I really love that they used a pic of CEO Becker from a recent Michael (ex-con, Junk Bond King) Milken Institute event.
>For their part, Sonnenfeld and Tian argue Jerome Powell, Biden’s pick to lead the Federal Reserve, and his colleagues deserve at least some of the blame.
“There should be no mistaking that Silicon Valley Bank’s collapse was a direct result of the Fed’s persistent and excessive interest rate hikes,” they wrote.
Why? Because the Fed’s war on inflation depressed both the value of the bonds Silicon Valley Bank was relying on for capital and the value of the tech startups the bank catered to.
Of course, Silicon Valley Bank had more than a year to prepare for both of those issues.
Yeah, to "Sonnenfeld and Tian", it's like gimme a break. The fed is in no way responsible for the results of every single bank out there. This is on SVB and SVB alone. More broadly, I'm sad that this event is likely going to disrupt the war on inflation and interest rate hikes. It might be time to start preparing for more inflation, or as Dorsey predicts, even hyperinflation.
“You’re in business for 40 years and you are telling me you can’t raise $2 billion privately? Get on a jet and fly to Kuwait like everyone else and give them control of one-third of the bank.”
For those wondering (like I was), the Kuwait quote is actually real, from the article itself. Maybe those "SVB insiders" should have just been better at doing their jobs.
TBH i think this is just saying the quiet part out loud. Everyone wants to trumpet their commitment to a higher mission and their core values and whatever else during the good times but when their backs are against the wall, none of that matters.
An equity issue would absolutely have solved the problem, although $2bn for 1/3 of the bank would have been a pretty hefty discount.
The surprising thing is that nobody in SV VC circles decided to raise capital to save the bank. Raising capital is literally what they do - and in many cases, they'd encouraged companies to use SVB! (Were there kickbacks for this?)
>“That was absolutely idiotic, They were being very transparent. It’s the exact opposite of what you’d normally see in a scandal. But their transparency and forthright-ness did them in.”
This doesn't sound like a great employee to quote.
>Get on a jet and fly to Kuwait like everyone else and give them control of one-third of the bank.
Or this.
>“The saddest thing is that this place is Boy Scouts,” he said. “They made mistakes, but these are not bad people.”
Which makes me question the point at the end of the article. It's fascinating watching these articles come out and trying to guess who is behind them and for what purpose.
I think you are missing some context around this story. Banking can be a confusing topic.
What that employee is referring to, and it is a great employee quote, is the fact that SVB's unexpected announcement that it was selling HTM securities at a loss and publicly raising equity is the singular event that really triggered the whole crisis. The CEO's poorly calibrated communication and lack of action in the midst of a run on his bank had sealed the bank's fate by Thursday afternoon.
The point this employee is making is that instead of this kind of "Boy Scout" transparency about its efforts to shore up its balance sheet (which only served to cause panic), the CEO should have quickly and privately closed a deal to raise capital only announced the deal after it was done. I don't know if doing a deal with a Middle Eastern Sovereign Wealth Fund would have helped avoid an accidental panic. But they could have very easily sold SVB to a larger bank before the CEO's own-goal of causing a run on his bank by announcing forced selling of bonds at a loss and a public capital raise. Once the bank run had begun, it was impossible for a buyer to step in.
I believe that it must have been greed and overconfidence at the core of their problems. They didn't want to hedge their IR exposures, didn't want the expense of raising capital quietly, didn't want the expense of diversifying their funding sources away from volatile depositors, etc.
Representatives from Alecta, the swedish pension fund that was big owner said the same.
That SVB had presented a plan that was agreed upon with the owners but instead they sold their assets with a loss and went out publicly to seek investment without having an agreement with anyone.
I didn't say you wouldn't get it. Maybe you don't want to get it?
Let's say you own a restaurant and you find a mouse in your kitchen. You could:
1. Call an exterminator overnight to make sure you don't have a larger problem and contain the issue before the shop opens the next morning. Improve your kitchen hygiene standards going forward but don't draw unnecessary attention to your renewed efforts.
2. Call the local news station over to your restaurant to get live action footage of you catching the mouse. Go on camera and give a speech about how you've already scheduled for an exterminator to come in a few days, and the last thing the customers need to do is panic.
Which option is the correct business decision, from the owner's perspective?
This is a total disanalogy because banking concerns depositors who are actively trusting you to secure their wealth, while a restaurant owner supplies a temporary service that ceases after maybe an hour or two.
A better analogy would be lastpass getting hacked, and then rightfully disclosing that instead of just keeping it under wraps.
As restaurant's customers actively trust the restaurant to not jeopardize their health.
The banking equivalent of Lastpass getting hacked and not disclosing it would be if a bank was insolvent and instead of rightfully disclosing that it instead just kept it under wraps. That would be accounting fraud and executives would be charged with crimes like they were in the Enron scandal. SVB experienced a sudden liquidity problem, not a solvency problem. Solvency and liquidity are two separate things.
No, it wasn’t insolvent until the bank run on Thursday. Very few, if any, banks can handle a $40 billion transfer off their balance sheet unexpectedly, but a bank CEO should’ve known their reckless actions could easily have triggered one, especially one with very high deposits and very few customers (as in, it doesn’t take many customers to decide to move their deposits to cause a real hurt).
"SVB experienced a sudden liquidity problem, not a solvency problem. "
They had a solvency problem.
The MBS they held with a six year duration didn't generate sufficient income. That meant they couldn't meet the cash letter from the Fed. That's why the FDIC was called in.
The whole strategy was based upon holding uninsured non-interest bearing liabilities for the duration - ie the cash of startups in burn mode.
It wouldn't have mattered if they had insured the HTM portfolio in the traditional manner.
Any sought equity investment in the bank would have had to be sufficient to get the net income up to the level where they could meet the terms of the cash letter from the Fed. I doubt anybody would have gone for that when the alternative was to attend the FDIC auctions and pick up the assets on sale.
The difference is that the whole banking business model is about not never having 100% of the deposits on hand (the banking license is a license to not be 100% fully backed with liquid assets, but you have to follow special rules/regulations in return).
FTX was a different issue, because it had a requirement of 100% backing of customer deposits for example (that's why SBF was trying to acquire a bank).
Do people really not know how fractional reserve banking works? I'm not saying the general public, but those with >$250K sitting in a bank.
I agree on the disconnect, but I don't think it's all relevant to this situation. Almost every party involved should have been well aware of this fairly basic concept.
Given the fact that alot of people didn't think to diversify their cash between banks to stay insured, do you really think it would be a stretch to suggest they don't really know what they're doing?
It's a bit like suggesting zoomers know what a filesystem is because they grew up with computers; seems like it should be the case on the surface but you'll quickly realise they've never dealt with the underlying realities of the system, they just use the interface.
I would be suggesting that if those zoomers ran a business that could die with poor file system management, but that's hardly what we're talking about is it?
I am suggesting that business owners with substantial cash holdings should be well aware of fractional reserve banking, or at least the notion that money in the bank is not guaranteed.
Do you seriously think any of these companies weren't aware of the $250k insurance limit?
I'm genuinely curious what you mean, as your example sounds like a straw man, but I'm hoping there's something I'm missing.
You would be genuinely surprised at the number of people in charge of publicly listed companies, who have absolutely no idea about the existence of fractional reserve banking, or even the fact that money isn't backed by gold anymore.
> even the fact that money isn't backed by gold anymore
Don’t you mean “or even the fact that money was ever backed by gold”? If you knew about gold backing at all, surely you’d know we left the gold standard last century.
The weird thing is that transparency about the difficulty at the bank is exactly what leads to the run. The incentives of the banking system are to hide reality in case of a financial breach. Whereas for a security breach, the incentives need to be to be forthright.
How's an executive supposed to keep the nuance of when to lie?
There's a 2014 paper that describes this dynamic. Clients want deposits (bank liabilities) that act like cash, but they are backed by assets that have fluctuating values. Banks need to be "optimally opaque" to make this work.
I’d definitively signup if that was available, just ideally as a monthly fee vs a negative interest rate. Just like I’ll pay for my content over it being “free” with ads and/or worse dark patterns.
Which clients are these? Wouldn’t there be a set of clients, such as businesses trying to make payroll, who simply want 100% guarantees of money being there.
Sounds impossible. If the money is just shoved in a vault, the bank has to come up with money for rent/taxes, payroll for someone put the money in and take it out, etc. If the money is guaranteed to be there, then it can't be 100% of it.
Officers of a publicly traded corporation aren't legally allowed to lie about anything financially material to the business. That would be securities fraud, and could potentially expose them to personal civil liability or even criminal charges. They might be allowed to delay announcing some material issues, but they can't outright lie.
There is a third option: they can get their ducks in a row and discreetly line up a solution _before_ announcing the problem. An executive making 7 figures p/a ought to know this.
Of course they'll want to blame anything other than the stupidly high risk strategies that got them there.
SVB had the highest compensation in the industry for 2018, and averaged ~$293k/employee last year while hitting top scores for work-life balance, remote options, and employee satisfaction.
For fun...here are the top paying banks in 2018:
1. SVB - $250k
2. First Republic - $247k
3. Signature Bank - $216k
SVB and Signature just failed, First Republic is down 75% over the past 5 days.
I remember seeing a list on Reddit the other day showing other banks that also were heavily invested in MBSes similar to what SVB were invested in, and First Republic was on that list. I assume the market quickly lost confidence in all of the banks on that list.
Was MBS (mortgage backed securities) a typo here? My understanding was SVB had a huge long term treasury position on the books from before interest rate hikes that was in the red against the market. And their second largest tier was direct loans to things like startups that weren't asset backed but instead default to warranties on the companies taking the loans (I'm not close enough to this to really say that more specifically).
> SVB’s mistake was investing in longer-term mortgage securities with more than 10 years to maturity, rather than shorter-maturity Treasuries or mortgage issues maturing in less than five years. This led to an asset/liability mismatch.
They had several MBSes on the books, too. Both MBSes and treasuries are long-term fixed-income products. It's not as bad as they used to be in 2008 - they have largely fixed the "gamesmanship" that got everyone in trouble then.
They were agency backed cash MBS, which are basically default risk free as defaults come out as prepayments and are pretty liquid. They’re not at all like the subprime credit default swaps on CDOs that were so problematic in their risk ratings.
It’s actually hilarious that the three most troubled banks had the highest employee compensation (though that data is 4 years old). The headline writes itself
This suggests that banking is extremely efficient, basically a textbook example of the efficient markets hypothesis.
The only way you can create outsized returns to pay outsized compensation in that business is by taking outsized risk. Hence the top 3 highest paying banks are also the ones who failed.
This also suggests average compensation is a fantastic short-signal the next time the economy starts re-leveraging.
I'd say it suggests that the banks that were most succesful in growing and attracting depositors were the ones with the best customer service overall.
Problem is, those are also the most finicky, nitpicking customers in the market, and they will bail faster than you can do an equity raise...
Does anyone believe another bank would have collapsed as quickly, even with the same MBS portfolio and impaired loans..if it was composed by a random assortment of customers vs highly networked small opcos + their investors ?
I still don't understand how banking always pays so well considering how the industry appears to be so good at creating internal level crises every couple of decades.
There are forever headlines in the UK about the banking industry putting pressure on the government to be able to pay out larger bonuses and such. Bank executives opining that they can't get the "best employees" if they don't pay the best. As you suggest it sounds to me like the "best" are the worst/most corrupt biggest risk takers.
Imagine if software had a Y2K every couple of decades that cost the public purse billion while everyone was pushing to pay developers even more. Maybe I don't understand banking but it just seems weird.
Maybe these are not in opposition. Maybe banking need to pay more, because ethical people leave, people who have feeling of guilt want more money to compensate feeling of guilt and the remaining unethical people are good at negotiating for money.
The regular crisis and having a lot of fraud inside is making it expensive.
but more than 2008? My nation has gone through 15 years of deep public spending cuts as a "consequence" of 2008 and the resulting deficit (albeit it was likely just used an excuse to implement anti-public-spending political ideology).
Also I don't remember any of those events dipping into the public purse but rather being commercial liabilities.
I wonder if that is anything more than the lack of retail banking skewing wages. ie you lack lots of branches staffed with relatively low-paid tellers.
And a lack of retail banking is correlated with the percentage of all depositors who have more than $250k, which is correlated with susceptibility to bank runs.
Probably that, plus SVB has a disproportionate number of branches in, well, Silicon Valley.
On Zillow right now I see about a dozen homes (not houses) for sale in Silicon Valley for less than $1M and zero for less than $500k within about a 45 minute commute of Sunnyvale. (excluding empty lots and actual trailer parks, and anything under 750 sq feet—and requiring A/C)
Quibble with my filters if you want, but the point is that a person earning these exorbitant SVB comps basically can’t afford to buy a home without spending 2 hrs each day commuting or living in a shoebox with roommates (I guess they could buy that $650k meth house out on the end of Stevens Canyon—-it only needs a little elbow grease: https://www.zillow.com/homedetails/17950-Stevens-Canyon-Rd-C... ).
I would hazard a guess that there are few other banks where back office staff are generally not expected to afford a middle class lifestyle.
Well they need to pay employees more money to compensate them for keeping their mouths shut and jeopardizing their reputations. Seems like a reality for many companies nowadays.
Crazy to think that people are being compensated based on how much damage they do to society and how long they can keep it going. It's literally the opposite of how the system was intended to work.
This is pretty wild, but at the same time, it should be noted that SVB is a commercial bank. The average salary at J.P. Morgan is much lower because they have tons of people working relatively low wage teller (and other retail branch) jobs. I suspect that if you took only those employees in the divisions competing against SVP, the JPM numbers would be much closer.
Keep in mind that it’s precisely because they service only commercial clients that the recent issues his signature and SVB. Very few individuals have more than $250k in a single bank, so there’s no reason for individuals to run on the bank. On the other hand, $250k is not all that much if you are a business with a decent sized payroll.
When interest rates go up, the mark-to-market price of older, lower-rate bonds goes down since you can get higher coupons (better interest rates) by buying newer bonds.
If you "Hold to Maturity" (HTM), it won't matter -- you'll eventually reclaim the entire par value of the bond. But if you all of a sudden start selling them, you're going to realize massive losses. So when you buy the bond, you better be really sure you can HTM, or you'll eat your shirt.
Here's the kicker: SVB bought at the "top" -- at a time where rates could only increase (zero percent rates), at all-time high home prices (MBSs), all while The Fed indicated that they'll keep raising rates until the economy cries 'uncle' and the yield curves were inverting.
It's notable that those 3 banks are headquartered in the 3 most expensive places in the country. Silicon Valley, New York, and Los Angeles. I'd say that and lack of branches with low paid employees is probably what accounts for the higher salaries.
It says some people are blaming the Fed's interest rate hikes. Should the Fed adjust the people's monetary policy to help some bankers?
SVB couldn't, and isn't responsible for, anticipating interest rate changes (who could have seen those hikes coming? /s) and managing the risk? What else are they paid to do?
It seems to me that from what I read, the root cause is that the bank was funded with corporate deposits and deposits from institutional investors, both of which are known to be volatile in a stress, and treated punitively by the liquidity regulations imposed on larger banks (in fact financial institutions deposits cannot be used to finance anything else than liquid assets). And they funded buy and hold positions of bonds with these deposits, not hedging the interest rate risk.
All of which are internal fuckups and none of which I read in this article...
They're mad at the match, but they aren't mad at the powderkeg.
SVB didn't have a Chief Risk Officer from April 2022 through January 2023. They were flying blind. While the Fed raised interest rates, the bank seemingly moved forward without any risk assessments.
A new Chief Risk Officer was named in January 2023. The top insiders then sold tons of shares in February, suggesting that they all realized something was wrong. In the next public report on March 8th at 4pm, they announce a capital raise to offset their now booked losses. This sets off a bank run on March 9th. And the rest is history.
-----------
Maybe instead of blaming the bank run on March 9th (the lit match), they need to focus more on the 10+ months of poor risk assessments and blatant insider-trading in February (suggesting that the higher-ups discovered the issue and acted upon it for personal financial gains).
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Sure, the email / press release on March 8th was poorly written. So poorly written it set off a bankrun. The CEO deserves some of the blame here for such shoddy writing that set off the stampede.
But that wasn't the issue. The issue was all the "dry powder" that the bank accumulated over the past year.
I don't think so. I think they are saying that if the original regulations were still in place, the bank would not have been able to make these "investments" even without a Risk Officer.
Isn't that just as bad? If it's illegal to act without a risk manager, you can't make bad risk decisions or investments like SVB did, but you can't make good or necessary ones either.
Exactly, listen to anyone in banking. The idea of buying and holding such long dated MBS and LETTING YOUR HEDGES EXPIRE just as the Fed was raising rates is just unheard of. Even if they were allowed, it was spectacularly unwise and not just in hindsight.
https://youtu.be/GdfYnqyu7v8 There are multiple banking insiders who've discussed this that come to the same conclusion, here's a simple one for those who don't want to do any research, just WTF?!?
But why were they allowed to do this? Why could they add $120B in low interest bonds when rates were low and lots of cash was coming in during the pandemic?
Because the regulations were loosened in May of 2018 with lobbying by SVB (and possibly Thiel himself) they were just below the $250B limit. Also, what the hell were companies doing with $250M deposits earning nothing (not being swept into MoneyMarkets), when they could have been making $10M a year and been safe from losing it? Apparently, because their VCs recommended it.
There are obviously legal exceptions? It could be that you make a notice to the government that this is happened and they just increase scrutiny on you until you’ve hired someone?
It’s not like this is the only business with legal requirements for specific roles.
It means when the CRO left, the bank would have had to immediately appoint someone else into the position. Which all banks should be prepared to do. That is basic succession planning.
What is especially ridiculous with SVB is the CEO made the CRO give up the position and remained employed there for several more months. This wasn’t a surprise. The CEO forced the resignation on the CEO’s schedule with no successor in the wings.
All this C-suite nonsense is just a bunch of... nonsense, it needs to stop. Let me explain what I mean. After a quick google:
What is a Chief risk officer?
CROs report to the board and the CEO on various issues, including insurance, IT security, financial audits, internal audits, global business variables, fraud prevention, and other internal corporate matters.
That's all cost-center stuff, none of that has anything to do with the banking line of business. It doesn't need to be chief anything and it had nothing to do with the failure of SVB.
A bank's entire business and reason for existence is risk pooling and risk arbitrage, making money on the interest rate spreads between being on different sides of different products. The CEO of a bank cannot afford not to be qualified to be the head of banking risk. He should have quants working for him and reporting to him, but the buck stops with him.
Responsibility works best in a hierarchy, you're in charge of something, you report to somebody who is in charge of you and what you do, but at a minimum, the CEO needs to know the core business cold, and sideline delegate only things that are not of that nature. A bank needs that job description up above, but it's not C suite. Having a C-suite encourages egotism and distributes risk (not interest rate risk) in an un-responsible way, if you have a chief of something, why it must be taken care of, right? There's only room for one chief. In addition to that, COO, CFO, CMO have pretty standard meanings, but no reason they can't be called VP of Operations, Treasurer/Controller/VP of Finance, and VP of Marketing though.
And then, no need for a CEO, just have a President. (that corporations have a president is encoded in law, btw, but not CEO)
Counterpoint: without a dedicated person in charge of this, responsibility will be diffused among the organization and everyone will assume someone else is taking care of it
> Let me explain what I mean. After a quick google: What is a Chief risk officer? ... That's all cost-center stuff, none of that has anything to do with the banking line of business.
This is hilarious. Next time, at least try asking ChatGPT instead of Google before becoming an expert on something new and explaining it to others on the Internet.
What you read is the CRO job description for a CRO of any corporation. All large corporations have CROs, and the CRO is responsible for the risks that all corporations have (security, insurance, etc). A bank CRO's job description includes all of that plus the banking risks, such as credit risk, capital markets risk and liquidity risk. A bank run, in particular, is a negative result of liquidity risk.
the rest of my point is the same, if a bank has a chief risk officer, it's the President of the bank, or an EVP. There are quants who track, measure and calculate financial risk, but that's a line responsibility, they're not chiefs. If you want to call the President of a "financial risk banking company" the chief of something, he's CEO, not CRO, even though risk management is his main job.
I think what OP is trying to say is that just because there is no CRO, doesn’t mean there is nobody that cares about risk. It’s a red herring.
If the CRO left, the whole organisation under and above him didn’t suddenly disappear. Chances are they have a top lieutenant that knows as much if not more of the actual risk than the CRO.
Or one might fire the CRO if they are tired of their incessant, daily nagging that the entire business it at risk and that we need to make sweeping changes that are going to negatively affect next quarter profitability.
As much as I agree with you about the silliness of the C-suite, the job of "head of risk" is an important position at a bank because they:
1. Keep people hired for their greed honest (in terms of creating their models), and
2. Keep track of "soft" risks that can't be tracked by models well and tail risk that is underpriced by models (ie keep track of the nebulous concept of "modeling risk").
In opposition to the rest of the senior executives - who encourage greed and actively ignorance of "soft" risks to make more money.
The buck does not stop with the CEO, it stops with the company’s board, who represent investors and who the CEO answers to. The CRO often reports to the board and at the very least, communicates directly with them.
The reason for the role of CRO is that the CEO, CFO and other C suite executives are not really aligned with investors incentive-wise. If the bank does really well, the CEO gets huge bonuses. If the bank crashes, the CEO gets fired but typically doesn’t lose all their money like investors do. Hence the need for the board’s function in risk management and a CRO to help them with that. In a bank, the risks are unique and often hard to see which is why risk management is often a huge department.
None of this exonerates the CEO. Of course they are to blame when things go wrong. But when financial risk is a huge part of a business, it’s good to have some backup for that role as well.
If your organization is designed to have a C-level official to manage things like internal audit, and that job is vacant for an extended period, it’s unlikely that the VP of Audit has the political capital to be heard.
The shitshow around this bank is a case study for poor or no internal controls.
LOL. You want same person to be responsible for quarterly profits, long term investments and risks assessment. And than will act surprised when it crashes.
No such thing as a cost center in business. It is an idea that comes from “C-suite nonsense”. Either someone provides marginal value above their marginal cost or they don’t.
> They were flying blind. While the Fed raised interest rates, the bank seemingly moved forward without any risk assessments.
Not having a CRO was unacceptable, without question. However, I don't know if having a CRO would have saved them. Lack of an officially appointed CRO does not imply lack of a functioning risk department, so it's not completely the same as "flying blind." Also, the CRO in a bank has a limited role. Decisions ultimately made by the CEO, after consulting the CRO as well as others such as the CFO and the Head of the Treasury department. Given the way the corporate politics and bank politics work, the CRO may have quite limited influence on decisions like how and when to raise new funding, and how much risk appetite to have for things like liquidity risk.
> But that wasn't the issue. The issue was all the "dry powder" that the bank accumulated over the past year.
Not really. The CEO really did inadvertently trigger an avoidable bank run. It wasn't simply the email, but also the decision to sell the HTM securities at a loss and raise equity publicly. The "dry powder" that had accumulated over the past year could have been handled in many different ways, they didn't have to buy 10 year Treasuries at a time when the risk was clearly that rates could rise due to persistent inflation and as the VC investment climate was cooling. The lowest risk option would have been to take the customer cash and deploy it in the secured overnight repo market while waiting a little bit to see what happens with inflation, the VC market, commercial real estate post-pandemic, etc., and dollar cost averaging any plans to purchase vast quantities of securities over years.
Oh right, I forget, they merely announced that they had liquidated their entire AFS book at a $2 billion realized loss? That makes more sense, the accountants wouldn't have allowed to sell the HTM securities. That doesn't make it better, it makes it worse. Banks don't normally sell securities at a loss in their AFS book, nor do they normally liquidate their entire AFS book to raise cash. These were recklessly alarming moves for SVB to be signaling to the market.
Available for sale, essentially the liquid portion of their holdings that can be sold immediately. They are treated differently for accounting and risk/asset ratios.
You didn't do your research. They sold their AFS securities because Moody's was threatening to downgrade them, and they were forced to act. That's why everything happened so quickly, Moody's was going to downgrade them, which forced SVB to make a bunch of deals in order to not only short up their finances but try to get investors to inject liquidity. They didn't have enough time to seal the deal before announcing it, and all the investors pulled out after the reaction to the announcement.
> Moody's was threatening to downgrade them, and they were forced to ac
Ah I was missing that part of the story. It turns out that SVB hired Goldman Sachs to advise them on this crazy plan and all to turn a 2 notch downgrade by Moody's into a 1 notch downgrade. Supposedly they were so rushed by Moody's that they couldn't even close the equity raise before announcing it (which is batshit crazy for a company with a public stock price to do while trying to avoid a credit downgrade). I'm not sure why SVB was surprised and caught off guard by Moody's - shouldn't they have been in communication with Moody's all along the way? Not sure what to think about Goldman's involvement, are they incompetent too?
But of all this just makes me agree even more with the employee quoted in the article. If you are facing these kinds of problems as a bank CEO, get on a plane to the Middle East and get a Sovereign Wealth Fund to close your funding gap, instead of publicly announcing that you'll raise equity just to satisfy a Moody's rating analyst. Because, as we now know, your stock will crater, your new equity investor will walk away, and your customers will start a run on your bank, and by Monday you will have lost your shirt.
You don't need to be a Chief Risk Officer to know that a huge low yield long-term bond is a liability in a high interest rate environment. Clearly they thought the party would never end.
Assuming the CEO was not aware is unfathomable. Degree in business, started as a loan officer in the 90s.
I guess he's just assumed that the problem was not necessarily fatal and was effectively betting on it. Very easy to imagine - moose in the headlights type of reaction.
> The issue was all the "dry powder" that the bank accumulated over the past year.
Who is to blame for allowing the operating issues you explained? I’d argue it’s the CEO. All CEOs know that can’t just ignore the X when a CxO role is vacant. But that’s what you are saying happened.
All true, but any CEO or COO should be fully cognizant of these same risk profiles. Fiduciary responsibility is a real thing. I can’t see anything but malfeasance here. Seems highly unlikely it was ignorance.
Lots of comments questioning the wisdom of this quote, but I think it's essentially spot on, albeit lacking some tact:
> You’re in business for 40 years and you are telling me you can’t raise $2 billion privately? Get on a jet and fly to Kuwait like everyone else and give them control of one-third of the bank.
That is, despite the fact that the run on the bank was the culmination of bad risk management, not the start, it was absolutely not a foregone conclusion the bank would fail. They definitely should have already had any asset commitments signed before they went public. Then they would have been able to say, truthfully, "we are in a stronger capital position than we've ever been in" as opposed to "please don't panic". SVB had a lot of value in their unique expertise that an outside investor would have valued before the run on the bank - it's really sad that institutional knowledge will be lost now.
> “That was absolutely idiotic,” the employee, who works on the asset management side of Silicon Valley Bank, told CNN in an interview. “They were being very transparent. It’s the exact opposite of what you’d normally see in a scandal. But their transparency and forthright-ness did them in.”
This is pretty ironic. Not only people constantly complain at lack of transparency but when they actually get honesty and glimpse into workings of a large bank they panic and withdraw their money and do themselves in.
The irony part is that any bank will fall if people take a peek and realise the bank does not have their money.
As for banks, fractional reserve banking is a fraud that is made and tolerated in the name of economic progress. But other than suspending withdrawals there exists no way to safeguard a bank against bank runs. And it is not possible to prevent the bank from losing your money as long as the bank is free to invest your money into financial instruments -- there exist no financial instrument that are free from risk. There exist no way of combining financial instruments to hedge against risk completely.
The only thing that you can do is to shovel your risk from place to place and make so it looks that you don't have any risk until it happens. And then you loose catastrophically.
Isn't the fundamental problem here wanting to have your cake (earn interest) and eat it too (cash at call)?
It's a niche belief that you can keep money liquid, and earn on it. If you want it liquid, you're actually a liability not an asset: you have all this money sloshing around, which can't be put out for long term growth because you want it NOW. That actually kind-of "costs money" to do. If not money, then risk.
SVB had more money on call, than most banks. A lot more. Why? because it was over exposed to clients who needed money at call. Why? because herd mentality and costs. Because startup culture legitemates bleeding money, to build belief.
If it was economically easier to use SVB to fund day to day operations of startups than "traditional" banks, what does the failure of SVB say about the operating model of the startup sector?
If it was catastrophic for Thiel to send mail telling his "friends" to pull out, what does that say about the sector and SVB?
Liquid and illiquid aren't just binary choices. There's a very wide range of risk profiles between the two.
I want to be able to pull out my money anytime and earn something close to the fed's interest rate (minus whatever haircut the bank takes). This is a reasonable expectation for any banking system.
The bank takes the money and instead dumps it into 10-year bonds, MBS products and loans to startups (among lots of other creative investments). They pay me the same low interest and keep all the extra returns to themselves. But those returns came with added risk, and that risk is being down to me whether they want to admit it or not.
Lehman employees were also angry with their final CEO, Dick Fuld. At one point there was a now-debunked rumor that he got punched in the face at the company gym a few days after that bankruptcy.
Dick was a dick even for a big swinging dick on Wall Street and he spurned several last minute lifelines, so, at the time, people in the industry universally approved.
A fast, dramatic demise of a massive company leaves scars. Almost 15 years on, former Lehman lifers are still salty about what happened. Perceived mismanagement ("They squandered it!") and regulatory failure ("They bailed out our competitors but not us!").
The former are similar to the feelings of older engineers who worked at IBM, Intel, Palm, Yahoo, Nokia, etc during their heyday.
> Almost 15 years on, former Lehman lifers are still salty about what happened.
Many employees lost small - medium sized fortunes in the collapse.
When you got your bonus, it was in Lehmans stock. When your stock vested, it was considered a career limiting move to sell your stock - even for such extravagant things such as pay your kids school fees or put down a deposit on a house. You were not a true believer in Dicks vision.
Instead it was arranged for you to borrow against your Lehmans stock ...
What I don't understand is why Moody gave this bank an A rating last week. What is the point of having Moody even rate them if they can't detect a problem like this?
Run a free money environment for ten years and all kinds of bullshit and mal-investments will pile up across the economy. Half of Silicon Valley is bullshit speculative nonsense funded with a river whose ultimate source is the Fed money faucet.
We have not seen the end of this ... just the very beginning.
I’d imagine they’re pissed off the same way Credit Suisse employees are after Archegos blew up. Everything was going fine, but in a corner somewhere someone was making absolutely stupid investment and loan decisions that lead to a catastrophic blow up.
The bank bought LT bonds extremely heavily at historically low interest rates, proceeded to not hedge the rate risk AT ALL, and held them while interest rates were pounding their value well below their carrying value. If they were marked to market they would have been forced out of their spectacularly stupid decision before the bank blew up, but instead they acted like a punter on margin and refused to reduce risk while losing all of their money.
Make no mistake, even if the bank hadn’t blown up they still locked in ~15B in losses by holding those bonds while rates went up to 5%.
Actually I am a bit on the fence with the SVB situation. I think they suffered from bad timing and an excessively cautious strategy. To be fair to them: one week back, given the asset allocation of SVB, how many of us could have predicted a collapse in the next two days? I could not. In fact, I would have said that investing in bonds is better than an equity-heavy allocation for a responsible bank. Hindsight about liquidity issues is fine, but I doubt that it was as clear as it is now made out to be.
Time to brush up on my Taleb again, sadly. Second time during my career.
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[ 1.8 ms ] story [ 334 ms ] thread>For their part, Sonnenfeld and Tian argue Jerome Powell, Biden’s pick to lead the Federal Reserve, and his colleagues deserve at least some of the blame.
“There should be no mistaking that Silicon Valley Bank’s collapse was a direct result of the Fed’s persistent and excessive interest rate hikes,” they wrote.
Why? Because the Fed’s war on inflation depressed both the value of the bonds Silicon Valley Bank was relying on for capital and the value of the tech startups the bank catered to.
Of course, Silicon Valley Bank had more than a year to prepare for both of those issues.
Exactly.
A lot to unpack there...
SVB should have raised capital in 2021.
The surprising thing is that nobody in SV VC circles decided to raise capital to save the bank. Raising capital is literally what they do - and in many cases, they'd encouraged companies to use SVB! (Were there kickbacks for this?)
This doesn't sound like a great employee to quote.
>Get on a jet and fly to Kuwait like everyone else and give them control of one-third of the bank.
Or this.
>“The saddest thing is that this place is Boy Scouts,” he said. “They made mistakes, but these are not bad people.”
Which makes me question the point at the end of the article. It's fascinating watching these articles come out and trying to guess who is behind them and for what purpose.
What that employee is referring to, and it is a great employee quote, is the fact that SVB's unexpected announcement that it was selling HTM securities at a loss and publicly raising equity is the singular event that really triggered the whole crisis. The CEO's poorly calibrated communication and lack of action in the midst of a run on his bank had sealed the bank's fate by Thursday afternoon.
The point this employee is making is that instead of this kind of "Boy Scout" transparency about its efforts to shore up its balance sheet (which only served to cause panic), the CEO should have quickly and privately closed a deal to raise capital only announced the deal after it was done. I don't know if doing a deal with a Middle Eastern Sovereign Wealth Fund would have helped avoid an accidental panic. But they could have very easily sold SVB to a larger bank before the CEO's own-goal of causing a run on his bank by announcing forced selling of bonds at a loss and a public capital raise. Once the bank run had begun, it was impossible for a buyer to step in.
I believe that it must have been greed and overconfidence at the core of their problems. They didn't want to hedge their IR exposures, didn't want the expense of raising capital quietly, didn't want the expense of diversifying their funding sources away from volatile depositors, etc.
That SVB had presented a plan that was agreed upon with the owners but instead they sold their assets with a loss and went out publicly to seek investment without having an agreement with anyone.
They declared this a "big mistake"
Let's say you own a restaurant and you find a mouse in your kitchen. You could:
1. Call an exterminator overnight to make sure you don't have a larger problem and contain the issue before the shop opens the next morning. Improve your kitchen hygiene standards going forward but don't draw unnecessary attention to your renewed efforts.
2. Call the local news station over to your restaurant to get live action footage of you catching the mouse. Go on camera and give a speech about how you've already scheduled for an exterminator to come in a few days, and the last thing the customers need to do is panic.
Which option is the correct business decision, from the owner's perspective?
A better analogy would be lastpass getting hacked, and then rightfully disclosing that instead of just keeping it under wraps.
The banking equivalent of Lastpass getting hacked and not disclosing it would be if a bank was insolvent and instead of rightfully disclosing that it instead just kept it under wraps. That would be accounting fraud and executives would be charged with crimes like they were in the Enron scandal. SVB experienced a sudden liquidity problem, not a solvency problem. Solvency and liquidity are two separate things.
The conclusion from this isn't that it was solvent and suddenly became insolvent. The conclusion is that almost every bank is insolvent.
In as far as “the sky is blue”, except when it’s cloudy, or night time, or the sun goes supernova.
They had a solvency problem.
The MBS they held with a six year duration didn't generate sufficient income. That meant they couldn't meet the cash letter from the Fed. That's why the FDIC was called in.
The whole strategy was based upon holding uninsured non-interest bearing liabilities for the duration - ie the cash of startups in burn mode.
It wouldn't have mattered if they had insured the HTM portfolio in the traditional manner.
Any sought equity investment in the bank would have had to be sufficient to get the net income up to the level where they could meet the terms of the cash letter from the Fed. I doubt anybody would have gone for that when the alternative was to attend the FDIC auctions and pick up the assets on sale.
FTX was a different issue, because it had a requirement of 100% backing of customer deposits for example (that's why SBF was trying to acquire a bank).
It sounds to me like there's a big disconnect between what banks actually do, and what their customers think they do.
I agree on the disconnect, but I don't think it's all relevant to this situation. Almost every party involved should have been well aware of this fairly basic concept.
It's a bit like suggesting zoomers know what a filesystem is because they grew up with computers; seems like it should be the case on the surface but you'll quickly realise they've never dealt with the underlying realities of the system, they just use the interface.
I am suggesting that business owners with substantial cash holdings should be well aware of fractional reserve banking, or at least the notion that money in the bank is not guaranteed.
Do you seriously think any of these companies weren't aware of the $250k insurance limit?
I'm genuinely curious what you mean, as your example sounds like a straw man, but I'm hoping there's something I'm missing.
Don’t you mean “or even the fact that money was ever backed by gold”? If you knew about gold backing at all, surely you’d know we left the gold standard last century.
To generate controversy, which generates clicks, therefore revenue.
This is a very good quote, because it explains how actually the sausage is made.
You seem to be very unhappy to hear some harsh truths of life.
I know it is frowned upon, but Hacker News quality of comments is becoming lower and lower, starts to feel like reddit.
No mention of zero risk management. No mention of possible contagion effect. No mention of hundreds of workers not knowing if they’re going to be paid
Individualism at its finest
How's an executive supposed to keep the nuance of when to lie?
https://economics.sas.upenn.edu/pier/working-paper/2014/bank...
Couldn't I could open a bank, stuff your cash into my vault and charge you a negative interest rate to pay for guards.
There are places where transparency does not work. I wish it did.
SVB had the highest compensation in the industry for 2018, and averaged ~$293k/employee last year while hitting top scores for work-life balance, remote options, and employee satisfaction.
For fun...here are the top paying banks in 2018:
1. SVB - $250k
2. First Republic - $247k
3. Signature Bank - $216k
SVB and Signature just failed, First Republic is down 75% over the past 5 days.
https://archive.is/3QXIO
> SVB’s mistake was investing in longer-term mortgage securities with more than 10 years to maturity, rather than shorter-maturity Treasuries or mortgage issues maturing in less than five years. This led to an asset/liability mismatch.
https://www.barrons.com/articles/svb-silicon-valley-bank-rat...
The only way you can create outsized returns to pay outsized compensation in that business is by taking outsized risk. Hence the top 3 highest paying banks are also the ones who failed.
This also suggests average compensation is a fantastic short-signal the next time the economy starts re-leveraging.
Problem is, those are also the most finicky, nitpicking customers in the market, and they will bail faster than you can do an equity raise...
Does anyone believe another bank would have collapsed as quickly, even with the same MBS portfolio and impaired loans..if it was composed by a random assortment of customers vs highly networked small opcos + their investors ?
There are forever headlines in the UK about the banking industry putting pressure on the government to be able to pay out larger bonuses and such. Bank executives opining that they can't get the "best employees" if they don't pay the best. As you suggest it sounds to me like the "best" are the worst/most corrupt biggest risk takers.
Imagine if software had a Y2K every couple of decades that cost the public purse billion while everyone was pushing to pay developers even more. Maybe I don't understand banking but it just seems weird.
The regular crisis and having a lot of fraud inside is making it expensive.
Heartbleed, Meltdown, Spectre, log4j etc all cost the taxpayer more than this event.
Also I don't remember any of those events dipping into the public purse but rather being commercial liabilities.
On Zillow right now I see about a dozen homes (not houses) for sale in Silicon Valley for less than $1M and zero for less than $500k within about a 45 minute commute of Sunnyvale. (excluding empty lots and actual trailer parks, and anything under 750 sq feet—and requiring A/C)
Quibble with my filters if you want, but the point is that a person earning these exorbitant SVB comps basically can’t afford to buy a home without spending 2 hrs each day commuting or living in a shoebox with roommates (I guess they could buy that $650k meth house out on the end of Stevens Canyon—-it only needs a little elbow grease: https://www.zillow.com/homedetails/17950-Stevens-Canyon-Rd-C... ).
I would hazard a guess that there are few other banks where back office staff are generally not expected to afford a middle class lifestyle.
Crazy to think that people are being compensated based on how much damage they do to society and how long they can keep it going. It's literally the opposite of how the system was intended to work.
Keep in mind that it’s precisely because they service only commercial clients that the recent issues his signature and SVB. Very few individuals have more than $250k in a single bank, so there’s no reason for individuals to run on the bank. On the other hand, $250k is not all that much if you are a business with a decent sized payroll.
Anyway when you are paid nearly double jp Morgan and chase …
If you "Hold to Maturity" (HTM), it won't matter -- you'll eventually reclaim the entire par value of the bond. But if you all of a sudden start selling them, you're going to realize massive losses. So when you buy the bond, you better be really sure you can HTM, or you'll eat your shirt.
Here's the kicker: SVB bought at the "top" -- at a time where rates could only increase (zero percent rates), at all-time high home prices (MBSs), all while The Fed indicated that they'll keep raising rates until the economy cries 'uncle' and the yield curves were inverting.
That's why they were risky.
SVB couldn't, and isn't responsible for, anticipating interest rate changes (who could have seen those hikes coming? /s) and managing the risk? What else are they paid to do?
All of which are internal fuckups and none of which I read in this article...
SVB didn't have a Chief Risk Officer from April 2022 through January 2023. They were flying blind. While the Fed raised interest rates, the bank seemingly moved forward without any risk assessments.
A new Chief Risk Officer was named in January 2023. The top insiders then sold tons of shares in February, suggesting that they all realized something was wrong. In the next public report on March 8th at 4pm, they announce a capital raise to offset their now booked losses. This sets off a bank run on March 9th. And the rest is history.
-----------
Maybe instead of blaming the bank run on March 9th (the lit match), they need to focus more on the 10+ months of poor risk assessments and blatant insider-trading in February (suggesting that the higher-ups discovered the issue and acted upon it for personal financial gains).
--------------
Sure, the email / press release on March 8th was poorly written. So poorly written it set off a bankrun. The CEO deserves some of the blame here for such shoddy writing that set off the stampede.
But that wasn't the issue. The issue was all the "dry powder" that the bank accumulated over the past year.
https://www.reuters.com/article/us-usa-trump-dodd-frank/trum...
https://youtu.be/GdfYnqyu7v8 There are multiple banking insiders who've discussed this that come to the same conclusion, here's a simple one for those who don't want to do any research, just WTF?!?
But why were they allowed to do this? Why could they add $120B in low interest bonds when rates were low and lots of cash was coming in during the pandemic?
Because the regulations were loosened in May of 2018 with lobbying by SVB (and possibly Thiel himself) they were just below the $250B limit. Also, what the hell were companies doing with $250M deposits earning nothing (not being swept into MoneyMarkets), when they could have been making $10M a year and been safe from losing it? Apparently, because their VCs recommended it.
It’s not like this is the only business with legal requirements for specific roles.
What is especially ridiculous with SVB is the CEO made the CRO give up the position and remained employed there for several more months. This wasn’t a surprise. The CEO forced the resignation on the CEO’s schedule with no successor in the wings.
There might be more to this than what we’re hearing. It’s probably all media frenzy bs right now.
What is a Chief risk officer?
CROs report to the board and the CEO on various issues, including insurance, IT security, financial audits, internal audits, global business variables, fraud prevention, and other internal corporate matters.
That's all cost-center stuff, none of that has anything to do with the banking line of business. It doesn't need to be chief anything and it had nothing to do with the failure of SVB.
A bank's entire business and reason for existence is risk pooling and risk arbitrage, making money on the interest rate spreads between being on different sides of different products. The CEO of a bank cannot afford not to be qualified to be the head of banking risk. He should have quants working for him and reporting to him, but the buck stops with him.
Responsibility works best in a hierarchy, you're in charge of something, you report to somebody who is in charge of you and what you do, but at a minimum, the CEO needs to know the core business cold, and sideline delegate only things that are not of that nature. A bank needs that job description up above, but it's not C suite. Having a C-suite encourages egotism and distributes risk (not interest rate risk) in an un-responsible way, if you have a chief of something, why it must be taken care of, right? There's only room for one chief. In addition to that, COO, CFO, CMO have pretty standard meanings, but no reason they can't be called VP of Operations, Treasurer/Controller/VP of Finance, and VP of Marketing though.
And then, no need for a CEO, just have a President. (that corporations have a president is encoded in law, btw, but not CEO)
This is hilarious. Next time, at least try asking ChatGPT instead of Google before becoming an expert on something new and explaining it to others on the Internet.
What you read is the CRO job description for a CRO of any corporation. All large corporations have CROs, and the CRO is responsible for the risks that all corporations have (security, insurance, etc). A bank CRO's job description includes all of that plus the banking risks, such as credit risk, capital markets risk and liquidity risk. A bank run, in particular, is a negative result of liquidity risk.
If the CRO left, the whole organisation under and above him didn’t suddenly disappear. Chances are they have a top lieutenant that knows as much if not more of the actual risk than the CRO.
1. Keep people hired for their greed honest (in terms of creating their models), and
2. Keep track of "soft" risks that can't be tracked by models well and tail risk that is underpriced by models (ie keep track of the nebulous concept of "modeling risk").
In opposition to the rest of the senior executives - who encourage greed and actively ignorance of "soft" risks to make more money.
The reason for the role of CRO is that the CEO, CFO and other C suite executives are not really aligned with investors incentive-wise. If the bank does really well, the CEO gets huge bonuses. If the bank crashes, the CEO gets fired but typically doesn’t lose all their money like investors do. Hence the need for the board’s function in risk management and a CRO to help them with that. In a bank, the risks are unique and often hard to see which is why risk management is often a huge department.
None of this exonerates the CEO. Of course they are to blame when things go wrong. But when financial risk is a huge part of a business, it’s good to have some backup for that role as well.
Life doesn't get any better.
The shitshow around this bank is a case study for poor or no internal controls.
Not having a CRO was unacceptable, without question. However, I don't know if having a CRO would have saved them. Lack of an officially appointed CRO does not imply lack of a functioning risk department, so it's not completely the same as "flying blind." Also, the CRO in a bank has a limited role. Decisions ultimately made by the CEO, after consulting the CRO as well as others such as the CFO and the Head of the Treasury department. Given the way the corporate politics and bank politics work, the CRO may have quite limited influence on decisions like how and when to raise new funding, and how much risk appetite to have for things like liquidity risk.
> But that wasn't the issue. The issue was all the "dry powder" that the bank accumulated over the past year.
Not really. The CEO really did inadvertently trigger an avoidable bank run. It wasn't simply the email, but also the decision to sell the HTM securities at a loss and raise equity publicly. The "dry powder" that had accumulated over the past year could have been handled in many different ways, they didn't have to buy 10 year Treasuries at a time when the risk was clearly that rates could rise due to persistent inflation and as the VC investment climate was cooling. The lowest risk option would have been to take the customer cash and deploy it in the secured overnight repo market while waiting a little bit to see what happens with inflation, the VC market, commercial real estate post-pandemic, etc., and dollar cost averaging any plans to purchase vast quantities of securities over years.
Ah I was missing that part of the story. It turns out that SVB hired Goldman Sachs to advise them on this crazy plan and all to turn a 2 notch downgrade by Moody's into a 1 notch downgrade. Supposedly they were so rushed by Moody's that they couldn't even close the equity raise before announcing it (which is batshit crazy for a company with a public stock price to do while trying to avoid a credit downgrade). I'm not sure why SVB was surprised and caught off guard by Moody's - shouldn't they have been in communication with Moody's all along the way? Not sure what to think about Goldman's involvement, are they incompetent too?
But of all this just makes me agree even more with the employee quoted in the article. If you are facing these kinds of problems as a bank CEO, get on a plane to the Middle East and get a Sovereign Wealth Fund to close your funding gap, instead of publicly announcing that you'll raise equity just to satisfy a Moody's rating analyst. Because, as we now know, your stock will crater, your new equity investor will walk away, and your customers will start a run on your bank, and by Monday you will have lost your shirt.
It’s interesting seeing New York Finance pinning the proximate blame on Goldman, while the Bay Area is largely angry at large depositors, e.g. VCs.
Assuming the CEO was not aware is unfathomable. Degree in business, started as a loan officer in the 90s.
I guess he's just assumed that the problem was not necessarily fatal and was effectively betting on it. Very easy to imagine - moose in the headlights type of reaction.
Who is to blame for allowing the operating issues you explained? I’d argue it’s the CEO. All CEOs know that can’t just ignore the X when a CxO role is vacant. But that’s what you are saying happened.
> You’re in business for 40 years and you are telling me you can’t raise $2 billion privately? Get on a jet and fly to Kuwait like everyone else and give them control of one-third of the bank.
That is, despite the fact that the run on the bank was the culmination of bad risk management, not the start, it was absolutely not a foregone conclusion the bank would fail. They definitely should have already had any asset commitments signed before they went public. Then they would have been able to say, truthfully, "we are in a stronger capital position than we've ever been in" as opposed to "please don't panic". SVB had a lot of value in their unique expertise that an outside investor would have valued before the run on the bank - it's really sad that institutional knowledge will be lost now.
This is pretty ironic. Not only people constantly complain at lack of transparency but when they actually get honesty and glimpse into workings of a large bank they panic and withdraw their money and do themselves in.
The irony part is that any bank will fall if people take a peek and realise the bank does not have their money.
As for banks, fractional reserve banking is a fraud that is made and tolerated in the name of economic progress. But other than suspending withdrawals there exists no way to safeguard a bank against bank runs. And it is not possible to prevent the bank from losing your money as long as the bank is free to invest your money into financial instruments -- there exist no financial instrument that are free from risk. There exist no way of combining financial instruments to hedge against risk completely.
The only thing that you can do is to shovel your risk from place to place and make so it looks that you don't have any risk until it happens. And then you loose catastrophically.
It's a niche belief that you can keep money liquid, and earn on it. If you want it liquid, you're actually a liability not an asset: you have all this money sloshing around, which can't be put out for long term growth because you want it NOW. That actually kind-of "costs money" to do. If not money, then risk.
SVB had more money on call, than most banks. A lot more. Why? because it was over exposed to clients who needed money at call. Why? because herd mentality and costs. Because startup culture legitemates bleeding money, to build belief.
If it was economically easier to use SVB to fund day to day operations of startups than "traditional" banks, what does the failure of SVB say about the operating model of the startup sector?
If it was catastrophic for Thiel to send mail telling his "friends" to pull out, what does that say about the sector and SVB?
I want to be able to pull out my money anytime and earn something close to the fed's interest rate (minus whatever haircut the bank takes). This is a reasonable expectation for any banking system.
The bank takes the money and instead dumps it into 10-year bonds, MBS products and loans to startups (among lots of other creative investments). They pay me the same low interest and keep all the extra returns to themselves. But those returns came with added risk, and that risk is being down to me whether they want to admit it or not.
People then pulling out another 42B sounds like a disaster.
Dick was a dick even for a big swinging dick on Wall Street and he spurned several last minute lifelines, so, at the time, people in the industry universally approved.
A fast, dramatic demise of a massive company leaves scars. Almost 15 years on, former Lehman lifers are still salty about what happened. Perceived mismanagement ("They squandered it!") and regulatory failure ("They bailed out our competitors but not us!").
The former are similar to the feelings of older engineers who worked at IBM, Intel, Palm, Yahoo, Nokia, etc during their heyday.
Many employees lost small - medium sized fortunes in the collapse.
When you got your bonus, it was in Lehmans stock. When your stock vested, it was considered a career limiting move to sell your stock - even for such extravagant things such as pay your kids school fees or put down a deposit on a house. You were not a true believer in Dicks vision.
Instead it was arranged for you to borrow against your Lehmans stock ...
Company scrip from the company store, but for rich people.
We have not seen the end of this ... just the very beginning.
* German literature! Hard to see how that makes you a good banker.
The bank bought LT bonds extremely heavily at historically low interest rates, proceeded to not hedge the rate risk AT ALL, and held them while interest rates were pounding their value well below their carrying value. If they were marked to market they would have been forced out of their spectacularly stupid decision before the bank blew up, but instead they acted like a punter on margin and refused to reduce risk while losing all of their money.
Make no mistake, even if the bank hadn’t blown up they still locked in ~15B in losses by holding those bonds while rates went up to 5%.
Time to brush up on my Taleb again, sadly. Second time during my career.