1. The fair value of the HTM securities is disclosed on the balance sheet, so no serious investor or depositor could claim they were unaware.
2. Using the HTM classification by definition means you have the positive intent and ability to hold them to maturity. Something both management and the auditors should have considered/verified.

My earlier post notwithstanding, what I don't understand is how in their 10-K they claim a weighted-average duration of their HTM portfolio of ~6 years, when 95%+ of the maturities are in the 10+ year bucket.

But is it disclosed in a footnote or on the actual balance sheet as the line item?

Straight off the face of the balance sheet:



But yes, also disclosed at great length in the MD&A and footnotes in the 10-K.

Ok, so to me, thats a problem that they were allowed to overstate that asset class by $15 billion. Can we acknowledge how that helped create this situation, and why it might not be a good idea to allow that to continue?

I agree with the issue about held to maturity securities not being marked at FMV on the balance sheet but in my post I put them at FMV. Marketing these to FMV basically wipes out equity holders but keeps depositors whole and debtors collect most of the principal on their loans. They would have to have piled up another $15B or so in losses in 2 months to wipe out all the debt and start eating into depositors.

Interest rates have continued to increase so I'm assuming the unrealized losses have continued to pile up. Reading a little more on their 10-K, the $74B loan portfolio (less an allowance) appears to be at cost so I would guess you would have additional unrealized losses if you had to mark these to market. About $46B of the loan portfolio is revolvers and another $11B was originated in 2022 so I would imagine small write downs of these assets.

Not a pretty picture, but I struggle to see how depositors wouldn't have been made whole in this eventually.

https://www.sec.gov/ix?doc=/Archives/edgar/data/719739/000071973923000021/sivb-20221231.htm#ibb4dd73a1d3f4bff944b5d35fd2c5e2a_184

They wouldn't be made whole if there was even a small run on the bank, which happened, and can happen elsewhere.

Why not? My understanding is that in bankruptcy the order would be insured deposits, unsecured deposits, and then creditors. We don't have all the information to mark their assets to FMV, but we have most of the pieces and from what I can tell, it does appear that the FMV of their assets is greater than their liability to depositors. Probably not at firesale liquidation value, but I don't think it's unreasonable for the feds to step in and backstop the bank and help avoid further contagion.

Regulators should require that financial institutions use the M2M accounting method for reporting and not HFM

Ghost of Bisbee said:

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Regulators should require that financial institutions use the M2M accounting method for reporting and not HFM

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They did that prior to the financial crisis. Several banks failed because they were considered insolvent. Shareholders of those banks are still receiving payments on bonds that were marked HTM and were performing at the time the banks were closed.

Average duration doesn't equal average time to maturity. It's a measure of price sensitivity to changes in interest rates.

The CEO of Silicon Valley Bank was also on the board of directors at the Federal Reserve Bank of San Francisco. He was removed Friday. 

We live in a simulation.

— Genevieve Roch-Decter, CFA (@GRDecter) March 11, 2023

So there are roughly 40 more SVB's out there

US banks were sitting on $620 billion in unrealized losses (assets that have decreased in price but haven't been sold yet) at the end of 2022, according to the FDIC.

— unusual_whales (@unusual_whales) March 13, 2023

jh0400 said:

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Average duration doesn't equal average time to maturity. It's a measure of price sensitivity to changes in interest rates.

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Yes. Duration helps to explain when the average dollar is returned to the bondholder, not when it matures.

Do credit unions have this type of banking exposure when things go south?

Bird Poo said:

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Do credit unions have this type of banking exposure when things go south?

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anybody who buys long maturing bonds with low interest rates has this kind of exposure when rates go up.

The beauty of mtm accounting.

Does anyone happen to know what the ACH return code would be if a failed bank didn't allow debits?

501? Closest to SOL I could get lol. Sorry.

Cyp0111 said:

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The beauty of mtm accounting.

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The real problem is HTM accounting.

In the course of a bank audit, are financial auditors required to obtain confirmations from state regulators on bank health? Haven't ever audited a bank so not aware of sec requirements

Haven't seen this mentioned -- people were already onto SVB's issues in December. No one paid attention, but you could figure it out if you took the time and were clever enough. Even this person didn't expect a blow up or for it to happen as fast as it did, but still the signs and data were there to make you question things months before it unraveled --

https://seekingalpha.com/article/4565388-svb-financial-blow-up-risk

Haven't been following the banking news, but mom called me this morning panicking about being able to get their money out of the bank. Is anything that is happening going to affect personal bank account stuff? Should I be concerned at all?

Artorias said:

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Haven't been following the banking news, but mom called me this morning panicking about being able to get their money out of the bank. Is anything that is happening going to affect personal bank account stuff? Should I be concerned at all?

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It might be uncomfortable if your mother is at a bank that goes under, but if she has under 250k in the bank she's fine, and likely if she even has more than that it seems the Gov is backstopping all deposits.

She just might not be able to get cash for a few days.

Yes, yes it is esp when not accounting for in Tier 1 calcs.

Been years but we got the latest state/fed audit reports, plus all the capital calculations they have to send in to the regulators.

And this was not a financial audit issue IMO.

looks like government just got bigger. wow, that's a surprise.

meanwhile that $32 trillion in debt.

Red Pear Realty said:

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So there are roughly 40 more SVB's out there

US banks were sitting on $620 billion in unrealized losses (assets that have decreased in price but haven't been sold yet) at the end of 2022, according to the FDIC.

— unusual_whales (@unusual_whales) March 13, 2023

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No. Most other banks are diversified enough to cover those losses.

Not to mention the Fed is allowing banks to borrow funds and use the bonds as collateral at face value.

Outdoorag011 said:

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Not to mention the Fed is allowing banks to borrow funds and use the bonds as collateral at face value.

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This means they are NOT diversified enough to cover those losses without a bailout.

Oh for sure. I don't think they are. But the Fed will backstop it unfortunately. Allowing poor decisions and mismanagement to continue. I just meant I don't think another 40 SVBs will happen.

The lending facility is going to buy us 6 months until the fed has to cut rates.

Oh, gotcha. Yeah, and I should have been more clear in what I was saying as well. They are out there for sure, but our leaders are going to pass out money like candy every chance they get. Bailouts for everyone, all the time.

mosdefn14 said:

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jh0400 said:

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Average duration doesn't equal average time to maturity. It's a measure of price sensitivity to changes in interest rates.

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Yes. Duration helps to explain when the average dollar is returned to the bondholder, not when it matures.

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Bingo.

Bird Poo said:

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Do credit unions have this type of banking exposure when things go south?

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They are in the same position as every investor that holds LT bonds. If you have bonds in your portfolio, you can see how bad last year was for them.