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Notes -
The current FDIC page says "All depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds." (emphasis added).
((And a lot of the assets for that might be currently worth only ~60-70 cents on the dollar. Which won't be that way forever! But that risk is a discount factor.))
The median company affected probably will over time, although that comes with its own costs and overhead. Monday specifically is a harder sell; business accounts and business account transfers can be a lot of paperwork and checking, and even if the startup has crossed all their is and dotted all their ts today, it doesn't necessarily mean that the banks will (or may even be able) to finalize an account the same day, especially for anyone without an SSN or with a more complex situation. There's a lot of frictions to KYC that aren't obvious to normal people.
This is further complicated if most uninsured depositors are taking 10-20% losses on their accounts, because then most mid-sized businesses who aren't already banking with someone too-big-to-not-bailout will be trying to make a new account with them, startup or otherwise; anyone who's read and understood what this chart means knows that they can't be sure their small bank isn't vulnerable to the same problems.
But at a deeper level there's a small number of startups that probably can't get an account in today's environment, and lot of people in the startup realm that any sane loan provider's just going to turn up their nose against for the terms they need. Some people went to SVB because it was a lot more willing to accept situations like "oh, I get one lump payment of ten million dollars, and don't have any other employment history ever and probably won't have any more cash coming in for two years", or your business case requires a big-boy credit card and you're not getting one without a credit score you don't have, or because the smaller banks are not Wells Fargo and that can matter.
Some of that's not even wrong -- a Jucero-level business that has a perfectly good piece of paper claiming it will get a payout in mumblemumble months isn't actually guaranteed to have that payout, or whatever fraction of that payout makes it through the fire sale, or even that perfectly good piece of paper in six months. It doesn't even have to be intentionally-fraudy!
From that chart’s thread:
Is that what the zero interest regime this past decade really means? The idea shakes me.
I'm... not sure. The core definition of (near) zero interest is 'just' that the Federal Reserve will only offer (nearly) zero return for reserve funds or other effective loans to the government, and thus banks who are looking for investments should start looking at anything even slightly better than par once other risks are included. Which has a lot of complicated downstream effects, admittedly, many of them either marginal or just-not-good.
I think PoiThePoi is referencing the bigger emphasis on mortgage insurance and (effective) backstops from the federal government for mortgages, along with some other complexities. I think those remain even (maybe especially) at higher interest rates, they're just more boring.
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I saw that tonight and could not figure out what it meant.
As financial products, rather than bank services, long-term securities like bonds have a sale value that can be (and often is) entirely different from the face value or estimated face value, and the transition from one format to the other can be very expensive. The best-known reasons for a discount over the face value is credit risk, that of the contract not being fully fulfilled (such as for bankruptcy, default, death, etc).
Traditionally, some assets were considered very-close-to-perfect for that sort of risk, for which you'd also get very little interest on them. Patio11 uses "marketable Treasury securities" as an example of something that you can almost always sell with very little slippage as recently as July of last year, with long-term known-good home mortgages just under that. And quite a lot of banks had a lot of this class of product: SVB was higher at ~50-60%, but a lot of very traditional banks have around 20-30%. While these are virtually always going to pay out, their sale value depends on other options.
Almost all of those options are downstream of target rates set by the Federal Reserve. In a variety of complicated ways, the Fed will offer or encourage people to offer loans at certain rates, or tell people that they can get a certain rate of interest for leaving money in their reserve accounts; most normal-people long-term loans face some further >2% (sometimes much more, if your credit sucks or the loan duration is weird) rate above that. If these change rapidly, the sales values of loans from before the change can get weird, because there are often going to be better options for your cash.
Today, someone buying 10-year treasury bonds (uh, 'note') is comparing a 2020 bond at 1.5% (or even 0.6%!), or at 2023 bond at 3.5%-4% (or even a seven-year 2023 bond at those rates). You might still make that first purchase, if only because there aren't infinite stock of the latter. But you're not going to get anywhere near the same offers as you did in 2020, even as the final value of the bond is still the same. And the same goes for non-t-bill loans.
In many cases, this is a pretty big discount now. Banks have to actually mark on their sheets the losses for available-for-sale securities (the brown lines), but they don't have to mark hold-to-maturity ones (the blue lines) unless they have to sell them or anything else in the same portfolio. But from a strict definition of liquidity, both count. And that chart -- from the Fed! -- says that they've lost about 600 billion USD. Not all of that's 'real', in the sense that a lot of the hold-to-maturity stuff (and even a small amount of the available-for-sale stuff) will actually get held to maturity and cashed out at its actual face value, or at least held until the "this cashes out soon" is worth more than the "the rate sucks" bit. But the more people have to sell in the short term, the more 'real' it gets.
Which wouldn't be that bad, except 600 billion is about 1/3rd of the 2 trillion dollars that makes up all equity in the US banking sector period. That's not quite as apples-to-apples comparison, and a lot of it's really localized (again, SVB had nearly twice the exposure as the average bank), and even if all the equity vanished that's the non-depositor money. And if nobody calls the pot, it doesn't real. But it's a big chunk of what's available for day-to-day operations.
Who has lost it? The fed or the entire bond market? That's what I'm confused about.
It's from here, but it's of FDIC-insured organizations, mostly banks.
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