There’s a lot missing from the coverage of SVB.

Thoughts from a former @NYTimes banking reporter: There’s a lot missing from the coverage of #SVB.

Most important, @FDIC wanted to sell the whole company over the weekend. Bids were due Sunday. No deal announcement. Why is there so little reporting on what happened? Who bid? Who didn’t? Why?   

On the surface, SVB is a hugely valuable franchise with deep relations in the most dynamic sector of the economy. It has a strong tech investment banking business. There are at least a dozen banking companies that would kill to have those operations.   

So far, we’ve only heard of one problem at SVB: Its deposits tripled to nearly $200 billion from 2020 to 2022, mainly from cash invested in startups. The bank put the money into long-term government bonds. No credit risk, but a problem if rates go up. Oops.  Meanwhile, startups weren’t raising more cash and started to withdraw funds from the bank, which had to sell the bonds at a loss. 

Borrowing short and lending long is a classic dumb banking mistake. (See Savings and Loan Crisis.) But if that’s the only problem, it should be easy to get a handle on. A second-year Wall Street analyst can value a government bond portfolio in a couple of hours. If the rest of the bank is healthy other than some more deposits that will run off, a potential buyer could come up with a value, deduct the bad bond portfolio, and have a bid. What happened?  

SVB may have made more mistakes than we have heard about. Are there bad loans to tech companies? Bum venture investments? There’s no smoke I see hinting at that kind of fire. Tech companies are slowing down and laying off some people. But they are still making money. There are no huge failures that suggest loan losses. Yet.  

The big banks may be wary of helping the FDIC because they feel they burned in the financial crisis.

As a reward for JPMorgan’s hasty acquisitions of Washington Mutual and Bear Stearns, the Justice Department made it pay $13 billion in penalties largely to settle claims those companies had defrauded investors when they were independent. 

Any buyer of SVB would be smart to ask the government for indemnification of its past misdeeds. That might be awkward for the FDIC to do, but it might be worth it. The sooner SVB is back on its feet, the lower the ultimate cost to the insurance fund.  

There may be other places where government policies may be inhibiting a quick deal.  Banks are barred from buying other banks if they have more than 10% of the nation’s deposits. That takes JPMorgan, Bank of America, and Wells Fargo out of the game unless the government finds a way to waive the rules. That might not go over well in a Biden administration that is fighting economic concentration.  

Remember that one reason we’re in this mess is that in 2018 Congress, at Trump’s request,  exempted banks with less than $250 billion in assets from the tougher scrutiny imposed by the Dodd-Frank post-financial crisis reforms. Any buyer of SVB would be above that limit. I don’t know if that would pose a problem to any potential deal, but it’s a question that should be asked. 

All these questions aren’t merely inside baseball. The big policy question here is whether the government should have covered all the insured deposits at SVB. (The cost will be paid by higher deposit insurance premiums by banks that didn’t fail.) My intuition here, as I’ve said, is that cost might not be that high if SVB. can find a new home before the value of the franchise disappears. It surprises me that nobody in the business press is asking them.  

PS To be fair, @Reuters has done a little coverage on the bidding.  @felixsalmon and @danprimack on @Axios took note of the lack of bids. But @WSJ, @FT, @Business, @NYTimes: Nothing.