Happy Hour News

Demonstrators protest the proposed 700 billion USD Wall Street bail-out in front of the New Yoprk Stock Exchange in the Financial District in New York on September 25, 2008. In response to the global financial crisis, protesters, from a variety of activist groups, denounced the capitalist system, Wall Street and the administration of US President George W, Bush. AFP PHOTO/Nicholas ROBERTS (Photo credit should read NICHOLAS ROBERTS/AFP/Getty Images)

Why, yes, we are going to talk about Silicon Valley Bank that just failed.

Financial regulators have closed Silicon Valley Bank
and taken control of its deposits, the Federal Deposit Insurance Corp. announced Friday, in what is the largest U.S. bank failure since the global financial crisis more than a decade ago.

The collapse of SVB, a key player in the tech and venture capital community, leaves companies and wealthy individuals largely unsure of what will happen to their money.

FDIC insures all deposits up to $250K, so if you deposit more than that, the excess is not insured. So the average joes and janes should be just fine.

Most bazillionaires have wealth managers who know these rules and opens accounts at a cornucopia of different banks, just to make sure that their customers and cash are always insured. If some of these masters of the universe had excess of $250K Ameros deposited they were taking risk into their own hands.

Back to the story:

The FDIC’s standard insurance covers up to $250,000 per depositor, per bank, for each account ownership category. The FDIC said uninsured depositors will get receivership certificates for their balances. The regulator said it will pay uninsured depositors an advanced dividend within the next week, with potential additional dividend payments as the regulator sells SVB’s assets.

Whether depositors with more than $250,000 ultimately get all their money back will be determined by the amount of money the regulator gets as it sells Silicon Valley assets or if another bank takes ownership of the remaining assets. There were concerns in the tech community that until that process unfolds, some companies may have issues making payroll.

As of the end of December, SVB had roughly $209 billion in total assets and $175.4 billion in total deposits, according to the press release. The FDIC said it was unclear what portion of those deposits were above the insurance limit.

I’m going to guess very few. Boy, did I get that wrong. I’m reading that upwards of 89% of accounts were over —way over!—  the $250K Ameros insurance limit. There’s some kind of recklessness there!

So what went wrong? Let’s play Clue: Jerome Powell, in the Federal Reserve, with Interest Rates.

Longer version: I’ve read (speculation!) that they made some poor bond investments (at low interest rates) and became illiquid (when Jay Powell and the Fed raised interest rates— who was going to buy these bonds before they matured?); so when the depositors ran on the bank it collapsed. I’m sure there’s more to it than that, but there’s little doubt that interest rates were part of it.

(And Eiron, the Goddess of Irony, remains supreme)

That said, if any small tech companies used SVB services they might be screwed at the next payroll.  Also, SVB was apparently handling entire 401(k) administration for some small start-ups. This is already turning into a shitshow.

This story will have ripples and probably soon.