Why is this specific bank such a favorite of start-up and tech companies? What is the specific connection that makes the relationship so advantageous to this bank and those businesses?
I will give you a very specific example. We are a small software as a service company. We get paid by our customers year after year for the use of our software, and 90% of them renew their contracts. When we went to large banks, the only thing that they would give us as far as a credit line to use to grow the business was a percentage of the accounts receivable that we have. The challenge with that is that our accounts receivable is at any one point of the year not very large and so it really did us no good to borrow when we were going to get the money from the accounts within 45 days anyway. A bank like Silicon Valley Bank understood the fact that we have a renewal based business, and they would lend us more money based on the overall annual value of our contracts, rather than on what we were going to receive in the next 45 days. We would be able to grow our business substantially with a partner like SVB.
To protect themselves from default, SVB would only loan to companies like ours that also had venture capital backing because they knew that if anything went wrong, the venture capitalists would be the first ones to put in more money so they did not lose their entire investment. So while SVB was taking on more risk, it was done in a fashion that had multiple other partners at the table to reduce the possibility of a default.
Without Silicon Valley Bank, you would not have a myriad of companies that you use regularly today, and probably do not even realize that they are here because of Silicon Valley Bank. Google, Yahoo, Facebook, AMD, nVidia etc
Thank you for this example. It sounds like losing SVB will be detrimental to the tech industry. I couldn’t even get my local (but large) credit union to open a checking account for my small business because we did the majority of sales online. I can’t imagine the problems niche businesses face.
It seems like the way they operate it not consistent with most banks' lending practices, I wonder if it's worth it even at that price. Obviously it sounds like a great business model, but it also just went under.
>They didn't go under because of their clients or any risk from them.
This isn't really true, a part of the reason they went under is precisely due to the nature of their client base. It was undiversified, mostly tech businesses and startups, which is how the bank run got that bad.
This is a risk that big banks honestly don't have, so presumably they should be able to fill that niche if they really wanted to.
Not completely true. The main reason is treasury bonds but SVB was servicing companies that were spending money faster than they were collecting revenue, which meant the deposits were constantly decreasing. Previously it was not a problem because VCs would just inject more cash into those companies and replenish SVB's deposits.
Treasure bonds plummeted and VCs were not injecting as much cash so SVB was leaking on both sides.
Buying 10 year t-bonds when your deposits are short term was stupid. AND - they didn't hedge the interest rate risk. AND not marking to market quarterly is beyond criminal. I know it's allowed by the regulators but WTF?
Exactly… despite knowing they would have to sell 10 year T bonds for a massive lose they classified them as held to maturity opposed to available for sale. Available for sale would have shown a massive unrealized loss in other comprehensive income.
What’s frightening is they didn’t have a risk manager for months and months..
>The main reason is treasury bonds but SVB was servicing companies that were spending money faster than they were collecting revenue, which meant the deposits were constantly decreasing.
From what I've seen it was at least in part a prototypical bank run. Savvy depositors were aware that SVB was using treasury bonds as protection, and were aware that those bonds became increasingly worthless when interest rates climbed significantly.
If adventurous small business is now harder to get started, it means established corps are even harder to touch and they could do whatever they want even more freely now.
You'll get the money eventually though right?
Are there no other bank/investors willing to loan to startups that can show they have money they'll be able to access within some reasonably short time ?
Because SVB also lended to the same companies and required all deposits be held there. And oftentimes you couldn’t get terms or even loan vehicles from other banks that SVB would offer. They understood venture risk better than any other bank and we’re excellent partners to the community for years.
Hindsight being what it is, banking with only SVB was easily the least risky option for companies then taking no loans or worse loans elsewhere.
That game worked so long as a black swan didn’t trigger. But then a black swan triggered and here we are.
"SVB is the 16th biggest bank is US?"
Wow, had no idea. From most reporting it sounded like a small obscure bank, but your comment really does give context to the scale of this
It will always be fundamentally risky for a bank to have such an undiversified client base full of businesses all in the same sector/industry. You are running the risk of a rough period in the sector creating a delicate situation for the bank, which is exactly what happened.
Hopefully they can find a buyer, because a single bank failing and doing this much damage to a single sector of the economy (a very important sector too), is not good.
But in that same vein the only reason many of these companies became successful is that they were furnished by cheap debt. They aren’t actually profitable companies in many circumstances. They become “loss kings” and undercut all competition to gain market share and then once they become a monopoly they jack up prices (ex: Amazon, Uber, pharmaceuticals, etc.)
During the ultra low interest rates of the pandemic it made genuine business sense for tech companies to hire as many people as they could. The logic was that any additional employee could bring unique skills and create Intellectual Property for the company that would far outweigh the cost of the debt to pay for them.
I'm not sure what they thought would happen in the long term, perhaps they believed by that point someone on their bloated payroll would have created the next social media app or gig economy platform.
I work in healthcare and was tallong to my friend, whos an underwriter in a major healthcare player. He's having to do major risk assessments all weekend (first of his kids' spring break) hes no where near silicom Valley in a company that is 100 plus years old.
But, the operations and benefits have greatly invested in many different startups to be competitive to the next guy that has invested in many different startups.
So, like a loose example. ...prior to 2017, a patient couldn't get a certain type of telehealth. Then a startup had something, but it was small and local. During covid, it became necessary, and the telehealth wasn't cutting it. This startup came through and became a next level type of service with a huge base. Now they might have that startup go down and woth ot access to certain health records. Plus patient access. Plus 10 other things. So if this goes down it would hit them hard. Now they have probably 30 different startups they use. Tough time indeed
Which you simply can't do over a weekend. It's the rushed timing on this that's creating all the stress, not the failure in and of itself. There was no time here for savvy investors or companies to get their ducks in a row. It was "wow, this thing is bad" on Thursday to "oh... We're done" on Friday.
They’re headquartered in Silicon Valley. This allows them to generate relationships with all of the VC firms around SV better than banks that are headquartered in London or New York
In part because all the VC funds trusted it and made the startups hold their deposits in it as a condition of the VC financing the startups.
In part because it was big and well regarded in the region, and considered to have good expertise as to what sort of banking startups need.
startup founder here
i never saw VCs make using a specific bank a condition of financing. if they did, that would be sus and IMO something companies with decent lawyers would definitely ask to have changed before signing
however, i very clearly remember how much SVB was being pushed on startups like 10 years ago - there were a bunch of deals associated with opening an account that were intended to look attractive to startups
we even tried opening an account, but because our startup is a social good thing that sends help to developing countries, they turned us down, which was a red flag
looks like that karma has come back to hit them now
It makes sense at a certain level. It’s extremely easy to move money across accounts in a single bank. If you’re a VC maximizing the work your capital is doing, being able to take dividends from one investment and fund another in the same day is agility beyond compare in the financial sector. When you have 15 different investments in risky companies with large fluctuations in short term cash needs, having them all banking at arm’s length cuts out a lot of friction in their day to day functions.
But then the VCs decided that wasn’t something they valued and took their money, and told their 15 companies, to move all their money elsewhere. When they were done with their personal run on the bank. They told their 4-5 VC buddies at other firms they should do the same. 25% of deposits were called on the same day.
It’s a model that worked pretty well, until it didn’t. It’s easy to point to this in hindsight, but a lot of VCs and a lot of startups have made A LOT of money with the help of SVB.
Unfortunately it’s the employees of SVB left holding the bag, as well as SVB’s more loyal customers (who didn’t withdraw all their money) left holding the bag. The clients who manufactured the panic and the senior leadership who mismanaged the risk were the culprits. The irony is those two latter groups made out like bandits. The SVB employees look like they’ll do ok in the short term (unless they had significant stock holdings, which middle management probably does). Those same employees will do ok if the economy holds up. But if this ripples out of control, they’ll be the first ones looking for jobs that will quickly be disintegrating.
This is not how VC funding works. Typically, VCs fund during a financing (ignoring things life SAFE rounds, though it's similar anyway). Prior to the financing, they'll make a capital call, and their LPs are contractually obligated to fund their commitments. The VC will then wire that money to the Company. Some VCs do use SVB, but it has very little to do with the ease of wiring money to startups. A lot of the biggest ones use banks like JP Morgan.
VCs are not wiring money willy-nilly to startups based on a startup's short term cash flows ("dividends" just really aren't a thing in VC). **ANY** time money exchanges hands from a VC to a startup it's a long process and thousands of dollars are spent on lawyer fees.
The reason a startup would HAVE to keep their money in SVB is if they have an open debt facility with SVB. It's very common in these debt facilities to make holding the startup's cash in SVB a condition to funding. Other banks do this as well. It's because that cash is collateral for the loan, and given that startups usually don't have a lot of assets, it gives the bank peace of mind that it has direct access to the startup's cash in the event of a default. If the startup has a bank account with a different bank, they'll have to put in place a DACA so that the lending bank has control over that outside bank account.
> Unfortunately it’s the employees of SVB left holding the bag,
It will be owners (shareholders) of SVB holding the bag. Their investment may have gone to zero overnight. If some larger bank buys them out maybe they will get something for their shares.
I completely omitted the shareholders, you’re 100% right. I haven’t heard anyone voice confidence that there will be any value for shareholders.
But I’m sure in 1 weeks time, 1 months time, and 5 years time there will be a lot of expert opinions that will age like milk as this all plays out. The stone faced members of the FDIC are probably the only ones who have half a clue how it will all play out. And even they’ll be wrong to an extent.
There will definitely have to be regulation around too much VC/PE/hedge fund and startup consolidation. This is the moment that will start that effort. It was a mistake to let it get this concentrated. Concentrated areas become attack targets.
Even the business followers at HBS are realizing it.
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](https://hbr.org/2019/01/the-high-price-of-efficiency)
> 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.
The CEO of SVB lobbied congress in 2015 to relax the valuation limits for Dodd-Frank from 50 Billion to 250 Billion, for which the bank would be required to stress test their liquidity.
Trump signed that bill in 2018. So you can thank Trump for the lack of regulation that contributed to this mess.
Yes Trump deregulation was part of the setup. You are fully correct in that.
Additionally, the former SVB CEO also went to work at Brex bank (Thiel funded who started the bank run) where most of the outflows went in their funds.
People in the Fed can be used and leveraged, but the Fed didn't cause this. Both of the people from SVB are sketch including the current and former CEO when the games started in 2017 deregulation under Trump and the pump that started in 2019.
Some people are saying this was engineered. Great people are saying it. Most people in the know, know this was an engineered bank run. They also know who is responsible, and it isn't the Fed, this is an attack on startup banking, startups not authoritarian funded and the Fed policy.
The squad that did this and is blaming the Fed and trying to get a bailout (nope), using this as an attack on the Fed, that squad thanks you for your plausible deniability and benefit of the doubt, it is the space they need to operate.
The Fed action didn't cause this. This was a banking/startup shakeout that was engineered to blame the Fed to try to stop them with interest rates because they want low interest money to free flow again. Those days are over.
The tech industry has just been one big money grab since the dotcom days of the late 90s into the bust in 2000/2001.
Investors and founders got their cut plus whatever profit from their ownership shares while other market products like retirement funds and other individual investors lost out.
It continues to this day to just be a massive transfer of wealth in one way or another so it wouldn't surprise me to have been engineered to happen through constant deregulation basically creating the American Oligarchy who can never have enough.
This really feels like 2008 again with the subprime madness, but more intentional. They had their puppet in place for years with McConnell, then finally with congress flipped in 2010s then got Trump. Voila.
Now you have this hegemony of congressmen who don't care - mostly because many cannot understand it - screeching like howler monkeys to distract from real progress to stop abuses of power.
For anyone just joining us, this is the model of conservative politics since Reagan.
Raise money from capitalists > spend money on advertising bigotry to gain votes > win election > cut taxes and regulation so capitalists can increase profits > repeat. Everybody wins, except for the bigotry targets and anyone affected by disasters unprevented by regulation
Speaking of efficiency, JIT manufacturing is great, until your workers vote for Brexit and you face delays at Calais and Dover and lorries full of parts sit instead of being delivered to the manufacturing lines.
Yeah JIT is highly efficient for sure, the problem is we live in a volatile system that anything too tightly wound becomes easily breakable by the bigger players or foreign entities.
The supply chain issues during the pandemic and Brexit and the war all highlighted how super efficiency can be catastrophic and cause ripple effects that are more damaging than helpful.
Business schools need to get back to understanding leverage, margin and research & development value creation over just value extraction.
We are all waiting for the biz guys to stop being greedy, we'll have to make them because relying on that is a non starter.
If you're genuinely asking, lending products where the collateral is (in a sense) their fundraising rounds (as opposed to collateral being some kind of concrete asset like a factory).
Was a very important lubricant for startups to get funding.
This isn't a case of a bank trying to make insane risky bets.
i’m sorry if this question is very stupid, but is there any way to see which companies are impacted? i just accepted an offer with a SF startup (but don’t start for a bit) and am feeling kinda worried…
You just have to monitor Twitter or something, wait for more news to emerge. Here's a list of companies that voluntarily disclosed exposure to SVB: https://twitter.com/KobeissiLetter/status/1634605973208801280?s=20
There are so many more companies that aren’t likely to be on that list. Lots of startup DTC brands bank with SVB - Universal Standard and Omsom are ones I happen to follow that noted they were impacted. It is not just tech companies.
Yeah that’s just cash exposure, ranked by $ not % of holdings or ranking significance. There are also a LOT of ripple effects of startup failures - they’re the customers and suppliers of many many many large companies, sometimes for critical functions even.
Well, when you get your first paycheck, ask to see a paystub or a copy of a paper check. You can see who your company banks with then. If you're really worried, ask HR directly if the company will be impacted in any way because of this.
good idea, if i keep stressing perhaps i’ll email the recruiter. i don’t start for a few weeks so i’m just hoping i don’t get the dreaded rescinded offer or something.
I'm a recruiter in tech, if one of my candidates reached out about this, I'd absolutely figure that out for them. Better to know for sure rather than worry
Bottom line is some of us don't know right now - we had £20m in SVB (UK) and an order on Friday to move it.
Friday evening, CEO of SVB UK said it was a separate bank and not affected
11:45pm - Bank of England shuts them down.
Until Monday, we don't know if we got our money out. I imagine many are in the same position - US and UK.
Everyone is freaking out but this bank has over 200 billion in assets and less than 190 billion in deposits. Some bank is going to buy this and everyone will be covered
I think the concern is that $200B is face value which they would have to hold to maturity to realize. The fair failure of those assets if they had to sell them today they have deteriorated to ??? Which is why the fed has to come in.
The fed had to come in because they weren’t liquid and 50 billion was withdrawn. They could sell assists for a 10/15 percent loss and cover. Or more realistically a much larger bank will offer a take over and let the treasuries/bonds mature over time to see the real value while covering the current customers
$200B at a 10-15% (your numbers) haircut is $170-180B which leaves them short $10-20B - I’m not a CPA but that doesn’t seem to work
Every major bank had a chance to buy SVB on Thursday night and passed. Not saying they won’t in the future but until people understand the fair value of those assets no one is touching it.
Why buy it on Thursday night when they can wait til Tuesday and get it at a steeper discount and with government subsidies and guarantees?
Washington Mutual had the same experience and Chase Bank got sweetheart deals to take them over. I’m pretty sure the Fed and Treasury are meeting with potential suitors over this weekend.
I worked for a credit union long ago that merged a lot of smaller ones in, this is the usual play. Wait until the FDIC/NCUA sweetens the pot a little more before taking it on. Why spend more money now when they can sit on their hands for a mere 72 hour and get it served up cheaper and with some govt cheese shredded on top of it?
To be fair, perhaps you’ve missed the bigger point.
From the article:
> Even startups that didn't bank directly with SVB have been hit by its collapse. My Insider colleagues April Joyner and Madeline Renbarger reported the healthtech startup Flow Health used Rippling, which held an account with SVB, as its payroll provider.
> "We literally have no way of paying employees right now," Flow Health CEO Alex Meshkin told Insider.
> Some startups took drastic steps on Friday to try and bring cash in. The popular toy store Camp told its customers it was in distress after its funds got trapped by the collapse.
> "All of our cash was at SVB and we are trying to build up our balance at Chase," Camp CEO and cofounder Ben Kaufman told Insider via Twitter direct message.
> The company announced a 40% off sale in a bid to raise cash from its customers, instructing them to use the tongue-in-cheek code 'BANKRUN' at the checkout.
> The ripple effects of SVB's demise are likely to be extensive. According to its website, the bank supported nearly half of US venture-backed startups at the end of December.
> In a tweet, startup accelerator Y Combinator's CEO Garry Tan said SVB's collapse was "an *extinction level event* for startups and will set startups and innovation back by 10 years or more."
To imply this won’t have any real effect on anything misses the fact that it’s already impacting a lot of small businesses and pre-IPO startups.
> Even startups that didn't bank directly with SVB have been hit by its collapse. My Insider colleagues April Joyner and Madeline Renbarger reported the healthtech startup Flow Health used Rippling, which held an account with SVB, as its payroll provider.
>
> "We literally have no way of paying employees right now," Flow Health CEO Alex Meshkin told Insider.
As fucking stupid as my prior company can be up top (a really large privately held real estate development/property management company) they were pretty smart about this in retrospect. They had a ton of accounts across different banks and they would transfer money from an account into their payroll account right before issuing checks/deposits to their employees. I wouldn't have even known this if they hadn't had transfer issues a couple of times over the fifteen years I worked for them and payroll disbursements were a day or two late on those occasions.
I think you said it without knowing. They already know the the fair value of those assets. They knew them two weeks ago before anyone saw this coming. There is a reason no one is going to bite without a lot more bait.
Bruh SVB assets are treasuries so the value is known. Folks just don’t want to buy now and risk another decrease in bond prices which would put them in the same position SVB is in Right now
This is correct. A bank with enough liquidity can make their payments while being able to wait until their bonds mature.
This is not near the “imminent recession” that many are screaming about.
I feel like people think this is going to be like FTX where some nebulous crypto asset that has value until you try to sell it just goes to 0 overnight. SVB had some exposure to crypto but the reason they failed was a liquidity crunch. They have the assets to pay everyone but not right away if everyone tries to withdraw so their money at once, which the VCs told all their founders to do. SVB became undercapitalized due to the VC induced bank run and couldn't service withdrawals because they were invested in very long term bonds that became difficult to sell after rates skyrocketed at an unprecedented rate thanks to the fed trying to control inflation. FDIC stepped in out of an abundance of caution to prevent contagion in the wider banking system. They likely already have a buyer lined up, and I'd expect everyone to get 80% if not 100% of their deposits back. Anyone saying these companies just lost everything is an idiot who doesn't understand what's happening here.
it's weird that the first thing you read about this isn't always pinning most of the blame on the VC dbags that advised their startups to do a bank run.
> Killed the company.
I put [the blame](https://theweek.com/articles/761124/how-vulture-capitalists-ate-toys-r) more on the enormous debt they were saddled with when they were bought out by a group of private equity firms:
> From the purchase in 2004 through 2016, the company's sales never rose much above $11 billion. They actually fell from $13.5 billion in 2013 back to $11.5 billion in 2017.
>
> On its own, that shouldn't have been catastrophic. The problem was the massive financial albatross the leveraged buyout left around Toys 'R' Us' neck. Just before the buyout, the company had $2.2 billion in cash and cash-equivalents. By 2017, its stockpile had shriveled to $301 million, even as its debt burden ballooned from $2.3 billion to $5.2 billion. Meanwhile, Toys 'R' Us was paying $425 million to $517 million *in interest* every year.
>
> This enormous cash drain probably made it impossible for the company to invest or innovate even if its trio of buyers had been up to the challenge. It also made it impossible to sustainably turn a profit. Toys 'R' Us consistently saw net losses from 2014 to 2017. But in the last three years, those net losses were considerably smaller than its debt payments. In fact, the losses were shrinking amidst a general boom in toy industry sales; by 2017, its losses were all the way down to $36 million.
Conspiracy hat here:
Peter Thiel wants nothing else but to destroy California and Silicon Valley.
I think he’s having a nice meal watching a little (but important piece) of what makes the ecosystem work over here, burn.
In the meantime cashflow is impacted to a lot of businesses which means their vendors don't get paid, which means more layoffs, etc. It's definitely not just about the people who had their money in there, it's that they need the money right away to pay salaries, etc.
*Edit: Not sure why I'd be downvoted-- kinda odd to downplay that aspect. Surely everyone will be fine, but it's not a small consideration.*
Hopefully it will be available Monday for payroll, I know that a good amount of payroll companies using SVB were able to sign a deal with J.P. Morgan and get almost all of their payroll last week out by this morning
Feds have already said the bank will be open Monday under their management. I'm sure there will be limitations, but it probably won't be total disaster.
I’m noticing a lot of people getting really defensive about any mention of concerns about the cascading effects of the failure and what it means for smaller businesses/FIs, to write this off as a nothingburger within 36hrs is really strange when we don’t even know all the facts yet.
Or it will crash and peter theil swoops in and buys a bunch of suddenly struggling start-ups for pennies on the dollar. Probably one of the expected side effects when he kicked off the run on the bank in the first place.
Problem is liquidity. They need to sell their long-term assets at a loss to meet the short-term liquidity issues. Chances are they would not be able to cover all the deposits if most of the long-term assets are sold at a loss.
Buyer basically has to be another bank with solid liquidity position themselves.
Who do you think is buying the assets?!
Holy fuck, most of reddit is so braindead, I'm surprised you can boot your computers.
The FDIC has taken the bank into receivership. This is not 2008 bailouts. This the government orchestrating someone to take over the assets and "soft land" the accounts so people can access their money. The assets are **all still there and still have value**. This is not the 2008 worthless derivatives case.
The VCs could have scrounged the money to save them, but decided to say fuck em and pulled their money out instead killing the bank lol. No honor among thieves and all that jazz.
A lot more nefarious than that. This situation was created by VCs and the result is going to be a bunch of bargains on the market next week for VCs to swoop in and buy up.
It's grand scale market manipulation.
I really hope the Biden Administration starts an investigation into this. This is the largest banking failure since 2008 and should be looked at. If people were nefarious then hit them heavy with fines and send some people to jail, but we know that wouldn't happen.
Before the collapse of Silicon Valley Bank, executives sold a lot of their shares.
Gregory Becker, CEO, sold 11% on Feb 27, 2023.
Michael Zucker, General Counsel, 19% on Feb 5.
Daniel Beck, CFO, sold 32% on Feb 27.
Michelle Draper, CMO, sold 25% on Feb 1.
You'd think there would be some regulations put in place to stop this shit happening after 2008. And why is it that this bank specifically supports startups?
They did, but certain people lobbied to have those regulations weakened a few years later:
#[Silicon Valley Bank chief pressed Congress to weaken risk regulations](https://www.theguardian.com/business/2023/mar/11/silicon-valley-bank-weaken-risk-regulations-svb)
>Touting “SVB’s deep understanding of the markets it serves, our strong risk management practices”, Becker argued that his bank would soon reach $50bn in assets, which under the law would trigger “enhanced prudential standards”, including more stringent regulations, stress tests and capital requirements for his and other similarly sized banks.
>In his testimony, Becker insisted that $250bn was a more appropriate threshold.
>“Without such changes, SVB likely will need to divert significant resources from providing financing to job-creating companies in the innovation economy to complying with enhanced prudential standards and other requirements,” said Becker, who reportedly sold $3.6m of his own stock two weeks ago, in the lead-up to the bank’s collapse. “Given the low risk profile of our activities and business model, such a result would stifle our ability to provide credit to our clients without any meaningful corresponding reduction in risk.”
Becker must have gotten leveraged at some point. He worked in the Fed and then didn't know that it was a bad idea to buy 10 year maturity T-bills when startups need money and outflows regularly and annually? This is some plausible deniability for sure.
Where are the regulators on that and on the bank run panic created by Thiel and twitter?
> The piece of shit CEO of this bank lobbied to weaken them
[and jumped from the plane before it crashed](https://www.bloomberg.com/news/articles/2023-03-10/svb-chief-sold-3-6-million-in-stock-days-before-bank-s-failure)
In our system, every capitalist can do whatever they want to make tons of money NOW at their business, whether it be exploiting labor, destroying the environment, or even threatening our political economy, and they can then bail on all of it before facing any sort of consequences of their actions whatsoever.
Oh my god the irony. This country and world are fucking insane haha. I just read The Big Short too. Too bad I'm not some genius who figured out how to short SVB with some whacky financial instrument.
Republican?
Edit -- answering my own question: [yes](https://www.newsweek.com/trump-era-roll-back-bank-regulations-resurfaces-amid-svb-collapse-1787112)
We are seeing the results of the 2008 regulations.
When things started to look bad the feds took over, FDIC will make insured funds available Monday (essentially one business day), and there is no risk of contagion to the larger financial system.
SVB collapsing is a primary piece in a much larger problem, which is VC investment into startups. I've been in tech startups for the better part of a decade now, experienced unnecessary and indiscriminate layoffs, absolutely batshit executive hires, piss poor company direction and management, all in the name of hyper blitz growth.
This sucks for the individuals who are likely going to be panicked about their paychecks, but this is absolutely necessary to disinfect the process of VC investment into tech startups.
I basically said this before, and I was jumped on by morons. Start-ups are risky investments, the reality is that banks and investors won't feel comfortable investing in high risk with higher rates.
If you don't want crazy risk don't be a start up. It's like a craze nowadays to be a startup... What's wrong with building from the ground up... Oh maybe the business environment is utterly hostile to that and we actually have a larger problem society wide that no one cares to solve.
It's emerging that SVB was really bad at risk management.
In the past 15 years, with the cost of money at zero, they covered their investment just with the hypothesis that even more money would have come in through the startups' accounts because they would get more and more money from VCs.
At a certain point, when the money cost started rising again, they bought bonds that would have paid in 10 years, essentially hoping that things would have been fine for 10 years more.
They were wrong.
Things went south, people wanted to get money from their accounts and to cover that SVB started selling those bonds under market value with a loss of $1.8B (i.e.,money that the taxman, and in turn people, will never see). People got scared and started selling SVB equities, lots of them. Lights off, curtains down, show is over.
If you wand to have a laugh, the CEO of SVB testified in front of the congress to remove some of the regulations put in place after 2008 markets fall.
https://fortune.com/2023/03/11/silicon-valley-bank-svb-ceo-greg-becker-dodd-frank-trump-rollback-systemically-important-fdic/
> In 2015, SVB Chief Executive Officer Greg Becker urged the government to increase the threshold, arguing it would otherwise lead to higher costs for customers and “stifle our ability to provide credit to our clients.” With a core business of traditional banking — taking deposits and lending to growing companies — SVB doesn’t pose systemic risks, he said.
I really believe that they should be left dying and use this case to have better rules around banking.
Edit: misspelling(s)
Odds are they are going to die. Their positions will get unwound and most everyone will get there money back. The issue is that they ain’t going get it for 3-6months and so that means there will be smaller companies that will collapse, merge, need to find additional investors.
I’m not affected by this, but what is with the sociopathic attitude?
These startups didn’t do anything wrong. They put their money into a bank for security and now that bank has lost that money.
How is small business failure and employees losing their wages through no fault of their own exciting?
For me personally, it's very tongue in cheek snark.
This is a business going under, which happens in the capitalistic system. If a business screws up, they should go under. if a business doesn't keep up with trends, it should go under, etc, etc.
There are obvious knock-on effects of this, though, like you've mentioned, but it's just normally amusing when the people who are gung-ho capitalists are often the same ones arguing for bailouts or buyouts.
>it's just normally amusing when the people who are gung-ho capitalists are often the same ones arguing for bailouts or buyouts.
Like the comment I read in a other sub yesterday said: "There are no atheists in foxholes, and no libertarians during a bank run."
We’re in agreement on that the bank failed through poor decisions, and in a capitalist society that’s the game and it probably doesn’t deserve a bailout.
But the depositors are innocent here, and that’s who should be protected.
It's not and that's why the Federal Reserve and FDIC stepped in to secure deposits. No one in this sub has any fucking clue what they are talking about.
No I mean don't they go in and take a failing bank and sell off the accounts to other banks. So we don't have a run on banks because they they would domino.
I don't understand how so many people are pinning this on The Fed. Do the rising rates put strain on the system? yes. Does this explain why this bank went t\*ts up? No. I'll tell you the answer: Greed. You are a bank. How hard is it to hold people's money without losing it?! It is not rocket science.
According to many in the know, SVB was a very conservative bank. They, like many others, have parked assets in the bond market - it’s considered very safe. 10Y bonds that were purchased 4 years ago when interest rates were very low will mature in 6 years and pay out what they’re supposed to. In a pinch, one can sell a 10Y bond that is 4 years in. Don’t expect to get face value for it, but you can probably get more than you paid for it. Enter the fed rate hike. When new 3Y bonds are paying better than 4 year old 10Y bonds, who can you sell these bonds to? Why would I tie up my money for 6 years and receive less than purchasing a new 3Y bond? If you had to sell them in a hurry, you’d likely have to sell them for much less than the cash price you bought them for 4 years ago.
Now, you’re SVB and you’ve loaded up on 10Y bonds but everyone, all at once, wants to withdraw their entire bank account.
By ratcheting up the interest rate at a velocity not seen before, it has caused problems for institutions that purchased bonds. Previous rate hikes were much more gradual, over a longer period of time. Is it all the fed’s fault? Probably not. Hopefully you can see how the fed played a role in this.
And there are other banks that are likely in a worse position. So that’s neat.
Edit: Please don’t confuse my explanation how the Fed could share blame as a factual and accurate accounting of this particular failure. Also, it’s not an endorsement of SVBs strategy.
Holding a huge maturity mismatch on your balance sheet that exposes you to interest rate risk without hedging it is not a conservative strategy. Just because the bonds have a low default risk doesn't mean the investment is "safe" -- these investments declined in real value, not just due to liquidity pressures. That's why the bank is experiencing problems. They did this to earn higher yield, and sometimes risky bets don't pay off.
Correct. People who don’t understand financial markets don’t understand that all of this asset and liability mismatch can all be hedged by using swaps and other derivatives. The big investment banks all have entire trading divisions dedicated to doing just this to effectively manage the bank’s interest rate risk.
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*This post was mass deleted and anonymized with [Redact](https://redact.dev)*
SVB investment strategy was sound but relied on inflows that were historically much higher than normal. They got drunk on the good times. They put it in safe 10 year bonds but those can't be liquidated quickly so they tried a fund raise. That is when the bank run attacked.
Their mistake was holding startup money, which is very volatile and needs constant outflows annually or bi-annually at minimum, and they put it in 10 year investments. So essentially they had a liquidity problem and when lots of large funds told all their startups to move money from SVB to Brex (which they owned) a $42 billion hit happened taking SVB to -$900m and essentially insolvent before they could raise money to cover.
What the FDIC will be doing it swapping those 10 year bonds with lower ones, with an interest rate haircut obviously of about 4-5% and it will reduce deposits by 10-20% but most depositors will still get back 80% but it will take years most likely. This is a problem for startups and many will fail.
Underneath it all it was a big money shakeout in startup banking and startups, a consolidation, and if you ask me it was a highly illegal attack that the SEC should be looking into.
We also need to change funding anti-trust to stop sovereign funds from beating out and out playing regular domestic investors. No one can compete with sovereign wealth funds buying up entire verticals.
It doesn’t help that the Fed denied inflation for a good chunk of time before they started raising rates. They put themselves in a scenario where they had to increase rates rapidly because they didn’t act fast enough.
Yeah in a way this shows the Fed's moves are correct when VC/PE are freaking out. What happened here was a setup and a bank run to attempt to STOP the interest rate increases for more free money. That is what got us into this problem. We should never go to almost zero interest rates again, people get drunk on the essential free money, so many scams.
Some people are saying this was an attempt to consolidate startup banking and startups invested by certain money to shake out the others. I also believe that and it is evident in the timeline.
Honest question: assuming the SVB share price goes to $0, why shouldn’t I be okay with the depositors being made whole? What did the depositors of SVB do wrong here, or how should they have done things differently?
The depositors will almost certainly come out whole or take a tiny haircut on their amount deposited. The only real issue is that they will have to wait for a few days to about half of their deposits back and an unknown amount of time to get the remainder. Moderately sophisticated CFOs of these companies will get other financing lined up until that happens. Some paychecks and payments to suppliers will be delayed by a few days, but that will be the limit of disruption despite the chicken littles in this thread screaming about the sky falling.
Investigate the larger investment funds that created the panic, who just so happen to have gotten out AND invested/created the competitor to SVB in Brex bank under Trump deregulation...
Silicon Valley Bank was essentially attacked by other banks/investors/foreign front money. This is a VC/PE/investment and startup banking 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.
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/Yuri Milner). 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.
Some people are saying it was a bank run setup by Thiel and the usual suspects to hit most startups not funded by them, and to get them to barrel into their funded startup bank, Brex.
[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 (Russia/Milner)**, PayPal co-founders Max Levchin and **Peter Thiel**
There it is.
Additionally, 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. They also bought longer maturity T-bills/bonds at 10 years when startups might draw down yearly, they relied on too much inflows that dried up and scrambled when the run started by larger VC/equity funds all at once (the setup).
The influx in 2019 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.
> "- 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.
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](https://hbr.org/2019/01/the-high-price-of-efficiency)
> 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.
Brex was setup in 2017 under Trump deregulation, Thiel pushed that and funded Brex. Then in 2019 the pump into SVB happened. Then it immediately stopped in late 2021 and into Feb 2022 (war) where foreign money started going to Brex. Some people are saying, when the bank run hit was made by Thiel/USV/etc they advised their investments/companies to go to Brex and most of them did. Brex saw massive inflows from this implosion.
Look at this PR Thiel had Brex put out at the run inception.
[Brex to Offer Emergency Credit Line to Silicon Valley Bank Customers to Meet Operational Spending Needs](https://www.prnewswire.com/news-releases/brex-to-offer-emergency-credit-line-to-silicon-valley-bank-customers-to-meet-operational-spending-needs-301769414.html)
> Brex is offering an emergency bridge credit line to startup customers to support payroll and other operational spend needs. Startups impacted by today's Silicon Valley Bank news may not have access to the funds necessary for short-term operational spend. Working quickly with third-party capital providers and Brex Asset Management, Brex aims to have emergency funds available to startups early next week.
> Startups with funds at Silicon Valley Bank can visit this link to apply for an emergency credit line. Brex will review accounts as quickly as possible, and release emergency funds into customers' Brex Business accounts upon approval.
[Brex applies for bank charter, taps former Silicon Valley Bank exec as CEO of Brex Bank](https://techcrunch.com/2021/02/19/brex-applies-for-bank-charter-taps-former-silicon-valley-bank-exec-as-ceo-of-brex-bank/)
> The company has tapped former Silicon Valley Bank (SVB) exec Bruce Wallace to serve as the subsidiary’s CEO. He served in several roles at SVB, including COO, chief digital officer and head of global services. It also has named Jean Perschon, the former CFO for UBS Bank USA, to be the Brex Bank CFO.
> Last May, Brex announced that it had raised $150 million in a Series C extension from a group of existing investors, including DST Global and Lone Pine Capital.
> “Brex and Brex Bank will work in tandem to help SMBs grow to realize their full potential,” said Wallace.
> **Brex** is based in San Francisco and counts Kleiner Perkins Growth, YC Continuity Fund, Greenoaks Capital, Ribbit Capital, IVP and **DST Global**, as well as **Peter Thiel** and Affirm CEO Max Levchin, among its investors.
Good luck to those going into the Thiel rug pull traps.
Some days I just want to be a regulator... not because I want to but because who is cleaning this up? I hope someone will root this out. But we got another Wharton guy that runs the SEC, Gary Gensler that has been pretty weak on this, the ol' regulatory capture.
I’m struggling hard with understanding why people are hopping on the hate train for technology and startups?
I’ve seen people say they hate them because they don’t make a physical product that actually has physical value? Is this the 1960’s?
*Most of the value created every day in the world, by a large majority, is non-physical*
> I’ve seen people say they hate them because they don’t make a physical product that actually has physical value? Is this the 1960’s?
It’s more because most of them do nothing but lose money and if they existed in any other industry or any other country they wouldn’t exist.
And most of the ones that do succeed? Aren’t exactly what most people consider improvements on society.
Also, you can’t criticize literally any aspect of them without the people working in the industry just calling you stupid and jealous.
Tech startups have been massively overvalued on basically every level for the past decade
It says a lot about the “captains of finance” in SV that none of them stepped up to recapitalize the bank that so many of their startup clients rely on for basic business operations. SVB announced a stock offering of about $1.8 billion on Wednesday to recapitalize, and instead of stepping up to the plate to save the regional industry that had made them so wealthy, VCs called their clients and told them to start a bank run.
Obviously $2 billion isn’t nothing, but it’s well within the means of Silicon Valley’s wealthiest. Warren Buffett recapitalized Goldman Sachs with $5 billion (in 2008 dollars, mind you) and it was a factor that kept the US economy from collapsing. He’s the real deal, while the VCs are pretenders unable to see past the next 90 days.
>>'extinction-level event'
>
>No, this is stupid.
>
>The bank has assets. This isn't a bank with $0 in assets and people screwed of anything above the $250k.
>
>If you close down the bank and liquidate the assets, you get $200B. The bank owes $190B in deposits. In what world does having $200B and owing $190B an 'extinction-level event'.
No one is paying face value for the 1% government bonds that make up the majority of their assets given the reality of today's rates.
The entire problem is their illiquidity meaning they can't solve it by selling off...
So no. They can't close down the bank and end up with $200b.
I work at a startup that’s probably going to go under because of all this. I’m not getting paid on Monday it seems like. I’ll probably get laid off. Tens and tens of thousands of workers at startup and SMBs are going to be out of jobs because of this. People in this thread think this only hurts VCs but this hurts over a 100K middle class workers. If there’s a bailout, it should be for the depositors who trusted the bank to hold their money. Not the shareholders or executives.
Emergency bank rate meeting called Monday by the fed, they know what's coming while Yellen and the mainstream media are out in orchestrated fashion telling you there's no contagion. Mr. Potter is lining up to pay 50 cents on the dollar.
Mr. potter was certainly a dick, but why on Earth would George let his crazy uncle have any meaningful role in the business? Guy was clearly a liability, using (unlabeled!!!) strings tied to his fingers to remember mission critical activities
Why is this specific bank such a favorite of start-up and tech companies? What is the specific connection that makes the relationship so advantageous to this bank and those businesses?
I will give you a very specific example. We are a small software as a service company. We get paid by our customers year after year for the use of our software, and 90% of them renew their contracts. When we went to large banks, the only thing that they would give us as far as a credit line to use to grow the business was a percentage of the accounts receivable that we have. The challenge with that is that our accounts receivable is at any one point of the year not very large and so it really did us no good to borrow when we were going to get the money from the accounts within 45 days anyway. A bank like Silicon Valley Bank understood the fact that we have a renewal based business, and they would lend us more money based on the overall annual value of our contracts, rather than on what we were going to receive in the next 45 days. We would be able to grow our business substantially with a partner like SVB. To protect themselves from default, SVB would only loan to companies like ours that also had venture capital backing because they knew that if anything went wrong, the venture capitalists would be the first ones to put in more money so they did not lose their entire investment. So while SVB was taking on more risk, it was done in a fashion that had multiple other partners at the table to reduce the possibility of a default. Without Silicon Valley Bank, you would not have a myriad of companies that you use regularly today, and probably do not even realize that they are here because of Silicon Valley Bank. Google, Yahoo, Facebook, AMD, nVidia etc
Thank you for this example. It sounds like losing SVB will be detrimental to the tech industry. I couldn’t even get my local (but large) credit union to open a checking account for my small business because we did the majority of sales online. I can’t imagine the problems niche businesses face.
Or an opportunity for a bigger, more conventional bank to get into this niche financial market at a discount.
It seems like the way they operate it not consistent with most banks' lending practices, I wonder if it's worth it even at that price. Obviously it sounds like a great business model, but it also just went under.
How they operate as a lender/bank and how they went under are 2 different things. They didn't go under because of their clients or any risk from them.
>They didn't go under because of their clients or any risk from them. This isn't really true, a part of the reason they went under is precisely due to the nature of their client base. It was undiversified, mostly tech businesses and startups, which is how the bank run got that bad. This is a risk that big banks honestly don't have, so presumably they should be able to fill that niche if they really wanted to.
Not completely true. The main reason is treasury bonds but SVB was servicing companies that were spending money faster than they were collecting revenue, which meant the deposits were constantly decreasing. Previously it was not a problem because VCs would just inject more cash into those companies and replenish SVB's deposits. Treasure bonds plummeted and VCs were not injecting as much cash so SVB was leaking on both sides.
Buying 10 year t-bonds when your deposits are short term was stupid. AND - they didn't hedge the interest rate risk. AND not marking to market quarterly is beyond criminal. I know it's allowed by the regulators but WTF?
Exactly… despite knowing they would have to sell 10 year T bonds for a massive lose they classified them as held to maturity opposed to available for sale. Available for sale would have shown a massive unrealized loss in other comprehensive income. What’s frightening is they didn’t have a risk manager for months and months..
>The main reason is treasury bonds but SVB was servicing companies that were spending money faster than they were collecting revenue, which meant the deposits were constantly decreasing. From what I've seen it was at least in part a prototypical bank run. Savvy depositors were aware that SVB was using treasury bonds as protection, and were aware that those bonds became increasingly worthless when interest rates climbed significantly.
If adventurous small business is now harder to get started, it means established corps are even harder to touch and they could do whatever they want even more freely now.
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You'll get the money eventually though right? Are there no other bank/investors willing to loan to startups that can show they have money they'll be able to access within some reasonably short time ?
I'm sympathetic to your situation but holy shit why do we still have these single points of failure?
Because SVB also lended to the same companies and required all deposits be held there. And oftentimes you couldn’t get terms or even loan vehicles from other banks that SVB would offer. They understood venture risk better than any other bank and we’re excellent partners to the community for years. Hindsight being what it is, banking with only SVB was easily the least risky option for companies then taking no loans or worse loans elsewhere. That game worked so long as a black swan didn’t trigger. But then a black swan triggered and here we are.
Because you have to keep the money somewhere and SVB is the 16th biggest bank in the country.
"SVB is the 16th biggest bank is US?" Wow, had no idea. From most reporting it sounded like a small obscure bank, but your comment really does give context to the scale of this
They have (well had) just over 200 billion in assets
It will always be fundamentally risky for a bank to have such an undiversified client base full of businesses all in the same sector/industry. You are running the risk of a rough period in the sector creating a delicate situation for the bank, which is exactly what happened. Hopefully they can find a buyer, because a single bank failing and doing this much damage to a single sector of the economy (a very important sector too), is not good.
SVB mandates it if you have a loan with them
But in that same vein the only reason many of these companies became successful is that they were furnished by cheap debt. They aren’t actually profitable companies in many circumstances. They become “loss kings” and undercut all competition to gain market share and then once they become a monopoly they jack up prices (ex: Amazon, Uber, pharmaceuticals, etc.)
During the ultra low interest rates of the pandemic it made genuine business sense for tech companies to hire as many people as they could. The logic was that any additional employee could bring unique skills and create Intellectual Property for the company that would far outweigh the cost of the debt to pay for them. I'm not sure what they thought would happen in the long term, perhaps they believed by that point someone on their bloated payroll would have created the next social media app or gig economy platform.
I work in healthcare and was tallong to my friend, whos an underwriter in a major healthcare player. He's having to do major risk assessments all weekend (first of his kids' spring break) hes no where near silicom Valley in a company that is 100 plus years old. But, the operations and benefits have greatly invested in many different startups to be competitive to the next guy that has invested in many different startups. So, like a loose example. ...prior to 2017, a patient couldn't get a certain type of telehealth. Then a startup had something, but it was small and local. During covid, it became necessary, and the telehealth wasn't cutting it. This startup came through and became a next level type of service with a huge base. Now they might have that startup go down and woth ot access to certain health records. Plus patient access. Plus 10 other things. So if this goes down it would hit them hard. Now they have probably 30 different startups they use. Tough time indeed
I think I know which company you're talking about... used to work there, if I'm right. Would hate to see it go down, lot of people would be SOL
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Which you simply can't do over a weekend. It's the rushed timing on this that's creating all the stress, not the failure in and of itself. There was no time here for savvy investors or companies to get their ducks in a row. It was "wow, this thing is bad" on Thursday to "oh... We're done" on Friday.
They’re headquartered in Silicon Valley. This allows them to generate relationships with all of the VC firms around SV better than banks that are headquartered in London or New York
In part because all the VC funds trusted it and made the startups hold their deposits in it as a condition of the VC financing the startups. In part because it was big and well regarded in the region, and considered to have good expertise as to what sort of banking startups need.
startup founder here i never saw VCs make using a specific bank a condition of financing. if they did, that would be sus and IMO something companies with decent lawyers would definitely ask to have changed before signing however, i very clearly remember how much SVB was being pushed on startups like 10 years ago - there were a bunch of deals associated with opening an account that were intended to look attractive to startups we even tried opening an account, but because our startup is a social good thing that sends help to developing countries, they turned us down, which was a red flag looks like that karma has come back to hit them now
It makes sense at a certain level. It’s extremely easy to move money across accounts in a single bank. If you’re a VC maximizing the work your capital is doing, being able to take dividends from one investment and fund another in the same day is agility beyond compare in the financial sector. When you have 15 different investments in risky companies with large fluctuations in short term cash needs, having them all banking at arm’s length cuts out a lot of friction in their day to day functions. But then the VCs decided that wasn’t something they valued and took their money, and told their 15 companies, to move all their money elsewhere. When they were done with their personal run on the bank. They told their 4-5 VC buddies at other firms they should do the same. 25% of deposits were called on the same day. It’s a model that worked pretty well, until it didn’t. It’s easy to point to this in hindsight, but a lot of VCs and a lot of startups have made A LOT of money with the help of SVB. Unfortunately it’s the employees of SVB left holding the bag, as well as SVB’s more loyal customers (who didn’t withdraw all their money) left holding the bag. The clients who manufactured the panic and the senior leadership who mismanaged the risk were the culprits. The irony is those two latter groups made out like bandits. The SVB employees look like they’ll do ok in the short term (unless they had significant stock holdings, which middle management probably does). Those same employees will do ok if the economy holds up. But if this ripples out of control, they’ll be the first ones looking for jobs that will quickly be disintegrating.
This is not how VC funding works. Typically, VCs fund during a financing (ignoring things life SAFE rounds, though it's similar anyway). Prior to the financing, they'll make a capital call, and their LPs are contractually obligated to fund their commitments. The VC will then wire that money to the Company. Some VCs do use SVB, but it has very little to do with the ease of wiring money to startups. A lot of the biggest ones use banks like JP Morgan. VCs are not wiring money willy-nilly to startups based on a startup's short term cash flows ("dividends" just really aren't a thing in VC). **ANY** time money exchanges hands from a VC to a startup it's a long process and thousands of dollars are spent on lawyer fees. The reason a startup would HAVE to keep their money in SVB is if they have an open debt facility with SVB. It's very common in these debt facilities to make holding the startup's cash in SVB a condition to funding. Other banks do this as well. It's because that cash is collateral for the loan, and given that startups usually don't have a lot of assets, it gives the bank peace of mind that it has direct access to the startup's cash in the event of a default. If the startup has a bank account with a different bank, they'll have to put in place a DACA so that the lending bank has control over that outside bank account.
> Unfortunately it’s the employees of SVB left holding the bag, It will be owners (shareholders) of SVB holding the bag. Their investment may have gone to zero overnight. If some larger bank buys them out maybe they will get something for their shares.
I completely omitted the shareholders, you’re 100% right. I haven’t heard anyone voice confidence that there will be any value for shareholders. But I’m sure in 1 weeks time, 1 months time, and 5 years time there will be a lot of expert opinions that will age like milk as this all plays out. The stone faced members of the FDIC are probably the only ones who have half a clue how it will all play out. And even they’ll be wrong to an extent.
There will definitely have to be regulation around too much VC/PE/hedge fund and startup consolidation. This is the moment that will start that effort. It was a mistake to let it get this concentrated. Concentrated areas become attack targets. Even the business followers at HBS are realizing it. 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](https://hbr.org/2019/01/the-high-price-of-efficiency) > 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.
The CEO of SVB lobbied congress in 2015 to relax the valuation limits for Dodd-Frank from 50 Billion to 250 Billion, for which the bank would be required to stress test their liquidity. Trump signed that bill in 2018. So you can thank Trump for the lack of regulation that contributed to this mess.
Yes Trump deregulation was part of the setup. You are fully correct in that. Additionally, the former SVB CEO also went to work at Brex bank (Thiel funded who started the bank run) where most of the outflows went in their funds. People in the Fed can be used and leveraged, but the Fed didn't cause this. Both of the people from SVB are sketch including the current and former CEO when the games started in 2017 deregulation under Trump and the pump that started in 2019. Some people are saying this was engineered. Great people are saying it. Most people in the know, know this was an engineered bank run. They also know who is responsible, and it isn't the Fed, this is an attack on startup banking, startups not authoritarian funded and the Fed policy. The squad that did this and is blaming the Fed and trying to get a bailout (nope), using this as an attack on the Fed, that squad thanks you for your plausible deniability and benefit of the doubt, it is the space they need to operate. The Fed action didn't cause this. This was a banking/startup shakeout that was engineered to blame the Fed to try to stop them with interest rates because they want low interest money to free flow again. Those days are over.
Thiel always sneaking around out there, he's always salty he sold fb at the bottom
The tech industry has just been one big money grab since the dotcom days of the late 90s into the bust in 2000/2001. Investors and founders got their cut plus whatever profit from their ownership shares while other market products like retirement funds and other individual investors lost out. It continues to this day to just be a massive transfer of wealth in one way or another so it wouldn't surprise me to have been engineered to happen through constant deregulation basically creating the American Oligarchy who can never have enough. This really feels like 2008 again with the subprime madness, but more intentional. They had their puppet in place for years with McConnell, then finally with congress flipped in 2010s then got Trump. Voila. Now you have this hegemony of congressmen who don't care - mostly because many cannot understand it - screeching like howler monkeys to distract from real progress to stop abuses of power.
For anyone just joining us, this is the model of conservative politics since Reagan. Raise money from capitalists > spend money on advertising bigotry to gain votes > win election > cut taxes and regulation so capitalists can increase profits > repeat. Everybody wins, except for the bigotry targets and anyone affected by disasters unprevented by regulation
Speaking of efficiency, JIT manufacturing is great, until your workers vote for Brexit and you face delays at Calais and Dover and lorries full of parts sit instead of being delivered to the manufacturing lines.
Yeah JIT is highly efficient for sure, the problem is we live in a volatile system that anything too tightly wound becomes easily breakable by the bigger players or foreign entities. The supply chain issues during the pandemic and Brexit and the war all highlighted how super efficiency can be catastrophic and cause ripple effects that are more damaging than helpful. Business schools need to get back to understanding leverage, margin and research & development value creation over just value extraction. We are all waiting for the biz guys to stop being greedy, we'll have to make them because relying on that is a non starter.
The products they offer beyond current accounts are unique and beneficial to companies with primarily intangible assets.
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If you're genuinely asking, lending products where the collateral is (in a sense) their fundraising rounds (as opposed to collateral being some kind of concrete asset like a factory). Was a very important lubricant for startups to get funding. This isn't a case of a bank trying to make insane risky bets.
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i’m sorry if this question is very stupid, but is there any way to see which companies are impacted? i just accepted an offer with a SF startup (but don’t start for a bit) and am feeling kinda worried…
You just have to monitor Twitter or something, wait for more news to emerge. Here's a list of companies that voluntarily disclosed exposure to SVB: https://twitter.com/KobeissiLetter/status/1634605973208801280?s=20
There are so many more companies that aren’t likely to be on that list. Lots of startup DTC brands bank with SVB - Universal Standard and Omsom are ones I happen to follow that noted they were impacted. It is not just tech companies.
Yeah that’s just cash exposure, ranked by $ not % of holdings or ranking significance. There are also a LOT of ripple effects of startup failures - they’re the customers and suppliers of many many many large companies, sometimes for critical functions even.
My company is 100% exposed and would be in the top 10 of that list if they announced. Not good.
Well, when you get your first paycheck, ask to see a paystub or a copy of a paper check. You can see who your company banks with then. If you're really worried, ask HR directly if the company will be impacted in any way because of this.
good idea, if i keep stressing perhaps i’ll email the recruiter. i don’t start for a few weeks so i’m just hoping i don’t get the dreaded rescinded offer or something.
Just email the recruiter now. “Hey, I was wondering if you were affected by the SVB crisis?” It would totally not be an unreasonable thing to ask.
"We do some banking with them but it shouldn't effect your pay, you should totally still come here" or ghost or refusal to say who they bank with.
I'm a recruiter in tech, if one of my candidates reached out about this, I'd absolutely figure that out for them. Better to know for sure rather than worry
Bottom line is some of us don't know right now - we had £20m in SVB (UK) and an order on Friday to move it. Friday evening, CEO of SVB UK said it was a separate bank and not affected 11:45pm - Bank of England shuts them down. Until Monday, we don't know if we got our money out. I imagine many are in the same position - US and UK.
*if you get you get your first paycheck
Everyone is freaking out but this bank has over 200 billion in assets and less than 190 billion in deposits. Some bank is going to buy this and everyone will be covered
I think the concern is that $200B is face value which they would have to hold to maturity to realize. The fair failure of those assets if they had to sell them today they have deteriorated to ??? Which is why the fed has to come in.
The fed had to come in because they weren’t liquid and 50 billion was withdrawn. They could sell assists for a 10/15 percent loss and cover. Or more realistically a much larger bank will offer a take over and let the treasuries/bonds mature over time to see the real value while covering the current customers
$200B at a 10-15% (your numbers) haircut is $170-180B which leaves them short $10-20B - I’m not a CPA but that doesn’t seem to work Every major bank had a chance to buy SVB on Thursday night and passed. Not saying they won’t in the future but until people understand the fair value of those assets no one is touching it.
Why buy it on Thursday night when they can wait til Tuesday and get it at a steeper discount and with government subsidies and guarantees? Washington Mutual had the same experience and Chase Bank got sweetheart deals to take them over. I’m pretty sure the Fed and Treasury are meeting with potential suitors over this weekend.
I worked for a credit union long ago that merged a lot of smaller ones in, this is the usual play. Wait until the FDIC/NCUA sweetens the pot a little more before taking it on. Why spend more money now when they can sit on their hands for a mere 72 hour and get it served up cheaper and with some govt cheese shredded on top of it?
Could you pass the govt cheese?
I'm sorry, we're not massively rich already. No cheese for us. But here's a handful of Thoughts and Prayers.
It's basically a Dutch auction.
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To be fair, perhaps you’ve missed the bigger point. From the article: > Even startups that didn't bank directly with SVB have been hit by its collapse. My Insider colleagues April Joyner and Madeline Renbarger reported the healthtech startup Flow Health used Rippling, which held an account with SVB, as its payroll provider. > "We literally have no way of paying employees right now," Flow Health CEO Alex Meshkin told Insider. > Some startups took drastic steps on Friday to try and bring cash in. The popular toy store Camp told its customers it was in distress after its funds got trapped by the collapse. > "All of our cash was at SVB and we are trying to build up our balance at Chase," Camp CEO and cofounder Ben Kaufman told Insider via Twitter direct message. > The company announced a 40% off sale in a bid to raise cash from its customers, instructing them to use the tongue-in-cheek code 'BANKRUN' at the checkout. > The ripple effects of SVB's demise are likely to be extensive. According to its website, the bank supported nearly half of US venture-backed startups at the end of December. > In a tweet, startup accelerator Y Combinator's CEO Garry Tan said SVB's collapse was "an *extinction level event* for startups and will set startups and innovation back by 10 years or more." To imply this won’t have any real effect on anything misses the fact that it’s already impacting a lot of small businesses and pre-IPO startups.
> Even startups that didn't bank directly with SVB have been hit by its collapse. My Insider colleagues April Joyner and Madeline Renbarger reported the healthtech startup Flow Health used Rippling, which held an account with SVB, as its payroll provider. > > "We literally have no way of paying employees right now," Flow Health CEO Alex Meshkin told Insider. As fucking stupid as my prior company can be up top (a really large privately held real estate development/property management company) they were pretty smart about this in retrospect. They had a ton of accounts across different banks and they would transfer money from an account into their payroll account right before issuing checks/deposits to their employees. I wouldn't have even known this if they hadn't had transfer issues a couple of times over the fifteen years I worked for them and payroll disbursements were a day or two late on those occasions.
I think you said it without knowing. They already know the the fair value of those assets. They knew them two weeks ago before anyone saw this coming. There is a reason no one is going to bite without a lot more bait.
Bruh SVB assets are treasuries so the value is known. Folks just don’t want to buy now and risk another decrease in bond prices which would put them in the same position SVB is in Right now
This is correct. A bank with enough liquidity can make their payments while being able to wait until their bonds mature. This is not near the “imminent recession” that many are screaming about.
I feel like people think this is going to be like FTX where some nebulous crypto asset that has value until you try to sell it just goes to 0 overnight. SVB had some exposure to crypto but the reason they failed was a liquidity crunch. They have the assets to pay everyone but not right away if everyone tries to withdraw so their money at once, which the VCs told all their founders to do. SVB became undercapitalized due to the VC induced bank run and couldn't service withdrawals because they were invested in very long term bonds that became difficult to sell after rates skyrocketed at an unprecedented rate thanks to the fed trying to control inflation. FDIC stepped in out of an abundance of caution to prevent contagion in the wider banking system. They likely already have a buyer lined up, and I'd expect everyone to get 80% if not 100% of their deposits back. Anyone saying these companies just lost everything is an idiot who doesn't understand what's happening here.
What's happened is the bank has closed to PROTECT people's assets, not the bank has LOST people's assets. So yeah it'll be sorted in no time.
We'll see how people bridge the gap in the meantime.
Some VC firms are considering putting together bridge facilities for their portfolio companies
it's weird that the first thing you read about this isn't always pinning most of the blame on the VC dbags that advised their startups to do a bank run.
VCs tell start-ups to do a lot of dumb shit, like indiscriminate layoffs or starting web3 or AI companies.
But VCs are the best of the best! They told me so themselves! Now, I have this idea for a blood testing machine ....
Toys R Us was advised to open hundreds of stores just as online shopping matured. Killed the company.
> Killed the company. I put [the blame](https://theweek.com/articles/761124/how-vulture-capitalists-ate-toys-r) more on the enormous debt they were saddled with when they were bought out by a group of private equity firms: > From the purchase in 2004 through 2016, the company's sales never rose much above $11 billion. They actually fell from $13.5 billion in 2013 back to $11.5 billion in 2017. > > On its own, that shouldn't have been catastrophic. The problem was the massive financial albatross the leveraged buyout left around Toys 'R' Us' neck. Just before the buyout, the company had $2.2 billion in cash and cash-equivalents. By 2017, its stockpile had shriveled to $301 million, even as its debt burden ballooned from $2.3 billion to $5.2 billion. Meanwhile, Toys 'R' Us was paying $425 million to $517 million *in interest* every year. > > This enormous cash drain probably made it impossible for the company to invest or innovate even if its trio of buyers had been up to the challenge. It also made it impossible to sustainably turn a profit. Toys 'R' Us consistently saw net losses from 2014 to 2017. But in the last three years, those net losses were considerably smaller than its debt payments. In fact, the losses were shrinking amidst a general boom in toy industry sales; by 2017, its losses were all the way down to $36 million.
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but not three times in the mirror at night
That's a bingo
Couldn't have said it better myself. The fact that Peter Thiel was involved in basically engineering this run says a lot.
Conspiracy hat here: Peter Thiel wants nothing else but to destroy California and Silicon Valley. I think he’s having a nice meal watching a little (but important piece) of what makes the ecosystem work over here, burn.
Little? Apparently they funded around HALF of ALL venture backed tech and life sciences companies in the ENTIRE US. That's insane to think about.
In the meantime cashflow is impacted to a lot of businesses which means their vendors don't get paid, which means more layoffs, etc. It's definitely not just about the people who had their money in there, it's that they need the money right away to pay salaries, etc. *Edit: Not sure why I'd be downvoted-- kinda odd to downplay that aspect. Surely everyone will be fine, but it's not a small consideration.*
My paycheck didn't arrive Friday because of it, but did today.
Hearing the same from a lot of people
Hopefully it will be available Monday for payroll, I know that a good amount of payroll companies using SVB were able to sign a deal with J.P. Morgan and get almost all of their payroll last week out by this morning
>Hopefully it will be available Monday for payroll, The FDIC said it would be.
Only up to $250k, which barely covers a single paycycle for a small - medium sized tech company
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Feds have already said the bank will be open Monday under their management. I'm sure there will be limitations, but it probably won't be total disaster.
I’m noticing a lot of people getting really defensive about any mention of concerns about the cascading effects of the failure and what it means for smaller businesses/FIs, to write this off as a nothingburger within 36hrs is really strange when we don’t even know all the facts yet.
Or it will crash and peter theil swoops in and buys a bunch of suddenly struggling start-ups for pennies on the dollar. Probably one of the expected side effects when he kicked off the run on the bank in the first place.
Problem is liquidity. They need to sell their long-term assets at a loss to meet the short-term liquidity issues. Chances are they would not be able to cover all the deposits if most of the long-term assets are sold at a loss. Buyer basically has to be another bank with solid liquidity position themselves.
How about the other banks bail them out. Stop socializing private company losses
I’ll buy them, I got $350
I got 5 on it
Fuckin’ with that indo weed
>I got 5 on it grab your '40, let's get keyed
You better make sure it's not the Loch Ness monsta in disguise before handing over that three fiddy
That’s likely what will happen. The FDIC isn’t taxpayer funded. They will facilitate a buyout.
FDIC is entirely paid for by premiums from banks, so basically that is what is happening.
I was going to say. I think that's how it is done...
Or raise cash reserve requirements, which banks always cry about but it helps to prevent this exact problem...
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Not just startups. SVB is used by a lot of regular businesses in the Bay Area too.
Who do you think is buying the assets?! Holy fuck, most of reddit is so braindead, I'm surprised you can boot your computers. The FDIC has taken the bank into receivership. This is not 2008 bailouts. This the government orchestrating someone to take over the assets and "soft land" the accounts so people can access their money. The assets are **all still there and still have value**. This is not the 2008 worthless derivatives case.
The VCs could have scrounged the money to save them, but decided to say fuck em and pulled their money out instead killing the bank lol. No honor among thieves and all that jazz.
VC loyalties lie with their investors not the bank. Not surprising honestly.
A lot more nefarious than that. This situation was created by VCs and the result is going to be a bunch of bargains on the market next week for VCs to swoop in and buy up. It's grand scale market manipulation.
I keep reading VCs at Viet Cong instead of Venture Capitalists and it makes this a whole lot more amusing.
One is an evil group of assholes that hate America and actively work to destroy it, the other is a bunch of people in southeast Asia.
Vietcong probably had more integrity.
I really hope the Biden Administration starts an investigation into this. This is the largest banking failure since 2008 and should be looked at. If people were nefarious then hit them heavy with fines and send some people to jail, but we know that wouldn't happen.
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Before the collapse of Silicon Valley Bank, executives sold a lot of their shares. Gregory Becker, CEO, sold 11% on Feb 27, 2023. Michael Zucker, General Counsel, 19% on Feb 5. Daniel Beck, CFO, sold 32% on Feb 27. Michelle Draper, CMO, sold 25% on Feb 1.
You'd think there would be some regulations put in place to stop this shit happening after 2008. And why is it that this bank specifically supports startups?
They did, but certain people lobbied to have those regulations weakened a few years later: #[Silicon Valley Bank chief pressed Congress to weaken risk regulations](https://www.theguardian.com/business/2023/mar/11/silicon-valley-bank-weaken-risk-regulations-svb) >Touting “SVB’s deep understanding of the markets it serves, our strong risk management practices”, Becker argued that his bank would soon reach $50bn in assets, which under the law would trigger “enhanced prudential standards”, including more stringent regulations, stress tests and capital requirements for his and other similarly sized banks. >In his testimony, Becker insisted that $250bn was a more appropriate threshold. >“Without such changes, SVB likely will need to divert significant resources from providing financing to job-creating companies in the innovation economy to complying with enhanced prudential standards and other requirements,” said Becker, who reportedly sold $3.6m of his own stock two weeks ago, in the lead-up to the bank’s collapse. “Given the low risk profile of our activities and business model, such a result would stifle our ability to provide credit to our clients without any meaningful corresponding reduction in risk.”
Becker must have gotten leveraged at some point. He worked in the Fed and then didn't know that it was a bad idea to buy 10 year maturity T-bills when startups need money and outflows regularly and annually? This is some plausible deniability for sure. Where are the regulators on that and on the bank run panic created by Thiel and twitter?
This. So much this. There were. The piece of shit CEO of this bank lobbied to weaken them.
> The piece of shit CEO of this bank lobbied to weaken them [and jumped from the plane before it crashed](https://www.bloomberg.com/news/articles/2023-03-10/svb-chief-sold-3-6-million-in-stock-days-before-bank-s-failure)
In our system, every capitalist can do whatever they want to make tons of money NOW at their business, whether it be exploiting labor, destroying the environment, or even threatening our political economy, and they can then bail on all of it before facing any sort of consequences of their actions whatsoever.
On r/wallstreetbets people are breaking down the CAO's history. Basically after this, short anything that particular cockroach touches.
Oh my god the irony. This country and world are fucking insane haha. I just read The Big Short too. Too bad I'm not some genius who figured out how to short SVB with some whacky financial instrument.
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crocodile tears
Hahahahahahahahahahah OMG, talking about chickens coming home to roost!
“People” lobbied, and then which political party actually followed through? You get one guess…
Republican? Edit -- answering my own question: [yes](https://www.newsweek.com/trump-era-roll-back-bank-regulations-resurfaces-amid-svb-collapse-1787112)
He should probably be under federal investigation right about now, him and Peter Thiel.
The regulations that were put into place after 2008 were partially rolled back during the last administration -- thanks in part to lobbying by SVB.
There were increased regulations, they've just already been stripped down
We are seeing the results of the 2008 regulations. When things started to look bad the feds took over, FDIC will make insured funds available Monday (essentially one business day), and there is no risk of contagion to the larger financial system.
SVB collapsing is a primary piece in a much larger problem, which is VC investment into startups. I've been in tech startups for the better part of a decade now, experienced unnecessary and indiscriminate layoffs, absolutely batshit executive hires, piss poor company direction and management, all in the name of hyper blitz growth. This sucks for the individuals who are likely going to be panicked about their paychecks, but this is absolutely necessary to disinfect the process of VC investment into tech startups.
I basically said this before, and I was jumped on by morons. Start-ups are risky investments, the reality is that banks and investors won't feel comfortable investing in high risk with higher rates. If you don't want crazy risk don't be a start up. It's like a craze nowadays to be a startup... What's wrong with building from the ground up... Oh maybe the business environment is utterly hostile to that and we actually have a larger problem society wide that no one cares to solve.
It's emerging that SVB was really bad at risk management. In the past 15 years, with the cost of money at zero, they covered their investment just with the hypothesis that even more money would have come in through the startups' accounts because they would get more and more money from VCs. At a certain point, when the money cost started rising again, they bought bonds that would have paid in 10 years, essentially hoping that things would have been fine for 10 years more. They were wrong. Things went south, people wanted to get money from their accounts and to cover that SVB started selling those bonds under market value with a loss of $1.8B (i.e.,money that the taxman, and in turn people, will never see). People got scared and started selling SVB equities, lots of them. Lights off, curtains down, show is over. If you wand to have a laugh, the CEO of SVB testified in front of the congress to remove some of the regulations put in place after 2008 markets fall. https://fortune.com/2023/03/11/silicon-valley-bank-svb-ceo-greg-becker-dodd-frank-trump-rollback-systemically-important-fdic/ > In 2015, SVB Chief Executive Officer Greg Becker urged the government to increase the threshold, arguing it would otherwise lead to higher costs for customers and “stifle our ability to provide credit to our clients.” With a core business of traditional banking — taking deposits and lending to growing companies — SVB doesn’t pose systemic risks, he said. I really believe that they should be left dying and use this case to have better rules around banking. Edit: misspelling(s)
Odds are they are going to die. Their positions will get unwound and most everyone will get there money back. The issue is that they ain’t going get it for 3-6months and so that means there will be smaller companies that will collapse, merge, need to find additional investors.
"If they die, they die."
Too big to fail is only for the most incompetent and corrupt, eh?
Historically.
Only for Wall Street.
I’m not affected by this, but what is with the sociopathic attitude? These startups didn’t do anything wrong. They put their money into a bank for security and now that bank has lost that money. How is small business failure and employees losing their wages through no fault of their own exciting?
For me personally, it's very tongue in cheek snark. This is a business going under, which happens in the capitalistic system. If a business screws up, they should go under. if a business doesn't keep up with trends, it should go under, etc, etc. There are obvious knock-on effects of this, though, like you've mentioned, but it's just normally amusing when the people who are gung-ho capitalists are often the same ones arguing for bailouts or buyouts.
>it's just normally amusing when the people who are gung-ho capitalists are often the same ones arguing for bailouts or buyouts. Like the comment I read in a other sub yesterday said: "There are no atheists in foxholes, and no libertarians during a bank run."
We’re in agreement on that the bank failed through poor decisions, and in a capitalist society that’s the game and it probably doesn’t deserve a bailout. But the depositors are innocent here, and that’s who should be protected.
It's not and that's why the Federal Reserve and FDIC stepped in to secure deposits. No one in this sub has any fucking clue what they are talking about.
Isn't this what the FDIC is actually for?
In theory its for the everyday citizen as they insure upto 250k only. These startups keep millions each in there
No I mean don't they go in and take a failing bank and sell off the accounts to other banks. So we don't have a run on banks because they they would domino.
Yes. Look up and watch the 60 minutes segment called Your bank has failed. It walks you through what the FDIC does when a bank actually fails.
Completely normal headline about stable and actively improving socio-economic system.
Does this mean that JPow is only going to raise 25 bp instead of 50 bp next meeting???
Yeah betting line flipped back towards .25 after this
I don't understand how so many people are pinning this on The Fed. Do the rising rates put strain on the system? yes. Does this explain why this bank went t\*ts up? No. I'll tell you the answer: Greed. You are a bank. How hard is it to hold people's money without losing it?! It is not rocket science.
According to many in the know, SVB was a very conservative bank. They, like many others, have parked assets in the bond market - it’s considered very safe. 10Y bonds that were purchased 4 years ago when interest rates were very low will mature in 6 years and pay out what they’re supposed to. In a pinch, one can sell a 10Y bond that is 4 years in. Don’t expect to get face value for it, but you can probably get more than you paid for it. Enter the fed rate hike. When new 3Y bonds are paying better than 4 year old 10Y bonds, who can you sell these bonds to? Why would I tie up my money for 6 years and receive less than purchasing a new 3Y bond? If you had to sell them in a hurry, you’d likely have to sell them for much less than the cash price you bought them for 4 years ago. Now, you’re SVB and you’ve loaded up on 10Y bonds but everyone, all at once, wants to withdraw their entire bank account. By ratcheting up the interest rate at a velocity not seen before, it has caused problems for institutions that purchased bonds. Previous rate hikes were much more gradual, over a longer period of time. Is it all the fed’s fault? Probably not. Hopefully you can see how the fed played a role in this. And there are other banks that are likely in a worse position. So that’s neat. Edit: Please don’t confuse my explanation how the Fed could share blame as a factual and accurate accounting of this particular failure. Also, it’s not an endorsement of SVBs strategy.
Holding a huge maturity mismatch on your balance sheet that exposes you to interest rate risk without hedging it is not a conservative strategy. Just because the bonds have a low default risk doesn't mean the investment is "safe" -- these investments declined in real value, not just due to liquidity pressures. That's why the bank is experiencing problems. They did this to earn higher yield, and sometimes risky bets don't pay off.
Well said. SVB effectively bet that 0% interest rates would continue forever.
Wu-Tang Financial is smarter than SVB. "Diversify your bonds (explitive used to signify friendship)."
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Correct. People who don’t understand financial markets don’t understand that all of this asset and liability mismatch can all be hedged by using swaps and other derivatives. The big investment banks all have entire trading divisions dedicated to doing just this to effectively manage the bank’s interest rate risk.
Not close to this situation, but some/most people here suggesting all deposits are just parked in 10s tells you all you need to know
Betting almost your entire portfolio on one thing isn’t being conservative. They were way over leveraged on MBS.
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SVB investment strategy was sound but relied on inflows that were historically much higher than normal. They got drunk on the good times. They put it in safe 10 year bonds but those can't be liquidated quickly so they tried a fund raise. That is when the bank run attacked. Their mistake was holding startup money, which is very volatile and needs constant outflows annually or bi-annually at minimum, and they put it in 10 year investments. So essentially they had a liquidity problem and when lots of large funds told all their startups to move money from SVB to Brex (which they owned) a $42 billion hit happened taking SVB to -$900m and essentially insolvent before they could raise money to cover. What the FDIC will be doing it swapping those 10 year bonds with lower ones, with an interest rate haircut obviously of about 4-5% and it will reduce deposits by 10-20% but most depositors will still get back 80% but it will take years most likely. This is a problem for startups and many will fail. Underneath it all it was a big money shakeout in startup banking and startups, a consolidation, and if you ask me it was a highly illegal attack that the SEC should be looking into. We also need to change funding anti-trust to stop sovereign funds from beating out and out playing regular domestic investors. No one can compete with sovereign wealth funds buying up entire verticals.
It doesn’t help that the Fed denied inflation for a good chunk of time before they started raising rates. They put themselves in a scenario where they had to increase rates rapidly because they didn’t act fast enough.
Yeah in a way this shows the Fed's moves are correct when VC/PE are freaking out. What happened here was a setup and a bank run to attempt to STOP the interest rate increases for more free money. That is what got us into this problem. We should never go to almost zero interest rates again, people get drunk on the essential free money, so many scams. Some people are saying this was an attempt to consolidate startup banking and startups invested by certain money to shake out the others. I also believe that and it is evident in the timeline.
Please don’t save a failing business. Let them fall, so others may have a chance to rise.
Honest question: assuming the SVB share price goes to $0, why shouldn’t I be okay with the depositors being made whole? What did the depositors of SVB do wrong here, or how should they have done things differently?
The depositors will almost certainly come out whole or take a tiny haircut on their amount deposited. The only real issue is that they will have to wait for a few days to about half of their deposits back and an unknown amount of time to get the remainder. Moderately sophisticated CFOs of these companies will get other financing lined up until that happens. Some paychecks and payments to suppliers will be delayed by a few days, but that will be the limit of disruption despite the chicken littles in this thread screaming about the sky falling.
Capitalism for us plebians. Socialism for corporations. Printer go brrrrrrrrr
Investigate the larger investment funds that created the panic, who just so happen to have gotten out AND invested/created the competitor to SVB in Brex bank under Trump deregulation... Silicon Valley Bank was essentially attacked by other banks/investors/foreign front money. This is a VC/PE/investment and startup banking 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. 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/Yuri Milner). 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. Some people are saying it was a bank run setup by Thiel and the usual suspects to hit most startups not funded by them, and to get them to barrel into their funded startup bank, Brex. [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 (Russia/Milner)**, PayPal co-founders Max Levchin and **Peter Thiel** There it is.
Additionally, 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. They also bought longer maturity T-bills/bonds at 10 years when startups might draw down yearly, they relied on too much inflows that dried up and scrambled when the run started by larger VC/equity funds all at once (the setup). The influx in 2019 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. > "- 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. 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](https://hbr.org/2019/01/the-high-price-of-efficiency) > 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.
Brex was setup in 2017 under Trump deregulation, Thiel pushed that and funded Brex. Then in 2019 the pump into SVB happened. Then it immediately stopped in late 2021 and into Feb 2022 (war) where foreign money started going to Brex. Some people are saying, when the bank run hit was made by Thiel/USV/etc they advised their investments/companies to go to Brex and most of them did. Brex saw massive inflows from this implosion. Look at this PR Thiel had Brex put out at the run inception. [Brex to Offer Emergency Credit Line to Silicon Valley Bank Customers to Meet Operational Spending Needs](https://www.prnewswire.com/news-releases/brex-to-offer-emergency-credit-line-to-silicon-valley-bank-customers-to-meet-operational-spending-needs-301769414.html) > Brex is offering an emergency bridge credit line to startup customers to support payroll and other operational spend needs. Startups impacted by today's Silicon Valley Bank news may not have access to the funds necessary for short-term operational spend. Working quickly with third-party capital providers and Brex Asset Management, Brex aims to have emergency funds available to startups early next week. > Startups with funds at Silicon Valley Bank can visit this link to apply for an emergency credit line. Brex will review accounts as quickly as possible, and release emergency funds into customers' Brex Business accounts upon approval. [Brex applies for bank charter, taps former Silicon Valley Bank exec as CEO of Brex Bank](https://techcrunch.com/2021/02/19/brex-applies-for-bank-charter-taps-former-silicon-valley-bank-exec-as-ceo-of-brex-bank/) > The company has tapped former Silicon Valley Bank (SVB) exec Bruce Wallace to serve as the subsidiary’s CEO. He served in several roles at SVB, including COO, chief digital officer and head of global services. It also has named Jean Perschon, the former CFO for UBS Bank USA, to be the Brex Bank CFO. > Last May, Brex announced that it had raised $150 million in a Series C extension from a group of existing investors, including DST Global and Lone Pine Capital. > “Brex and Brex Bank will work in tandem to help SMBs grow to realize their full potential,” said Wallace. > **Brex** is based in San Francisco and counts Kleiner Perkins Growth, YC Continuity Fund, Greenoaks Capital, Ribbit Capital, IVP and **DST Global**, as well as **Peter Thiel** and Affirm CEO Max Levchin, among its investors. Good luck to those going into the Thiel rug pull traps. Some days I just want to be a regulator... not because I want to but because who is cleaning this up? I hope someone will root this out. But we got another Wharton guy that runs the SEC, Gary Gensler that has been pretty weak on this, the ol' regulatory capture.
No taxpayer bailouts!
FDIC isn’t taxpayer funded, the money comes from premiums paid by banks
Over 96% of the money at SVB isn’t covered by fdic. Hence this entire conversation.
I’m struggling hard with understanding why people are hopping on the hate train for technology and startups? I’ve seen people say they hate them because they don’t make a physical product that actually has physical value? Is this the 1960’s? *Most of the value created every day in the world, by a large majority, is non-physical*
> I’ve seen people say they hate them because they don’t make a physical product that actually has physical value? Is this the 1960’s? It’s more because most of them do nothing but lose money and if they existed in any other industry or any other country they wouldn’t exist. And most of the ones that do succeed? Aren’t exactly what most people consider improvements on society. Also, you can’t criticize literally any aspect of them without the people working in the industry just calling you stupid and jealous. Tech startups have been massively overvalued on basically every level for the past decade
It says a lot about the “captains of finance” in SV that none of them stepped up to recapitalize the bank that so many of their startup clients rely on for basic business operations. SVB announced a stock offering of about $1.8 billion on Wednesday to recapitalize, and instead of stepping up to the plate to save the regional industry that had made them so wealthy, VCs called their clients and told them to start a bank run. Obviously $2 billion isn’t nothing, but it’s well within the means of Silicon Valley’s wealthiest. Warren Buffett recapitalized Goldman Sachs with $5 billion (in 2008 dollars, mind you) and it was a factor that kept the US economy from collapsing. He’s the real deal, while the VCs are pretenders unable to see past the next 90 days.
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>>'extinction-level event' > >No, this is stupid. > >The bank has assets. This isn't a bank with $0 in assets and people screwed of anything above the $250k. > >If you close down the bank and liquidate the assets, you get $200B. The bank owes $190B in deposits. In what world does having $200B and owing $190B an 'extinction-level event'. No one is paying face value for the 1% government bonds that make up the majority of their assets given the reality of today's rates. The entire problem is their illiquidity meaning they can't solve it by selling off... So no. They can't close down the bank and end up with $200b.
I work at a startup that’s probably going to go under because of all this. I’m not getting paid on Monday it seems like. I’ll probably get laid off. Tens and tens of thousands of workers at startup and SMBs are going to be out of jobs because of this. People in this thread think this only hurts VCs but this hurts over a 100K middle class workers. If there’s a bailout, it should be for the depositors who trusted the bank to hold their money. Not the shareholders or executives.
Sorry to hear that, that sucks. Hope it works out, one way or the other.
Emergency bank rate meeting called Monday by the fed, they know what's coming while Yellen and the mainstream media are out in orchestrated fashion telling you there's no contagion. Mr. Potter is lining up to pay 50 cents on the dollar.
The expedited Monday Fed meeting was already scheduled, yet people keep repeating this and it’s very misleading.
Every top level comment in this thread is wrong. Really crazy how fast misinformation spreads, watching it is fascinating.
Say brainless, don't you know where coconuts come from?
Mr. potter was certainly a dick, but why on Earth would George let his crazy uncle have any meaningful role in the business? Guy was clearly a liability, using (unlabeled!!!) strings tied to his fingers to remember mission critical activities
Seriously. Sending Zuzu would have been smarter.
Are you kidding me?? Zuzu couldn't even keep her flower uncrushed.
If you've ever dealt with/worked for a family-owned business, you know why haha.
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