> An industry built on risk-taking, which made mountains of money when those risks paid off, has just been reminded of what happens when they don’t. And the answer, once again, is: Someone else pays the price.
Ouch. That's a bit painful to read, because... it rings true, based on conversations I've had over the past few days. My understanding is that a majority of venture-backed startups in the US as well as a majority of venture capital firms all their had their cash balance deposited at SVB. In other words, the federal government just saved the entire US venture capital ecosystem from failure.
If you can turn that into a service where I can engrave things on a plaque and have someone throw it into a garden of my choosing, I'm sure you can build a successful startup out of it.
What is "capitalist" about requiring FDIC for a retail banking charter, then the same government creating the requirement (at gunpoint of licensing scheme) takes the money for that requirement, and creates a "insurance scheme."
Only it turns out that "insurance" is a fraud, as it is misrepresented. The premiums are advertised as being for backstopping up to 250k in the account, but it turns out this was a fraud and actually it's whatever arbitrary amount they choose all the way up to the biggest holder in the bank. And when they're finished, they'll assess a "special assessment" which totally isn't a tax, nevermind the licensees have no choice but to pay it.
the "gain" startups were getting was a deposit account that doesn't disappear over the weekend. these were not supposed to be high risk/reward investments.
The risk was not having insured themselves beyond what FDIC was providing. I can’t wait until my insurer covers hundreds of multiples above the coverage I have!
the FDIC limit was a minimum. for decades the FDIC has covered the full amount in practice. if the current level of fees aren't enough to cover that, they will raise them. and that is exactly what is happening now.
That is not what is happening now. They are assessing additional fees under systemic risk protection rules. FDIC rates are changed on a regular, periodic basis with forewarning time for markets to adjust, not over a weekend.
When has FDIC reimbursed more than the “up to” limit? Everything I’ve read regarding this suggests that this may be moral hazard, at least in the short term. The remaining amount should come from liquidation of the failed bank’s assets or by the acquiring bank, not the FDIC.
I'm worried that "other banks" constitute a large enough body that they could just let SVB fail. Instead they're looking around nervously and acquiesce to a bailout because they might be just as vulnerable.
Your neighbor sets off fireworks in his living room and burns his house down. Everybody in your neighborhood with the same insurance policy immediately gets hit by a new fee that was not previously contracted, the neighbor walks away without a house, but also with his mortgage payed off.
In what world do we live in that a government agency can demand a new mandatory fee over the course of a weekend. This whole thing is bonkers.
“The ultimate result of shielding men from the effects of folly, is to fill the world with fools.”
people seeing a bank fail will worry that their own bank could fail, which could lead them to withdraw en masse which will cause their own banks to fail, and so forth. this scenario is bad for everyone.
We just lived through this 15 years ago, and that’s not what happened at the time in a situation where many, many more banks were exposed to significantly higher risk.
SVB had a short-term liquidity crisis, followed by botching a funding round to solve the crisis (along with some internal issues). They were a relatively small bank whose assets likely would have been gifted to another bank in exchange for covering the liabilities.
IDK what banks you've used, but all the banks I've used the fee proportionality is regressive.
I also don't agree that the most prudent and responsible banks bailing out disproportionately depositors at failed banks is beneficial for them or their depositors. It also creates a moral hazard for customers to chase banks with the highest yield risk profile knowing they'll be bailed out by the other actors.
maybe other fees they tack on, but not the FDIC fee.
people seeing a bank fail will worry that their own bank could fail, which could lead them to withdraw en masse which will cause their own banks to fail, and so forth. this scenario is tremendously bad for everyone.
The bank doesn't have to pass fees down using the same algorithm with which they were assessed, and they usually don't. The small guy gets fucked with regressive fee structure.
>people seeing a bank fail will worry that their own bank could fai
I feel more confident in my bank as it is compared to my bank minus a "special assessment" to backstop depositors at irresponsible banks.
I've not seen any reporting or anything in the announcement that indicated an increase in fees for the FDIC insurance fund would be necessary, but I absolutely admit I may have missed that detail. Do you have a reference for this claim?
Ahh, yup, I absolutely missed that when I read the announcement. Thank you!
It's worth noting it's still unclear if that'll be necessary (it all depends on the level of recovery they can get out of SVB's assets), but the potential is there, and it's hard to deny that, if that is necessary, those costs will ultimately be born by everyone as the banks pass those costs along.
Uh... "fees on other banks" seems like a pretty good proxy for "anyone holding dollars worldwide", though. I don't think you disagree.
The idea that there won't be losses here is a little laughable. If their assets were so solid then some other bank would happily have written a loan with them as collateral. SVB transparently couldn't get financing, so they had to sell a bunch of stuff last week and booked a $1.8B loss (which is the proximate cause of the bank run).
No, this will end up being a bailout. It'll be obscured enough that people will be able to claim it wasn't. But it is.
the FDIC only has jurisdiction over US retail banks, not everywhere dollars are held worldwide, of course
the deficit left after auctioning off SVB's assets will be raised from other banks. the FDIC/treasury/Fed are not going to just pay for it out of pocket.
And who ultimately pays for raised costs at banks? I’m guessing it’s less like the C-class, and more like the individual depositor/personal-loan-class.
HN readers should be acutely aware of this as being entrepreneur-savvy. If your costs go up (unexpected FDIC assessment) you either are immediately less profitable, or you raise prices and past the cost to your customer. Banks are the Chris Paul of passing costs on to their customers.
tl:dr new fees for banks is increased fees for customers.
The federal government caused the problem first though.
The federal reserve denied inflation was real for so long, signaling to everyone that it was safe to buy US Treasuries, then suddenly and aggressively started raising rates.
And wasn't it the federal government regulators who are responsible for ensuring that banks are not taking on excessive risk? Are they not to be trusted, and must every depositor perform a deep-dive due diligence on their bank and continuously do so in order to make sure their money is safe while deposited in a bank of all places?
No, the Federal government is more like an arsonist who set fire to a building, then showed up to rescue the people inside, taking all the credit, and then shaming those who noticed the smoke and escaped on their own before they arrived.
moronic one-sided grudge content aside - isn't "market valuation" by private capital on assets they have an interest in, also a snake in the grass here?
It kind of feels like the argument here is "why didn't someone stop us from making mistakes"? If it's the case that the federal reserve sent deliberately misleading messages that no one could have doubted why isn't there a giant line of banks currently going under?
It doesn’t take every depositor doing a deep dive, but if you hold half a billion dollars in cash at a bank, you bloody well better understand their balance sheet. I assure you that mainline company and governmental treasurers do this due diligence as a matter of course along with all the other counterparty risk mitigations that are SOP for well run companies.
And if you are going to encourage (and sometimes insist) that your portfolio companies work with a bank, understanding concentration risk is the minimum professional standard you should be held to.
Every other industry understands what fdic insurance is and is not. Competent CFO and corporate treasurers manage their counterparty risk as part of their job. It’s either immaturity, incompetence or entitlement that makes SV think this isn’t their problem.
>The federal government caused the problem first though.
Nonsense.
>The federal reserve denied inflation was real for so long, signaling to everyone that it was safe to buy US Treasuries, then suddenly and aggressively started raising rates.
The Fed was issuing forward guidance in 2020 that it planned to aggressively raise rates. By 2021, my dog could have told you that this was going to happen.
>And wasn't it the federal government regulators who are responsible for ensuring that banks are not taking on excessive risk? Are they not to be trusted, and must every depositor perform a deep-dive due diligence on their bank and continuously do so in order to make sure their money is safe while deposited in a bank of all places?
>No, the Federal government is more like an arsonist who set fire to a building, then showed up to rescue the people inside, taking all the credit, and then shaming those who noticed the smoke and escaped on their own before they arrived.
Makes sense that you don't know the difference between the Federal Government, the Federal Reserve, and the FDIC though.
SVB ended up on the wrong side of a trade and somehow it’s the feds fault?
They knew that there were risks in their strategy and went ahead with it, rather than hedging and forgoing profits. It’s not the feds job to make policy on the basis of how one bank is trading.
SVB was financially mismanaged by its leadership. They then handled the communications around their poor financial position very poorly. This lead to the immediate cause of the banks collapse, a textbook bank run.
So, technically yes? The depositors who pulled their money were the immediate cause of the failure if we’re being simplistic. They pulled out a quarter of the deposits in a couple of days, no bank is going to be able to withstand that.
SVB executives did NOT have to load up on high-duration bonds! They were under no obligation to do that.
They CHOSE to do it because they wanted to increase interest income and earnings in the short run.
They could have easily purchased a lower-duration mix of bonds. Instead, they gambled the bank on a bet that long-term rates would stay at historic lows.
Once they made that bet, they could have easily hedged it every year, at a cost. Instead, they chose not to spend any money on hedging.
The federal government did not cause SVB's failure. SVB executives caused it.
Don't be silly, please. There's no strawman here. You accused the federal government as causing something that SVB executives did voluntarily. It makes sense to point that it was they who caused their problems, not the government.
Your arguments seem to be motivated by ideology, as opposed to facts and reasoning, so this will be my last comment on this sub-thread. Goodbye.
Outside of the Federal Reserve issue, isn't a core component here the 2018 bank deregulation laws that weakened the rules so they wouldn't apply to banks the size of SVB (less than $250B in assets)? Dodd-Frank was put in in place for a reason after 2008 and crawling it back in form of the 2018 bank deregulation laws was a glaring mistake.
Real banks hedge interest rates as required by regulation (and sanity). SVB lobbied Republicans to have regulation removed. SVB had hedges and let them expire while it had no risk officer. Theil apparently recommended cash at SVB after the failure of his funded Glorifi bank, but it's unclear why large sums (in excess of monthly needs) would be left by any company in any bank (if only because there's no interest). Were there other loans being made against deposits?
It was actually the raising of 10y long term rates (which are not controlled by the Fed) which caused the value of SVBs MBS to fall. That in turn is mostly affected by inflation expectations.
It's worth noting that the concept of risk justifying disproportionate gains in most incarnations of capitalism isn't any sort of foundational principle. Instead, it was largely just a narrative people thought held true (and there's some truth still).
These days it's largely the mantra that if you can't find a way to pass risk and costs off, you're incompetent at your role. We've learned to optimize risk away from the reward system and made it socially and culturally acceptable. Before, it was less accepted, hence the narrative. Anymore, people don't even paint the facade.
> My understanding is that a majority of venture-backed startups in the US as well as a majority of venture capital firms all their had their cash balance deposited at SVB
I mean they would have recovered 80-90+ percent of their assets without government support. Plus many would have been back stopped by VC. People are really reading a lot into the whining coming from Jason calcanis types
I think that's very suspect given the behavior of the VC set. Altman said he was going to write a few loans ("six figure" ones, even! That's, like, more than a car loan!), but the "whiny Calacanis types" were absolutely the rule, not the exception.
What has people so upset is exactly what the article is pointing out. The very set that claimed so loudly to be Brave Superheroes taking the risks that no one else could tolerate turned out to be outrageously risk-averse when faced with actually losing their own money.
And I think that calls into question the whole venture capital business model. It's not what we thought it was. At the top, it was a cartel-run gravy train, squeezing investment dollars from downstream investors and turning that into income for the partners at the big players.
$100k is also like one pay cycle for a 10 person start up.
The $10-20 billion in bailout sounds like a lot but it's not much compared to the market cap that banks are losing. Charles Schwab alone lost 30-40 billion in market cap because of SVB and bounced back up 10-15 on the bailout. The Fed action was to protect banks. A bunch of tech bros getting bailed out was a side effect of that.
While Silicon Valley and the venture capital ecosystem don't come out of this looking sterling, it seems like this crisis was precipitated mostly be the financial mismanagement of a single entity, combined with exogenous factors in the U.S economy. There is clearly a lot of interest among some parties on trying to place blame on the tech ecosystem as a whole. Of course, SV is not blameless, but I think a lot of the characterization here is biased overall.
> Of course, SV is not blameless, but I think a lot of the characterization here is biased overall.
I am sort of a silicon valley hater myself, but I agree that SV is not the only party to blame, not should it take the lion's share of the blame. SV did what SV does - take big risks. It did not help that the federal reserve help turbo charge risky investments via extraordinarily accommodative monetary policy.
To blame SV alone is to ignore a bigger problem, which is the fed.
"The Fed" (singular) almost always, but especially in this context, means the Federal Reserve.
"The Feds" (plural) usually refers to some or another branch of federal law enforcement, especially the FBI. It occasionally refers to a non-law enforcement federal agency.
This is kind of ridiculous. The depositors at SVB were bailed out to save all the other regional banks. Obviously they were happy to get free money but life would have gone on if they didn't.
All the risks that SV takes, and the one that nearly bit them was putting their money into a bank that bought US government bonds. Reality is stranger than fiction.
Well, putting a huge fraction of your money, individually and collectively as an industry, into the same banking institution is by itself a risk.
SVB's problem wasn't just buying government bonds.
The other problem SVB had was a homogenous customer base that had highly correlated behaviours. In particular, during the COVID boom, their customers collectively raised a ton of money and created a huge pool of deposits for SVB. And then when that money dried up, that turned into net outflows.
And these behaviours were correlated, both as a group, but also critically with... you guessed it... interest rates. Which means as bond values were dropping, they were simultaneously seeing a major change in their cashflow profile, and the combination of the two is what led to a liquidity crunch.
That just isn't happening at other, more diversified banking institutions.
FDIC blew their whole wad on SVB, that’s not lawful. Another couple banks have problems like this and they’ll be telling us that we need to turn on the munny printer to save them. Maybe the precious metals people were right.
> FDIC blew their whole wad on SVB, that’s not lawful.
Even if it was true that they had blown their whole wad, it would be lawful. The systemic risk exception would allow that.
> Another couple banks have problems like this and they’ll be telling us that we need to turn on the munny printer to save them.
No, the funding mechanism is well-defined and does not involve monetary policy. (Its even fiscally neutral, so it doesn’t even involve the monetary effects of non-neutral fiscal policy.)
You really need to educate yourself into how modern money works. Money isn't printed into existence, it's debted into existence. That's a concept the goldbugs either didn't understand or refused to acknowledge.
Economics is an imperfect science but the equation of exchange suggests printing money could just change the nominal value of debts/goods and redistribute them rather than the total real value of debt/goods. That is you needn't create new real debt when printing money, you could just say be reducing the real value debt owed to current currency holders and distributing it to the backstopped depositors.
I'm not saying we should be going to a commodity money, but if we were using a physical commodity as money (as in the commodity is physically in the coin, not notes representing the commodity) that were hard to mine more of, I'm not sure this kind of redistribution would be so practical.
I wasn't talking economic theory, I was talking about how U.S. dollars are created. A lot of people have the mistaken notion they're printed into existence because, well, some countries have handled their money that way. U.S. money is debted into existence. The Fed can't carry that debt on their balance sheet so they have to be able to sell it off. You can continue creating money this way without too much fear of inflation so long as you can find a buyer for the debt. That will be the case so long as people have faith in the credit of the U.S. - something which Republicans have repeatedly tried to destroy (even though it's unconstitutional to do so, but that's another matter).
The simple answer is you can't crank up the printing press and print money. That's not how it works.
A banking cartel of Congress' own making and Congress has the authority to shut it down any time they choose. It's just the banking cartel has been doing a better job of running the nation's economic policy than Congress has - which should surprise no one. For example, I trust the "banksters" on these matters more than I trust MJT.
Let's be real here. No other bank in the world would've collapsed in similar situation.
Did SVB lose money and made bad bets? Yes. Could they have raised back money by selling shares and return to solid ground? Also probably yes.
What made this completely fatal is their client base. Client base which are supposed to be the biggest risk takers in the economy. Fled away at record speed. The burners of billions of dollars, fled away from quite moderate risk bank (moderate relative to their own risk profiles). That has been there for 40 years.
It's not people who are unfamiliar with raising money. It's not your common people who somehow started a bank run.
It's a small and connected group, that could communicate exaggerated risk to everyone and flee at record speed. Which is why I don't buy their innocent claims at all.
It's actually hilarious that people who were selling sham crypto for billions of dollars got spooked by a bank. As depositors. It's like they projected their own insecurities and grift and fled like they saw their own scam and found themselves in it.
> Could they have raised back money by selling shares and return to solid ground? Also probably yes.
For the record, I believe that's "definitely yes". As far as I'm aware, they were securing additional funding at the time they put out the announcement that ultimately triggered the run.
Which makes the whole panic that much more frustrating (even if it is understandable from a game theory perspective), and likely would've been avoidable if the CEO hadn't completely f*ked up the messaging.
> Client base which are supposed to be the biggest risk takers in the economy.
A huge part of being a successful risk taker is knowing when to get out. Make no mistake, SVB was going to collapse eventually. Too much of their deposits were startup slush funds that will be withdrawn in the next few years as they struggle to raise money.
See, that's what I started thinking as well. Except banks aren't startups. Banks actually make more money during high interest environment, and they don't need to have increasing deposits to stay alive (that's wrong projection from crypto grifters).
If they had cash injection, they could still plan for reduced client deposits. They don't need their deposit base to grow to stay alive. That's startups projections.
> Banks actually make more money during high interest environment
SVB was not in a position to capitalize on raising rates. All their money was stuck in those low rate bonds and mbs's. If they want to get in on those higher rates they would need their deposits to increase, but they have been and will continue to decrease. They tried to raise money, no one gave them any because their book was underwater.
Again you're confusing bank and crypto. They wouldn't need to have their deposits increase. They would need to increase their capital. They weren't underwater before the bank run, they were undercapitalized.
Which would mean that whoever would enter, would get a big chunk of their stock, but he would still have a good deal. Banks don't need increasing or decreasing deposits. They need stable and predictable deposits.
They know how fast you burn cash, so they know what flows to expect from you and how much of your money they get to invest and for what duration. SVB failed to predict the Fed, but there's no way they survived this long without knowing how to plan around cash burning startups, that's their bread and butter.
What made finding a buyer impossible is that their deposit base showed their unpredictability. And they have done tremendous damage to startups and banking relations after this. Finding banks is going to be much harder as a startup after this debacle, whether you're part of this bank run or not.
"The bank run that led to SVB’s collapse was allegedly started by tech tycoon and Republican political donor Peter Thiel.
After SVB’s collapse, journalists and critics have shifted their attention to Thiel, accusing him of pressuring companies to stop funding the bank. It is believed that his actions were the first to ignite the bank run, which prompted California regulators to step in."
> It's actually hilarious that people who were selling sham crypto for billions of dollars got spooked by a bank. As depositors. It's like they projected their own insecurities and grift and fled like they saw their own scam and found themselves in it.
I mostly saw VCs, techies and tech bros here and many HNers and especially YC screaming at the government to save their pyramid scheme of funding for unprofitable startups who failed to read the FDIC insurance deposit limit of a failed bank.
Quite funny to see the techies here panicking all over Twitter and on HN around the collapse.
My impression of the FDIC action was more that Silicon Valley was lucky for being the first domino that nobody wanted to fall. It could have been any industry or sector facing challenges, but the FDIC was primarily concerned with restoring systemic confidence so that they could avoid a more widespread crisis.
That's more (this bank is) "too triggering to fail" than (this industry is) "too big to fail".
If SVB was a later failure in an ongoing crisis, it doesn't seem like the FDIC would have been prioritizing it because of some Silicon Valley connections.
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[ 3.4 ms ] story [ 153 ms ] threadOuch. That's a bit painful to read, because... it rings true, based on conversations I've had over the past few days. My understanding is that a majority of venture-backed startups in the US as well as a majority of venture capital firms all their had their cash balance deposited at SVB. In other words, the federal government just saved the entire US venture capital ecosystem from failure.
Privatize the gains, Socialize the losses.
The corollary is: socialism for the rich, unabashed cutthroat capitalism for the rest of us.
VaaS, Vandalism as a Service.
Only it turns out that "insurance" is a fraud, as it is misrepresented. The premiums are advertised as being for backstopping up to 250k in the account, but it turns out this was a fraud and actually it's whatever arbitrary amount they choose all the way up to the biggest holder in the bank. And when they're finished, they'll assess a "special assessment" which totally isn't a tax, nevermind the licensees have no choice but to pay it.
When has FDIC reimbursed more than the “up to” limit? Everything I’ve read regarding this suggests that this may be moral hazard, at least in the short term. The remaining amount should come from liquidation of the failed bank’s assets or by the acquiring bank, not the FDIC.
In what world do we live in that a government agency can demand a new mandatory fee over the course of a weekend. This whole thing is bonkers.
“The ultimate result of shielding men from the effects of folly, is to fill the world with fools.”
SVB had a short-term liquidity crisis, followed by botching a funding round to solve the crisis (along with some internal issues). They were a relatively small bank whose assets likely would have been gifted to another bank in exchange for covering the liabilities.
I also don't agree that the most prudent and responsible banks bailing out disproportionately depositors at failed banks is beneficial for them or their depositors. It also creates a moral hazard for customers to chase banks with the highest yield risk profile knowing they'll be bailed out by the other actors.
people seeing a bank fail will worry that their own bank could fail, which could lead them to withdraw en masse which will cause their own banks to fail, and so forth. this scenario is tremendously bad for everyone.
>people seeing a bank fail will worry that their own bank could fai
I feel more confident in my bank as it is compared to my bank minus a "special assessment" to backstop depositors at irresponsible banks.
https://www.fdic.gov/news/press-releases/2023/pr23019.html
https://www.federalreserve.gov/newsevents/pressreleases/mone...
It's worth noting it's still unclear if that'll be necessary (it all depends on the level of recovery they can get out of SVB's assets), but the potential is there, and it's hard to deny that, if that is necessary, those costs will ultimately be born by everyone as the banks pass those costs along.
The idea that there won't be losses here is a little laughable. If their assets were so solid then some other bank would happily have written a loan with them as collateral. SVB transparently couldn't get financing, so they had to sell a bunch of stuff last week and booked a $1.8B loss (which is the proximate cause of the bank run).
No, this will end up being a bailout. It'll be obscured enough that people will be able to claim it wasn't. But it is.
the deficit left after auctioning off SVB's assets will be raised from other banks. the FDIC/treasury/Fed are not going to just pay for it out of pocket.
HN readers should be acutely aware of this as being entrepreneur-savvy. If your costs go up (unexpected FDIC assessment) you either are immediately less profitable, or you raise prices and past the cost to your customer. Banks are the Chris Paul of passing costs on to their customers.
tl:dr new fees for banks is increased fees for customers.
The federal reserve denied inflation was real for so long, signaling to everyone that it was safe to buy US Treasuries, then suddenly and aggressively started raising rates.
And wasn't it the federal government regulators who are responsible for ensuring that banks are not taking on excessive risk? Are they not to be trusted, and must every depositor perform a deep-dive due diligence on their bank and continuously do so in order to make sure their money is safe while deposited in a bank of all places?
No, the Federal government is more like an arsonist who set fire to a building, then showed up to rescue the people inside, taking all the credit, and then shaming those who noticed the smoke and escaped on their own before they arrived.
And if you are going to encourage (and sometimes insist) that your portfolio companies work with a bank, understanding concentration risk is the minimum professional standard you should be held to.
Every other industry understands what fdic insurance is and is not. Competent CFO and corporate treasurers manage their counterparty risk as part of their job. It’s either immaturity, incompetence or entitlement that makes SV think this isn’t their problem.
Nonsense.
>The federal reserve denied inflation was real for so long, signaling to everyone that it was safe to buy US Treasuries, then suddenly and aggressively started raising rates.
The Fed was issuing forward guidance in 2020 that it planned to aggressively raise rates. By 2021, my dog could have told you that this was going to happen.
>And wasn't it the federal government regulators who are responsible for ensuring that banks are not taking on excessive risk? Are they not to be trusted, and must every depositor perform a deep-dive due diligence on their bank and continuously do so in order to make sure their money is safe while deposited in a bank of all places?
SVB spent a lot of money on lobbying to keep themselves small enough (by raising the limits) to not have to get the full brunt of regulations. (https://theintercept.com/2023/03/11/silicon-valley-bank-used...)
>No, the Federal government is more like an arsonist who set fire to a building, then showed up to rescue the people inside, taking all the credit, and then shaming those who noticed the smoke and escaped on their own before they arrived.
Makes sense that you don't know the difference between the Federal Government, the Federal Reserve, and the FDIC though.
FDIC is not part of the government and I never said it was, but it does work closely with them. I'm not sure what your point is.
As for your claim that the the "fed was issuing forward guidance in 2020", this says otherwise, from 2021 even:
Federal Reserve calls inflation "transitory" as it keeps interest rates near zero https://www.cbsnews.com/news/interest-rates-inflation-federa...
Totally SVB's fault.
They knew that there were risks in their strategy and went ahead with it, rather than hedging and forgoing profits. It’s not the feds job to make policy on the basis of how one bank is trading.
SVB was financially mismanaged by its leadership. They then handled the communications around their poor financial position very poorly. This lead to the immediate cause of the banks collapse, a textbook bank run.
So, technically yes? The depositors who pulled their money were the immediate cause of the failure if we’re being simplistic. They pulled out a quarter of the deposits in a couple of days, no bank is going to be able to withstand that.
SVB executives did NOT have to load up on high-duration bonds! They were under no obligation to do that.
They CHOSE to do it because they wanted to increase interest income and earnings in the short run.
They could have easily purchased a lower-duration mix of bonds. Instead, they gambled the bank on a bet that long-term rates would stay at historic lows.
Once they made that bet, they could have easily hedged it every year, at a cost. Instead, they chose not to spend any money on hedging.
The federal government did not cause SVB's failure. SVB executives caused it.
Don't you understand the difference between deposit holders (customers) and the executives and investors in the bank?
But you're blaming the federal government for something the executives did voluntarily!
Please don't change the argument. I didn't say anything about depositors in my response.
The federal government did not cause this. SVB executives did.
Please don't make strawman arguments.
Your arguments seem to be motivated by ideology, as opposed to facts and reasoning, so this will be my last comment on this sub-thread. Goodbye.
https://www.wsj.com/livecoverage/stock-market-news-today-03-...
https://theintercept.com/2023/03/11/silicon-valley-bank-used...
https://www.businessinsider.com/anti-woke-bank-backed-peter-...
It was actually the raising of 10y long term rates (which are not controlled by the Fed) which caused the value of SVBs MBS to fall. That in turn is mostly affected by inflation expectations.
These days it's largely the mantra that if you can't find a way to pass risk and costs off, you're incompetent at your role. We've learned to optimize risk away from the reward system and made it socially and culturally acceptable. Before, it was less accepted, hence the narrative. Anymore, people don't even paint the facade.
Dataset needed.
I think that's very suspect given the behavior of the VC set. Altman said he was going to write a few loans ("six figure" ones, even! That's, like, more than a car loan!), but the "whiny Calacanis types" were absolutely the rule, not the exception.
What has people so upset is exactly what the article is pointing out. The very set that claimed so loudly to be Brave Superheroes taking the risks that no one else could tolerate turned out to be outrageously risk-averse when faced with actually losing their own money.
And I think that calls into question the whole venture capital business model. It's not what we thought it was. At the top, it was a cartel-run gravy train, squeezing investment dollars from downstream investors and turning that into income for the partners at the big players.
The $10-20 billion in bailout sounds like a lot but it's not much compared to the market cap that banks are losing. Charles Schwab alone lost 30-40 billion in market cap because of SVB and bounced back up 10-15 on the bailout. The Fed action was to protect banks. A bunch of tech bros getting bailed out was a side effect of that.
I am sort of a silicon valley hater myself, but I agree that SV is not the only party to blame, not should it take the lion's share of the blame. SV did what SV does - take big risks. It did not help that the federal reserve help turbo charge risky investments via extraordinarily accommodative monetary policy.
To blame SV alone is to ignore a bigger problem, which is the fed.
"The Fed" (singular) almost always, but especially in this context, means the Federal Reserve.
"The Feds" (plural) usually refers to some or another branch of federal law enforcement, especially the FBI. It occasionally refers to a non-law enforcement federal agency.
SVB's problem wasn't just buying government bonds.
The other problem SVB had was a homogenous customer base that had highly correlated behaviours. In particular, during the COVID boom, their customers collectively raised a ton of money and created a huge pool of deposits for SVB. And then when that money dried up, that turned into net outflows.
And these behaviours were correlated, both as a group, but also critically with... you guessed it... interest rates. Which means as bond values were dropping, they were simultaneously seeing a major change in their cashflow profile, and the combination of the two is what led to a liquidity crunch.
That just isn't happening at other, more diversified banking institutions.
Even if it was true that they had blown their whole wad, it would be lawful. The systemic risk exception would allow that.
> Another couple banks have problems like this and they’ll be telling us that we need to turn on the munny printer to save them.
No, the funding mechanism is well-defined and does not involve monetary policy. (Its even fiscally neutral, so it doesn’t even involve the monetary effects of non-neutral fiscal policy.)
I'm not saying we should be going to a commodity money, but if we were using a physical commodity as money (as in the commodity is physically in the coin, not notes representing the commodity) that were hard to mine more of, I'm not sure this kind of redistribution would be so practical.
The simple answer is you can't crank up the printing press and print money. That's not how it works.
Did SVB lose money and made bad bets? Yes. Could they have raised back money by selling shares and return to solid ground? Also probably yes.
What made this completely fatal is their client base. Client base which are supposed to be the biggest risk takers in the economy. Fled away at record speed. The burners of billions of dollars, fled away from quite moderate risk bank (moderate relative to their own risk profiles). That has been there for 40 years.
It's not people who are unfamiliar with raising money. It's not your common people who somehow started a bank run.
It's a small and connected group, that could communicate exaggerated risk to everyone and flee at record speed. Which is why I don't buy their innocent claims at all.
It's actually hilarious that people who were selling sham crypto for billions of dollars got spooked by a bank. As depositors. It's like they projected their own insecurities and grift and fled like they saw their own scam and found themselves in it.
For the record, I believe that's "definitely yes". As far as I'm aware, they were securing additional funding at the time they put out the announcement that ultimately triggered the run.
Which makes the whole panic that much more frustrating (even if it is understandable from a game theory perspective), and likely would've been avoidable if the CEO hadn't completely f*ked up the messaging.
A huge part of being a successful risk taker is knowing when to get out. Make no mistake, SVB was going to collapse eventually. Too much of their deposits were startup slush funds that will be withdrawn in the next few years as they struggle to raise money.
If they had cash injection, they could still plan for reduced client deposits. They don't need their deposit base to grow to stay alive. That's startups projections.
SVB was not in a position to capitalize on raising rates. All their money was stuck in those low rate bonds and mbs's. If they want to get in on those higher rates they would need their deposits to increase, but they have been and will continue to decrease. They tried to raise money, no one gave them any because their book was underwater.
Which would mean that whoever would enter, would get a big chunk of their stock, but he would still have a good deal. Banks don't need increasing or decreasing deposits. They need stable and predictable deposits.
They know how fast you burn cash, so they know what flows to expect from you and how much of your money they get to invest and for what duration. SVB failed to predict the Fed, but there's no way they survived this long without knowing how to plan around cash burning startups, that's their bread and butter.
What made finding a buyer impossible is that their deposit base showed their unpredictability. And they have done tremendous damage to startups and banking relations after this. Finding banks is going to be much harder as a startup after this debacle, whether you're part of this bank run or not.
"The bank run that led to SVB’s collapse was allegedly started by tech tycoon and Republican political donor Peter Thiel.
After SVB’s collapse, journalists and critics have shifted their attention to Thiel, accusing him of pressuring companies to stop funding the bank. It is believed that his actions were the first to ignite the bank run, which prompted California regulators to step in."
https://lifestyleug.com/peter-thiel-byrne-hobarts-newsletter...
All while screaming "bank run", which was a clear signal from them to the Fed that they should step in.
I mostly saw VCs, techies and tech bros here and many HNers and especially YC screaming at the government to save their pyramid scheme of funding for unprofitable startups who failed to read the FDIC insurance deposit limit of a failed bank.
Quite funny to see the techies here panicking all over Twitter and on HN around the collapse.
That's more (this bank is) "too triggering to fail" than (this industry is) "too big to fail".
If SVB was a later failure in an ongoing crisis, it doesn't seem like the FDIC would have been prioritizing it because of some Silicon Valley connections.