Having Sufficient Cash: SVB

Silicon Valley Bank did a fire sale of its bond portfolio (about $20 B) to raise cash and in the process incurred $1.8 Billion loss on that. To cover the loss they are planning to issue stock and …

Anyways, the point I was trying to hammer in is, when you see Berkshire keeping $100 B in cash, just feel good about it. When Berkshire is involved in a fire-sale, it will as a buyer only.


Ironically the problem with SVB was they had their money in too safe treasuries. The Fed burned them by jacking rates rapidly and they had a bank run.

Berkshire likely has this exact problem. It is just that it is not a bank, so the notes can mature.

1 Like

it is not the treasuries, the problem, rather the bank had no interest rate hedge in place, and their customer base being VC’s and startup, an unreliable source of funding. Yesterday alone their customer withdraw $50 B, resulting in net negative cash position, which resulted in regulators stepping in.

1 Like

Utter BS. Berkshire has its own cash invested in those bonds and not deposits (which are actually liabilities). You can argue every bank, if attempted to sell their bond portfolio will incur loss. This is something I highlighted in the form of additional reserves required by the banking system about 6 months ago. If I can predict that mark-to-market or available to sale securities will need to be marked down, bank risk management team should have seen this coming miles away and they had no hedges in place.

Forget about Berkshire, all Insurance companies understand the asset-liability-tenure mismatch and actively manage this risk. But then there are always someone who swims naked…


Duh, Berkshire is not a bank, so does not have deposits. The similarity is in investments of what it does with its cash.

This is not a SVB only problem. They were actively moving stuff around when they had a run. There are many other banks and the shorts are going to go after them.

1 Like

Divi, shorts cannot cause bank run. Shorts cannot cause funding mismatch. You are making one bizarre statement after the other.

Look all banks know they are going to write down their bond portfolio and many started establishing reserves at least for the last 1 to 2 quarters. Also, unlike SVB, most banks deposits are pretty stable and low cost deposits. This is going to cause more issues for crypto than banks. Currently some of the stable-coin’s are breaking the buck because their cash is stuck at (guess where? SVB).


This is a post I made in May 2022, where I talked about the hit due to mark to market and AOCI. I am nobody investor, thought about this 10 months ago, imagine how much time SVB had to prepare for this. Again, we will know who is swimming naked when the tide goes out, but it is not correct to assume there are lot of folks swimming naked.


I think you are misinformed or don’t understand. It is obvious that shorts didn’t force fed to raise the interest rate.

However, shorts identified SVB’s balance sheet issue, spread the information, caused loss of confidence in its depositors and there was a bank run. This is not a theory, this is actually what happened in just 2 days.

MKL has this exact situation with paper losses, but obviously it is not a bank so will hold its notes till maturity without any consequence.

1 Like

This is a good discussion which covers how this looks from the view of silicon valley VCs.

(3) E119: Silicon Valley Bank implodes: startup extinction event, contagion risk, culpability, and more - YouTube

The consensus is that there is a contagion already in progress.
Fed needs to step in.

Absolutely. I have no doubt on that. Probably FED, as usual, is behind the curve on this. The best time to deal with this is on Thursday or Friday, when the could have stepped in back stopped the bank, and wiped out the equity. They missed it, $50 B deposits gone from the bank and the franchise value of the bank is wiped out when it became a failed bank.

Every small bank is at a risk of bank run, not because of their funding mismatch, but basically FED is telling investors/ depositors anything over $250K is un-insured and you are on your own. That means all those deposits will flee from small banks to big banks (like JPM, Citi, BAC because they are SIB or too-big-to-fail and FED is mandated to save them). We will see. Biden has some important decisions to make. They are not just making a decision on SVB, basically they are deciding the fate of small banks. One of the reasons I never liked small one’s.


Oh baloney. This is a bank which has lent short and invested long, and which is in a specialty area with a highly focused customer base. There will be some pain, and there will likely be some others which also go down, but “the Fed needs to step in”?

I don’t think so; not close. People who played with crypto knew they were playing with fire - or should have. (First collapse) This bank (2nd collapse) made a classic mistake, and could have rectified it a year ago when the trend in interest rates became clear. They were sitting on billions in long notes paying 1%? Seriously?

That’s what capitalism is for, to get rid of the bad actors. It’s one thing if the entire economy is collapsing, as 2008, quite another if some over-rich VCs have to wait a while for their “excess” monies and take a haircut while doing it.


@Goofyhoofy–You’re spot-on, Goofyhoofy!

Here’s Los Angeles Times business columnist, MIchael Hiltzik’s take on that bank’s failure:

Absolutely. If FED doesn’t step in, no one with over $250K will ever deposit with a small bank. They will drain the funds out of small banks, which are essential for the local communities. This will result in more bigger banks, exacerbating the systemic issue with big banks.

FED needs to make a shot-gun wedding here. Otherwise, the un-insured depositors are not going to be made whole, and it is going to take much longer than 6 months.

1 Like

SVB is not a “small bank”, and it would be impractical for corporations (or wealthy depositors) to try to “spread around” their holdings. Also pretty unnecessary. Look at, for instance, Roku, which says it has 26% of cash now stranded, nearly $500M. So they have roughly $2b or so liquid. To “spread it around” they’d have to have 8,000 accounts somewhere, clearly unworkable.

The reality is that SVB has tons of assets in bonds and elsewhere, and while shareholders will be wiped out (like any corporation that goes upside down), depositors will probably get 96-98¢ on the dollar - after a while. Not pleasant, obviously, but hardly cause for panic.

Too bad for the owners, not really so terrible for the account holders.


You are missing the bigger point I am making. If you are any corporation (you don’t have to big corporations even mom and pop with over $250K funds that flows in and out) with funds over $250K you will be asking why should I deposit with any small banks? I should move my funds to JPM, C, BAC (systematically Important Banks or too-big-to-fail). This will cause a bankrun on small banks.

Corporations do spread their money, not at $250K range but for single principle failure. The only exception is their treasury operations which are pretty much with Citi.


There is not even a scintilla of a chance that Berkshire has “this exact problem”. That’s because Berkshire doesn’t invest its cash in long-term treasuries. It wants its cash to be ready, or near ready, for deployment at any time in case a good opportunity arises!


I have no problem with my tax dollars used to save 65k+ startups especially if I get my principle + interest like TARP.

I have a big problem with my tax dollars used to fight wars in Ukraine, Iraq and Afghanistan. I see those as failure of leaderships.

Another point I heard being made by experts is that because of the rapid fed rate increase, money is leaving in droves from small banks into money markets which are yielding 4% - 5%. In my office a lot of my colleagues were moving their money from banks into treasuries.

SBNY, CS are next big banks to fall. Shorts have tasted blood and targeting them now.

1 Like

A few observations:

  1. SIVB grew too quickly and chose to buy long term bonds with what turned out to be short term deposit. They never had a core source of cheap low cost deposits. Just like any online bank. They mismatched their deposits with their assets. Basic banking should not allow this. They may have been serving the tech community, but their asset liability modeling was very poor. That is one of the CAMEL requirements! I would like too see their asset liability grade.

  2. heard great comment from CEO of Cullin Frost on CNBC this week. When markets are panicked the only liquidity you can count on is what you bring to the table! I’m sure Buffet would agree.

  3. I spent a lot of time thinking about whether the recent highlight of unrealized losses on AFS and HTM securities portfolios, which may be large (up to or more than 100% of equity in some cases is a great concern). My conclusion is that it has to be evaluated in the context of sources of funds. If you have equal or greater permanent low cost sources of funds (branch deposits) it might be just fine. Of course lost opportunity if you could have had better timing and bought the securities today, there is no liquid market to quote the unrealized gains from these below market sources of deposits. But I assure you it is real, large, and valuable. I have decided to buy more banks on Monday.

1 Like

You may be correct. Big banks may win> I will add, insurance is actually up to $1 MM from FDIC. Joint account with 2 dependents qualifies for $1 per institution.

1 Like

In addition to low cost deposits, Banks have equity and long term debt that may be longterm fixed cost as well. For BAC $270 BB equity, $246 BB long term debt.