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From 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..
by rippercushions 4y ago
From 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
- johnbellone 4y agoPer account. Edit: It seems I am incorrect. > The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Deposits held in different ownership categories are separately insured, up to at least $250,000, even if held at the same bank.
- notyourday 4y ago> Per account. Per account "type" and structure. For DDAs if you are married it will be: You: $250k Your+your wife: $250k You POD your wife : $250k Your wife: $250k Your wife POD you: $250k
- jfim 4y agoWhat's POD in this context?
- htrp 4y agoPayable on Death...
- notyourday 4y agoWhat @htrp said - payable on death.
- ryan_j_naughton 4y agoDDAs?
- notyourday 4y agoDemand Deposit Account - the kind of account that allows for cleared funds to be withdrawn without advanced notice. Probably 99.999% of accounts such as checking and savings one can write checks/do ACH payments/send wires/transfer money from fall into this category.
- mikeiz404 4y agoThat’s true however there is a limit. > The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. [1] 1: https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/ https://www.fdic.gov/resources/deposit-insurance/brochures/d...
- toast0 4y agoThey've got an FDIC page, https://www.svb.com/fdic https://www.svb.com/fdic, and they show up in the FDIC bank finder https://banks.data.fdic.gov/bankfind-suite/bankfind/details/24735 https://banks.data.fdic.gov/bankfind-suite/bankfind/details/... Although the Assets, Liabilities, and Capital reporting available if you click "create financial reports for this institution" estimates 5.69% of deposits are insured. Is a corporate account limited to $250K of deposit insurance? If so, I imagine many of them may have much more than that, and the reporting does show almost 75% of the deposits are in accounts with greater than $250K, assuming I'm reading the report correctly.
- silisili 4y agoHow do you mean? SVB is FDIC insured - https://banks.data.fdic.gov/bankfind-suite/bankfind/details/24735 https://banks.data.fdic.gov/bankfind-suite/bankfind/details/...
- deleted 4y ago[deleted]
- anon291 4y agoFDIC insurance is worthless for companies, as most would need more than $250k monthly just to make payroll.
- tempsy 4y agoYou’re kidding right? There’s a limit of like $250k An individual could easily have that much let alone a startup with millions.
- deleted 4y ago[deleted]
- bluGill 4y agoIn a bank? If you have that much you really should invest in something better than a bank account. Banks should be petty cash that you spend in a couple months.
- tempsy 4y agoi’m not talking about what the savvy thing to do is, just taking issue with the assertion that “it doesn’t matter if a bank fails cause it’s insured” when there’s a limit that the OP either failed to mention or didn’t know about and not that it matters but this is specifically about a startup or business not talking about personal finances of an individual
- kapilvt 4y agoThat’s not quite how payroll works
- bluGill 4y agoRight, but gp was talking about people not businesses
- tempsy 4y agono i wasn’t. i said an individual could easily have $250k in cash to show you that it is not a significant amount of money from a business perspective. nothing about what i said referred to keeping $250k in a non interest bearing account as being a smart decision for an individual
- FormerBandmate 4y agoWashington Mutual and Wachovia were both insured
- kasey_junk 4y agoWashington Mutual and Wachovia were both taken over without touching the FDIC insurance funds.
- jjulius 4y ago>... everyone should know... I'm going to go out on a limb and say that that might not be common knowledge.
- phphphphp 4y agoSure, and everyone knows that their favourite person in the world could just run them over in a car and kill them in seconds, but if your best friend says to you, “you know, I could drive my car into you and you would die… your life could be snuffed out with a moments notice” you may start to question your friendship.
- xboxnolifes 4y agoSounds like a normal conversation with my friends.
- phphphphp 4y agoSounds like you have a ready-made customer base for a bank in crisis.
- burnished 4y agoThis situation isnt like that at all.
- ncallaway 4y agoThe relevant similarity is the *act of making* the statement is what’s problematic. In both cases the statement is true, but the act of making the true statement raises concerns. Obviously there are important differences between the scenarios, but that critical aspect is what‘a relevant in this context.
- dylan604 4y agowaiter, i'd like what they're having
- tshaddox 4y agoWell, the big difference is that the bank CEO's statement doesn't suggest that he will or could do something awful himself. It is indeed quite common to hear aphorisms like "live every day like it's your last" which make the same point as your analogy, but remove the suggestion that the speaker could be a murderer and are thus much more analogous to the bank CEO's statement.
- WeylandYutani 4y agoYes and at that point the boss of the ECB shows up, calmly does a press conference at which he says "whatever it takes" and everyone goes back to sleep knowing the Germans are on the job.
- danielmarkbruce 4y agoEveryone doesn't need to know or care in many cases. The FDIC insures deposits up to $250k. That covers the vast majority of accounts at most banks. So a run won't occur at most banks. There were hardly any runs in 2008 for this reason - the relatively few "run type things" which happened were where big interbank exposures existed. SVB's customers are weighted significantly more towards businesses who will have more than $250k in the bank. So, they have to be ready to take action fast, so a bank run on SVB is much more likely.
- Enginerrrd 4y agoThat FDIC thing is so laughable to me because it's purely symbolic. Even the feds would have some serious trouble absorbing bank-run losses.
- billsnow 4y agoIt’s not symbolic, it’s literally an insurance company that the banks pay premiums to.
- geraldwhen 4y agoThe FDIC does in fact insure up to 250k per account/bank. You can get more insurance by spreading your deposits between banks, a service some financial institutions will do for you. https://archive.fdic.gov/view/fdic/4116 https://archive.fdic.gov/view/fdic/4116
- sillybov3456 4y agoThe problem isn't insuring the losses, that they can do. The problem is will you even be able to buy anything after the chaos if a systemically important financial institution goes under? The banks that hold the most ordinary customer deposits aren't like Lehman Brothers and the fallout from one of them going under would be catastrophic on a level far beyond something like 2008. FDIC was invented for the great depression when banks were not as large or concentrated, nor were they as globally connected and intertwined with day to day business. The reality is that FDIC is far from being sufficient insurance to calm down a collapsing market, that's why we had to do bailouts in 2008, because of what was coming down the road in that regard if the contagion were to spread further.
- deleted 4y ago[deleted]
- rchaud 4y agoThat's why depositor insurance laws were passed. Bank runs for retail-facing institutions are rare in developed countries. Even when they happen, retail deposits are made whole up to the insurance limit, which tends to be well above the national median. A run might be more likely for investment funds like Questrade and Fidelity if their customers liquidate their holdings en mmasse and move to cash deposits and CDs, which would be covered by depositor insurance.
- johnbellone 4y ago[flagged]
- daniel-cussen 4y ago[dead]
- nimbius 4y agoits the most cynical response ive seen in a long time, to basically reiterate a fundamental limitation of modern central banking in response to the very event thats occurring.
- fallingknife 4y agoEvery bank is screwed if everybody takes all their money out. And everybody already knows it.
- FormerBandmate 4y agoIf it becomes an internet meme/viral story however, which it looks like it’s becoming, they’re especially fucked. He should have never said this, this is very concerning
- deleted 4y ago[deleted]
- favorited 4y agoLiterally any business is screwed if all of their customers leave.
- TheAlchemist 4y agoThere is a nuance here - the business in question (bank) holds customers money !
- dheera 4y agoCan't someone open a bank that takes money and just keeps it like a well-behaved child and doesn't secretly mess with it?
- likecarter 4y agoWell then customers won't get any interest. And therefore you will have no customers. And therefore no deposits.
- ericd 4y agoPeople aren’t keeping their money in Chase accounts for the 0.01% interest, given that the risk-free rate is currently >4.5%. So you may want to rethink that.
- FormerBandmate 4y agoThis is how every bank has always worked since banks were invented
- ncallaway 4y agoYes, but it’s pretty much always been problematic when a bank leader has had to make a statement akin to “We’re fine as long as there’s not a run”. That’s the kind of thing that only gets said when there’s some concern that there will be a run.
- deleted 4y ago[deleted]
- dylan604 4y agoexcept when all of banks failed their stress tests, a) who remembers, b) who cared when it was announced?
- FormerBandmate 4y agoAll the banks passed their stress test this year https://www.federalreserve.gov/newsevents/pressreleases/bcreg20220623a.htm https://www.federalreserve.gov/newsevents/pressreleases/bcre...
- orangepurple 4y agoRegulators have been putting immense pressure on big banks to hold adequate capital reserves since 2008 and they have been especially turning up the heat for the last 5 years. Moreover, it is clear that regulators will never allow a US bank to hold more than 3% of assets as crypto ever again.
- makomk 4y agoThose government-mandated, ultra-safe capital reserves look like they're actually the big problem that's going to bring down banks right now. Banks have stuck a bunch of their reserves in really safe, predictable, high quality long-term bonds (particularly government issued ones). Because interest rates have gone up, those bonds are now worth substantially less than they were a year or so ago, meaning that the banks' ability to cope with people and businesses withdrawing their deposits has gone down substantially.
- boringg 4y agoPoor move by the CEO. It's like he wanted to be honest with everyone but that wasn't a strong signal. Also out most of the banks - you would expect that the clients of SVB are a little more sophisticated than your retail bank demographic being start-up companies and all (big assumption).
- vineyardmike 4y agoConversely, they’re very sensitive to having their capital liquid compared to bigger companies that may have multiple banking relationships or access to credit markets in case of short term issues.
- tyre 4y agoThey’re a public company with known exposure to startups. If he lies, that’s securities fraud and he could go to prison. Is that worth it?
- b112 4y ago"no comment"
- batiudrami 4y agoNo comment is almost worse if someone is asking about your bank’s liquidity.
- smugma 4y agoNo comment won’t land you in jail.
- batiudrami 4y agoSure but it’s almost certainly the end of your bank. So I guess you tread somewhere in the middle, like he did.
- 4y ago
- dublinben 4y agoMatt Levine is fond of this highly relevant quote by Bagehot: “Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone.” It seems that CEOs of banks haven't learned anything since 1873 when this was observed.
- kencausey 4y agoOr that very simply banks are never 100% liquid.
- Grimburger 4y agoThey'd be lucky to have 5% of their liabilities.
- cm2187 4y agoA variant of Thatcher's "Being powerful is like being a lady, if you have to tell people you are, you aren't".
- coolspot 4y ago[flagged]
- honeybadger1 4y ago[flagged]
- gnicholas 4y agoTBH I wasn't sure what the commenter was trying to communicate. That she had been cancelled? That she should be cancelled? I definitely wouldn't have flagged such a comment, but I would agree that it wasn't exactly adding to the discourse.
- honeybadger1 4y agoIt seemed like a tongue in cheek joke about people projecting that women are strong(like south park style joke I guess) and if you say they are not..you are cancelled? I dunno, I appreciate humor, but yeah that was swift admin action on that.
- deleted 4y ago[deleted]
- gnicholas 4y ago> 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. True, but isn't it possible that if he omitted this clarification, his statement about "ample liquidity" could be on shaky ground, from a legal perspective?
- actionablefiber 4y agoThis is the classic, textbook dilemma that the CEO of a bank/crypto exchange faces. You can lie, and say everything is great. If enough people believe you, your bank is safe and you live happily ever after. If they don't believe you and pull their money, then you committed fraud and will go to court. Or you can tell the truth, and say everything will not be great if everyone pulls their money. Then people will definitely pull their money. You will be sad, because your employer has turned into a smoldering crater and your equity is worth zero, and everyone will blame the bank run on you, but you are probably legally safe. I think the only real thing you can do is make sure no one with credibility ever asks you if you are solvent. That is hard to avoid though, if you are a bank and you have to raise money by selling equity.
- notch898a 4y agoIf you read the prospectus for almost any publicly listed equity, it will say something along the lines of "our company is a dumpster fire and could implode at any minute." In slightly nicer terms. They will say the exact opposite in the verbal quarterly conferences, but they put that in writing just so they can say you've been adequately advised.
- dheera 4y ago> if you're CEO of a bank that's facing a bank run Or just don't mess with money that belongs to customers. Be the world's first reliable bank.
- fl0ps 4y agoNot a finance guy but I think that would literally be the opposite of how banks work. They have to lend out customers money in various forms, including giving that money to other customers in the form of loans, loaning it in huge chunks to companies for larger percentage rates than they give customers who keep their money in said bank, and so forth. Not sure how a bank that kept every customers money on hand all the time would work.
- necubi 4y agoThe Narrow Bank proposed a structure like this, where they would take deposits from customers and just park them at the fed, passing along the fed rate minus a small cut. This is more or less perfectly safe: the Fed basically defines what a US dollar is, and cannot be insolvent. But the Fed won't let TNB open an account. The basic reason seems to be that they worry that this model is destructive to the US economy, which relies on banks making loans so people can buy houses and cars, and businesses can operate. If everyone banked at a narrow bank, the economy would seize up from lack of capital. Whether or not you agree with this take, the reality today is that you cannot run a bank like you've described in the US. (This is all covered in more detail by Matt Levine: https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-the-narrow-bank#xj4y7vzkg https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...)
- abirch 4y agoIf you have to convince people you're liquid, you've lost the argument. Similar to if you have to convince people you're sane, you've already lost
- slackfan 4y agoWhat a strange game, the only winning move is not to play.
- toss1 4y agoMeanwhile, Peter Theil is openly encouraging everybody to tell each other that SVB is sinking and to pull their money [0]. What a guy. [0] Thiel Fund, Venture Firms Advise Companies to Pull Money From SVB
- misssocrates 4y agoIs he wrong?
- dgacmu 4y agoHe could be attempting to create a problem so he can take advantage of it.
- borski 4y agoEntirely possible he shorted SVB.
- antihipocrat 4y agoIf the company goes into liquidation before the short seller closes their position, what happens?
- dgacmu 4y agoYou win but you may get stuck paying the borrow costs still for a while until either the stock is tradable or whatever happens with the resolution of the bankruptcy settles out (the residual shares potentially have _some_ value). In practice, before that, your broker or whomever you borrowed the shares from will probably just declare it a loss and close it out. They'll then get a little something from the bankruptcy, maybe. That's assuming a traditional short, and not something like selling naked calls. In the latter case they just expire worthless.
- dx034 4y agoWill only drive the stock price down so that another bank will buy them up. :Not sure if that's what he's aiming for.
- SkyPuncher 4y ago> 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. I don't think this is damning in any capacity. It's well known that all banks in the world keep part of their reserves in other vehicles. If a bank run happens, they'll have liquidity issues.
- MrDresden 4y agoMost if not all banks would have trouble paying out if there was a run. It is called fractional reserve banking.
- dx034 4y agoIn the end they're not, because if there isn't outright fraud, some other bank will just buy them. If Silicon Valley bank is in trouble, I'm sure one of the bigger ones would want to buy them. Their customer base is worth something and they'd get it for next to nothing. And for JP Morgan or Citi, a run on Silicon Valley bank hardly touches their cash reserves..
- stephen_g 4y agoNot exactly - ‘fractional reserve banking’ only happens in textbooks, it doesn’t actually describe how real banks work. But it is true that basically no bank could immediately pay out all their deposits without running into liquidity issues.
- leoh 4y agoTo be fair, he is dealing with a slightly more sophisticated clientele than the masses that typically make a run on a bank who would (hopefully) realize that their shared success is contingent upon rational, pareto-optimal behavior; which is to say — if folks make a run on SV Bank, it’s pretty much going to be a shit show as to who comes out on top/who doesn’t.
- boringg 4y agoI agree and said something similar elsewhere but i think whats becoming clear is that a bunch of VCs are so selfish (and clearly not that thoughtful) that this behavior might undermine the collective of the bank.
- headsoup 4y agoWhy would the clientele be slightly more sophisticated?
- garyrob 4y agoClassic tragedy of the commons.
- dehrmann 4y agoIt's like the prisoner's dilemma.
- sumanthvepa 4y agoIt is. And sadly the Nash equilibrium solution does not favor SVB.
- yawboakye 4y agoi wonder if this is the accidental downside we have to pay for the incredible speed of information these days. not just information in the sense of journalistic report, but also information in the sense of acknowledging and processing transactions. the older i began the more i come to be wary of speed, just for the sake of it (i'm looking at all of you performance engineers). latency might as well be an extremely cheap security/life-sustaining feature (i'm looking at its reincarnation in cryptography/security as constant time algorithms).
- codeulike 4y agoyou'll be in trouble if everybody takes their money out. Every bank would be in trouble if everybody took their money out
- 22289d 4y agoEvery bank would be in trouble if everyone took their money out