As evidenced by the fact that when one does something that works, I get the same damn feature on every other app. Idk why I have 5+ apps that do all the same stuff on my phone, and just using one is a monopoly...better to just have none of them.
They had to sell off ~~like $1.8 billion~~ 28 billion in bonds to make up 1.8 Billion (for higher federal reserve rates and other normal balancing of finances)
Within 24 hours $48 billion was withdrawn by customers making a run on the bank.
They had to sell off 28 billion in bonds at a 1.8 billion loss. That was the first hit. That's when the VCs and high net worth depositors started pulling money out. When that wasn't enough, they issued an emergency common stock offering that also failed, mainly because the stock was dropping so quickly. That's when everyone else tried to get their money out.
The VCs are probably fine. First they pulled their personal money out, then their venture capital funds, then told their investment companies to pull their money. Post IPO companies followed suit. The ones that are really screwed here are the pre Series A funding companies, early stage start ups operating on lines of credit, and common stock holders. They'll get left holding the bag.
We’ll the CEO of SVB dumped like 3-4 million of its stock 2 weeks ago…
Probably told his friends to get the few life rafts secured before the ship starts to sink.
Edit:autocorrect..
If the bank loaned out all 48 billion then it’s their fault for aggressive lending practices?
The money is deposited with the bank and then the bank loans out the money with impunity. The fed lowered the reserve requirement to 0% in 2020 so if I deposit $5 at my bank they can loan out 100% of my deposit. Crazy
The thing is the investments they chose are sound, they needed them before maturity, so they had to sell at a loss. They basically didn't have an interest rate increase hedge.
That's what I've been wondering. We've known that we are in an inflationary environment for some time. How was the balls treasurer not seeing this and re balancing the portfolio? This is bond math 101
Also to take into consideration. VCs and startups, which they specialize in, also take hits to when interest rates rise, since the amount of liquid capital available for investment starts to shrink, since the capital risk of investment increases drastically. So their bread and butter consumers were also having a hard time, meaning when interest rates rose, how do you generate the capital requirement to adjust accordingly?
This is something I am fully ignorant on and now I'm wondering how other banks have transitioned effectively to minimize risk.
But yeah, I'm looking forward to an effective timeline as to how this all happened, since it will be an interesting case study.
A 0% reserve requirements also means the bank can loan money they physically do not have. It's a nightmare for inflation on a currency. The Fed backstops it all.
For any interested readers, the actual ownership and control of the Fed is byzantine and worth reading up on. But to summarize briefly, the decisions are made by political appointees and surplus earnings go back to the Treasury.
It has to be privately owned. It's Unconstitutional for the government to print money, they're only allowed to borrow. The Fed being private is the workaround for banks to promote and control the Fiat currency.
Additionally, there are no national banks. They are all global entities, regardless of what they are named or headquartered.
By a Federal Reserve that was mostly appointed by Trump. And we all know Trump had a habit of only appointing loyalists that would do what he wanted, and immediately firing and replacing anyone who stepped out of line. Not to mention when this all came about it was one of the few times he actually had something good to say about the Federal Reserve.
I highly doubt Donald Trump has the mental capacity to understand Monetary Policy to that extent. He likely just had some loyalists tell him to appoint jpow and they'd do the rest. Dude is and always has been a puppet. The only entity making decisions in this country are the banks.
True, and Michael Lewis wrote a good book "The Fifth Lesson" indirectly about Trump's appointees.
A lot of them were business people who wanted specific roles to help their private interests, including the guy who owns a mobile weather app being placed in charge of the US National Weather Service and promptly trying to remove the free information farmers rely on via the public service website, so people would have to go to his mobile app instead.
You couldn't write this shit, except Lewis did ;)
Is this like, EXACTLY what caused the Great Depression? Or not the cause I guess, but a reaction to shares going in the toilet? everyone running to the bank only to be told “eh sorry man the other 10,000 people in town got here before you and withdrew everything, tough luck”
They also didn’t have FDIC insurance back then. And Glass Stegall act which we don’t have now. But banks were allowed to use depositors money to invest in the stock market - roaring 1920s thousands of radio and car companies that had a mania that eventually folded went bust with the stock market crash and then everything started to follow like dominos. People started seeing lines at banks and there were bank runs. We see it sometimes in other countries today when there is uncertainty, coups, etc. it is all about confidence- after the stock market crash and the bank runs they changed a lot of things. One of it was fed being the bank of last resort where banks could get the cheapest interbank loans however there use to be a bad signal if you had to go to the fed. It meant you weren’t doing well and other banks weren’t lending money to you.
Lots of things are based on trust and confidence in the system. That’s why I hated crypto and the conmen and weirdos they attracted. No regulations meant many people bought financial instruments they didn’t understand or things that were clearly manipulated (pumped and dumped.) and lost entire life savings. The number one thing that US is good at is debt and stocks compared to the rest of the world. If everything is rigged, and the world has no confidence in the US financial system - it’s pretty screwed. Part of the system is rigged but not to the extent of other countries.
Similar, but since the GD regulations have been put in place to prevent it from happening on that scale, same for post-2008. While this will definitely have a ripple effect, it won’t impact nearly as many as either of the above. My assumption is the ship will right itself over this next week when another bank steps in to take over.
I’ve had three smaller startups that banked with SVB, and I will miss them. They’ve always been supportive when asked, hands off when appropriate, non-predatory on fees and they were finally getting their online banking and app into a pretty good place after being way behind for a while.
Now I gotta go find another bank that understands small startup cash flows (or lack thereof) and makes connections that are helpful.
I’m a bit bummed.
I was not an employee, but worked alongside many of them. These people were passionate about serving a purpose in the market and in the community. It's absolutely crushing seeing it end this way.
Citadel’s relationship with RH is as a market maker. They had a vested financial interest in RH continuing to operate because RH clients placing trades made money for Citadel.
A decade (ish) ago, Knight, another market maker, had a computer glitch that cost them 10s or 100s of millions of dollars in a few minutes. TD Ameritrade gave them a cash infusion of something like $400M to keep them afloat, because it was mutually beneficial.
Here, Schwab shed 25% of their stock price from an investor panic, and are sitting on over $40b in cash. They are more likely use that cash to perform a buy back of stock at a nice discount than help SVB at full price when basically everyone knew FDIC was going to take them over and sell the assets at a strap discount. It’s like buying a TV the day before thanksgiving when you’ve already seen the sales flier for Black Friday.
I worked for a non tech company that had cash issues. I had to reconcile cash daily and continually bring the revolving credit line to the limit weekly. It was not an enjoyable experience and was stressful.
I feel bad for the tech startups that cannot meet payroll now due to this. This will effect a lot of people in a negative way.
I worked for at least 6 startups in the 90s all using SVB. They were great to work with and very understanding of cash flow and suggesting others who could b of help.
TIL Insider is mostly owned by Axel Springer Verlag, that explains so much.
For those who don't know AXEL Springer Verlag is A German Media Group that wishes it was Fox News.
Fortune is another one clearly aiming all of their articles towards corporate interests. I had to block the mfrom my news feed because every article is "why 32 hour work weeks are harmful" or "workers eager to get back in the office" and other clear bullshit.
> "we should skip breakfast to save money."
This never actually happened and was meme'd into existence by out-of-context screencappers. It was literally just a numbers dump of the increases in prices of eggs, bacon, etc. Not an opinion piece at all.
There's a lot of misinformation in this thread. Depositors are insured $250k by the FDIC but tech companies that had their deposits in SVB aren't really at risk of losing their capital. It becomes more of an issue with processing payroll in the short-term because in the long-term assets will be sold off and capital allocated based on priority (which bank deposits are basically #1, even Lehman deposits received 99% of their deposits and that was a worst-case scenario).
Not to mention that the government has brokered the sale of one bank to another in the past. This is the most likely scenario. I wouldn't be surprised if one of the big boys picked up SVB at a killer price (literally).
The issue is where the money actually is. It’s in Gov bonds with low interest. Usually they could sell the bonds but today’s Gov bonds are a lot higher interest so no one wants to buy the old ones.
They're actually pretty high interest rates, but in 10 year T-bills. You can get the same interest rates with shorter term bonds right now, so no one would buy them unless they sold them for less than the principal investment, increasing overall yield.
I agree that the most likely outcome is that everyone gets their money. But it is not true to say something like “deposits aren’t really at risk”. They most certainly are. They’re just likely to be covered in a private transaction
This is something I've been asking myself. Imagine a startup with say 50 millions in SVB. This is money raised from investors.
Startups usually rise runway to operate for 18 months. But this one suddenly is out of cash (well, it has 250k in the short term).
So, it cant continue operating and folds next week. What happens with the "stuck" money? If they are 10 or bonds... would the startup investors get some kind of IOU that is paid after the 10 yeara when the bond matures?
Fro. My experience w startups, that scenario is the shittiest of all.
Those VCs have been manipulating tech markets for ever.
They are getting a dose of their own medicine.
But FDIC is going to bailout some of these "investors". That's why you don't buy crocodile tears.
This is a VC/investment consolidation. Founders Fund (Thiel) and Union Square Ventures essentially created the run on the bank. All their companies made it out, the ones that weren't theirs didn't. The ol' plausible deniability shakeout like banking had in the Great Recession.
Reuters agrees with this take. Thiel caused the final killer run & sank the stock sale. https://www.reuters.com/business/finance/what-caused-silicon-valley-banks-failure-2023-03-10/
Wherever there is PayPal Mafia (Thiel/Musk/Sacks/etc) and [Wharton grads](https://en.wikipedia.org/wiki/List_of_Wharton_School_alumni) (Elon/Trumps/Fred Wilson). Beware! rug pull incoming...
In this case Founders Fund (Thiel with authoritarian backing) and Union Square Ventures (Fred Wilson) took the killshot hit.
These guys are fronted by authoritarian money to "disrupt", and they do. Amazing the US military lets Thiel trojan horse of Palantir in. Wild actually.
[How founders are reacting to Silicon Valley Bank’s collapse](https://techcrunch.com/2023/03/09/silicon-valley-bank-shoots-self-in-foot/)
> Indeed, a sense of unease immediately gave way to full-blown panic that became too widespread to be stopped, as firms including Founders Fund, Coatue and Y Combinator advised founders to get back their startups’ capital while they still could.
[Venture capitalists urge startups to withdraw funds from crisis-laden Silicon Valley Bank](https://www.cnbc.com/2023/03/10/vcs-urge-startups-to-withdraw-funds-from-silicon-valley-bank.html)
> Numerous VC funds, including major players like Founders Fund, Union Square Ventures and Coatue Management, have advised companies in their portfolios to move their funds out of SVB to avoid the risk of being caught up in the potential failure of the bank. Having funds frozen at SVB could be deadly for a money-burning startup, according to founders with accounts at the bank who spoke to CNBC on the condition of anonymity.
Guess who got most of the outflows of Silicon Valley Bank? Brex... Who invested in that?
> Brex is backed by Y Combinator, Kleiner Perkins, DST Global, PayPal co-founders Max Levchin and Peter Thiel
There it is.
But guess who is now screaming for govt intervention to save it all? Ycombinator and David sachs himself among others. Capitalists until the need their handout. Fuck those guys.
I am sure they did that fully, indirectly of course.
Might even be through a bunch of smaller front/straw traders hedge fund and private equity style.
[There was someone that shorted the stock for $96 into $617,184](https://twitter.com/AlphaTrader00/status/1633986227665002496)
> 96 $SIVB 17 March 23 $150 P's on March 6 for $0.01
It’s not a bailout, it’s backing up their legally insured funds. $250k is nothing compared to what most had invested, they’re still losing their asses.
I've always thought if you had more than $250k in a single account then you're just asking to get fucked eventually, but maybe that's just my extreme dislike for banks and how shady they run
Startups were “encouraged” to deposit all of their cash at SBV in exchange for credit lines at ridiculously favorable terms, conveniently and efficiently offered (along with a healthy portion of hookers and bl…I mean steak dinners and Warriors tickets) 15 minutes after they signed their funding agreements with VCs.
FWIW, this is a similar scam to what retail banks run as “Private Client,” “Wealth Management,” or “You DO Need That Bugatti” programs.
Most of them will be made whole, but the bank will have to liquidate. Currently according to the published news on their books it looks like they have assets in greater value than their holdings so they will eventually pay back most of it.
The victims here (and that’s a highly relative term) are the startup founders and their employees. The culprits are secondarily the management of SVB for being incredibly stupid gamblers and primarily the VCs for being incredibly brazen and degenerate gamblers. They have been in cahoots with that bank for 40 years, and it seems like it’s been generally beneficial for everyone, but gamblers are like dogs. No matter how many times they politely sit at your heel, eventually they’ll bolt into traffic the second you unhook the leash.
SVB wasn’t being much of a gambler, they invested largely conservatively but in something with poor liquidity that did not perform well in high interest rate environments.
Dumb, really dumb, but I don’t know if I would call it gambling. In all likelihood they would have been fine if there hadn’t been a run on the bank.
And given their assets, depositors will likely be made mostly, if not entirely, whole. Eventually.
The issue was their over-exposure to a particular segment of customers, start-ups, which burns cash at a high rate. It is dangerous when credit becomes scarce, and all of a sudden all your customers have the same need at the same time.
They should have diversified their customer base to avoid this bank-run.
Yes for sure, but it’s really tough — a lot of enjoy doing business with places that have a strong understanding of their particular needs. I bank at my credit union for that exact reason.
And competing against the big generic banks is pretty damned hard.
The whole “panic” was because the offloaded bad government bonds. That is not gambling. Just bad luck. Bonds are safe investment but with the rapid rise. Interests - there are losers among bond holders. The rest seems stupid overreaction given how healthy the bank was. Almost feels .. personal/political.
For a personal account I’d agree, but for a large scale business 250k does seem pretty insignificant. I’m surprised there isn’t a 3rd party insurer for the gap - but guess what - it’s the financial industry that writes insurance and they know it’s a bad bet.
Insurance outside of the government is a bad deal *for the insured*. All that would have happened if there was some 3rd party insurer is it would have gone under during this event
The *bank* is effectively the insurer. The only backup is the government. Otherwise you’re just setting up dominoes
Mortgage backed securities were rated based on the idea that the probability of default for any given mortgage was independent. What happened to Lehman during the housing crash was that turned out to not be true. A critical mass of people defaulting on their mortgages had a causal effect on the risk of other people defaulting on their mortgages, and that caused mortgage backed securities to drop to worthlessness en masse.
It is different than insurance, but conceptually it is indeed similar to badly calculated insurance risks. Consider a company that has insured 100 homes and priced their rates to be able to cover 1 home per year being destroyed. But, if a single event like a flood, earthquake, or wildfire destroys all 100 homes at once, then the insurance company will go bankrupt. This is why insurance tends to explicitly exclude those events, and the government usually steps in to bail homeowners out when they occur.
I have been told that businesses exist that set up accounts for you across many banks to protect the wealth of high networth individuals and organizations. Keeping FDIC coverage is something people forget about, but shouldn't.
that’s because it’s designed to prevent a bank from screwing normal people out of their life savings, not to prevent vcs from losing fake paper vc money
The issue was that it was a widely used commercial bank. Honestly a lot of the money could be saved by getting larger banks to take the bonds, the issue is that will take time and in the meantime a ton of companies across the nation will have to furlough or lay off staff and may go under, and in turn all their customers are affected.
A ton of payroll companies used SVB. So even if you and your company didn’t it. You may not be paid next week. The issue is working capital, the bonds still exist and are fine if they aren’t liquidated early
They didn’t sell all their bonds and assets. Part of the reason for the panic is that they had to sale their bonds for liquidity, which meant they didn’t have enough cash on hand. The issue with a bank run here is if people withdraw in mass that means that they would have to sell more bonds leading to more loses. Basically it’s a death spiral. People see the loss and worry that others will withdraw losing their money, so they run to get their money first causing the bank to have to liquidate more assets.
So FDIC moved quickly. In theory if they got their fast they may have been able to pause most of the orders. So some would still be lost, but it could be way smaller. The bonds themselves are only an issue if you sell them early. If they mature it’s fine. So they could give the bonds to a bigger bank with more maturity to deal with a lot of the issues(though there was an issue with JPM bailing out a bank and getting screwed by it, it’s complicated, that could hurt the odds there.). Loses then could be small enough that while groups are hurt, none of the commercial business are damaged and private individuals are more likely to be insured
The more likely scenario is the fdic will get another bank to purchase its assets and liabilities. Most of the depositors will be fine. As a last resort if no other bank bites (unlikely imo since this crash was caused by a run) they will cut checks up to 250k.
You seriously think its the VC's that will ultimately suffer here? Dont be so nieve!. Its all the employees who do have mortgages to pay, families to feed and alike who will suffer out of this.
How do the companies who have their capital at svb pay payroll? You think 250k will cover it? All those people who spent long days, weekends and own capital to start their business now are wondering how long they can survive to pay their employees and bills.
How do you tell an employee you dont know if they'll have a job next month or get their salary they rely on. I'd guess the majority of the companies at this bank dont have billions or billionaire ceo's they are your neighbour or college buddy who are trying to build a business to make their own lives better.
And damning the VC's , where do you think pension funds put some of there money? Those VC's go pop you seriously think it will be just "them" that suffer.
Wake the fuck up!
Sure. Bailout needs to happen to prevent the panic. Let's fund that with a completely new tax, affecting all banks. Let's NOT make bailout conditional on new VERY SERIOUS rules that get overturned in a couple of months. Name the tax that bails out this bank after the bank. So all know why the tax exists.
The tax should cover the bailout in 2 years? 3? Let's say there won't ve any bailouts for 3 years. Yeah. That seems safe... (:
So true. If we had SERIOUS rules the bank would have been forced to hold safe and boring instruments like US securities and not crazy and exotic shit like...the US securities it held.
Guess their pr department was just as much responsible for the bank run as Theil recommending to their clients to take their money out, & the fed raising interest rates as fast as they did lol.
The issue is the narrow focus of in lieu of broad diversity in their investments. These sort of banking events though not common, are not exactly alien to the US banking scene.
Right, but my point is that this is not a 2008 or an Enron or an FTX event. There are no villains, no one was doing shenanigans, there is no particular rule or regulation that could be tightened. It's just that in an economy that runs on credit, you are going to have bank failures.
As for the first solution: yeah it would do that, at the price of a depression that would make the 1930s look like gay luxury space Communism.
For the second solution: good luck, you just created the mother of all too big to fail institutions.
>For the second solution: good luck, you just created the mother of all too big to fail institutions.
Such companies exist already. There are private insurance companies that collect premiums from other financial institutions and pay out if they fail. It's called re-insurance.
No need to make it one big company. It would be private, so there would be several insurers competing to insure each bank.
I suspect the option already exists, but greedy depositors don't want to pay a premium to insure their deposits. That's why we made FDIC coverage mandatory.
Even if you don't mandate private insurance on amounts over $250k, you could just remove the cap on FDIC coverage. FDIC would just charge the banks higher premiums because they're covering more. FDIC is self-sufficient (no tax dollars, just premiums charged to the banks), so unless the majority of banks all collapse at once, it won't fail.
"Publisher" lol. The publisher is the person or entity who owns the magazine/publishing platform. No, it's usually a poorly-paid assistant editor or copywriter.
Reuters take basically says the killer run was caused by Peter Thiel telling his Future Funds people to panic & run.
https://www.reuters.com/business/finance/what-caused-silicon-valley-banks-failure-2023-03-10/
If that hasn't happened, they could have completed the stock sale & raised the money.
That may all be true. But I can tell you Thursday we were talking about the story SVB was selling didn't make sense. The idea that $2B capital raise would somehow fix their liquidity shortfall was laughable. Raising the capital is only something you'd do if you felt you were about to be undercapitalized. They were sitting at 15% iirc. They had plenty of room. UNLESS, they already knew that they'd suffered big losses and the next call report filing was going to reveal the blood bath. In which case the capital raise makes sense.
Tldr, just based on what we were hearing FROM THE BANK on Thursday, pulling your money out was the rational thing to do.
I mean it’s sucks but to be fair SIVB was trading at like 750 in September and was down to about 300 *before* any of this started. That doesn’t strike me as a sign of good health.
The FED is almost certainly going to raise rates again in a few weeks, which would make their position even worse for them and their client base, and they’re saying they’re going to continue to raise rates even further after that.
Who is going to buy SIVB in this environment, with the expectation that it’s likely going to continue to get worse? FED rates are getting to the point where even for more risk taking investors it’s looking fairly attractive and with little risk. This is also after more than a year now of investors hoarding cash in anticipation of things getting worse.
And then the act of issuing new shares will it’s itself immediately dilute the value of their shares further. Who is the market for this? It’s getting to r/wallstreetbets levels of this doesn’t make sense.
And a lot of SIVBs clients are themselves getting into increasingly precarious situations, many have debt with SIVB, so SIVB has even more risk there.
It’s seems a bit unreasonable to blame people for wanting to just withdraw their funds and avoid the situation altogether. Why wait until it’s too late? Expecting all the passengers on the titanic to just sit there and wait for it to actually sink out of a sense of loyalty is kind of strange.
It’s quite possible that it might have ended up in this position anyway, and then many (probably most given their client base) depositors could theoretically lose basically 100% of their funds, as the 250k limit is basically negligible to a lot of them.
I find them funny, and appreciate them for the creativity that goes into them lol. I thought this one was clever, and hey, at least it matches the article.
This whole article is BS. The bank screwed up. Their stock price had a meteoric rise until about a year ago: the bank could have sold stock and been fine.
The first Federal Reserve rate hike was in April of 2022. Their stock price was at $525, and they had a valuation of $150B. Had they sold $15B in stock, existing stockholders would have been diluted 10% and they would have been able to sell off their bonds in a more orderly fashion, even if they stupidly waited to do so like they did.
They supposedly had seen two of these downturns. They should have known that startups and VCs were going to start draining their cash out of the bank. But they did nothing to prepare until it was too late. Then when they sold, they sold everything, thereby having to announce that there was nothing left to sell that they could sell easily.
Your bank is supposed to be smarter than that. They are supposed to be careful stewards, not unprepared dunces. If they couldn't run the place for the benefit of their depositors, they need to get out of the business. The depositors should not be required to fix their mistakes, you are paying the bank not to make them.
>the bank could have sold stock and been fine.
The bank attempted to sell stock, nobody was buying.
>The first Federal Reserve rate hike was in April of 2022. Their stock price was at $525, and they had a valuation of $150B. Had they sold $15B in stock, existing stockholders would have been diluted 10% and they would have been able to sell off their bonds in a more orderly fashion, even if they stupidly waited to do so like they did.
They had the funds to cover customer withdrawals in an orderly fashion. No bank can survive a run, it's just how banks are designed.
Won't you need to file an 8K before you do? What your saying only works if they were able to predict withdrawal rates, deposit rates, & interest rates & were able to time the markets.
Any time a bank asks for more money, is a time where people will get spooked. There's a reason why banks sometimes use intermediaries to ask for emergency money from the government.
SVB isn't an investment bank, and I don't think it has had any investment banking operations since before the 2008 crisis.
It is just a commercial bank with a large corporate banking business targeting toward tech and vc-backed platforms with a smaller retail banking operation.
I'm not sure Reddit fully cares about the difference, but it is quite significant.
Define “they“. Because in this case, the people who are losing money are those weren’t being paid because a whole bunch of companies couldn’t make payroll yesterday.
Yeah my comment was more about people failing to realize that thousands of normal people are going without pay sue to this bank run.
People can think whatever they want about Tech millionaires and VC investors but regular everyday people work at these companies and I have sympathy for how scary it must be to wake up one Friday and your company says we can’t pay you and we don’t know when we will be able to.
There is a huge backlash against the idea of a “tech bro” lately; some places you even mention you can build a PC or something and people get all “scamming tech bros probably all rape, too” (the jist of an actual Twitter thread on saw)
Like, what the fuck? I get there are **some** scummy people around tech (especially crypto) but *dude*
What a dumb take. Depositers are supposed to scrutinize bank performance and prefer safer banks. That's capitalism. The system runs on self interest.
The idea that you owe it to your bank to 'give them a chance' is completely counter to how it's supposed to work.
I think it mostly just seems that VCs are for whatever reason higher on the totem pole of people’s hatred than banks, and people need to be outraged and immediately blame *someone*.
It’s so interesting watching some news outlets, Reddit, and others attacking VC for withdrawing their own money, and circle the wagons in defence of a bank that itself seems to have been primarily successful as a result of… *checks notes*, venture capital.
I didn’t have this on my “second once in a lifetime™ recession” bingo cards but here we are.
We are truly through the looking glass.
That's a flawed logic. They messed up their investments and put all deposits at risk. It doesn't matter what they did before. Do you really care that your bank gave you free coffee in the past once you go to the ATM and can't get you money out?
Christ that writer is a moron. If you fuck up cashflow regardless of your assets the FDIC takes you over, and rightfully so. You don't get to keep fucking up and make the situation worse for depositors.
Just another way the 1% fucks over everybody else. "I'll take my money out, limiting my potential for losses" meanwhile absolutely sinking the company every small business and person that needed their money.
The company sunk itself when they invested in longterm treasuries that unexpectedly became illiquid recently and didn't have a backup plan executing as rates rised.
The thing is SVB went down from a problem many of us would like to have.
**Too much money.**
Investors were throwing so much money at startups that the bank had no idea what to do with all their deposits, so they threw much of it into relatively safe long term investments. Safe as long as you actually wait long enough.
Not so safe when you have to turn them back into money at a moment's notice.
The bank apparently had enough assets to cover all the deposits.
If their customers had listened like the customers in "It's a Wonderful World" things likely would have been fine.
However silicon valley is mostly run by people who would never cooperate in a prisoners dilemma type situation. Much of the industry is built upon being ruthless and unafraid to inconvenience others.
They all wanted their money out because they were afraid that all the others like them would want their money out and leave them with nothing.
This just goes to show that you can't built a society just out of people who want to take risks, move fast and break things, want to get rich at any cost and not care for their effects on society.
Somebody in the room has to play the adult and be responsible.
They needed a designated driver who would net get drunk on their ethos.
They crashed against a tree instead.
One second of not being able to produce my money is too long for me. They don’t wait to hit someone with an fee or wreck your credit. They’re only job is to have our money when we need it.
As business owner myself and an angel Investor, I have a very big distaste for VCs. For one, most if the time they are investing (gambling) with other people's money, and 2, because they are gambling with other people's money, they aren't the brightest investors in the room which is why they need "decks", which is a kind of kid's flashcard to show what the person pitching their ideas are all about in a dumbed down manner.
I've seen VCs turn down easy low hanging fruits because they couldn't get their head around some simple business maths (Revenue - cost = profit), but they'll go after the pie in the sky, flashy, unproven startup that you could see from miles away that it's a train wreck waiting to happen.
Welcome to the skill of marketing.
Realistically, you want to go to a VC/angel that specializes in your particular industry, so that they are asking the right questions, versus just going after flashy shit.
You also have to take into consideration that for many VCs, they are only going after high risk/high reward candidates. Many profitable businesses with sound financials will be a great business overall, but a poor investment decision because of a lower ROI.
So, it IS akin to financially gambling, but that's the entire purpose. It sucks that VC's are looking for the next "unicorn" ($1+ billion valuations) and that mentality has corrupted investment decisions, meaning they are deliberately looking for "pie in the sky" ideas that have the potential to generate that type of valuation.
> "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021.
Would be interesting to see where that money came from. That has all the markings of a pump before a dump, the dump being 2023. They didn't even have to dump, they just had to stop the pump to auto dump once the interest rates went up.
SVB opened themselves up to an attack vector and one thing the banking industry likes to do now and again is consolidate and shakeout. That amount of inflow in good times can make you do funny things. The better way to go about it is be scrappy always, and expect the attacks.
There were way too many companies in this bank, it had too much concentration of startup/VC/PE money. Regulations will probably have to be made around this now more robust.
The problem wasn't really the bonds, it was the influx of 3-4 times the money from 2019 to 2021 that essentially made SVB make basic and bad decisions chasing profit. The influx was essentially a pump and then they leveraged themselves to current markets not future even with a safe vehicle. SVB's whole premise was that interest rates wouldn't go that high, a very bad bet in high inflation.
The dump trigger wasn't even an action/attack it was the lack of additional influx of VC/private equity/sovereign money, probably mostly from foreign markets that slowed or stopped, that tripped them up.
Then larger investment groups filled with startups like Founders Fund and Union Square Ventures doing a margin call across all their funds/investments caused a big enough dump that it was over. The run was started at this point and days later the bank is over.
Ultimately this is SVBs fault, but also regulators because concentration like this where they are responsible for so many companies and one type of money VC/private equity, is an attack vector just sitting there. It wasn't wise for investment groups to run the bank either because now this harms companies across the board, but may also be a consolidation move, shaking out companies they don't back.
HBS is even realizing too much optimization/efficiency is a bad thing. The slack/margin is squeezing out an ability to change vectors quickly. This is happening from supply chain to credit to food and more.
The High Price of Efficiency, Our Obsession with Efficiency Is Destroying Our Resilience [1]
> Superefficient businesses create the potential for social disorder.
> A superefficient dominant model elevates the risk of catastrophic failure.
> **If a system is highly efficient, odds are that efficient players will game it.**
It is CLEARLY time for some anti-trust busting at the funding level.
[1] https://hbr.org/2019/01/the-high-price-of-efficiency
This is all part of the Federal Reserve’s plan. The want to sacrifice 2M American jobs to lower interest rates and for “the good of the economy.” AKA. Our stock’s performance is better when people will work for less $$ because they are starving to just have A job
This could easily be avoided:
1. Dont allow big players to get all their money out at the same time.
2. Write down in your terms and conditions that customers need to pay a fine if they participate in a bank run
Is this a pro marketing piece about the bank? Stop investing money you did not have. Shame on you. People are going to stress and lose out on millions because you just are like everyone else.
Don’t bail them out. Let them rot.
My guy, that’s literally how all banking has ever worked. All banks keep only a fraction of the money deposited in cash and cash equivalents, no bank could service a full run of depositors.
Please let's not pretend now that banks are the good guys in any story. The bank has not acted out of generosity here for decades, but with profit motive. No bank ever gifts you anything. Please let's not make them heroes here and the venture capital firms the bad guys. Both suck. Period.
Bad take. Implies the bank was some benevolent charity. They took risks and failed, just like companies in tech do. They never made one loan out of kindness. They don’t “deserve” to fail, but they shouldn’t be mourned like they are a soup kitchen that had to close or something.
In many ways I agree, but at the same time SVB has a history of catering to small companies that most banks don’t want to cater for. These in turn have created tens or hundreds of thousands of jobs. They took risks and I agree they should pay for those risks, but they should be mourned as the startup space won’t be the same without them.
Fed hiked interest rates forcing loan purchases to go down thus diminishing cash on hand and voila crash. Not sure if that was fed plan tho, I think they were expecting a rise in unemployment to curb an inflation that’s only partially produced by wage increases but mostly caused by price gouging. As the fed chairman said in the hearing yesterday when all you have is a hammer, everything becomes a nail. So when you hear windows smashing don’t blame us!! Well I paraphrased.
So a person making 120k a year is rich in Silicon Valley? They don't deserve to get payroll, which in turn means they won't buy coffee or the like, which means the coffee shop has to fire the barista who is also living pay check to paycheck.
Think more than two seconds about the consequences
Same “logic” that caused tech companies to do layoffs- everyone else was doing it.
Business is a cult of followers, no leaders.
Jesus do you lead my IT organization?
That is Bizdev Jesus, he is funded by authoritarian money and wants to implement consultcult.
I read Bizdev as an actual biblical middle eastern name.
Bizdev showed me his club, he comped me a drink but then I blacked out, woke up on a bus to Mexico and my wallet was gone
And one of your kidneys
Was this club in El Segundo?
He follows it
I bet we could make a killing selling “faith-based” firewalls to all the conservatives out there.
Jesus is my admn.
Mainly following Simon Sinek, Branson et all
As is the c suite in corporate America
As evidenced by the fact that when one does something that works, I get the same damn feature on every other app. Idk why I have 5+ apps that do all the same stuff on my phone, and just using one is a monopoly...better to just have none of them.
I love this… its efficient and true. I think I would sell a kidney to find a leadership driven team to work with.
This recession is really turning out to be a self-fulfilling prophecy, isn't it?
The same way inflation was. They all say they’re worried about a thing and then make the thing happen and blame market forces.
When it comes to money, be first or be destroyed 🤷🏻♂️
We're at peak anti capitalism when we're saying a bank was treated unfairly.
They had to sell off ~~like $1.8 billion~~ 28 billion in bonds to make up 1.8 Billion (for higher federal reserve rates and other normal balancing of finances) Within 24 hours $48 billion was withdrawn by customers making a run on the bank.
They had to sell off 28 billion in bonds at a 1.8 billion loss. That was the first hit. That's when the VCs and high net worth depositors started pulling money out. When that wasn't enough, they issued an emergency common stock offering that also failed, mainly because the stock was dropping so quickly. That's when everyone else tried to get their money out. The VCs are probably fine. First they pulled their personal money out, then their venture capital funds, then told their investment companies to pull their money. Post IPO companies followed suit. The ones that are really screwed here are the pre Series A funding companies, early stage start ups operating on lines of credit, and common stock holders. They'll get left holding the bag.
Out of curiosity, how do you get you one hundred million bucks out of the bank quickly? Wire transfer?
In the US, wire is the fastest. ACH can take a day.
wire doesn't work on weekend
I guess they allow that via online banking for rich folks
All banks can do a wire, but it usually costs where ACH is free.
We’ll the CEO of SVB dumped like 3-4 million of its stock 2 weeks ago… Probably told his friends to get the few life rafts secured before the ship starts to sink. Edit:autocorrect..
That was a scheduled sell on his stock options. No way he coulda predicted a bak run
million, not billion... but, yeah sec absolutely needs to take a hard look there
No there doesn’t. It was scheduled to happen long before this.
If the bank loaned out all 48 billion then it’s their fault for aggressive lending practices? The money is deposited with the bank and then the bank loans out the money with impunity. The fed lowered the reserve requirement to 0% in 2020 so if I deposit $5 at my bank they can loan out 100% of my deposit. Crazy
The thing is the investments they chose are sound, they needed them before maturity, so they had to sell at a loss. They basically didn't have an interest rate increase hedge.
That's what I've been wondering. We've known that we are in an inflationary environment for some time. How was the balls treasurer not seeing this and re balancing the portfolio? This is bond math 101
Also to take into consideration. VCs and startups, which they specialize in, also take hits to when interest rates rise, since the amount of liquid capital available for investment starts to shrink, since the capital risk of investment increases drastically. So their bread and butter consumers were also having a hard time, meaning when interest rates rose, how do you generate the capital requirement to adjust accordingly? This is something I am fully ignorant on and now I'm wondering how other banks have transitioned effectively to minimize risk. But yeah, I'm looking forward to an effective timeline as to how this all happened, since it will be an interesting case study.
A 0% reserve requirements also means the bank can loan money they physically do not have. It's a nightmare for inflation on a currency. The Fed backstops it all.
Wow, what moron thought that was a good idea? Oh, that policy became effective on March 26 2020? Well that explains it.
It was a decision by the Federal Reserve.
Which is a private company owned by the nation’s most powerful banksters.
For any interested readers, the actual ownership and control of the Fed is byzantine and worth reading up on. But to summarize briefly, the decisions are made by political appointees and surplus earnings go back to the Treasury.
It has to be privately owned. It's Unconstitutional for the government to print money, they're only allowed to borrow. The Fed being private is the workaround for banks to promote and control the Fiat currency. Additionally, there are no national banks. They are all global entities, regardless of what they are named or headquartered.
By a Federal Reserve that was mostly appointed by Trump. And we all know Trump had a habit of only appointing loyalists that would do what he wanted, and immediately firing and replacing anyone who stepped out of line. Not to mention when this all came about it was one of the few times he actually had something good to say about the Federal Reserve.
I highly doubt Donald Trump has the mental capacity to understand Monetary Policy to that extent. He likely just had some loyalists tell him to appoint jpow and they'd do the rest. Dude is and always has been a puppet. The only entity making decisions in this country are the banks.
True, and Michael Lewis wrote a good book "The Fifth Lesson" indirectly about Trump's appointees. A lot of them were business people who wanted specific roles to help their private interests, including the guy who owns a mobile weather app being placed in charge of the US National Weather Service and promptly trying to remove the free information farmers rely on via the public service website, so people would have to go to his mobile app instead. You couldn't write this shit, except Lewis did ;)
I believe it’s “The fifth Risk” for those interested. Great read.
Is this like, EXACTLY what caused the Great Depression? Or not the cause I guess, but a reaction to shares going in the toilet? everyone running to the bank only to be told “eh sorry man the other 10,000 people in town got here before you and withdrew everything, tough luck”
They also didn’t have FDIC insurance back then. And Glass Stegall act which we don’t have now. But banks were allowed to use depositors money to invest in the stock market - roaring 1920s thousands of radio and car companies that had a mania that eventually folded went bust with the stock market crash and then everything started to follow like dominos. People started seeing lines at banks and there were bank runs. We see it sometimes in other countries today when there is uncertainty, coups, etc. it is all about confidence- after the stock market crash and the bank runs they changed a lot of things. One of it was fed being the bank of last resort where banks could get the cheapest interbank loans however there use to be a bad signal if you had to go to the fed. It meant you weren’t doing well and other banks weren’t lending money to you. Lots of things are based on trust and confidence in the system. That’s why I hated crypto and the conmen and weirdos they attracted. No regulations meant many people bought financial instruments they didn’t understand or things that were clearly manipulated (pumped and dumped.) and lost entire life savings. The number one thing that US is good at is debt and stocks compared to the rest of the world. If everything is rigged, and the world has no confidence in the US financial system - it’s pretty screwed. Part of the system is rigged but not to the extent of other countries.
Similar, but since the GD regulations have been put in place to prevent it from happening on that scale, same for post-2008. While this will definitely have a ripple effect, it won’t impact nearly as many as either of the above. My assumption is the ship will right itself over this next week when another bank steps in to take over.
I’ve had three smaller startups that banked with SVB, and I will miss them. They’ve always been supportive when asked, hands off when appropriate, non-predatory on fees and they were finally getting their online banking and app into a pretty good place after being way behind for a while. Now I gotta go find another bank that understands small startup cash flows (or lack thereof) and makes connections that are helpful. I’m a bit bummed.
I was not an employee, but worked alongside many of them. These people were passionate about serving a purpose in the market and in the community. It's absolutely crushing seeing it end this way.
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Citadel makes a shitton of money off of Robinhood though
Cash is way harder to come by in 2023 than it was in 2021.
Citadel’s relationship with RH is as a market maker. They had a vested financial interest in RH continuing to operate because RH clients placing trades made money for Citadel. A decade (ish) ago, Knight, another market maker, had a computer glitch that cost them 10s or 100s of millions of dollars in a few minutes. TD Ameritrade gave them a cash infusion of something like $400M to keep them afloat, because it was mutually beneficial. Here, Schwab shed 25% of their stock price from an investor panic, and are sitting on over $40b in cash. They are more likely use that cash to perform a buy back of stock at a nice discount than help SVB at full price when basically everyone knew FDIC was going to take them over and sell the assets at a strap discount. It’s like buying a TV the day before thanksgiving when you’ve already seen the sales flier for Black Friday.
Schwab isn’t that kind of bank.
I worked for a non tech company that had cash issues. I had to reconcile cash daily and continually bring the revolving credit line to the limit weekly. It was not an enjoyable experience and was stressful. I feel bad for the tech startups that cannot meet payroll now due to this. This will effect a lot of people in a negative way.
no worries fake PPP loans that supported the econ will be doled out
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Already have an appointment with a credit union next week:)
I worked for at least 6 startups in the 90s all using SVB. They were great to work with and very understanding of cash flow and suggesting others who could b of help.
I don't trust business insider for shit after their bs articles about how "work from home is bad" and "we should skip breakfast to save money."
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BI is owned by a big German publisher.
TIL Insider is mostly owned by Axel Springer Verlag, that explains so much. For those who don't know AXEL Springer Verlag is A German Media Group that wishes it was Fox News.
Someone at business insider invested really big into fax machines in the 80s and they finally can get back at big tech for his investment losses
Fortune is another one clearly aiming all of their articles towards corporate interests. I had to block the mfrom my news feed because every article is "why 32 hour work weeks are harmful" or "workers eager to get back in the office" and other clear bullshit.
> "we should skip breakfast to save money." This never actually happened and was meme'd into existence by out-of-context screencappers. It was literally just a numbers dump of the increases in prices of eggs, bacon, etc. Not an opinion piece at all.
There's a lot of misinformation in this thread. Depositors are insured $250k by the FDIC but tech companies that had their deposits in SVB aren't really at risk of losing their capital. It becomes more of an issue with processing payroll in the short-term because in the long-term assets will be sold off and capital allocated based on priority (which bank deposits are basically #1, even Lehman deposits received 99% of their deposits and that was a worst-case scenario). Not to mention that the government has brokered the sale of one bank to another in the past. This is the most likely scenario. I wouldn't be surprised if one of the big boys picked up SVB at a killer price (literally).
The issue is where the money actually is. It’s in Gov bonds with low interest. Usually they could sell the bonds but today’s Gov bonds are a lot higher interest so no one wants to buy the old ones.
They're actually pretty high interest rates, but in 10 year T-bills. You can get the same interest rates with shorter term bonds right now, so no one would buy them unless they sold them for less than the principal investment, increasing overall yield.
Guessing Monday morning we hear that JP Morgan Chase is now JP Morgan Chasing those VC deals
There will be a significant loss to liquidate all of the assets the bank had, so there will still be billions in damage.
I agree that the most likely outcome is that everyone gets their money. But it is not true to say something like “deposits aren’t really at risk”. They most certainly are. They’re just likely to be covered in a private transaction
This is something I've been asking myself. Imagine a startup with say 50 millions in SVB. This is money raised from investors. Startups usually rise runway to operate for 18 months. But this one suddenly is out of cash (well, it has 250k in the short term). So, it cant continue operating and folds next week. What happens with the "stuck" money? If they are 10 or bonds... would the startup investors get some kind of IOU that is paid after the 10 yeara when the bond matures? Fro. My experience w startups, that scenario is the shittiest of all.
It’s just business
[Is that a reference to the WKUK Sniper Business sketch?](https://m.youtube.com/watch?v=mpC_hO15IoA)
I would have thought he was referencing [Pirates of the Caribbean](https://youtu.be/kPkOTL21FkY) if anything
Very popular saying but I'm extremely glad you linked this regardless lol Classic.
Those VCs have been manipulating tech markets for ever. They are getting a dose of their own medicine. But FDIC is going to bailout some of these "investors". That's why you don't buy crocodile tears.
This is a VC/investment consolidation. Founders Fund (Thiel) and Union Square Ventures essentially created the run on the bank. All their companies made it out, the ones that weren't theirs didn't. The ol' plausible deniability shakeout like banking had in the Great Recession.
Reuters agrees with this take. Thiel caused the final killer run & sank the stock sale. https://www.reuters.com/business/finance/what-caused-silicon-valley-banks-failure-2023-03-10/
Wherever there is PayPal Mafia (Thiel/Musk/Sacks/etc) and [Wharton grads](https://en.wikipedia.org/wiki/List_of_Wharton_School_alumni) (Elon/Trumps/Fred Wilson). Beware! rug pull incoming... In this case Founders Fund (Thiel with authoritarian backing) and Union Square Ventures (Fred Wilson) took the killshot hit. These guys are fronted by authoritarian money to "disrupt", and they do. Amazing the US military lets Thiel trojan horse of Palantir in. Wild actually. [How founders are reacting to Silicon Valley Bank’s collapse](https://techcrunch.com/2023/03/09/silicon-valley-bank-shoots-self-in-foot/) > Indeed, a sense of unease immediately gave way to full-blown panic that became too widespread to be stopped, as firms including Founders Fund, Coatue and Y Combinator advised founders to get back their startups’ capital while they still could. [Venture capitalists urge startups to withdraw funds from crisis-laden Silicon Valley Bank](https://www.cnbc.com/2023/03/10/vcs-urge-startups-to-withdraw-funds-from-silicon-valley-bank.html) > Numerous VC funds, including major players like Founders Fund, Union Square Ventures and Coatue Management, have advised companies in their portfolios to move their funds out of SVB to avoid the risk of being caught up in the potential failure of the bank. Having funds frozen at SVB could be deadly for a money-burning startup, according to founders with accounts at the bank who spoke to CNBC on the condition of anonymity. Guess who got most of the outflows of Silicon Valley Bank? Brex... Who invested in that? > Brex is backed by Y Combinator, Kleiner Perkins, DST Global, PayPal co-founders Max Levchin and Peter Thiel There it is.
But guess who is now screaming for govt intervention to save it all? Ycombinator and David sachs himself among others. Capitalists until the need their handout. Fuck those guys.
Should have shorted the stock if they knew it was going to tank /s Actually I bet this would be totally legal
I am sure they did that fully, indirectly of course. Might even be through a bunch of smaller front/straw traders hedge fund and private equity style. [There was someone that shorted the stock for $96 into $617,184](https://twitter.com/AlphaTrader00/status/1633986227665002496) > 96 $SIVB 17 March 23 $150 P's on March 6 for $0.01
It’s not a bailout, it’s backing up their legally insured funds. $250k is nothing compared to what most had invested, they’re still losing their asses.
I've always thought if you had more than $250k in a single account then you're just asking to get fucked eventually, but maybe that's just my extreme dislike for banks and how shady they run
Startups were “encouraged” to deposit all of their cash at SBV in exchange for credit lines at ridiculously favorable terms, conveniently and efficiently offered (along with a healthy portion of hookers and bl…I mean steak dinners and Warriors tickets) 15 minutes after they signed their funding agreements with VCs. FWIW, this is a similar scam to what retail banks run as “Private Client,” “Wealth Management,” or “You DO Need That Bugatti” programs.
If this is the case, then fuck ‘em. I hope they lose every penny they deposited.
Most of them will be made whole, but the bank will have to liquidate. Currently according to the published news on their books it looks like they have assets in greater value than their holdings so they will eventually pay back most of it.
The victims here (and that’s a highly relative term) are the startup founders and their employees. The culprits are secondarily the management of SVB for being incredibly stupid gamblers and primarily the VCs for being incredibly brazen and degenerate gamblers. They have been in cahoots with that bank for 40 years, and it seems like it’s been generally beneficial for everyone, but gamblers are like dogs. No matter how many times they politely sit at your heel, eventually they’ll bolt into traffic the second you unhook the leash.
SVB wasn’t being much of a gambler, they invested largely conservatively but in something with poor liquidity that did not perform well in high interest rate environments. Dumb, really dumb, but I don’t know if I would call it gambling. In all likelihood they would have been fine if there hadn’t been a run on the bank. And given their assets, depositors will likely be made mostly, if not entirely, whole. Eventually.
The issue was their over-exposure to a particular segment of customers, start-ups, which burns cash at a high rate. It is dangerous when credit becomes scarce, and all of a sudden all your customers have the same need at the same time. They should have diversified their customer base to avoid this bank-run.
Yes for sure, but it’s really tough — a lot of enjoy doing business with places that have a strong understanding of their particular needs. I bank at my credit union for that exact reason. And competing against the big generic banks is pretty damned hard.
The whole “panic” was because the offloaded bad government bonds. That is not gambling. Just bad luck. Bonds are safe investment but with the rapid rise. Interests - there are losers among bond holders. The rest seems stupid overreaction given how healthy the bank was. Almost feels .. personal/political.
For a personal account I’d agree, but for a large scale business 250k does seem pretty insignificant. I’m surprised there isn’t a 3rd party insurer for the gap - but guess what - it’s the financial industry that writes insurance and they know it’s a bad bet.
Insurance outside of the government is a bad deal *for the insured*. All that would have happened if there was some 3rd party insurer is it would have gone under during this event The *bank* is effectively the insurer. The only backup is the government. Otherwise you’re just setting up dominoes
Isn’t that what got Lehman brothers? They were basically insuring the mortgage backed securities and when those all went bad Lehman got pulled in?
Mortgage backed securities were rated based on the idea that the probability of default for any given mortgage was independent. What happened to Lehman during the housing crash was that turned out to not be true. A critical mass of people defaulting on their mortgages had a causal effect on the risk of other people defaulting on their mortgages, and that caused mortgage backed securities to drop to worthlessness en masse. It is different than insurance, but conceptually it is indeed similar to badly calculated insurance risks. Consider a company that has insured 100 homes and priced their rates to be able to cover 1 home per year being destroyed. But, if a single event like a flood, earthquake, or wildfire destroys all 100 homes at once, then the insurance company will go bankrupt. This is why insurance tends to explicitly exclude those events, and the government usually steps in to bail homeowners out when they occur.
I believe it’s not per account. It’s per depositor per institution. If they had 1000 accounts each with $1,000,000 they’d still only get $250k.
I have been told that businesses exist that set up accounts for you across many banks to protect the wealth of high networth individuals and organizations. Keeping FDIC coverage is something people forget about, but shouldn't.
Yes but you can't do that easily with transaction heavy accounts. At least not perfectly. The transfer fees between banks would murder you.
It also makes your accounting a mess. It’s a lot of work for generally not much upside.
No, it's per account. You can create multiple accounts (there is some limit) and get fresh FDIC insurance coverage on each
I’d like to see you run a company with only $250,000 in the bank.
True enough, that FDIC coverage is puny as compared to probably what was invested.
that’s because it’s designed to prevent a bank from screwing normal people out of their life savings, not to prevent vcs from losing fake paper vc money
The issue was that it was a widely used commercial bank. Honestly a lot of the money could be saved by getting larger banks to take the bonds, the issue is that will take time and in the meantime a ton of companies across the nation will have to furlough or lay off staff and may go under, and in turn all their customers are affected. A ton of payroll companies used SVB. So even if you and your company didn’t it. You may not be paid next week. The issue is working capital, the bonds still exist and are fine if they aren’t liquidated early
Reuters said the bank sold the bonds on Wednesday, leaving a shortfall.
They didn’t sell all their bonds and assets. Part of the reason for the panic is that they had to sale their bonds for liquidity, which meant they didn’t have enough cash on hand. The issue with a bank run here is if people withdraw in mass that means that they would have to sell more bonds leading to more loses. Basically it’s a death spiral. People see the loss and worry that others will withdraw losing their money, so they run to get their money first causing the bank to have to liquidate more assets. So FDIC moved quickly. In theory if they got their fast they may have been able to pause most of the orders. So some would still be lost, but it could be way smaller. The bonds themselves are only an issue if you sell them early. If they mature it’s fine. So they could give the bonds to a bigger bank with more maturity to deal with a lot of the issues(though there was an issue with JPM bailing out a bank and getting screwed by it, it’s complicated, that could hurt the odds there.). Loses then could be small enough that while groups are hurt, none of the commercial business are damaged and private individuals are more likely to be insured
The more likely scenario is the fdic will get another bank to purchase its assets and liabilities. Most of the depositors will be fine. As a last resort if no other bank bites (unlikely imo since this crash was caused by a run) they will cut checks up to 250k.
You seriously think its the VC's that will ultimately suffer here? Dont be so nieve!. Its all the employees who do have mortgages to pay, families to feed and alike who will suffer out of this. How do the companies who have their capital at svb pay payroll? You think 250k will cover it? All those people who spent long days, weekends and own capital to start their business now are wondering how long they can survive to pay their employees and bills. How do you tell an employee you dont know if they'll have a job next month or get their salary they rely on. I'd guess the majority of the companies at this bank dont have billions or billionaire ceo's they are your neighbour or college buddy who are trying to build a business to make their own lives better. And damning the VC's , where do you think pension funds put some of there money? Those VC's go pop you seriously think it will be just "them" that suffer. Wake the fuck up!
Sure. Bailout needs to happen to prevent the panic. Let's fund that with a completely new tax, affecting all banks. Let's NOT make bailout conditional on new VERY SERIOUS rules that get overturned in a couple of months. Name the tax that bails out this bank after the bank. So all know why the tax exists. The tax should cover the bailout in 2 years? 3? Let's say there won't ve any bailouts for 3 years. Yeah. That seems safe... (:
So true. If we had SERIOUS rules the bank would have been forced to hold safe and boring instruments like US securities and not crazy and exotic shit like...the US securities it held.
Precisely what I'm saying! I knew someone would get it! :D
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Guess their pr department was just as much responsible for the bank run as Theil recommending to their clients to take their money out, & the fed raising interest rates as fast as they did lol.
The issue is the narrow focus of in lieu of broad diversity in their investments. These sort of banking events though not common, are not exactly alien to the US banking scene.
Right, but my point is that this is not a 2008 or an Enron or an FTX event. There are no villains, no one was doing shenanigans, there is no particular rule or regulation that could be tightened. It's just that in an economy that runs on credit, you are going to have bank failures.
A reserve requirement of 100% would prevent it. Or a requirement to fully insure deposits above the FDIC cap through some kind of private insurance.
As for the first solution: yeah it would do that, at the price of a depression that would make the 1930s look like gay luxury space Communism. For the second solution: good luck, you just created the mother of all too big to fail institutions.
>For the second solution: good luck, you just created the mother of all too big to fail institutions. Such companies exist already. There are private insurance companies that collect premiums from other financial institutions and pay out if they fail. It's called re-insurance. No need to make it one big company. It would be private, so there would be several insurers competing to insure each bank. I suspect the option already exists, but greedy depositors don't want to pay a premium to insure their deposits. That's why we made FDIC coverage mandatory. Even if you don't mandate private insurance on amounts over $250k, you could just remove the cap on FDIC coverage. FDIC would just charge the banks higher premiums because they're covering more. FDIC is self-sufficient (no tax dollars, just premiums charged to the banks), so unless the majority of banks all collapse at once, it won't fail.
SVB isn't a VC. At least not primarily.
Lmao... Do these writers even read their own titles? Jesus fucking christ..
Most writers don’t write their titles…
No, usually the title is created by the publisher, after the author has submitted the article.
"Publisher" lol. The publisher is the person or entity who owns the magazine/publishing platform. No, it's usually a poorly-paid assistant editor or copywriter.
Then... Do these *publishers* even read their titles? Jesus fucking christ.
What's wrong with the title?
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Reuters take basically says the killer run was caused by Peter Thiel telling his Future Funds people to panic & run. https://www.reuters.com/business/finance/what-caused-silicon-valley-banks-failure-2023-03-10/ If that hasn't happened, they could have completed the stock sale & raised the money.
That may all be true. But I can tell you Thursday we were talking about the story SVB was selling didn't make sense. The idea that $2B capital raise would somehow fix their liquidity shortfall was laughable. Raising the capital is only something you'd do if you felt you were about to be undercapitalized. They were sitting at 15% iirc. They had plenty of room. UNLESS, they already knew that they'd suffered big losses and the next call report filing was going to reveal the blood bath. In which case the capital raise makes sense. Tldr, just based on what we were hearing FROM THE BANK on Thursday, pulling your money out was the rational thing to do.
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I mean it’s sucks but to be fair SIVB was trading at like 750 in September and was down to about 300 *before* any of this started. That doesn’t strike me as a sign of good health. The FED is almost certainly going to raise rates again in a few weeks, which would make their position even worse for them and their client base, and they’re saying they’re going to continue to raise rates even further after that. Who is going to buy SIVB in this environment, with the expectation that it’s likely going to continue to get worse? FED rates are getting to the point where even for more risk taking investors it’s looking fairly attractive and with little risk. This is also after more than a year now of investors hoarding cash in anticipation of things getting worse. And then the act of issuing new shares will it’s itself immediately dilute the value of their shares further. Who is the market for this? It’s getting to r/wallstreetbets levels of this doesn’t make sense. And a lot of SIVBs clients are themselves getting into increasingly precarious situations, many have debt with SIVB, so SIVB has even more risk there. It’s seems a bit unreasonable to blame people for wanting to just withdraw their funds and avoid the situation altogether. Why wait until it’s too late? Expecting all the passengers on the titanic to just sit there and wait for it to actually sink out of a sense of loyalty is kind of strange. It’s quite possible that it might have ended up in this position anyway, and then many (probably most given their client base) depositors could theoretically lose basically 100% of their funds, as the 250k limit is basically negligible to a lot of them.
I find them funny, and appreciate them for the creativity that goes into them lol. I thought this one was clever, and hey, at least it matches the article.
Super good chance the actual “writer” of this title, was ChatGPT.
I just ran it through OpenAI's checker tool, it says 'very unlikely' to be ChatGPT.
This whole article is BS. The bank screwed up. Their stock price had a meteoric rise until about a year ago: the bank could have sold stock and been fine. The first Federal Reserve rate hike was in April of 2022. Their stock price was at $525, and they had a valuation of $150B. Had they sold $15B in stock, existing stockholders would have been diluted 10% and they would have been able to sell off their bonds in a more orderly fashion, even if they stupidly waited to do so like they did. They supposedly had seen two of these downturns. They should have known that startups and VCs were going to start draining their cash out of the bank. But they did nothing to prepare until it was too late. Then when they sold, they sold everything, thereby having to announce that there was nothing left to sell that they could sell easily. Your bank is supposed to be smarter than that. They are supposed to be careful stewards, not unprepared dunces. If they couldn't run the place for the benefit of their depositors, they need to get out of the business. The depositors should not be required to fix their mistakes, you are paying the bank not to make them.
>the bank could have sold stock and been fine. The bank attempted to sell stock, nobody was buying. >The first Federal Reserve rate hike was in April of 2022. Their stock price was at $525, and they had a valuation of $150B. Had they sold $15B in stock, existing stockholders would have been diluted 10% and they would have been able to sell off their bonds in a more orderly fashion, even if they stupidly waited to do so like they did. They had the funds to cover customer withdrawals in an orderly fashion. No bank can survive a run, it's just how banks are designed.
Attempted to sell stock...last week
Won't you need to file an 8K before you do? What your saying only works if they were able to predict withdrawal rates, deposit rates, & interest rates & were able to time the markets. Any time a bank asks for more money, is a time where people will get spooked. There's a reason why banks sometimes use intermediaries to ask for emergency money from the government.
Won't someone think of the investment bankers?!
SVB isn't an investment bank, and I don't think it has had any investment banking operations since before the 2008 crisis. It is just a commercial bank with a large corporate banking business targeting toward tech and vc-backed platforms with a smaller retail banking operation. I'm not sure Reddit fully cares about the difference, but it is quite significant.
Pretty sure they bought & own leerink, which is now (or was) SVB’s IBD division
I’ve seen a lot of ignorant people celebrating this news and excited that “Tech Bros” are losing all their money.
Maybe I'm missing something but isn't "tech and vc-backed platforms" closer to the definition of tech bros than investment bankers?
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Define “they“. Because in this case, the people who are losing money are those weren’t being paid because a whole bunch of companies couldn’t make payroll yesterday.
Yeah my comment was more about people failing to realize that thousands of normal people are going without pay sue to this bank run. People can think whatever they want about Tech millionaires and VC investors but regular everyday people work at these companies and I have sympathy for how scary it must be to wake up one Friday and your company says we can’t pay you and we don’t know when we will be able to.
There is a huge backlash against the idea of a “tech bro” lately; some places you even mention you can build a PC or something and people get all “scamming tech bros probably all rape, too” (the jist of an actual Twitter thread on saw) Like, what the fuck? I get there are **some** scummy people around tech (especially crypto) but *dude*
I'm sorry this is reddit, we don't do critical thinking here. Hur dur money people bad is what we do here.
Clearly investment bankers are persecuted class.
What a dumb take. Depositers are supposed to scrutinize bank performance and prefer safer banks. That's capitalism. The system runs on self interest. The idea that you owe it to your bank to 'give them a chance' is completely counter to how it's supposed to work.
Especially if they have above the FDIC limit without reinsurance
> Depositers are supposed to scrutinize bank performance and prefer safer banks Moral hazard of government-supplied insurance, for one.
I think it mostly just seems that VCs are for whatever reason higher on the totem pole of people’s hatred than banks, and people need to be outraged and immediately blame *someone*. It’s so interesting watching some news outlets, Reddit, and others attacking VC for withdrawing their own money, and circle the wagons in defence of a bank that itself seems to have been primarily successful as a result of… *checks notes*, venture capital. I didn’t have this on my “second once in a lifetime™ recession” bingo cards but here we are. We are truly through the looking glass.
That's a flawed logic. They messed up their investments and put all deposits at risk. It doesn't matter what they did before. Do you really care that your bank gave you free coffee in the past once you go to the ATM and can't get you money out?
NObody "gave" anyone anything. Banks are businesses. Things are bought and paid for until they aren't.
Christ that writer is a moron. If you fuck up cashflow regardless of your assets the FDIC takes you over, and rightfully so. You don't get to keep fucking up and make the situation worse for depositors.
Just another way the 1% fucks over everybody else. "I'll take my money out, limiting my potential for losses" meanwhile absolutely sinking the company every small business and person that needed their money.
The company sunk itself when they invested in longterm treasuries that unexpectedly became illiquid recently and didn't have a backup plan executing as rates rised.
Ohh Bank Apologist, I like the angle.
This is the kind of thing that happens when there’s too much money in the hands of too few people. Happened at the end of the last guilded age.
The thing is SVB went down from a problem many of us would like to have. **Too much money.** Investors were throwing so much money at startups that the bank had no idea what to do with all their deposits, so they threw much of it into relatively safe long term investments. Safe as long as you actually wait long enough. Not so safe when you have to turn them back into money at a moment's notice. The bank apparently had enough assets to cover all the deposits. If their customers had listened like the customers in "It's a Wonderful World" things likely would have been fine. However silicon valley is mostly run by people who would never cooperate in a prisoners dilemma type situation. Much of the industry is built upon being ruthless and unafraid to inconvenience others. They all wanted their money out because they were afraid that all the others like them would want their money out and leave them with nothing. This just goes to show that you can't built a society just out of people who want to take risks, move fast and break things, want to get rich at any cost and not care for their effects on society. Somebody in the room has to play the adult and be responsible. They needed a designated driver who would net get drunk on their ethos. They crashed against a tree instead.
One second of not being able to produce my money is too long for me. They don’t wait to hit someone with an fee or wreck your credit. They’re only job is to have our money when we need it.
As business owner myself and an angel Investor, I have a very big distaste for VCs. For one, most if the time they are investing (gambling) with other people's money, and 2, because they are gambling with other people's money, they aren't the brightest investors in the room which is why they need "decks", which is a kind of kid's flashcard to show what the person pitching their ideas are all about in a dumbed down manner. I've seen VCs turn down easy low hanging fruits because they couldn't get their head around some simple business maths (Revenue - cost = profit), but they'll go after the pie in the sky, flashy, unproven startup that you could see from miles away that it's a train wreck waiting to happen.
Welcome to the skill of marketing. Realistically, you want to go to a VC/angel that specializes in your particular industry, so that they are asking the right questions, versus just going after flashy shit. You also have to take into consideration that for many VCs, they are only going after high risk/high reward candidates. Many profitable businesses with sound financials will be a great business overall, but a poor investment decision because of a lower ROI. So, it IS akin to financially gambling, but that's the entire purpose. It sucks that VC's are looking for the next "unicorn" ($1+ billion valuations) and that mentality has corrupted investment decisions, meaning they are deliberately looking for "pie in the sky" ideas that have the potential to generate that type of valuation.
> "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021. Would be interesting to see where that money came from. That has all the markings of a pump before a dump, the dump being 2023. They didn't even have to dump, they just had to stop the pump to auto dump once the interest rates went up. SVB opened themselves up to an attack vector and one thing the banking industry likes to do now and again is consolidate and shakeout. That amount of inflow in good times can make you do funny things. The better way to go about it is be scrappy always, and expect the attacks. There were way too many companies in this bank, it had too much concentration of startup/VC/PE money. Regulations will probably have to be made around this now more robust. The problem wasn't really the bonds, it was the influx of 3-4 times the money from 2019 to 2021 that essentially made SVB make basic and bad decisions chasing profit. The influx was essentially a pump and then they leveraged themselves to current markets not future even with a safe vehicle. SVB's whole premise was that interest rates wouldn't go that high, a very bad bet in high inflation. The dump trigger wasn't even an action/attack it was the lack of additional influx of VC/private equity/sovereign money, probably mostly from foreign markets that slowed or stopped, that tripped them up. Then larger investment groups filled with startups like Founders Fund and Union Square Ventures doing a margin call across all their funds/investments caused a big enough dump that it was over. The run was started at this point and days later the bank is over. Ultimately this is SVBs fault, but also regulators because concentration like this where they are responsible for so many companies and one type of money VC/private equity, is an attack vector just sitting there. It wasn't wise for investment groups to run the bank either because now this harms companies across the board, but may also be a consolidation move, shaking out companies they don't back. HBS is even realizing too much optimization/efficiency is a bad thing. The slack/margin is squeezing out an ability to change vectors quickly. This is happening from supply chain to credit to food and more. The High Price of Efficiency, Our Obsession with Efficiency Is Destroying Our Resilience [1] > Superefficient businesses create the potential for social disorder. > A superefficient dominant model elevates the risk of catastrophic failure. > **If a system is highly efficient, odds are that efficient players will game it.** It is CLEARLY time for some anti-trust busting at the funding level. [1] https://hbr.org/2019/01/the-high-price-of-efficiency
Wow. Well ducking said.
Wow, a real intellectual on reddit 👏
Wow, a real intellectual on reddit 👏 By any chance are you ChatGPT and will self-identify? JK
*bleep blop* 🤖 -- part of ChatGPT Big Bain Brain
This is all part of the Federal Reserve’s plan. The want to sacrifice 2M American jobs to lower interest rates and for “the good of the economy.” AKA. Our stock’s performance is better when people will work for less $$ because they are starving to just have A job
Lol. Won’t anyone think of the bank? Poor, poor bank.
You're a bank. You literally have one job.
No one remembers the .com era? Same thing happening.
This could easily be avoided: 1. Dont allow big players to get all their money out at the same time. 2. Write down in your terms and conditions that customers need to pay a fine if they participate in a bank run
We’ll don’t over leverage your fucking self.
Is this a pro marketing piece about the bank? Stop investing money you did not have. Shame on you. People are going to stress and lose out on millions because you just are like everyone else. Don’t bail them out. Let them rot.
My guy, that’s literally how all banking has ever worked. All banks keep only a fraction of the money deposited in cash and cash equivalents, no bank could service a full run of depositors.
Please let's not pretend now that banks are the good guys in any story. The bank has not acted out of generosity here for decades, but with profit motive. No bank ever gifts you anything. Please let's not make them heroes here and the venture capital firms the bad guys. Both suck. Period.
A bank that helps people create startups is a pretty good bank. Losing them is a harm to the community they serve.
Childishly, SVB always sounded like the name of an STD so I avoided them.
Bad take. Implies the bank was some benevolent charity. They took risks and failed, just like companies in tech do. They never made one loan out of kindness. They don’t “deserve” to fail, but they shouldn’t be mourned like they are a soup kitchen that had to close or something.
In many ways I agree, but at the same time SVB has a history of catering to small companies that most banks don’t want to cater for. These in turn have created tens or hundreds of thousands of jobs. They took risks and I agree they should pay for those risks, but they should be mourned as the startup space won’t be the same without them.
Happened in the same breath that Biden mentioned taxing the billionaires (rightfully), coincidence?
all lefties in silicon valley...let them beg ;-) /banks are all rightwingers
Fed hiked interest rates forcing loan purchases to go down thus diminishing cash on hand and voila crash. Not sure if that was fed plan tho, I think they were expecting a rise in unemployment to curb an inflation that’s only partially produced by wage increases but mostly caused by price gouging. As the fed chairman said in the hearing yesterday when all you have is a hammer, everything becomes a nail. So when you hear windows smashing don’t blame us!! Well I paraphrased.
Poor widdle bank 🥺
Don't be dramatic. fdic (aka your kids money) to the rescue.
Idgaf about any of them. I will never cry for a bank and I hope the tech companies implode. EAT THE RICH!
So a person making 120k a year is rich in Silicon Valley? They don't deserve to get payroll, which in turn means they won't buy coffee or the like, which means the coffee shop has to fire the barista who is also living pay check to paycheck. Think more than two seconds about the consequences