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Bank run on Silicon Valley Bank
- marcopicentini 4y agoCrypto is going to have effects on traditional markets.
- elevenoh 4y ago[dead]
- colesantiago 4y agoIs this an incoming tech crash?
- adam_arthur 4y agoMore likely a credit event affecting low quality debt/companies. Usually these trigger broader recessions Will be hard to raise for startups without compelling profitability metrics, though
- pjc50 4y agoIt's more slow dominoes from the crypto crash, I suspect. I'm not worrying about contaigion yet, these guys aren't exactly Lehman.
- throwaway20222 4y agoAnecdotally about SVB and crypto; I really wanted to put my funding round assets into Silicon Valley Bank for my last start up. However, when I was speaking to their bankers, I mentioned that there was a possible element of the platform that would be Web3 based. The SVB team immediately paused my application and insisted that they do a deep dive into all of my investors, my bank accounts, and my pitch decks. My pitch deck did not include materials about web3 since it was so tertiary to our core strategy, and this discrepancy between what I had told them and the paper materials was such that it raised enough of an alarm at SVB that the refused to take my deposit. They were really concerned about anything web3 so I wonder if they limited their exposure. Or maybe it was just us they didn’t like.
- popcalc 4y agoI would have done the same.
- capableweb 4y agoProbably they just perform more extensive due diligence because of the market, as cryptocurrencies are more risky. I know of plenty of cryptocurrency companies that use SVB.
- auntienomen 4y agoWeb3 is probably a red flag for aml/kyc.
- paulgb 4y agoI think it's more that the crypto crash and SVB liquidity issues are dominoes from the interest rate environment. SVB wasn’t particularly deep in crypto AFAIK, although if I’m remembering correctly I think I once met someone on a specifically crypto-focused team there. (It stands out in my memory because I consider it a minor red flag when dealing with banks.)
- tekla 4y agoDoubt it. FTX has shown crypto is completely irrelevant to the rest of the economy.
- antibasilisk 4y agoFTX collapsed in 2022, I don't think we should be so quick to dismiss contagion given we're still watching the fall out. The subprime mortgage crisis didn't happen overnight.
- pvarangot 4y agoIf it's tech that was giving out USD loans and accepting crypto as collateral yes maybe.
- dgrin91 4y agoFirst silvergate, now SVB. Is this going to be a wave across the banks?
- krasin 4y agoToday, Credit Suisse delayed its 2022 report after the last minute call from SEC: https://www.cnbc.com/2023/03/09/credit-suisse-to-delay-its-2022-annual-report-after-a-late-call-with-the-sec.html https://www.cnbc.com/2023/03/09/credit-suisse-to-delay-its-2... I don't know what to make of it.
- thedangler 4y agoIt's probably no related to swaps that expired..... Better pick themselves up by their bootstraps and quit the avocado toast.
- pclmulqdq 4y agoIt could be routine (no more news from banks that are in trouble please), but the SEC does have access to the numbers in the filing since it goes into EDGAR about a month before the announcement.
- yelling_cat 4y agoCredit Suisse is facing liquidity issues and tarnished credibility after a rash of scandals and screwups, see https://www.reuters.com/business/finance/spies-lies-chairmans-exit-credit-suisses-scandals-2022-01-17/ https://www.reuters.com/business/finance/spies-lies-chairman... for a summary. From your link it looks like their finance reporting in recent years is now under question as well. It doesn't look related to what happened at SVB or Silvergate.
- throwaway1777 4y agoCredit suisse has been on the rocks for a year
- lotsofpulp 4y agoCredit Suisse has been on the rocks for over a decade. Widely considered to be one of the most mismanaged large bank, and I assume propped up by Switzerland’s government for appearances’ sake. Compare their numbers to any other investment bank. https://www.macrotrends.net/stocks/charts/CS/credit-suisse-group/net-income https://www.macrotrends.net/stocks/charts/CS/credit-suisse-g...
- carom 4y agoSpecific issues with SVB, not systemic. [1] 1. https://techcrunch.com/2023/03/09/silicon-valley-bank-firms-reactions/ https://techcrunch.com/2023/03/09/silicon-valley-bank-firms-...
- adam_arthur 4y agoIt was specific at Silvergate too. Unfortunately there are far too many optimists out there managing money who chose not to play it safe. Thus, despite being idiosyncratic, it can still be a systemic problem Why these companies didn’t issue shares at the outrageous/nosebleed valuations they were at a year ago? Truly a mystery
- deleted 4y ago[deleted]
- marcosdumay 4y agoThat's the second not systemic failure that makes the HN frontpage today.
- johnbellone 4y agoAll due respect, nah, nope. Today I learned that many startups park their money at one bank. I hope that isn’t true. If it is I’d be moving my funds regardless right now.
- justinzollars 4y agoWhat do they do if this is their only account?
- johnbellone 4y agoYou better hope you're able to move your funds this morning.
- yieldcrv 4y agoOkay so every bank faces the same vulnerability, which is that their bond portfolio has suffered major losses The market was made aware of how deep the losses are, as this is not usually reported in investor disclosures and the bonds are usually held to maturity thereby not being subject to losses in their notional value ANY bank with volatility in customer deposits is vulnerable to these losses as they have to sell the bond at its current value at a big loss to cover the customer withdrawal
- chollida1 4y agoShares just fell 60%, not this year, but today, which is the biggest drop I can think of. This is after a $1.25B common stock offering in an attempt to shore up its cash reserves. Keep in mind they are raising cash by selling equity with their shares at $100 when they were at $500 a less than a year ago. That's pawn shop levels of selling. To say they are in trouble is like saying it would be tough to sell a house that is currently on fire. Rumour was that SIVB got alot of the old SI deposits when it became clear that they were going bankrupt. It looks like both SI and SIVB will go bankrupt due to the same two causes. The one two punch of: - loan duration mismatches(short term deposits bet against long term loans). More specifically to get some interest income you tend to have to either go to riskier assets, not an option for bank, or longer duration. Unfortunately this locks you into rates for a long term. As everyone knows, rates have really gone up quickly in a short duration. This makes your long duration assets drop alot in value so you can't easily liquidate them to move to new higher paying assets. Normally this would be fine as you can ride out the duration of your long term bets without losing money, except for the second issue below. - and a deluge of withdrawals meaning you can't just ride out your long term loans. The difference here is that while SI will go away, someone will probably buy SIVB. It's just that with FDIC only protecting the first $250,000 in deposits you don't want your corporate money at the bank. And you certainly don't want to wait for FDIC to step in and make you whole. There is a potential third issue with SIVB in that as the bank of alot of silicon valley startups they hold a lot of warrants for those companies on their balance sheet. And those have really been written down alot lately. Stripe, a great company by most measures had its valuation cut in half according to a post from yesterday so you can imagine what the average startup's valuation is worth if strip is being cut in half. SIVB got hit by a lot of different issues all at once but they all had the same root cause, large interest rate hikes in a quick timeframe. The other commonality between SIVB an SI is that both banks heavily concentrated on one sector only, for SI it was crypto and for SIVB it was silicon valley. For each bank they ran into interest rate hikes at the same time that the sectors they relied on took a huge dive in value. Diversification is important.
- adam_arthur 4y agoRe: your duration point, these loans can be sold, either on the open market or a private exchange. Calling it a duration mismatch is a bit misleading. They took on duration risk and their loans lost value is more accurate. Otherwise they would just sell the loans (which they stated they did, but clearly it wasn’t enough thus the equity raise)
- exhibitapp 4y agothis is definitely happening (context series A founder from t1 VCs) Every VC is talking to their portfolio companies right now about this. Text/slacks/emails. Half of them screaming panic telling founders to pull money out, the other half holding the line to stay strong Most founders i know arent taking the risk and moving money...
- justinzollars 4y agoWhat if this is their only bank account?
- jbverschoor 4y agoWouldn’t be surprised if some tech or crypto whales stated this, to show that banks aren’t more “save” than crypto
- recursive 4y agoDon't think it will work. Banks accounts are federally insured.
- jbverschoor 4y agoHere in Europe is's only 100k per account per holder. (Used to be 20K in NL)
- recursive 4y agoHaving 100k in a bank account seems to be well into 1%-er territory. I don't think that's going to do much for the alleged PR campaign conspiracy.
- rootusrootus 4y agoNah, especially among older folks, 100K+ in a bank account is fairly common. My mom does, my grandmother did, my stepmother does, and trust me none of these folks are 1%ers or even close.
- recursive 4y agoHuh. Well, I'm surprised. $100k in a bank account is earning next to nothing, and is probably (opportunity) costing at least $5k/year. I would have assumed that people that can afford not to care about that would be in the highest tiers of wealth.
- postalrat 4y agoGotta keep some petty cash for small purchases.
- cdibona 4y agoThey're not allowing approval of wires via SMS or their app, and no one is picking up the phone there and most numbers are fast busy. Smells deeply bad. I had an account at a bank that went under a few decades ago and it took a while for ... bofa? to pick up the pieces.
- pera 4y agoYeah sounds like textbook bank run or cryptocurrency exchange collapse, it's bizarre that this kind of things keep happening every few years.
- Terretta 4y agoIt's bizarre a recurring thing recurs? Particularly when 'venturing' into areas more profitable because of more risk? Here's their loan risk analysis as of EOY: https://i.imgur.com/ZWG157R.jpg https://i.imgur.com/ZWG157R.jpg Don't miss 14% to "innovation economy influencers"…
- pclmulqdq 4y agoWhat's bizarre is that this is a particularly big bank to be going under. Most of the ones that die are tiny because banks have a real economy of scale here. Lehman and Washington Mutual were truly exceptional cases in the 2008 crisis, and SVB may be right there with them in a few weeks.
- Asparagirl 4y ago2008 also had IndyMac and Wachovia[1] and a whole lot of regional banks, which were not small either. [1] which technically didn't fail but had its retail banking operations forcibly absorbed by Citigroup in an overnight shotgun wedding officiated by the FDIC, but hey who's counting
- pclmulqdq 4y agoYou can also add Bear Stearns to that list. Another "rescue" merger of a large-cap bank.
- rippercushions 4y agoFrom https://techcrunch.com/2023/03/09/silicon-valley-banks-shares-are-tanking-as-a-mess-unfolds/ https://techcrunch.com/2023/03/09/silicon-valley-banks-share... : Becker said the bank has “ample liquidity” to support its clients “with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge.” Pro tip: if you're CEO of a bank that's facing a bank run, don't tell the press that you'll be in trouble if everybody takes their money out.
- anon291 4y agoPerhaps I'm overly skeptical, but everyone should know that all banks have the risk of 'if everyone takes their money out, the bank won't be able to make it work', right?
- barnabee 4y agoYes, but if a bank has to remind people of that, it may be a signal it has already lost.
- WJW 4y agoIt's true that all banks have that problem, but for most banks it is not necessary for the CEO to remind everyone of that fact in a press release. The fact that they feel the need to make this statement makes it clear that SV bank is having much higher withdrawals than normal right now.
- cjensen 4y agoIf the Bank is federally insured, it's not a problem that the bank won't be able to make it work. That's why generally speaking bank runs only happen on uninsured banks in the US. SVB is not, as far as I can see, insured and should definitely be careful in their choice of words.
- mikesun 4y agoFDIC only insures up to $250K
- deleted 4y ago[deleted]
- toss1 4y agoSeems like a good opportunity for Mercury. Been using Mercury for a couple of years, as a customer I can recommend their excellent support & services. That said, I know aprox zero of their balance sheet or those of their backing banks Choice Financial Group and Evolve Bank & Trust.
- helsontaveras18 4y agoMercury is great! I bank with them. But I'm not worried about Mercury, I'm worried about their partner bank. Anyone know if Evolve is in a similar situation?
- willmadden 4y agoNot to spread FUD, but a friend of mine shared this with me some time ago. It's a good article. I suggest reading it. https://fintechbusinessweekly.substack.com/p/evolves-problematic-partners-bankruptcies https://fintechbusinessweekly.substack.com/p/evolves-problem...
- toss1 4y agoLooks like the key info is that Evolve is partnered with MANY other services, including some in crypto land and they are having issues, so some VCs were advising people to move money off of Evolve and onto Mercury's other partner, and a bit of that happened. Here's the quote: >>"Multiple VCs, including Sequoia and Craft Ventures, have advised their startups to move funds away from Evolve-backed platforms, resulting in about $200 million being moved off Mercury, according to multiple people with knowledge of the matter. >>Immad Akhund, co-founder and CEO of Mercury, didn’t deny that the funds had been moved and characterized the amount as “not really material,” saying the company has “billions of dollars in deposits across 100K customers and [is] profitable.” >>Akhund characterized the money movement as “primarily folks diversifying, rather than full churning,” by moving funds to Mercury’s other bank partner, Choice, or into Mercury’s treasury management product."
- willmadden 4y ago
- recursivedoubts 4y agoDaily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long. As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time. If they locked deposits for a period of time they could safely (and morally) loan that money out without lying, and, in fact, there wouldn't need to be a reserve ratio at all. Demand deposits should cost a low service fee, since the money can't be safely lent. Yes, I'm a lot of fun at parties, why do you ask?
- deleted 4y ago[deleted]
- s1artibartfast 4y agoMy understanding is that the problem was that the dollars they owned were in US treasuries, as required by law, and the value of those assets tanked.
- jsemrau 4y agoWe used to call that concept matched-funding where I used to work and it was quite an important part of Asset/Liability management within the Risk Management function.
- ianferrel 4y agoDoes that provide a better outcome for society than something like FDIC deposit insurance and the occasional run? Seems like for the vast majority of people it does not. Most banks make enough money to pay their FDIC premiums and some interest on demand accounts and profit for their shareholders, and the few that don't are covered by insurance. That seems way better than having to pay a monthly fee to keep my money safe and liquid. >there wouldn't need to be a reserve ratio at all. Wouldn't there? The bank could still end up with bad loans in excess of their models and require some capital to take the loss before depositors. Or are you suggesting that banks are simply a market maker between depositors and those with loans? That seems even less optimal, societally.
- 4y ago
- dgwight 4y agoI just tried to login to svb.connect.com and it is giving me a popup to scan an QR code from the app. The app now gives me a popup requiring two factor auth (which it hadn’t ever before) with a phone number that I don’t have access to. I luckily don’t have much money in this account. As a bootstrapped founder, what would I need to do to get my money if SVB goes under?
- Danieru 4y agoNPR did a story fourteen years ago covering a real life example: https://www.npr.org/2009/03/26/102384657/anatomy-of-a-bank-takeover https://www.npr.org/2009/03/26/102384657/anatomy-of-a-bank-t... This being a bit different, the most likely scenario will be SVB getting bought on the cheap by a bigger bank. The merger will be pushed by the regulator. Since SVB's root problem is lack of diversification in client basis, a larger bank beings the perfect solution. In such a scenario SVB will continue as a brand, and their website would start working again.
- bagels 4y agoThat's probably the best of the bad outcomes. Hopefully other banks aren't hiding liquidity crunches too, and can actually make the purchase.
- antibasilisk 4y ago[flagged]
- FormerBandmate 4y agoThis destroys the entire economy, making startups and corporations much harder to run to the point of impossibility. Even in countries run on Sharia law, they still find proxies for interest
- ticviking 4y agoThose proxies tend to make the risk and liability much much clearer than usury does. And generally speaking you can’t honestly use those proxies to build financial skyhooks
- brutusborn 4y agoWhats a "financial skyhook"?
- richk449 4y agoAnd where do I get one?
- njarboe 4y agoVCs generally fund startups by giving them funds in exchange for equity, not loans (complicated financial shenanigans aside).
- FormerBandmate 4y agoThey use discounted cash flows to model them, which are dependent on loans as a key component. VCs also use loans themselves from time to time, and their investors can use loans to invest in them.
- 4y ago
- mvial 4y agoThe main limitation is that liquidity risk regulation are not adequate. As recent example shows the reality is that risk is underestimated under the fake premise of accounting rules. Asset liability mismatch is the survival risk for a bank. Once you start creating an imbalance that forces to take action by seliing assets it is just creating a negative cycle. Also now people will ralize that treasury is not risk free.
- ericpauley 4y agoI'm really curious why banks like this are popular in the first place. I get why startups would want to lend from them, but what is the advantage of parking cash in a "startup-focused" bank? The rest of the business is exciting/risky enough, wouldn't you want your banking to be as boring as possible?
- paxys 4y agoPeople care about convenience of locations, ATMs, online experience, customer service, savings rate, (lack of) fees, rewards. The bank's underlying risk profile is irrelevant for the vast majority of customers. If you have <$250K in your account the money is safe either way.
- throwaway1777 4y agoSvb has relatively few normal customers. It’s almost all startups and vcs
- helsontaveras18 4y agoBanks don't understand startups. Startups have no history and just appear out of thin air with millions of dollars in their bank account. And then they proceed to burn tens if not hundreds of thousands of dollars month on month until they die, or get flooded with more millions. That's some weird stuff!! A bank that understands this, knows it's not fraudulent, and makes it easy to withdraw, deposit, get credit cards, give loans/venture debt, has a competitive advantage in this niche but highly lucrative sector—given they can operate with the right risk controls.
- jeron 4y agoSVB has been a great bank for startups, they're no rookie at this stuff considering they've been around for 4 decades. However it seems like their investor communications and PR has been lacking
- dgacmu 4y ago+this. We had BoA offer us a $10k credit card limit when we were discussing keeping over $1m on deposit at all times, simply because we're still running a loss. (And they couldn't figure out how to implement two party control for large transfers). Was a headache. We stayed with SVB.
- deleted 4y ago[deleted]
- kyleblarson 4y agoAnd with the amount of venture debt that SVB issues if more startups start blowing up this could just be the tip of the iceberg.
- grecy 4y ago"All bank stocks are crashing right now" https://www.reddit.com/r/Superstonk/comments/11n1xtw/all_bank_stocks_crashing_right_now/ https://www.reddit.com/r/Superstonk/comments/11n1xtw/all_ban...
- nickrubin 4y agoGetting "Application is not available" now at https://connect.svb.com/ https://connect.svb.com/
- yabones 4y agoI guess that's what bank runs look like in the 21st century... Just 503 errors instead of lineups and riots.
- bick_nyers 4y ago404, money not found.
- lisashm1234 4y ago[flagged]
- cs702 4y agoIn theory, a bank can borrow reserves from/via the Fed to fulfill redemption requests, so long as the Fed and other lenders in the financial system think the bank has a sound balance sheet (i.e., its assets, including the loans it has made, are truly worth more than its liabilities, including the deposit balances it owes to depositors). The Fed can never run out of money to lend; it creates it out of thin air to lend them as needed with the push of a button. If a bank does get in trouble, it's usually because its balance sheet is not sound (i.e., assets are not really worth more than liabilities). In the case of SVB, a big portion of its assets are loans made to startups. Who knows how many of those loans are at risk of default in this environment? Simultaneously, many of SVB's depositors are also startups that at the moment can't raise more capital and thus have been withdrawing money from their bank accounts to fund their cash burn. I suspect SVB can't sell its doubtful loans, or use them as collateral, so it has been forced to sell high-quality long-duration assets purchased when rates were much lower, recognizing large losses.
- thehumanmeat 4y agoTell me, when is the last time you went to the grocery store and they accepted a bank reserve? Bank reserves are useless. https://en.wikipedia.org/wiki/Eurodollar https://en.wikipedia.org/wiki/Eurodollar
- simple-thoughts 4y agoPeople downvoting you are clueless. Different assets have different moneyness depending on how they can be used. A credit card limit is more moneylike than bank reserves are.
- plonk 4y agoSaying that "bank reserves are useless" is clueless. This bank needs liquidity and borrowing from the Fed would provide it.
- boringg 4y agoAll they need to do is pause for 5 days and get past the whirlwind of activity right now and let saner heads prevail.
- grumple 4y agoThis is like the prisoner's dilemma in real life. Best case situation is for no-one to withdraw. Reporting suggests SVB has a lot of reserves, but them trying to raise money suggests otherwise. Weird.
- dkrich 4y agoWhich is why halts/bank holidays can be an extremely effective way of stemming a panic.
- rvz 4y agoPerhaps it is the beginning of the end of the VC jenga pyramid scheme. We'll see how many unprofitable startups are exposed and caught in this contagion.
- roseway4 4y agoRumors that sharks may be circling: https://techcrunch.com/2023/03/09/silicon-valley-bank-shoots-self-in-foot/ https://techcrunch.com/2023/03/09/silicon-valley-bank-shoots...
- boringg 4y agoReminder - SVB is small bank - highest market cap was 50B -- trading at 5B. Low level of contagion. If it does fail - definitely will be felt by start ups with cash at the bank.
- bink 4y agoI think you're probably right, but "Low level of contagion" sounds exactly like what we heard in 2007.
- deleted 4y ago[deleted]
- berkle4455 4y agoInflation is just transitory don't worry
- boringg 4y agoLehman brothers had over 640 B$ in assets. Not even remotely comparable.
- celestialcheese 4y agoSVB has ~$200b before today. 30% of Lehman, but not nothing.
- heartbreak 4y agoAdjust it for 2007 dollars.
- loeg 4y ago$1 in 2007 is about $1.40 today. (If Lehman had $640B in 2007 dollars, that would be ~$900B in 2023 dollars.)
- sanderjd 4y ago
- EamonnMR 4y agoSo is this related to Silvergate?
- ttobbaybbob 4y agoits not related, but its the same problem. They took the deposits and bough "safe" bonds (eg treasuries). Which they're allowed to carry on their books at cost, even though their market price drops as interest rates rise. But in both SVB and silvergates cases the drop in the market value of their assets coincided with an increase in withdrawals. They were forced to sell some of these bonds to fund withdrawals, requiring them to realize the market price. The accounting distorted the value of their assets to an extent, and the withdrawals laid that distortion bare
- deleted 4y ago[deleted]
- sophacles 4y agoBank CEO: "That’s my ask. We’ve been there for 40 years, supporting you, supporting the portfolio companies, supporting venture capitalists." I wonder how many people's lives and livelihoods have been upended by this trash saying "it's just business"? Now he wants people to be nice to him? Better idea - go live on the street - it's just business.
- ttobbaybbob 4y agowe're they specifically unsophisticated in the way they bought treasuries/other bonds? One could look at the zero risk weighting of treasuries and buy only those to satisfy capital requirements, but you'd think it would be obvious that you would end up with more exposure to interest rate risk than is prudent. Or is this truly such an improbable swing in interest rates coupled with demand for withdrawals that it is reasonable that they aren't expected to anticipate it ?
- quickthrowman 4y agoTreasuries only have zero risk if you hold them to maturity, otherwise they’re subject to interest rate risk.
- nico 4y agoSVB CEO to VCs: please don’t tell anyone to withdraw their money or we could be in trouble VCs: [immediately texting after hearing the above from the CEO] attention all portfolio companies, SVB seems to be in trouble, don’t keep your money with them
- raincom 4y agoAlso VCs should start shorting the stock
- zht 4y agoIt would be surprising if VCs exhibited any original thought, after watching them fomoing into one thing after another
- vgatherps 4y agoYou very much want to be first out if there’s a bank run, the behavior here is very rational. It’s also what makes having any sign of balance sheet weakness a death spiral, as anyone who knows runs for the exits, making things even worse.
- strbean 4y agoSomeone at Founders Fund had an original thought (start a bank run at SVB). Everyone else FOMOd after them. Waiting to see how this shakes out for Peter Thiel.
- samwillis 4y agoOngoing discussion here: https://news.ycombinator.com/item?id=35086336 https://news.ycombinator.com/item?id=35086336
- n0us 4y agoI almost signed up for them via Stripe Atlas recently but hadn’t pulled the trigger yet. Glad I didn’t
- newaccount2021 4y ago[dead]
- mmastrac 4y agoSVB was historically such a weird bank - it was the most "famous" tech bank, perhaps solely because of its name - but yet it was so utterly behind in the technology it used for _years_.
- bink 4y agoBehind other banks or behind tech companies? Every bank I've ever used is about 10 years behind when it comes to tech.
- airstrike 4y ago10 is a very generous number
- AustinDev 4y agoUSAA is and has always been leaps and bounds ahead of other banks in terms of tech.
- loeg 4y agoI like USAA and bank with them but their tech is often worse than other banks. Their website is often slow or pages fail to load. Their app frequently crashes/hangs if you leave it in the background and then try to use it again. They have overly sensitive anti-fraud detection that prevents essentially all (desired) international transactions. They have weird low transfer limits ($5000/day) for outgoing ACH initiated on their end and outgoing Zelle ($1000/24hr). (If you initiate the ACH transfer from the receiving bank, the $5000 limit doesn't apply and they'll process the transfer normally.) Of course, the reason I bank with them at all is they had mobile check deposit in like 2011 or 2012, which was ahead of the game at that point.
- TMWNN 4y ago>SVB was historically such a weird bank - it was the most "famous" tech bank What would you name as its peers? I've heard First Republic. What about Bank of the West? >perhaps solely because of its name It is a killer name, after all. I bet the First Republics of the world wish that when they were started however many decades ago, their founders had the foresight to name them "High-Tech Bank" or "Sand Hill Bank" or somesuch.
- CKMo 4y agoIs this related to fractional reserve banking?
- cygnus2512 4y ago[dead]
- vonnik 4y agoSVB is an institution that has supported a lot of businesses in tech. There are a lot of harmful clowns out there fearmongering. They should stop. The failure of a bank like this, if it occurs, would be bad for a lot of people.
- taytus 4y agoWe have been banking with SVB for the last 5 years. Not even once, they have done something for us.
- vikramkr 4y agoI mean, you just said you backed with them, so clearly they provided you a service, one that other banks may have been hesitant to (traditionally)
- taytus 4y agoWhy would other banks be hesitant?
- zht 4y agoYou don’t understand why other banks may be hesitant to work with startups?
- vikramkr 4y agoStartups have weird financial flows and risk profiles. A company shows up out of nowhere with a bunch of money and then starts screaming towards bankruptcy. Sometimes it crashes and is gone, other times suddenly a huge amount of money shows up out of nowhere and is wired into the account. And then the company starts screaming towards bankruptcy again, and then rinse and repeat. And sometimes they just go away forever and other times they randomly become a profitable business and suddenly mutate into a normal company with net income and stuff and go public. And also the random huge sums of money these companies get seem to be correlated, and you don't know whether you're in 2021 when all of these companies are going to be getting massive cash infusions left and right, or in 2023 when it just suddenly stops for some reason - even though those businesses don't actually look any better or worse. SVB claimed to be the expert in handling that super weird risk profile, and you can see how badly they misjudged that risk with their collapse.
- influx 4y agoI urge you to withdraw your funds before they collapse. These are the same frauds that closed my account because they didn't like the business I was in. Enjoy bankruptcy you frauds.
- deleted 4y ago[deleted]
- influx 4y agoJust a note that I was downvoted a day before the collapse when you could possibly have withdrawn your funds.
- bagels 4y agoIn retrospect, it seems pretty bad to bank somewhere that is tied to one industry for precisely the reason that when the industry starts facing trouble, the money disappears, and doubly so for our risky industry.
- riskneutral 4y ago> In retrospect, it seems pretty bad to bank somewhere that is tied to one industry for precisely the reason that when the industry starts facing trouble, the money disappears, and doubly so for our risky industry It's baffling that banking regulators in the US allow such a racket to exist in the first place. It would be as of "Silicon Valley Insurance Co" were to insure every home in the Bay Area and no other homes anywhere else. The chances of large insurance claims all happening at the same time (the insurance company equivalent of a "bank run") would be unreasonably high if all of the risk were to be concentrated in a single town in an earthquake prone area. Now there are reasonable solutions to diversify that risk away in the insurance industry, such as the reinsurance market. The US has a strange history of having large numbers of small, independent banks. In other countries (in Canada at least), banking is an oligopoly - the regulator effectively limits the number of banks that exist in the country to only a handful and only a few very large ones. This has the benefit of forcing banks to be large and diversified, thus avoiding the phenomenon of a small bank run or two happening every year like they have in the US. It would appear that the US system is also prone to occasional larger bank runs, like say Lehman Brothers or Silicon Valley Bank... The advantage of the US system is the lack of regulation promotes entrepreneurship and investment, which is something systematically lacking in a country like Canada. It might also turn out that, in retrospect, it was a bad for the Silicon Valley venture capital industry to be so heavily reliant on a single, non-diversified, local bank. I can't help but wonder how much of a role the VC industry played in this, for example what ever happened to the billions of dollars that the VCs raised for crypto startups? Is Silicon Valley Bank liquidity crisis a domino effect of the cascading bankruptcies and market crashed in the crypto racket?
- chii 4y ago> in an earthquake prone area. which is why insurance companies generally don't insure against earthquakes. The gov't doesn't need to come and nanny the company to tell them not to do something. These specialty banks like SVB are servicing accredited entities, who should have enough sophistication to know what risks they are taking putting enormous amounts of deposits into a single bank.
- yumraj 4y agoTime to buy?
- jo6gwb 4y agoFront page of svb.com says "Proactive guidance for the long run" Sometimes the headlines write themselves...
- gsibble 4y agoCan someone explain to me why high interest banks make VC lending so much more difficult to acquire? I genuinely can't wrap my head around it.
- floatinglotus 4y agoHow does a CEO of a bank say something like this publicly? He signed their death certificate.
- Animats 4y agoSmall depositors (under US$250K) can get paid off quickly if the FDIC takes over, but larger ones may have to wait until SVB's loans are sold off to other banks for cash. The collapse of a solvent but illiquid bank is well worked out in the US. Here's a 60 Minutes episode where they got to cover the process.[1] It's not too bad for the customers, but it is really bad for bank management. The 60 minutes video shows the moment when the FDIC people show up and tell the CEO he's finished. [1] https://www.youtube.com/watch?v=TAE8i40A5uI https://www.youtube.com/watch?v=TAE8i40A5uI
- kesor 4y agoThey are insolvent. There is no money there, only margin on debt. https://twitter.com/FedGuy12/status/1634031134505066496 https://twitter.com/FedGuy12/status/1634031134505066496
- tito 4y agoSVB is our bank, I got in touch with a member of the senior team there and got the following message to share. (My own interpretation is I'm comfortable and I'm not planning to pursue it further at the moment): As you know, we are limited in what we can share until the transaction formally closes next week but in the meantime I’m attaching concise information on the strength of our business, based on our recent mid-quarter update and financial announcements. Our Moody’s Deposit Rating is Prime Our credit ratings are also investment grade SVB took action this week designed to: Strengthen our financial position Enhance profitability Improve financial flexibility now and in the future Our financial position enables us to take these strategic actions SVB is well-capitalized Has a high-quality, liquid balance sheet Peer-leading capital ratios Even before these actions: We had ample liquidity and flexibility to manage our liquidity position SVB has one of the lowest loan-to-deposit ratios of any bank of our size The improved cash liquidity, profitability and financial flexibility resulting from the actions we announced today will bolster our financial position and our ability to support clients through sustained market pressures.
- Havoc 4y ago>Moody If the subprime crisis taught us anything it was that ratings go for marginally usefull to utterly useless the second sht gets real and there is actual stress in the system
- bufo 4y agoPerfectly put
- bob_theslob646 4y agoLet's see how credible those credit ratings are over the next few weeks or so
- plonk 4y agoWhy does everyone make these huge generalizations based on one crisis that happened 15 years ago? The problem in 2008 was that splitting an investment into a senior "low-risk" one and a higher-risk one led to higher ratings overall than the initial investment warranted. Do you have any evidence that something like this is happening here, or that this is a systemic problem?
- JCM9 4y agoThis whole thing will go down in history as a case study in how not to communicate and lead in a crisis. The bank’s leadership made some bad financial decisions but then scored a massive “own goal” in how they communicated all that to the market and their customers.
- 100pctremote 4y agoWhat an incredible buying opportunity
- misssocrates 4y ago"It is possible today we found our Enron." https://twitter.com/michaeljburry/status/1633972243909705730 https://twitter.com/michaeljburry/status/1633972243909705730 Is it that bad?
- thepasswordis 4y agoMichael Burry has predicted all 40 of the last 1 recessions.
- smt88 4y agoThe scale of SVB's downfall won't be close to Enron's as far as I can tell. I think Burry is referring to SVB being the first domino in a long row that's going to fall.
- grensley 4y agoI don't really understand why anyone would keep more than the FDIC insured amount in a bank. Also, I'm constantly fascinated by how many smart people fundamentally don't understand the economics of banking and how these (often private) institutions create and destroy money.
- arockwell 4y agoSVB has billions of dollars in client funds. Once you start having cash in the millions it isn’t practical to have all of it FDIC insured.
- grensley 4y agoMaybe it's just because I haven't managed that kind of money on behalf of an organization, but it seems like you would get super paranoid about that aspect of things: spread your money between multiple banks, hold low risk assets with capital you don't immediately need, possibly even hold some in a straight up vault.
- cj 4y agoI just received an email from one of our investors, sent to all portfolio companies, advising everyone to transfer all of their money out of SVB at 8:30am tomorrow morning. Investment/VC funds are doing the same (we’re talking many, many billions of deposits lost in a span of a few days). There is a chance SVB will freeze assets while they deal w liquidity crunch which may impact startup ability to pay bills, pay salaries, etc. If you use SVB, transfer your money out now (as in Friday morning at 8:30am), even if it’s to your personal account while you set up a business account elsewhere. This is a serious issue and may result in wide ranging damage to the entire tech industry. SVB is the most commonly used bank by startups and investors. This isn’t media trying to hype a story for clicks, this is a real an major issue.
- thepasswordis 4y agoThat sounds remarkably similar to a crypto exchange blowing up.
- koromak 4y agoits almost like making bets with money you don't actually have yet is a bad idea
- borski 4y agoThis is literally the definition of fractional reserve banking, used by almost every bank worldwide.
- cj 4y agoYou're right, but that doesn't necessarily make it a good thing. As a consumer (or a business client in the case of SVB), how does it benefit you that the bank doesn't simply hold your deposits in a figurative safe somewhere? At a minimum, I wish I could say it benefits us by banking being free. Lending could be opt-in. There could exist banks who charge a premium for simply being the custodian of your money. (These must already exist) Fractional reserve makes money easily available to those seeking money they don't have, at the risk of depositors whose money they're putting on the line. (For better or worse. I'm not for or against it. I'm certain there are massive benefits to the system. But the reality is the average depositor probably doesn't realize their bank deposits aren't actually theirs - and that's why we have the FDIC)
- favflam 4y agoFed should have mandated bigger reserves and done better stress testing before raising interest rates so fast. Anything long duration tanked like 20% in mark to market value. SVB is probably not the last shoe to drop in this story.
- simple-thoughts 4y agoAh yes, the solution is more restrictions on banks to hold exactly the types of assets that are underwater! No, sorry you are wrong. The financial crisis that just started this week is due to banks holding securities that they are required to hold by law - the law considers mortgages and government debt to be safe yet it is now proven (and anyone with basic finance knowledge knew ahead of time) to be extremely unsafe due to interest rate risks. Bailouts incoming!
- ashwagary 4y ago>banks holding securities that they are required to hold by law Not an expert in this area but when distilling everything I understand about this topic, it seems like big banks (too big to fail?) collude with the federal reserve to rob smaller banks (of clients and value) using interest rate games and these "requirements" every x years. If anyone has an explanation as to why that's a wrong conclusion, please share.
- zamnos 4y agoThat's a bit like saying having a door with a lock on your house is a conspiracy to get you to spend money with the door and lock industry. If you squint real hard that kinda sorta looks true, but it ignores the very real protection having a door with a lock on the front of your house actually gets you. Forcing banks to have X amount of reserves in a "safe" investment vehicle should protect them from exactly this kind of problem. The fact that it didn't in this case will be a case study for years to come, and will effect change in FDIC's requirements.
- ashwagary 4y ago
- lend000 4y agoI am interested and a bit anxious to see whether this was one bank's incompetence or a systemic issue caused by unprecedentedly low rates incentivizing cash holders to seek riskier forms of yield. Although, why anyone managing billions of dollars thought it was a good idea to lock up tons of money for a long period when interest rates were nil is beyond me. I'll gladly take their job at merely HALF their salary!
- woah 4y agoAlways knew startups were a scam. This just proves it. I can't believe these tech companies got away with it for so long before the whole house of cards came down.
- alexnewman 4y agoBack in the day, the crypto community would all withdraw capital for the same week to verify what exchanges had it. The better they would do, the more deposits they’d get back the next week. People and companies could never do that safely
- hackerlight 4y agoMy surface-level understanding was the federal government started guaranteeing/ensuring customer deposits in order to prevent bank runs from starting. Why is that not happening here? And if it is why wasn't it enough to prevent a bank run?
- jraby3 4y agoThat’s for personal deposits and limited to I think) $250k. Lots of startups hold a lot more money there and aren’t protected.
- ncallaway 4y agoI don’t think it’s only personal deposits. Corporations, I believe, enjoy FDIC protection up to $250k also. It’s just a much… less impactful amount for the average corporation compared to the average personal depositor
- ncallaway 4y agoFDIC isn’t designed to prevent runs entirely. It designed to prevent runs from having a serious financial impact on retail banking customers, and as such is capped at 250k per depositor per bank. SVB probably has a disproportionate number of its customers being mid to large businesses, for which FDIC protection isn’t as helpful. So they’re probably more vulnerable to runs than a bank that mostly holds retail customer funds. I don’t think the FDIC intends to stop every possible bank run, but rather dramatically reduce the number of them and reduce the impact when they happen. I think on that front the FDIC has been enormously successful
- xyst 4y agoIf SVB becomes insolvent tomorrow, which banks will be able to cater to tech startups?
- neom 4y agoI've used HSBC for my startups and they're pretty good. I'd recommend them.
- Animats 4y agoThis is what a US bank failure looks like.[1] This 2009 picture shows the CEO of a failed bank near Chicago at the moment the 80-person FDIC team has arrived to take over. He's being told that it is no longer his bank. The bank re-opened for withdrawals the next day under FDIC control, and was later sold off to another bank. [1] https://i.postimg.cc/zGQNQmmf/bankfailed.jpg https://i.postimg.cc/zGQNQmmf/bankfailed.jpg
- dmix 4y agohttps://www.youtube.com/watch?v=KIh6NEBL8BU https://www.youtube.com/watch?v=KIh6NEBL8BU Edit: the video was relatively optimistic given the subject matter, at least for bank customers, not the owner. Assuming there's a market for buyers in such a case. I'm curious if and how the "secret online bidding process" the FDIC runs to find bidders doesn't leak out to the owners of banks. It's possible the banker in the photo heard about it via word of mouth when it was being shopped.
- senttoschool 4y agoThe end of this video is the juiciest part: Maybe we shouldn't allow mega banks like BoA, Chase, etc. to exist because they pose systematic risk to the economy and have to be bailed out by tax payers if they fail.
- somedude895 4y agoThe narrative that tax payers essentially gifted money to the big bad banks and evil investors is plain wrong. Most of the bailout money the large financial institutions like BoA or Chase received was ultimately paid back. Also what's often conveniently forgotten by the Occupy Wall Street crowd is that many pension funds also got bailed out.
- dmix 4y agoIronically the only consequences after 2008 was new banking rules which shuttered hundreds of small banks and reduced the market even further to 5 mega banks, who could much more easily handle the new requirements that were designed for large banks but applied equally to all bank sizes. These calls for regulations always seem to result in that sort of thing happening. They didn't really want "too big to fail" laws they wanted "don't ruffle the status quo, even if it harms the market long term". In the Youtube the FDIC selling a 50yr old small independent bank to a $9 billion dollar megafirm was the real message of the video. Even if that bank was ultimately at fault for engaging in the gov-incentivized mortgage bonanza, in the years following the new rules plenty of other healthy smaller banks got swept up by bigger banks when the rules made them infeasible businesses.
- zenmacro 4y agoSomething seems wrong with the entire banking sector. I don't know if SIVB triggered it or is just the first domino to fall. Two of the largest bank ETFs are down around ~8% today. SIVB is only 2% of the holdings of KBE and 3% of KBWB. https://www.google.com/finance/quote/KBE:NYSEARCA https://www.google.com/finance/quote/KBE:NYSEARCA https://www.google.com/finance/quote/KBWB:NASDAQ https://www.google.com/finance/quote/KBWB:NASDAQ A former Bridgewater guy who I respect very much is saying that the panic is totally uncalled for: https://mobile.twitter.com/BobEUnlimited/status/1633956599428521986 https://mobile.twitter.com/BobEUnlimited/status/163395659942...
- bagels 4y agoBest way to create a bank run is to do a bank run. It's a real life prisoner's dilemma.
- nv22 4y agoHate to say this but bank run is hard to stop once it's started. SVB needs a buyer or government bailout.
- jedberg 4y agoI've received emails from a couple of startups that I've invested in with screenshots showing all their money moved out of SVB into another account. I'd say now is a good time to short SVB if you're into that sort of thing.
- kortilla 4y agoIf you’re reading stories like this, it’s too late. The short interest has already exploded, the stock has already lost 40%, and now we’re in takeover/bailout territory. You’re a day late. Try again on the next bank failure.
- kmlx 4y ago> The short interest has already exploded, the stock has already lost 40%, and now we’re in takeover/bailout territory. > You’re a day late. just one sec: SVB Financial Group Pre-market 57.50 −48.54 (45.78%)
- jedberg 4y agoYes but OP is right. I posted that after hours, which means the earliest you could buy your short was at the open this morning, when the stock would have been down already. But also, trading on SVB was halted before the market opened. :)
- kesor 4y agoJoseph Wang explains what you see in the SVB books, how much did they take from banking rescue lines, how many real assets they have, and so much more. https://twitter.com/FedGuy12/status/1634031134505066496 https://twitter.com/FedGuy12/status/1634031134505066496
- EGreg 4y agoI have barely been in silicon valley but this level of centralization sounds absolutely bonkers. Why did 50% of VCs and their startups and their mom bank all bank at the same bank? Decentralization seems to get a bad rap in the valley
- neom 4y agoBum rubs and handsakes. The amount of pressure I see founders get to put the funds in SVB is nuts, I presume a lot of VCs/founders must personally have invested in the bank stock.
- deleted 4y ago[deleted]
- brianmcc 4y agoJust to be clear for everyone: banks don't keep 100% deposits in a big vault, where a full-customer-withdrawal can and should be expected and permitted. Banks even at their simplest "Main Street local level", need to keep, say, 15% or 20% of their deposited funds available, as determined centrally e.g. the Fed or the Bank of England. The rest by design is to be lent out, that's how banks offer loans, mortgages etc. So "we can't immediately return 40% or 60% or 80% of deposits" really isn't any kind of gotcha or big secret. No bank in the world can handle such a situation. So: runs can and do happen, and are always a threat, and currently might be happening. The question is: how to handle it in a grown up manner.
- CGamesPlay 4y agoBut isn't this the point of FDIC? Even if SVB becomes insolvent, your account value is insured by the federal government? I'm not very familiar with all of this, so please help me understand what I'm missing.
- dkrich 4y agoUp to $250k
- willis936 4y agoOr 3 business days of burn at my company.
- owenmarshall 4y agoAdding on to this as explanation for GP: Funds over the FDIC limit aren’t just surrendered; instead, you become a creditor to the failed institution. The FDIC works to recover those funds - good loans are sold to other institutions, payments due are collected, furniture and real estate is sold, the usual. So a percentage of your money may be paid to you over several years time. Good luck managing free cash flow in the meantime.
- tremarley 4y agoBanks are required to keep 0% in reserves as of March 26, 2020.
- acd 4y agoThe higher central bank interest rates is affecting Future discounted cash flow and valuations startups. I wrote a blog entry about it last year where I predicted a lot of non profitable startups would be effected about it. The king without clothes fairy tale of startup unicorns is starting to hit reality of financing capital at high interest rates. Many startups have not had sound viable business models which yields black profit numbers but have instead run on red minus numbers year after year. Due to very low interest rates it has been too easy to start new companies. Thus many startups have been started without viable business ideas. The startups have been funded by venture capital, venture capital have calculated on future discounted cash flow when valuing the investments. Now that central banks are raising interest rates to fight inflation the higher interest rate will effect venture capital firms calculations. Venture capital uses future discounted cash flow. Now central banks artifically altered the interest rates by quantive easing which forced interest rates lower than the natural market yield. “Application To apply the method, all future cash flows are estimated and discounted by using cost of capital to give their present values (PVs). The sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value of the cash flows in question;[[1]](https://en.wikipedia.org/wiki/Discounted_cash_flow#cite_note-1 https://en.wikipedia.org/wiki/Discounted_cash_flow#cite_note...) see below.” source: https://en.wikipedia.org/wiki/Discounted_cash_flow https://en.wikipedia.org/wiki/Discounted_cash_flow According to the investopedia article four values are among other used to value startups: * Cost-to-Duplicate * Market Multiple * Discounted Cash Flow (DCF) * Valuation by Stage. source: https://www.investopedia.com/articles/financial-theory/11/valuing-startup-ventures.asp https://www.investopedia.com/articles/financial-theory/11/va...
- asimpletune 4y agoCan you share your blog entry?
- justinzollars 4y agoMore bailouts on the horizon? Biden is going to need to call his science advisor into the White House to ask him which number is after a trillion.
- somedude895 4y agoCould this become a problem for YC as well? https://www.svb.com/account/y-combinator https://www.svb.com/account/y-combinator
- tmcz26 4y agoA few years ago, when our startup was just beginning, our bank simply closed our account out of the blue. I guess it wasn't worth it to them, as we had no revenue yet and bootstrapping, so very little money parked. It took several days to get our money out, we couldn't make payroll and pay vendors in the meantime. We later opened two accounts in two different banks as a backup/failover strategy. One handled incoming invoices and accounts payable, while the other handled payroll, so we'd always have money flowing through both banks at all times. If one of them failed, locked us out etc. we'd have the other to fall back on. It actually happened once: due to an admin error one of the accounts was locked for 10 days. We just routed payments and receivables to the other bank and went on with our day.
- nemo44x 4y agoSo we are a little over a year into this aggressive monetary tightening policy and we are seeing banks begin to appear to fail with base money demand issues like this SVB crisis. This happened in 1930 a year after the crash started and again in 2009 a year after the events of 2008. Fed policy will be interesting in the near term. I know they are fighting inflation but they may have to concede this is a battle that will be fought over the next several years and that deliberately destroying the economy through too aggressive rate increases is bad medicine.
- asimpletune 4y agoI think the problem is that inflation is bad for everyone, whereas if rates rise it hurts only the weakest players in the financial system. It's a bit like a controlled forrest burn. Still though, it's too early to say. If there was a more widespread contagion and a panic, then I guess it could be bad. To me though the real culprit is the super lower interest rates we had just a few years ago. Without that, we would not be seeing any of this.
- marcopicentini 4y agoThe VC ponzi scheme. 1. The Bank lends money to startup 2. They raise money from VC 3. They pay back the loan to the bank using the VC money 4. Valuation raise and the VC shows high returns 5. VCs raise more money to repeat the process 6. Small investors buy shares of high-tech company because bonds yields 0% It works, until it doesn't anymore.
- integrate-this 4y agoThis thread is why y'all need to focus on engineering and leave finance to professionals. Banks have assets (mostly bonds) and liabilities (mostly deposits). Both of these items have a duration. They have to match the duration between their assets and their liabilities or they end up insolvent. If enough of the depositors try to pull their money out of the bank, then that reduces the duration of the banks liabilities, and the bank won't be able to move quickly enough to sell their assets to stay solvent. The tech companies that are complaining about FDIC intervention caused their own problems because they are panicked morons. Even more ridiculous is any one of these mega tech firms could probably step in and solve this situation with a cash infusion. They would almost certainly come out ahead because they would be buying a claim on the bank's assets for less than they are worth. But they won't. Because they don't know what they're doing. What happened here is no different than what has happened in every banking crisis pre-08. The economy will be fine, someone like Berkshire Hathaway will make a stupid amount of money and customers will blame a bank for a problem that they created by being stupid.