“Receivership certificates” aren’t really IOUs (they are more “defunct entity owes you”). The DFPI takeover and FDIC receivership is, effectively, a kind of “bankruptcy” for the bank.
> these companies can borrow against the IOUs.
What amounts to an IOU from a bankrupt entity is…not very good collateral for a loan.
> It’s not like this is a minor bank failure; everyone knows about it.
Right, and everyone who isn’t already exposed wants to stay out of the blast radius, not jump into it.
Oh come on, uninsured creditors will get back at least 90c on the dollar when the dust has settled. Likely 100c. So yes, they can absolutely use the IOU to cover short term expenses.
Dude. Could you please tell us how much money the thousands of depositors (both individuals and companies) who were above the FDIC limits at IndyMac Bank lost in total, when the bank was taken over by FDIC in 2008?
And lessons were learned! This is not 2008 repeating itself. SVB is unusual in how much exposure they have on interest rates, on both sides of the balance sheet. There is no contagion, and the bank is still an asset worth many billions.
The liquidity problem gets solved by merging this bank with a bigger and more liquid bank. The insolvency problem is solved by wiping out the stockholders and bond holders will get a haircut. I get why people panic, but the issues here can be resolved cleanly and speedily.
Wiping out stockholders has no effect on solvency, since stockholders only have a claim on residual assets. Bondholders getting a haircut or being wiped out addresses solvency, stockholders getting wiped out is just a side effect of dissolution without surplus assets.
Technically true, but when a distressed bank gets sold where does the money go that's paid by acquiring party? Stock holders are last in line. Employees who are due wages are first in line. We can guesstimate how large the hole is and how much SVB is worth. The money that would otherwise go to stockholders during an acquisition will now be used to fix the balance sheet.
Yup. And that was even after the FDIC limit was raised from $100k to $250k, and amazingly was even made retroactive back to January 1, 2008, to try to help those poor people out.
“Receivership certificates” aren’t really IOUs (they are more “defunct entity owes you”). The DFPI takeover and FDIC receivership is, effectively, a kind of “bankruptcy” for the bank.
> these companies can borrow against the IOUs.
What amounts to an IOU from a bankrupt entity is…not very good collateral for a loan.
> It’s not like this is a minor bank failure; everyone knows about it.
Right, and everyone who isn’t already exposed wants to stay out of the blast radius, not jump into it.