Parent of Silicon Valley Bank seeks bankruptcy protection
The parent of Silicon Valley Bank, seized last week by the U.S., is filing for Chapter 11 bankruptcy protection.
SVB Financial Group, along with its CEO and its chief financial officer, were targeted this week in a class action lawsuit that claims the company didn't disclose the risks that future interest rate increases would have on its business.
SVB Financial Group is no longer affiliated with Silicon Valley Bank after its seizure by the Federal Deposit Insurance Corp. Its collapse was the second biggest bank failure in U.S. history after the demise of Washington Mutual in 2008.
The bank's successor, Silicon Valley Bridge Bank, is being run under the jurisdiction of the FDIC and is not included in the Chapter 11 filing.
"The Chapter 11 process will allow SVB Financial Group to preserve value as it evaluates strategic alternatives for its prized businesses and assets, especially SVB Capital and SVB Securities," William Kosturos, Chief Restructuring Officer for SVB Financial Group, said in a statement on Friday.
Regulated broker-dealer SVB Securities and funds of venture capital and private credit fund platform SVB Capital and its general partner entities are not included in the Chapter 11 filing and continue to operate normally.
Funded debt for SVB Financial Group is about $3.3 billion in aggregate principal amount of unsecured notes. There is no claim against SVB Capital or SVB Securities. SVB Financial Group also has $3.7 billion of preferred equity outstanding.
SVB Financial Group believes it has approximately $2.2 billion of liquidity. The Santa Clara, California-based company said it also has other valuable investment securities accounts and other assets that it's exploring strategic options for.
The shuttering of Silicon Valley Bank last Friday and of New York-based Signature Bank two days later has revived bad memories of the financial crisis that plunged the United States into the Great Recession of 2007-2009.
Over the weekend the federal government, determined to restore public confidence in the banking system, moved to protect all the banks' deposits, even those that exceeded the FDIC's $250,000 limit per individual account.
I'm sorry: it says "Federal Reserve Note" on the front of the dollar bill, over George Washington's head.
Is the Fed Buying Our New Debt?
May 11, 2020
So far, the legislative response to the COVID-19 pandemic has injected around $1.5 trillion of fiscal support into the economy. In combination with underlying structural deficits and economic feedback (mainly lost revenue) from the economic crisis, actions taken so far will lead to roughly $4 trillion of borrowing in fiscal 2020 alone — four times as much as in fiscal year 2019. Just last week, the Treasury announced it will be borrowing $3 trillion in this quarter — the equivalent of $1 trillion per month and over five times the previous record of $569 billion set in the fourth quarter of 2008. But where will the money come from? Who will finance all this new debt?
In a COVID Money Tracker webinar today, the Committee for a Responsible Federal Budget's Marc Goldwein tried to answer that question. His slide deck is available here and a video of his webinar here. The short answer: the Federal Reserve has indirectly bought the vast majority of debt issued since the crisis began. Whether this is debt monetization or more conventional quantitative easing is up for debate.
Committee for a Responsible Federal Budget
If you Google this question, you get lots of stuff from Fed and Treasury about how the above explanation is somehow, oh, is that the time?
Aside from the shambles that US law/lawyers is in, the US needs to study economics. Inflation caused by federal budget deficits in excess of the EU-recommended 3% of gross domestic product is ravaging the world today. The US Federal Reserve Bank can and must raise interest rates to sop up that excess "liquidity", but if Congress continues with 5%-of-GDP budget deficits, albeit down from the 10-15% deficits of a few years ago, things will only get worse. Markets rule. "Printing money": the US Treasury sells investment securities ("Treasury Bonds/Bills/etc.") to the Federal Reserve Bank for greenbacks (read the back of your dollar bill to see who issued it), and then the Treasury uses those dollars of actual currency to buy neat stuff that nobody would buy if they had to pay taxes to get it.