behave like worst-case bank runners.
All sectors are pretty highly correlated in the cash they have on hand and how they behave with it. It would be equally risky to be a bank that only deals with oil companies. Nevertheless it offers efficiencies for acquiring new customers and new business, so banks do it.
[+] [-] gerad|3 years ago|reply
FRB wants people to believe the contagion is limited to tech and that they have limited exposure to it, so that folks don’t take deposits out en masse. If people start to think that it’s unstable, then they’ll take money out and it’ll be a death spiral like SVB.
[+] [-] metacritic12|3 years ago|reply
And to their credit, the fact that they're not tech heavy means the tech firms pulling from SVB aren't likely as scarred and pulling from First Republic. But First Republic has a ton of HNWIs too who are not insured.
This isn't Bank of America serving mom and pops, it's rich people who will pull and are uninsured by FDIC.
[+] [-] Dr_Birdbrain|3 years ago|reply
[+] [-] NovemberWhiskey|3 years ago|reply
[+] [-] dannyw|3 years ago|reply
As rates have increased, long duration treasuries and MBSes are now worth 20-30% less.
[+] [-] unknown|3 years ago|reply
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[+] [-] zenmacro|3 years ago|reply
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[+] [-] scotty79|3 years ago|reply
Every asset is a risk. Banks should have right to do exactly two things. Keep their customers saving and issue loans. There's plenty of risks even in that activity. Every other thing bank does is just piling up risk to unreasonable levels.
[+] [-] whatever1|3 years ago|reply
But keep in mind that people also went through a pandemic, where panic was the go-to option.
[+] [-] nemo44x|3 years ago|reply
Should we? At minimum keep as close to $250k or less spread across however many banks as practical, right now.
[+] [-] odiroot|3 years ago|reply
[+] [-] eternalban|3 years ago|reply
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[+] [-] flerchin|3 years ago|reply
"Trading in Pacific West, Western Alliance, and First Republic were stopped due to volatility after they all initially fell 40 to 50 percent. Trading was also briefly stopped in Signature Bank after its shares fell nearly 30 percent. Several of those banks sought to reassure the market by putting out statements highlighting their differences from SVB in terms of asset and depositor base."
https://arstechnica.com/tech-policy/2023/03/silicon-valley-b...
[+] [-] mdorazio|3 years ago|reply
[+] [-] fanzhang|3 years ago|reply
[+] [-] ericd|3 years ago|reply
[+] [-] hedora|3 years ago|reply
I’m hoping that’s not naive.
I’m curious about Wealthfront’s strategy of spreading savings across many partner banks to get $2M in FDIC insurance per account though.
[+] [-] peyton|3 years ago|reply
[+] [-] markus_zhang|3 years ago|reply
[+] [-] remote_phone|3 years ago|reply
It’s whether or not they have HTM assets that will bring them under if they have a run on the bank. A lot of the depositors are rich Silicon Valley residents and they may get spooked and pull their money. That’s the issue in this phase of the contagion.
[+] [-] Econ999|3 years ago|reply
[+] [-] braingenious|3 years ago|reply
I am unfamiliar with this bank or this form.
[+] [-] nemo44x|3 years ago|reply
[+] [-] cbb330|3 years ago|reply
Why? Because I'm really nervous that SVB was in no unique situation -- after all VCs / Startups share a lot of low confidence and low cash traits in common with other investors.
[+] [-] zenmacro|3 years ago|reply
> First Republic’s funding relies in large part on wealthy individuals who increasingly have a range of options to seek higher yields on their cash at other financial institutions as interest rates have risen.
Over the last year I kept my FRC checking account at 100 (not the real number). A month back or so I dropped it down to 50 and moved the other 50 into T-Bills.
[+] [-] eclipticplane|3 years ago|reply
Is 2% good or bad?
[+] [-] WhatIThink|3 years ago|reply
[+] [-] _blz2|3 years ago|reply
[+] [-] ahzhou|3 years ago|reply
Whoa! FRB has wealthy customers. US average cash in savings accounts is $41,600.
And this is pure cash too - not total net worth.
[+] [-] WhatIThink|3 years ago|reply
[+] [-] unknown|3 years ago|reply
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