SVB/FRB/Schwaub Flashcards
who were the primary actors involved in SVB crisis
-Federal reserve
-FDIC
-First Citizen Bank
-VC-backed start-ups
Who were the primary depositors for SVB
venture-backed tech start-ups and biotech companies
What was the primary reason SVB went bankrupt
Maturity mismatch between Assets and liabilities
What was the maturity mismatch?
invested excess cash in long-dated US treasuries and government agency bonds with depositor funds belonging to flighty, high risk venture-backed firms
Why did SVB lose so much on the AFS securities portfolio
AFS portfolio consisted of long-dated securities with large interest rate risk exposure. When Fed increased interest rates to combat inflation, the value of their bonds plummeted
why did their bond prices fall?
Access to the same bonds at a higher rate (higher yield) lowers the demand for the current bond. Representative of an opportunity cost on investing in the lower yield bonds instead of waiting for the higher yield bonds
How much did SVB lose on the AFS portfolio
$1.8 billion on March 8
what did depositors do when they heard SVB was raising equity to combat losses on their AFS portfolio
Depositors tried to pull $42 billion in deposits, creating a run on the bank
How did the sale of AFS affect the balance sheet and income statement of SVB
Equity on the balance sheet dropped by $1.8 billion, and Assets also declined by the amount of AFS sold. Comprehensive income on the “other comprehensive income” statement declined by $1.8 billion but the income statement remained unchanged
What was the Bank Term Funding Program (BTFP)
Fed made additional funding available to eligible depository institutions by providing a 1 year lone on high-grade assets like US treasuries and MBS at the value of par so that banks could meet the liquidity needs of depositors
Would the BTFP have helped SVB and why?
Yes, the loan based on the value of their US treasuries at par would have provided enough liquidity to shore up the confidence in the bank and prevent the bank run
why did the BTFP not help First Republic
First Republic had a loan heavy portfolio so the loans on treasuries and MBS would not have helped them meet short term liquidity needs. They also got screwed by SVB contagion
what happened to First Republic’s liquidity and solvency when the 11 banks injected capital?
Solved their short-term liquidity needs but did nothing for solvency because the problem was not their liquidity the problem is that they have no equity or negative equity
how did SVB shutdown affect depositors?
tech-startups couldn’t get money from SVB, so they could not pay for daily company operations or pay employees
Was there any correlation risk for SVB
yes, both their depositors and their assets were highly correlated with interest rates
