Are we celebrating those who left their money in, despite the warnings, when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits? Would that have been "heroic" in some way? I personally don't think so, that seems more like stupidity if the potential consequence is your company losing all it's money and going bankrupt for outside reasons.
SVB as an institution sponsored lobbyists to lobby against regulations meant to keep banks stable, then without those regulations they failed to self-regulate properly and failed massively. That is IMO pretty shameful. But I don't blame any clients of theirs for taking money out when they saw a potential instability. They did not create that instability; that instability created the bank run.
“Sorry team, our main VC advised us to keep our money in SVB because it’s the right thing to do. We can’t make payroll. Our VC, true to their ideals, kept their cash in SVB too. They can’t help us. Kindly cast your blame on the thousands of startup peers that withdrew and remain unscathed. Their blatant self-interest may have killed us, but we are the true moral victors.”
"How was your weekend?"
"Oh nice had a walk with the boys, saw a bald eagle"
We don't know that this would have been a crisis without a sudden 42 billion dollar withdrawal over 24 hours
If this, say, destroys public trust in Silicon Valley startups, or leads to restrictive government regulation, then it might cost more than it saved in the long run.
Have you read the statement? There is no "lie" in pulling money and signing the statement. Here is the text:
"The events that unfolded over the past 48 hours have been deeply disappointing and concerning. In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them."
The statement clearly communicates that they have ended their banking relationship (pulled their money). They are simply stating that if the finances of the bank are straightened out they will start banking there again. I don't see any disconnect or deceit between pulling their money and signing the statement. When the Moody's data came out and it was clear things were headed south, of course they transferred or at least tried to transfer their money out.
The failure of all of these financially savvy VCs was not pulling their money weeks or months ago. The data was all there as others have pointed out. They have all been whistling past the graveyard hoping the problem would go away. If there is any shame, it is in that failure to act earlier.
Shaming those that withdrew their funds reminds me of meme stock culture where participants shame sellers and make holding “no matter what” the highest virtue. The suckers that listen to that bullshit are the bag holding losers.
Was this unprecedented? I thought the US government has always covered depositors in full beyond the $250k.
What was unprecedented this time was the promise that they'd do it regardless of whether or not they could recover enough assets.
When Washington Mutual and IndyMac collapsed in 2008, some depositors indeed never got all their money back from their uninsured accounts.
One big difference was that those banks were knowingly engaging in hugely risky schemes, while SVB was ultimately burned by making overly conservative investments.
That’s a pretty strong signal to future startups they’ve got your back when the shit hits the fan.
I’m not saying it’s good, but I’m betting a lot of founders are feeling pretty thankful. The bailout was never guaranteed.
Instead they panicked like children and told everyone else to panic too
It’s not a good look and it broke trust in SV.
People who looked at SVB financials knew it was a train wreck. They behaved like serious investment professionals and pulled their money.
... though finance is very much about connections, charisma and acting tough, and backchannels. aaand sometimes fundamentals. it's very hard to know if they could have organized/coordinated/managed to put together a rescue package.
there was a 15B liquidity hole after all.
https://blogs.cfainstitute.org/marketintegrity/2023/03/13/th...
by forcing a bank run and crying about payroll they managed to get the government to step in and basically undo SVB's bad deals, at the cost of sacrificing SVB itself. but VCs are happy now, they had the opportunity to both enjoy SVB up to now and have a financially zero-cost exit.
if the fallen SVB management gets the same treatment as the fallen WeWork management their egos will be fine at the golf courses.
Instead they gutted the bank that provided them with banking services for 40 years, often when other banks would not. Some of them even did so two-facedly, publicly claiming to support SVB while pulling their and their companies' money out of it:
> Y Combinator advised its portfolios to collapse SVB, while Garry Tan petitioned the government for a bailout
Union Square:
> Signed the statement [of support of SVB] after contributing to the run.
Fred Wilson seems like a great example of PG's "Mean People Fail" delusion.
https://en.wikipedia.org/wiki/Prisoner%27s_dilemma
> Two members of a criminal gang, A and B, are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communication with their partner.
The guilty parties here could communicate with each other, and could cooperate, just like the banks did today by aiding First Republic. Instead, it appears that while they did communicate and cooperate, it was only towards the end of running on SVB. And as others have pointed out, even if the framing of it as a Prisoner's Dilemma is correct, it's not a single iteration variant: if the VC community could have come to some sort of an agreement, any party that refused to cooperate, or worse, that pledged to and then betrayed the others, would suffer a substantial loss of trust from other VCs and startups going forward.
In the SVB situation, most of the losses are borne by the bank, investors of the bank, and the general public (in the sense that it caused financial instability across the nation). It's not a prisoner's dilemma because the downside to not cooperating is mainly borne by other people. The VCs and the startups who decided to "defect" are fine.
I'm personally unable to understand the anger here and finger pointing here, the bank was obviously in a bad shape due to their assets being underwater, why would bank clients have a moral responsibility to continue depositing in a bad and failing bank?
----
And btw, the fact that parties could communicate with each other doesn't really change the game much. And nobody in their right mind would sign an agreement to keep assets in a bank or face penalties just because of some moral obligation to protect shareholders of a bank that made risky bets. That's just nuts IMHO. Anyone is free to create a time deposit if that's what they want to do.
“It’s rational to join a bank run, VCs would have been negligent to their companies if they advised to stay”
I know! Believe it or not I have studied a fair bit of game theory, enough to go beyond “it was a prisoners dilemma” and analyze the SVB collapse as an iterated prisoners dilemma with variable information/reputation and a small number of rounds (in this case the amount of information/reputation broadcasting very quickly drove the whole population to “defect always” and the ecosystem rapidly collapsed).
I trust myself to be capable of assigning blame for the bank run correctly (broadly speaking: I. nobody started the run, everyone joined it; II. joining the run earlier is very slightly more blameful than joining the run later; III. being part of the run “loudly” is very significantly more blameful than being part of the run “quietly”).
That is maybe 20%, while the other 80% and thus the real albatross here is the demand to be made whole afterwards.
Roughly speaking the least blameful is “you’ll get 250k immediately, a substantial fraction soon, and almost all eventually; if this still kills your business let us know and we’ll try to arrange bridging finance”, while the most blameful is “the government must promise to make us whole on Monday morning or the contagion will spread; use taxpayer money if you have to, this is that important”.
That is the prisoners dilemma. What you have offered here is in fact an accurate statement of the payoff matrix for the prisoners dilemma in the case where the other prisoner cooperates.
I'm not saying they deliberately did that. I'm just saying it would have been a smart reason to do the thing that they did.
The VCs will benefit hugely from the consequences of these events, forget the compensation.
This is what they call moral hazard.
The bank's leadership, for example, by choosing to focus heavily on one industry known for rash herd behaviors, both benefited from it some (lots of VCs recommending them) and now seems to have been undone by it.
The bank's regulators might have also looked the other way, we'll find out more.
- Investment/money management often happens by people who are very new to this process and make swift sometimes stupid decisions.
- Everyone else is clearly in the “protect profit” game, even if that means ignoring the clearly stupid things svb (and really the entire system) did/does. Mort backed securities, crap from the 08 markets, deregulation.. etc.
A failing bank should not crash the economy nor should a bunch of startups failing as a result crash too. Poor startup decisions are one thing. But “too big to fail” things maybe need to be smaller or nationalized?
I realize the site I’m on, and know I am still learning about this.
I have just, in all my (short 43) years, felt the “too big to fail” reason pop up more than it seems it should because, to me, it means “gov must protect my profit, or I’ll deadman switch the economy.”
But realizing your badly run bank is badly run and pulling your funds and encouraging others to do the same is a very reasonable thing to do. Certainly not worthy of this virtual tar and feathering. They are, or would have been, the innocent victims of this banks poor risk management.
Edit: Link to tweet of screenshot of Jason trying to get everyone to panic about the entire banking system, with the only fix is the government to backstop large SVB deposits. https://mobile.twitter.com/nuancerocket/status/1634922146555...
* In a catastrophic (_i.e._, non-backstopped) bank run, _most_ deposits are not getting out of the bank. Especially when the deposit sizes are very large, as they are with corporate treasuries.
* Thus, if a catastrophic bank run is already in progress you are unlikely to succeed at saving any of your portfolio treasuries.
* BUT, if a catastrophic bank run is not in progress, the downside is that you lose 100% of portfolio treasuries because you started one.
I am seeing a lot of people like Elizabeth Yin say that they are proud for telling everyone to pull the plug. I get it. They are on the side of their founders and they want to be helpful, and they believe decisive action helps.
My message to all of those investors is that "makes swift but extremely stupid decisions" is not a quality that is admirable in a capital allocator. I don't think this rises to a moral failing but pretty much everyone on this list is going on my personal docket of people who are too stupid and impulsive to trust in emergency business contexts.
I'm proposing in neither case it makes sense to encourage portcos to move their money.
> But the firm learned that its limited partners were encountering issues using SVB services as they tried to transfer the funds — they weren’t immediately going through as expected, the person said.
https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-f...
But the funny part is that this story is still unfolding. The bank's new management is soliciting new business under the same "startup-friendly" pitch (and presumably a large number of the same assets and liabilities), and again vulnerable to _the same exact run on a small-ish number of uninsured deposits_ (as opposed to diversified banks with lots of insured accounts across many industries). Except, now they also pitch it as fully insured! So how does this even end? Is it a temporary thing until the bridge bank gets acquired by somebody, or do they have now perpetual 100% protection from the FDIC? Really trying to understand. What good is a friendly bank that collapses from mismanagement and is propped up to serve the same small segment, vulnerable to the same run again?
That will depend on what the FDIC does, and I don't think even they know what the end result will be. They'd like to get it back into private hands (and to that end they want to keep it operating normally, to make it as attractive as possible to buy, at least for the time being), but that depends on finding someone willing to take it. If they can't, they might start gradually winding it down in orderly fashion (e.g. close to new accounts, start giving people a while to transition), or they might keep running it in the current limbo forever (just look at Freddy and Fannie).
It was 100% possible to genuinely hold the belief that "Silicon Valley Bank is safe" and to advise portfolio companies to remove money to reduce risk.
In-fact, that looks like it was the prudent way to behave: depositors probably haven't lost their money but it sure is a lot less liquid.
And this is exactly why bank runs are dangerous - once there is risk of one the safe thing to do is to remove your money as well. The only way to stop one is for an institution with a LOT of money to step in an guarantee it.
No, the only way to prevent a bank run is to get everyone else not to run.
And since that's impossible, there's only one rational choice to make, which is to be first out the door.
This is bad! But it's true.
> The best way to prevent a bank run is not to run.
That is irrational for every individual actor. There is very little downside in withdrawing the money and huge downside in not doing so.
The best (and only?) way to really prevent a bank run is for an actor that everyone trusts to aggressively step in and provide guarantees.
See for example the situation at Credit Swisse where the Swiss National Bank had to step in on March 16 to provide $54B in loans: https://www.aljazeera.com/economy/2023/3/15/credit-suisse-sl...
Bank runs are similar to prisoners' dilemmas. If all depositors could agree to not bank run, then they would have. Without this agreement, it does make sense to participate in the bank run (earlier is better), since if the bank run happens and you tried to be "good" by not running, you could be the one holding the bag at the end. And if the bank run doesn't happen, then no cost is incurred.
So unfortunately, a bank run is one of those situations where everyone makes really rational decisions in the absence of coordination, but the outcome is bad.
Is this a valid defense?
Interestingly enough nobody is blaming politicians and/or the Fed for causing all this in the first place. I mean, I get that tech and VC money in particular benefitted hugely from the zero interest rate environment in 2011~2021, but still, I fail to see where the moral obligations come from.
with a clean bill of health nonetheless.
SVB's precarious position was not a secret - saw a good post from mid-Feb that predicted exactly how this eventually played out. The only other thing KPMG could have done is give a "going concern" warning, and that would have been incredibly reckless because it would itself have caused a run on the bank.
Sorry, no. Auditors are supposed to effectively run going concern tests as part of their process. Its not only fraud they are looking for. If a company fails 2 weeks after the opinion because of an act of God, thats different. In this case, it was a literal duration mismatch (interest rate risk) that was predicted by blogs elsewhere.
I maybe concede that im not sure it would be reckless to issue FS with a going concern, even if the going concern is true. A more likely scenario would be...no signed opinion. Financial filing would have been delayed. Which itself would have caused the run.
If I was KPMG, I know what scenario I would like to be in, and its certainly NOT the current one, with a signed an opinion -with a wet siganture still- for a company that melted away within 2 weeks.
Only a couple of prominent investors on that list fit the bill
https://prospect.org/economy/2023-03-13-silicon-valley-bank-...
> Importantly, SVB was part of the network of cash sweep banks; it had an offer on its website about it. But according to Adam Levitin, there were only $469 million in reciprocal deposits, which is where cash sweep would show up. In other words, almost nobody banking at SVB used them.
90% of the criticism seems to be "depositors are never morally wrong for withdrawing money from a bank, so this website is bad".
But mostly this website's focus seems to be on the hypocrisy, e.g. the VCs who said "don't run on the bank" while telling their portfolio companies to run ASAP. That is much more obviously a moral wrong (to me at least).
I'm mostly basing this on the fact that the website explicitly said "You will be remembered for your hypocrisy." rather than "You will be remembered for running."
This obvious step for capital protection was somehow neglected by venture capital firms who pride themselves on advising their portfolio on a host of mundane business issues. A VC would be considered mad if one of its companies didn't run financing docs through a lawyer, or handled payroll on its own. This should have been one of the most obvious and simple items on the checklist. Yet somehow it was not.
Why not?
The failure of any bank should have been a shruggable matter for every startup funded with capital. Instead it was portrayed as an existential issue for all. (This was entirely and obviously false, but let that pass.) If it were an existential threat that was a lapse of the VCs supposedly guiding these business novices.
I very much suspect that the hue and cry for a bailout was driven in part by VCs eager to cover this lapse. And to suppress attention on the relationships with SVB that lead them to recommend their companies provide SVB with cheap deposits rather than prudently protect their capital.
The answer to a bank run is not "stand by your bank". It is "be indifferent to what happens to your bank in the first place".
There was no grand conspiracy ahead-of-time to cause a run.
It would be dumb on the part of investors and VCs to not facilitate moving vast sums of their money to safer places in an orderly fashion.
OTOH, there existed an opportunity to steer cash in directions favorable to the influencers after SVB was already sinking.
So I don't see any evidence it was anything other than mismanagement by growing too big too quickly and betting on riskier financial instruments than should've been allowed.
1) VC1 - SVB is perfectly safe . Don't worry and keep the money there.
2) VC2 - We are hearing rumors about SVB. You should play safe and move it to another bank. Here is a guy who can help with opening accounts etc.
And SVB shuts down on Friday (3/10).
Guess, which VC would I recommend to a new founder?
Yes. Feds saved SVB but there is a world where it might not have and my money could have been locked for days forcing me to miss payroll. In any case, I would have had a sleepless weekend.
Founder here.
And yet again, another group that claims to say "leave us be, take away restrictions and oversight we'll take care of ourselves, be more efficient an ask nothing of you", turnouts to be just another form of "leave us along so we can benefit, and then come save us when we need help".
And to be very clear, the lesson to take away from this isn't: don't save a group when it needs help - because in the end the Yellen and FDIC did the right thing. To do any differently would have been to cut off our nose to spite our face. The lesson is stop letting groups be allowed to be build these fake worlds. Every single time it works out to be "libertarian when convenient and socialist when suffering".
As we saw with the "code is law", and other cases - as much as people like the concepts it never holds up when people's assets/health are actually at stake. It is human nature they will always turn back to society for help after having refused to pay into it to get there (or directly taking advantage of it to profit).
If you want to profit off of the hard work of an existing society, you must also pay the costs of maintaining society. Anything otherwise is just a "free rider" problem waiting to explode. We're simply lucky we could contain it this time (so far).
There is a reason why every long-run solution to the prisoners dilemma is to cooperate. There is a reason why every society since antiquity has been based on society cooperation. The only long term stable solution is cooperation and eliminating free-riders who claim to be exempt from rules.
SV's VC ethos was completely hollow.
The same people who cry to be bailed out of a bank run are the same people who wring their hands about the moral hazard of student debt relief. You will find that theme repeated. Any government money spent on poor people we simply cannot afford.
The rich never stop asking the government for money. They expect it. They certainly never refuse it. Never forget that.
"Libertarians" are pretty much just Reagan-era deregulation conservatives. It is utterly self-serving.
If I was a powerful VC I would have shorted the stock and then went to the latest Silicon Valley venture capital social hour event and made a point of mentioning I had with drawn my billions.
This plot right out of Billions.
Since I'm not material investor in SVB, I can't see that this would be a red flag for the SEC?
If it was in a vacuum maybe they could have kept a lid on it. But I disagree that they should have stayed calm about it with what happened prior with TerraUSD, Luna, Celsius, and FTX. The length of the list shows that it would have been infeasible to collude to stay quiet.
This hall of shame feels like an ego trip.
Future founders will know that the VCs helped them protect their cash?
Transaction accounts don't earn me anything and have fees of their own. There's little incentive to stay at one bank over another. If they want equity, they should sell long-term secured loans with LVRs under 100% or lock in my cash with term deposits or any number of other less liquid asset classes. But why should I feel guilt over moving my cash from one bank to another?
Maybe it's because I'm Australian but I feel our banking industry is significantly more stable. The last time a bank had any serious issue was 1990 and it was a (single bank that itself was bailed out by the government). Australian banks make their money through mortgages (averaging less than 80% LVR or insurance-backed if higher and with fixed terms of generally no longer than 5 years), credit cards and management fees on long-term investment products -- they don't rely on investing cash deposits on long-term illiquid instruments.
The fact this doesn't seem to be the case should raise questions over the entire US banking industry. Cash should be liquid.
Edit: For reference, APRA (bank regulator in Australia) has some very strict liquidity risk management requirements and most banks own liquidity requirements are significantly higher than this: https://www.apra.gov.au/apra-explains-liquidity-banking -- an Australian bank would never be allowed to purchase a 10-30 year bond to match against cash assets.
Fiat is a theoretical ideal "decreed by the government" which is imposed onto a system with leaky constraints. The system is... super complicated. And super problematic. Macroeconomics is... fuzzy.
This is the whole reason why Bitcoin was created in the first place. Bitcoin is fiat created by the masses which has hard constraints. Its economics are a hard science. Bitcoin is as liquid as the system that trades it. Does a Bitcoin have value? Well, universal value, no. But the Bitcoin network has value because it facilitates value transfers (even if you convert to fiat on both sides - look up international remittance fees). And the network is mitigated by the token. So if the system has value, and the token is intrinsic to the network, does a Bitcoin have value?
Yeah Bitcoin is complicated, and far from perfect. But when you start to understand how complicated and problematic government fiat is... maybe folks who still think Bitcoin is worthless may want to take another look. We need stronger money networks. #theNetworkIsTheValue.
What the heck? No that's just outright wrong. SVB shares are basically worth nothing these days. Depositors are getting something back. If you're not familiar with the relative priority of bailors, secured creditors, depositors, debtors and shareholders during a bankruptcy proceeding, I suggest you read up more before making confident and borderline condescending statements about the common person's naïvety.
Then the product you really want is a safe deposit box to put your literal cash in. They bank will make its money from the rental fee you pay. It doesn't sound like you're actually looking for a bank account that pays interest.
https://treasury.gov.au/policy-topics/economy/black-economy/...
I also can't do an ACH or wire transfer from a safe deposit box.
(This is in the US, I wouldn’t know whether other countries also have this problem.)
Where do you think your banks get the money to loan out for mortgages? I’ll give you a hint: your deposits. This is how banks work.
The most basic commercial bank today makes car and home and small business loans using the funds deposited by its clients, and it holds those funds 'for free' (in the 1980s in the USA, one could make 5% interest by depositing one's cash in a bank savings account, with perhaps some penalties for withdrawal, IIRC). The bank charges a greater interest rate to those who take loans from the bank and pays out a lower interest rate to those who deposit funds with the bank, and that difference is where it earns its profit margin.
People tell me this little fairy tale has very little to do with the majority of the profits 'earned' in the modern banking system, however. It seems to have something to do with the merger of investment and commercial banking post repeal of Glass-Steagall laws separating those two sectors.
Curiously, nobody seems to want to talk about the strength of the dollar being backed up by petrodollar recycling since it went off the gold standard... but hey, who cares, we're fighting a war with Russia in Ukraine over access to the European gas market for just that reason, and the expenditures in Ukraine ($100 billion) seem comparable to the expenditures looming to make good the depositors in SVB and co. ($100 billion?) and these two things must be completely unrelated... I guess.
[1] https://www.bloomberg.com/news/articles/2022-09-30/jpmorgan-...
It sounds like in Australia (and Canada and the UK) the risk has just been shifted from the professionals to the consumers, with only five year mortgages. You can’t pay off your entire house in five years, so many people are dependent on being able to refinance, and are going to be in a lot of hurt over the next few years as the mortgages come due. This does not sound like a better solution.
30 year mortgages here aren't uncommon, but the rates are variable and are basically whatever their bank wants to charge (with competition from other banks preventing them from increasing ridiculously).
Loan affordability is a big thing here too with banks being mandated to ensure that borrowers can afford the mortgages they're receiving and even shading interest rates at 3 points above their current levels when assessing this.
Sub-prime mortgages are effectively non-existent here as are long-term interest rate risks for banks as their borrowing costs are always pretty closely aligned with their lending revenues.
Where do the banks get the money for the mortgages from those from? Is a central bank giving them loans for to cover the mortgage outlay? Because if they're financing them with customer deposits (which is the way every bank I know in the US works) those mortgages are long-term illiquid instruments.
It is hard to tell is the aussie banks are in any better position. The debt leverage ratio of the big four are incredibly difficult to track down. The last figures I saw are from about 2015 and even then banks like Commonwealth bank were leverage at something like 60:1 however looking at the wikipedia I would put it at something closer to 20:1.
If that is true, between 1.7% - 5% of deposits being pulled out would mean they would have to start getting the cash from elsewhere - ie. Sell assets/bonds. That is just based on $72 billion cash to $1.2 Trillion assets.
However if this is the case, they have been in this position for a very long time and they seem to be very stable. It feels like there is some big piece of this I am possibly missing.
I look forward to others pointing out the weakness of this point of view and correct my grammar in a witty fashion. ;)
The 4 "major" banks in Australia (Commonwealth, Westpac, NAB, ANZ) all maintain ratios above the minimum requirements and above the international requirements for "unquestionably strong". They're also (implied) "too big to fail".
APRA (our banking regulator) publishes plenty of stats.
I found this presentation https://www.commbank.com.au/content/dam/commbank-assets/inve... for the Commonwealth for FY21, which shows that their loan book is funded 73% by deposits, and the remainder is 74% long term, with a 5 year average maturity and they have 13.1% of their capital retained.
So if they have they have 13% capital, as well as AUD175B in liquid assets, with $610B in deposits, then they'd start to be in real trouble if more than 25% of their account holders started pulling out cash.
Of that $610B, $310B is households, so the split between standard savings accounts and business/investment/term deposits etc is roughly 50/50.
Exactly. Banks get special sweet deal privileges for their “superior” ability to manage risk and they still haven’t come up with a way to protect against a few days of rumors? I don’t buy it. Either it’s extreme incompetence, world record complacency or there’s some meta play where someone makes money off it.
And yeah, I’d be super happy to lock in deposits in exchange for a higher interest rate, it’s a dead simple financial product that nobody offers. Failing at running a bank seems to me like losing in tic tac toe as a first mover. This is why people turned to crypto. Not saying it’s good yet, but doing better than the current financial system is a low bar.
Aussie banks offer it.
This is like showing ads on something you already pay a monthly subscription for. Remember when cable TV was supposed to be ad-free? That died when people realized they could make more money by double-dipping. And everyone was apparently fine with it.
Most mortgages are either:
* Fixed: 1-5 year terms with exit fees if changed earlier
* Variable: 25 year terms, with variable rates, "offset accounts" (an associated account where you can deposit that offsets the outstanding principal of the mortgage), reduced or zero entry/exit fees, ability to "redraw" (effectively treating the mortgage as a line of credit) etc.
Even if a run lasts longer than the period above they're backed mostly by mortgages that are priced significantly higher than their borrowing costs and LVRs that average lower than 80% and the way AU banks price interest rates will always cost significantly less than their borrowing costs. They're never going to have trouble raising money on prime, variable interest (average fixed terms are always less than 5 years here) debt.
APRA standards all but eliminate a sub-prime problem here. Loan affordability has been a very hot topic here over the last decade.
That's what bitcoin was all about..
If you think there is a significant risk your bank is going to go under, you get your money out. If you think that risk is due to panic about a bank run kicked off by an unfounded rumor, you get your money out. You take care of your affairs, and the bank can take care of its operations and public relations.
Basically you're saying you'd pay the customer for the privilege of not being able to use their money...
A bank that keeps 100% funds as reserve to accommodate any withdrawal pattern not only cannot give any interest, it would need to _charge you_ a maintenance fee to cover the costs of holding your money as well as charge you a per-transaction fee to cover the cost of moving it.
And it wouldn't be some symbolic amount like $30/mo. After all, the maintenance fees across all the accounts would need to cover all operating expenses (wages, facilities, utilities, consumables etc.) otherwise the bank would literally lose money to run the transactional account program.
Banks should differentiate between accounts where you're safely parking your money, and accounts that are actually low risk investments. And they ideally would offer both of those things. I see no downsides here.
Given that you can only accept maybe 20x[1] of the equity investment. Is it possible to raise $15B in equity financing with this model ? Otherwise this bank cannot service the volume deposits of SVB and it would be a just small novelty bank.
Banks have significant costs and expectations of growth, shareholders to satisfy, which is why they take risks. Risks that are regulated - which perhaps not strong enough (Basel III) are still pretty strict
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[1] Ignoring risk weights etc, you would need at least 5% of the deposits in equity to be "Well Capitalized". The number goes higher depending on risk factors.
I just find it strange that after all that SVB is using the bailout as marketing. “All your new dollars are safe too!”
Under the circumstances, I'd have pulled out money while I could. Money in hand is better than a hope in hell.
But seriously, I wonder if it makes sense to have some common ground to greatly reduce odds of SVB-likes happening?
Dealing with this kind of emergency is all about communication. The final collapse happened frightfully quickly. There is no time to organise when the car pile-up has begun. You got to have groundwork in advance, and comms open too.
Maybe its too black of a black swan that you can't ever prevent. Maybe the competitive dynamics of the startup world do not lend support for a commons. Yet, maaaybe if you can see that your number one business partner's books have become crazy, someone should be able to say something, at the very least?
At the time the VCs advised their portfolio cos to pull funds out of SVB, it was a perfectly rational reason because only 2.7% of SVB's deposits were FDIC insured. That means, there was no guarantee of the Fed, treasury and FDIC would take the action to make good all depositors.
The entire site appears like something from an affected party (shareholder/investor/exec/boardmember of SVB) who lost their shirt in this fiasco and has an axe to grind. Just saying. Not sure why the are not naming and shaming the former SVB execs and boardmembers who missed to identify these risks early on and mitigate them.
The failure of SVB is just capitalism, isn't it? They risked their capital on a business that took bad decisions, so it is only fair that the specific company (SVB) ceases to exist and something else comes up to take its place.
Interesting.
http://www.righto.com/2013/11/how-hacker-news-ranking-really...
I have sympathy for nobody in this debacle, except maybe the federal government for having to clean up the mess.
You’re dreaming.
Boards are mainly hired to do nothing in established companies.
How dare customers demand their demand deposits. how rude, right?
All the bank had to do was upsell their customers into savings accounts and then no bank run is possible.
Edit: From the about page:
> Who I am is not important. Holding accountable the hypocrites responsible for Silicon Valley Bank’s collapse is. I can be reached at svbhallofshame@protonmail.com. All correspondence will be kept anonymous.
It's just missing a PAC called something like "Citizens for Depositor Accountability."
Yes, runs can kill any bank, but insolvency killed SVB first.
I don't disagree with you on the topic, but I promise you that the volcano of anger and indignation that spewed forth about this is basically all from entirely legitimate users.
Depositors making individual decisions? Ok.
Funds advising their companies? Ok, but it really hides the agency: deciders are in the funds (what CEO would refuse that advice?), but the companies are the responsible actors.
Now, would it matter if most of those funds were responding to their investors, say, Saudi's or Russians or the Chinese Communist Party, or to a consortium of friends who had shorted the bank? Most would say it does matter, but AFAICT it's perfectly legal, and no outsider would ever know the difference.
Market self-regulation, insurance, and investment diversification all depend on agents acting independently in their own interests, say, of making money.
Once agents are coordinating, or colluding, or have other dominant strategic interests, market self-regulation fails. And everyone else, who reasonably relied on the market behaving stochastically or in response to economic forces, loses.
One might hope that if this were all good, the response to a wall of shame would be a wall of honor, with transparency around decisions. But confidentiality is a key feature for any investment firms, so the best we'll get are retrospective letters of intent.
Aside from bad actors, the irony is that high federal rates means more risk-taking from banks, not less. SVB assets were good and safe, albeit not worth much (as the auction is showing).
I would have no problem with new rules saying that firms with assets big enough relative to the bank needed to schedule major withdrawals in advance. There's really no other reason than a bank run to move $100M emergently. (There'll be a secondary market for large urgent transfers, but it won't cost much, securitized with a pending transfer.)
So: yes the system is susceptible to bad actors, and there's no good way to respond without throwing out the baby with the bathwater. Really society's only defense is that the wealthy are getting wealthy enough legally that there's no real need to go all-out.
Aside from the moral hazard of covering bank risks, there's another moral hazard in creating opportunity and incentive for an already-confidential and largely unregulated industry to collude. It might push good investors into combines with bad actors, amplifying ill effects.
What's shameful really is that these systemic gaps are relatively obvious to thousands of the involved engineer/MBA/JD's, but everyone greedily grabs their local maxima, instead of insisting the system work right. That's where I'd welcome leadership, some way to reduce coordination costs.
That's not really how this works. The CAO of the bank was CFO of Lehman. People in these positions just get credit for the fact that they had a front row seat for this sort of financial implosion, so they can (theoretically) help whoever else's board they join avoid that sort of thing.
> But those players within the venture capital community who were singularly responsible for triggering and then exacerbating this run will not escape accountability.
The people in the VC community who triggered the bank run did the right thing by their startups. They don't have a responsibility to SVB. If they saw a run on the bank starting, it was in their best interests and the best interests of the startups in which they invested for those startups to get their money out as quickly as possible.
I don't really have a horse in this race, but: while the above argument makes sense, what about all their future startups? Everyone says nice things about how it was good to have this bank that understood startups and treated them well, and now that is all gone. And no one who had deposits lost their money anyway.
It seems to me that everyone is worse off. It was a lose/lose move.
The rational decision, when you know you cannot control how others will act, is to minimize the pain. If you saw the HN thread on Thursday, there were founders posting that they were told it will be fine. How do you think they were feeling on Friday?
And it is not a personal decision, continuity of business is a pretty big deal. Nobody in the company would forgive you for missing their payroll, because you thought it was the ethical thing to do.
If all the depositors could have got together in a room, they could all have agreed to keep their money in. That coordination wasn’t possible though.
I don't blame them. It was irrational if they were omniscient beings with knowledge of what would happen.. they aren't.
How do you arrive at this conclusion? Without a run on the bank none of this would have happened.
The bank was appears to have been insolvent (from the currently available information), though they avoided their books showing the fact by having bonds marked as “HTM”.
When a bank is insolvent, it’s best to shut it down as soon as possible, to avoid the bank engaging in risky behavior to ‘make back’ the missing money.
A bank run is an almost inevitable consequence of a loss of confidence in a bank.
The loss of confidence was caused by their $1.8B loss on securities sales and plan to go to the market for $2B in funding.
The next day shares plummeted, and people began to remove their money (including those advised by VCs)[1]
Given the fact that only $250K of funds is FDIC guaranteed, in the face of a balance sheet crisis at the bank the withdrawal of funds was entirely rational. Arguably not doing it would have been irresponsible.
Even if there hadn't been a bank run it's pretty easy to see cases where the bank would have "temporarily restricted the amount of money an entity can withdraw in a day" or something. That potential restriction on liquidity is something any responsible business owner would want to avoid.
[1] https://abcnews.go.com/Business/timeline-silicon-valley-bank...
Ugly, but rational.
>Joseph Gentile, the subject of the viral tweets, is currently the Chief Administrative Officer at SVB Securities, which is an investment firm. SVB Securities is a subsidiary of Silicon Valley Bank’s former parent company that is financially independent from the collapsed bank. He had previously been the CFO of a division within the greater Lehman Brothers’ bank and left about a year and a half before the bank filed for bankruptcy.
Was it a requirement or recommendation to concentrate cash in SVB, and why?
The raindrop never feels responsible for the flood, but it is.
It's just game theory.
The problem is when everyone acts to protect themselves from the 0.1% chance event it actually becomes a 100% likely event.
That's why FDIC Insurance was invented in order to prevent bank runs and is why we have had so few in the hundreds years since it was invented.
The obvious solution is to waive the FDIC insurance caps and probably increase the cost of the insurance to make up for the increased risk of failure.
The conclusion from game theory (specifically Prisoner's Dilemma) is not that only one action is rational. Both cooperation and defection are rational; that's what "dilemma" means. The difference lies in the scope or horizon to which reason is applied. Every time I see someone invoke "rationality" or game theory to justify what is really selfishness, it makes me want to throw up.
The bank had wiped its equity before depositors drew on it. It was a matter of time it failed. Its loan portfolio is impaired. Its startups are burning DDA cash without vc funding. The majority of its capital is locked up on long duration bonds.
The bank was bleeding from a thousand cuts. It was put out of misery by a good old run to the head. Eventually some startup was going to try drawing on their checking and it was going to fail.
A bank run is just a symptom of the disease (mismanaged bank risk).
How rude for the contractual obligation of a bank be asked to uphold their end of the deal. thats rude and racist. customers at that bank were real jerks.
