10 ms·

The Demise of Silicon Valley Bank

210 points by tim_sw 4y ago

paulpauper 4y ago
Weird or interesting how SVB survived 2000-2002 tech crash , and also 2007-2009, but 2022 was too much. Every crisis or cycle is different. Unique challenges, threats, etc. This is why it's so hard to predict these sort of things. It's impossible to anticipate all the ways things can go wrong.
- benatkin 4y ago
  Is it really all that different or is it just bigger? shudders
  - nothis 4y ago
    Is this one of these innocent little articles popping up that people refer to as "the SVB moment" in the future? Or was this bank just uniquely fucked?
- nine_zeros 4y ago
  What makes this thing even more interesting is that there is viral, wide-spread knowledge about banking - as opposed to 2000 or 2007. A bank run is one tweet away. A lot of banks have similar asset books and asset values MUST go down as interest rates rise. So, banks are really screwed unless they offer MUCH higher interest rates on deposits ASAP. Because if they don't, most people are very aware of treasurydirect and will simply deposit there.
- filmgirlcw 4y ago
  That’s because in those situation, SVB didn’t put $91b of its deposits into mortgage bonds right before interests rates soared. Those bonds are now worth a lot less (and will be sold for even less still to other banks that want to pick them up on the cheap). Every crisis is different, but hedging so much money in one basket seems to be the real undoing here. I’d posit that the bank, which was much smaller in 2000 and 2007, didn’t make those sorts of moves then.
- capableweb 4y ago
  The author seems to allude to a difference between then and now is that it wasn't quite as easy to withdraw money back then, usually you'd have to at least make a phone call, or head over to your physical branch. Now you could just open the website/app and do it there, immediately. Another point seems to have been that Silicon Valley bank have a customer base which is tightly knitted, so if any bad news gets shared in the circle, it gets around quickly. Maybe they weren't as popular the last crashes, or as impacted as other sectors, so it would be easier to avoid trouble. But specifically this time, the trouble was related to them, so they got hit the hardest.
  - rcme 4y ago
    Maybe... but SVB's immediate issue is that they lent money when rates were zero and those loans decreased in value when interest rates went up. This type of issue can only be caused by a decade-long zero-interest environment where people stop believing rates will ever go up again. It's interesting how every financial crisis has its roots in the specific economic conditions of the time.
    - capableweb 4y ago
      Even so, no matter what cause, if people are unable to withdraw money + won't hear any rumors about a bank run, would SVB be in the scenario they are experiencing today? As it seems like the bank run is what did them in, not whatever magic they did with the deposited money.
      - rcme 4y ago
        Yes. Their issues started when they needed to sell their assets available for sale. This happened because interest rates made it harder to raise money, which caused their clients to draw down their accounts faster than they anticipated. The bank run at the end is more a symptom of SVB's issues rather than a cause. Everything about the bank's problems can be traced back to believing interest rates would be 0 forever.
      - dahdum 4y ago
- pookha 4y ago
  Inflation is the killer here. The Fed had no choice but to raise interest rates.
- lumb63 4y ago
  It might be impossible to anticipate which way exactly things will go wrong, but I’d say it’s pretty easy to anticipate the ways things can go wrong. I see this as at least ignorance, probably negligence, and at most, fraud, on the part of a lot of folks involved. This has been the most widely predicted recession in history as far as I am aware. The Fed has openly and deliberately said they will raise interest rates until something breaks. Investing in assets that are negatively correlated with interest rates under these conditions is a terrible idea. Professional bankers should know this. Startups are far less negligent, but still, could diversify their deposits with multiple banks (or use “real” banks) to mitigate their risk. Startups are risky enough; having sound money is important and I wouldn’t be risking it with a regional bank. The Fed is negligent for treating financial markets like penny stocks. They had nothing else in their tool chest to fight inflation, though, so I can’t entirely blame them. Politicians and the Fed are negligent for creating so much liquidity that it spurred such immense inflation. Anyone with a macro-101 level of economics could have foreseen this. Voters are negligent and ignorant for their unwillingness to elect better politicians and demand change and reform in an area that continually fails them. We are failed time and time again by the banking system because it is fundamentally unable to be guaranteed solvent. We bail banks out or get by a crisis somehow and forget about it until the next time around and then shout “wow, who could have seen this coming?!” as if it is the first time a bank has failed.
chx 4y ago
I found https://www.livemint.com/news/world/explainer-silicon-valley-bank-crisis-what-led-to-stock-crash-what-lies-ahead-11678419807090.html https://www.livemint.com/news/world/explainer-silicon-valley... much easier to understand. It would seem the crux of the matter is: > the bank purchased a large amount (over $80 billion) in mortgage-backed securities (MBS) with these deposits for their hold-to-maturity (HTM) portfolio. Almost 97% of these MBS were 10+ years in duration, with a weighted average yield of 1.56%. > with the rise in Fed rates, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield. Precisely, with the rising US Fed interest rates, the value of existing bonds with lower payouts fell in value. The second paragraph explains what the original article summarized as "The trouble is that when rates started to go up, mortgage assets got hit hard".
- apnew 4y ago
  2.a They sold some of the assets bought at step #1 at a loss (dont know why). 2.b Flubbed the PR game while trying to raise to cover the loss 2.c Bank run!
  - actionablefiber 4y ago
    > They sold some of the assets bought at step #1 at a loss (dont know why) I imagine they ran out of their more liquid instruments.
    - apnew 4y ago
      Ah! That would make sense why they would sell 10T at loss instead of riding out
  - eek2121 4y ago
    If 20 people give you $1,000 each totaling $20,000 and you just know you can make $50,000 by holding it for X amount of years thanks to the economic gods, what happens if your $20,000 suddenly is only worth $5,000 thanks to you having to sell said asset much sooner than you would like? Now you know why.
jejeyyy77 4y ago
should I bother going to work on Monday?
- kube-system 4y ago
  Probably. Even SVB branch employees are going to work on Monday.
  - twelve40 4y ago
    well they are getting paid by the FDIC now so of course they are going to work
- rickreynoldssf 4y ago
  Do you work for a company that has most of its operating cash in SVB? If so you probably won't see your next paycheck or it will be late. Even if you work for a unicorn there's still a risk because they're not likely to hold more cash than is needed for a few weeks (which is now held up beyond $250k.) The rest of the funds are in bonds or other investments that will take some time to unwind to get cash to meet payroll. So you decide...
  - bombcar 4y ago
    Even if you work for a company entirely banked with SVB (and many companies have a few bank accounts for various reasons) they'll probably be able to make payroll even if they have to take an annoying loan.
    - renewiltord 4y ago
      Annoyingly, Rippling had a lot of their stuff in SVB so some companies see the debit from their SVB account but no actual corresponding credit into their employees accounts.
      - mkagenius 4y ago
        If the companies had their account with SVB then rippling is not the issue. Issue arises when their bank is something else but since rippling uses SVB, they see debit in their accounts but SVB doesn't release pay roll. (Unless rippling forces you for opening SVB account, i don't know, i do not use rippling)
macintux 4y ago
I don’t know that we need a 3rd active discussion. - https://news.ycombinator.com/item?id=35096877 https://news.ycombinator.com/item?id=35096877 - https://news.ycombinator.com/item?id=35094466 https://news.ycombinator.com/item?id=35094466
db1234 4y ago
Sorry for a dumb question: Apparently lots of VCs and startups use SVB as their bank. Could someone explain why would startups not choose relatively safer big banks like BoA or Chase? What are the advantages of using SVB as the primary financial institution?
- frankchn 4y ago
  Venture-backed startups are weird in terms of cashflow compared to traditional businesses. They appear out of thin air with no history and millions of dollars. They then constantly burn money in the tens to hundreds of thousands of dollars a month until they disappear or get injected with millions more dollars. Often, traditional banks don't know how to deal with these entities and it sets off tons of alarms in their fraud and risk management departments. SVB and related departments know the business and financial models of startups a lot better and are more willing to help.
  - deleted 4y ago
    [deleted]
  - twelve40 4y ago
    i really wonder if that was a problem. My last startup banked with Wells Fargo for a while all the way from pre-seed to A, and it seemed to be fine. Anyway, my number 1 ask from any bank is not to fail, before anything else, and that didn't really work out great here. If SVB was a top-5 bank it probably would have been bailed out by the govt. Not great, but probably safer for the customers.
  - bloodyplonker22 4y ago
    This makes complete sense, however, why would big banks not want to compete against SVB by establishing a smaller division that handles startups? Obviously, the market is small compared to their usual markets, but there is still a lot of good money to be made.
    - frankchn 4y ago
      If the deposits are going on the parent bank's balance sheet, it would be subject to the same controls.
rickreynoldssf 4y ago
This is bad. This is real bad. ...and I don't think we're going to know the depth of the badness for a while. Think the credit crunch that precipitated the 2008 crash. Though this will be localized to tech startups and it's only the kinds of people who read Hacker News who are going to be affected. A massive wrench has been tossed into the economic machinery of Silicon Valley and other tech hubs. A bunch of companies now have no or little operating cash and all they're going to have on Monday is $250k each.
- mtoner23 4y ago
  Nope, this is why we have the FDIC, most americans wont even notice
  - postalrat 4y ago
    Did you even read the comment you replied to?
    - mtoner23 4y ago
      the FDIC does more than hand out 250k checks. They will find a buyer for this bank who can successfully manage its assets. and most likely will payout uninsured account holders at least 90 cents on the dollar. Probably even all 100 cents. Remember the bailouts the goverments made to banks on 08, we didnt lose a cent on those. the govt made money. We are gonna be ok
      - rickreynoldssf 4y ago
        This isn't going to happen before Monday. Or before the AWS bill is due. $250k isn't going to cover most company's operating cash needs.
        mtoner23 4y ago
        fair point. we'll see how it goes though, i dont expect it to be a banking collapse thougu
jakozaur 4y ago
My take: 1. Some mighty people/companies will bail out all depositors as this would cause a chain effect damaging the whole USA innovation. 2. Still, the consequences will be grim as many startups will lose access to venture debt and need to do layoff quickly.
- TaylorGood 4y ago
  A friends AI startup already laid off 30 to control the bleed as their working capital was at SVB.
  - lovich 4y ago
    They laid off 30 people in less than 24 hours of this announcement? That sounds like those people were already getting laid off and this was a convenient cover
- UncleOxidant 4y ago
  > 1. Some mighty people/companies will bail out all depositors Yeah, I'm sure Elon Musk can just write a check to cover this... oh, wait. Seriously, who do you think would have the capital to swoop in here and cover something north of $170B in shortfall? Especially right now given that money is pretty tight everywhere.
  - celestialcheese 4y ago
    Where are you getting 170b in shortfall?
    - UncleOxidant 4y ago
      In one of the other threads discussing this SVB was said to have ~$200B in assets, 93% of which were not covered by FDIC. That actually comes out to $186B.
  - jakozaur 4y ago
    The shortfall is much smaller. The challenge is $80Bln mortgage-backed securities, which they likely have to sell at a 20-30% markdown and cover that.
elzbardico 4y ago
Why in the fucking hell someone thought it would be a good idea for banks to use the deposit money to buy securities?
- swarnie 4y ago
  I think some regulation was rolled back at some point, wasn't it the L-Express rider with a sub-par dry cleaning service?
- dboreham 4y ago
  The someone who wanted to make a profit?
- frankchn 4y ago
  Treasury bonds are securities as well.
deleted 4y ago
[deleted]
dang 4y ago
Related ongoing thread: FDIC Takes over Silicon Valley Bank - https://news.ycombinator.com/item?id=35096877 https://news.ycombinator.com/item?id=35096877 - March 2023 (708 comments)
marcopicentini 4y ago
Does Coinbase could have the same problem since it’s business is based on stacking (USDC) during this moment of low volumes ?
aliasxneo 4y ago
Can someone ELI5 how the increased interest rates hurt the bank's strategy? I've read a few articles now and still can't parse through the language to understand what's happening.
- jmstfv 4y ago
  Roughly speaking: They were holding some candies that became less valuable because you can buy better candies for the same price in the shop. They needed the money, so they had to sell those candies for cheaper. Some friends of theirs noticed they were selling those candies for cheaper and started getting suspicious and panicky and asking for their toys back. * Candies - fixed income securities, like mortgage backed-securities and US treasuries * Candies becoming less valuable - government raising the interest rates, which makes fixed income products, like treasuries and mortgage-backed securities less valuable, because you can get the same securities but with higher returns in the market * Friends panicking - investors and depositors * Friends asking for their toys back - withdrawing money from the bank, which starts the bank run
- mandevil 4y ago
  Matt Levine's invaluable Money Stuff (free newsletter) did a fabulous job of just that: https://www.bloomberg.com/opinion/articles/2023-03-09/crypto-bank-had-a-boring-collapse https://www.bloomberg.com/opinion/articles/2023-03-09/crypto... was before the FDIC moved in, https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run#xj4y7vzkg https://www.bloomberg.com/opinion/articles/2023-03-10/startu... was from today.
- kentonv 4y ago
  Say you buy a bond for $100 with 10-year maturity. This means the bond will pay $100 in 10 years. What is it worth today? Let's say you are looking for an investment to pay 1% yield year over year, because that's the going market rate (which highly correlates to interest rates). Then this bond should be worth about $90.53 to you. You buy it at that price. Now suddenly rates change and everyone is expecting investments to pay 3% year over year. Then an equivalent bond is now worth only $74.41. That's OK. You don't have to sell your bond. You can hold on until it matures, and just live with the fact that you aren't getting the same yield as others. But now imagine you need to come up with a lot of money quickly to satisfy some requirement (like customers withdrawing a lot of money). Now you have no choice but to sell your bond. And that means you have to admit you lost the money. And now you may not have enough money to cover your obligations, even though you would have if you could have waited for the bond to mature.

210 points by tim_sw 4y ago

Weird or interesting how SVB survived 2000-2002 tech crash , and also 2007-2009, but 2022 was too much. Every crisis or cycle is different. Unique challenges, threats, etc. This is why it's so hard to predict these sort of things. It's impossible to anticipate all the ways things can go wrong.

benatkin 4y ago
Is it really all that different or is it just bigger? shudders
- nothis 4y ago
  Is this one of these innocent little articles popping up that people refer to as "the SVB moment" in the future? Or was this bank just uniquely fucked?
nine_zeros 4y ago
What makes this thing even more interesting is that there is viral, wide-spread knowledge about banking - as opposed to 2000 or 2007. A bank run is one tweet away. A lot of banks have similar asset books and asset values MUST go down as interest rates rise. So, banks are really screwed unless they offer MUCH higher interest rates on deposits ASAP. Because if they don't, most people are very aware of treasurydirect and will simply deposit there.
filmgirlcw 4y ago
That’s because in those situation, SVB didn’t put $91b of its deposits into mortgage bonds right before interests rates soared. Those bonds are now worth a lot less (and will be sold for even less still to other banks that want to pick them up on the cheap). Every crisis is different, but hedging so much money in one basket seems to be the real undoing here. I’d posit that the bank, which was much smaller in 2000 and 2007, didn’t make those sorts of moves then.
capableweb 4y ago
The author seems to allude to a difference between then and now is that it wasn't quite as easy to withdraw money back then, usually you'd have to at least make a phone call, or head over to your physical branch. Now you could just open the website/app and do it there, immediately. Another point seems to have been that Silicon Valley bank have a customer base which is tightly knitted, so if any bad news gets shared in the circle, it gets around quickly. Maybe they weren't as popular the last crashes, or as impacted as other sectors, so it would be easier to avoid trouble. But specifically this time, the trouble was related to them, so they got hit the hardest.
- rcme 4y ago
  Maybe... but SVB's immediate issue is that they lent money when rates were zero and those loans decreased in value when interest rates went up. This type of issue can only be caused by a decade-long zero-interest environment where people stop believing rates will ever go up again. It's interesting how every financial crisis has its roots in the specific economic conditions of the time.
  - capableweb 4y ago
    Even so, no matter what cause, if people are unable to withdraw money + won't hear any rumors about a bank run, would SVB be in the scenario they are experiencing today? As it seems like the bank run is what did them in, not whatever magic they did with the deposited money.
    - rcme 4y ago
      Yes. Their issues started when they needed to sell their assets available for sale. This happened because interest rates made it harder to raise money, which caused their clients to draw down their accounts faster than they anticipated. The bank run at the end is more a symptom of SVB's issues rather than a cause. Everything about the bank's problems can be traced back to believing interest rates would be 0 forever.
    - dahdum 4y ago
pookha 4y ago
Inflation is the killer here. The Fed had no choice but to raise interest rates.
lumb63 4y ago
It might be impossible to anticipate which way exactly things will go wrong, but I’d say it’s pretty easy to anticipate the ways things can go wrong. I see this as at least ignorance, probably negligence, and at most, fraud, on the part of a lot of folks involved. This has been the most widely predicted recession in history as far as I am aware. The Fed has openly and deliberately said they will raise interest rates until something breaks. Investing in assets that are negatively correlated with interest rates under these conditions is a terrible idea. Professional bankers should know this. Startups are far less negligent, but still, could diversify their deposits with multiple banks (or use “real” banks) to mitigate their risk. Startups are risky enough; having sound money is important and I wouldn’t be risking it with a regional bank. The Fed is negligent for treating financial markets like penny stocks. They had nothing else in their tool chest to fight inflation, though, so I can’t entirely blame them. Politicians and the Fed are negligent for creating so much liquidity that it spurred such immense inflation. Anyone with a macro-101 level of economics could have foreseen this. Voters are negligent and ignorant for their unwillingness to elect better politicians and demand change and reform in an area that continually fails them. We are failed time and time again by the banking system because it is fundamentally unable to be guaranteed solvent. We bail banks out or get by a crisis somehow and forget about it until the next time around and then shout “wow, who could have seen this coming?!” as if it is the first time a bank has failed.

chx 4y ago

I found https://www.livemint.com/news/world/explainer-silicon-valley-bank-crisis-what-led-to-stock-crash-what-lies-ahead-11678419807090.html https://www.livemint.com/news/world/explainer-silicon-valley... much easier to understand. It would seem the crux of the matter is: > the bank purchased a large amount (over $80 billion) in mortgage-backed securities (MBS) with these deposits for their hold-to-maturity (HTM) portfolio. Almost 97% of these MBS were 10+ years in duration, with a weighted average yield of 1.56%. > with the rise in Fed rates, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield. Precisely, with the rising US Fed interest rates, the value of existing bonds with lower payouts fell in value. The second paragraph explains what the original article summarized as "The trouble is that when rates started to go up, mortgage assets got hit hard".

apnew 4y ago
2.a They sold some of the assets bought at step #1 at a loss (dont know why). 2.b Flubbed the PR game while trying to raise to cover the loss 2.c Bank run!
- actionablefiber 4y ago
  > They sold some of the assets bought at step #1 at a loss (dont know why) I imagine they ran out of their more liquid instruments.
  - apnew 4y ago
    Ah! That would make sense why they would sell 10T at loss instead of riding out
- eek2121 4y ago
  If 20 people give you $1,000 each totaling $20,000 and you just know you can make $50,000 by holding it for X amount of years thanks to the economic gods, what happens if your $20,000 suddenly is only worth $5,000 thanks to you having to sell said asset much sooner than you would like? Now you know why.

jejeyyy77 4y ago

should I bother going to work on Monday?

kube-system 4y ago
Probably. Even SVB branch employees are going to work on Monday.
- twelve40 4y ago
  well they are getting paid by the FDIC now so of course they are going to work
rickreynoldssf 4y ago
Do you work for a company that has most of its operating cash in SVB? If so you probably won't see your next paycheck or it will be late. Even if you work for a unicorn there's still a risk because they're not likely to hold more cash than is needed for a few weeks (which is now held up beyond $250k.) The rest of the funds are in bonds or other investments that will take some time to unwind to get cash to meet payroll. So you decide...
- bombcar 4y ago
  Even if you work for a company entirely banked with SVB (and many companies have a few bank accounts for various reasons) they'll probably be able to make payroll even if they have to take an annoying loan.
  - renewiltord 4y ago
    Annoyingly, Rippling had a lot of their stuff in SVB so some companies see the debit from their SVB account but no actual corresponding credit into their employees accounts.
    - mkagenius 4y ago
      If the companies had their account with SVB then rippling is not the issue. Issue arises when their bank is something else but since rippling uses SVB, they see debit in their accounts but SVB doesn't release pay roll. (Unless rippling forces you for opening SVB account, i don't know, i do not use rippling)

macintux 4y ago

I don’t know that we need a 3rd active discussion. - https://news.ycombinator.com/item?id=35096877 https://news.ycombinator.com/item?id=35096877 - https://news.ycombinator.com/item?id=35094466 https://news.ycombinator.com/item?id=35094466

db1234 4y ago

Sorry for a dumb question: Apparently lots of VCs and startups use SVB as their bank. Could someone explain why would startups not choose relatively safer big banks like BoA or Chase? What are the advantages of using SVB as the primary financial institution?

frankchn 4y ago
Venture-backed startups are weird in terms of cashflow compared to traditional businesses. They appear out of thin air with no history and millions of dollars. They then constantly burn money in the tens to hundreds of thousands of dollars a month until they disappear or get injected with millions more dollars. Often, traditional banks don't know how to deal with these entities and it sets off tons of alarms in their fraud and risk management departments. SVB and related departments know the business and financial models of startups a lot better and are more willing to help.
- deleted 4y ago
  [deleted]
- twelve40 4y ago
  i really wonder if that was a problem. My last startup banked with Wells Fargo for a while all the way from pre-seed to A, and it seemed to be fine. Anyway, my number 1 ask from any bank is not to fail, before anything else, and that didn't really work out great here. If SVB was a top-5 bank it probably would have been bailed out by the govt. Not great, but probably safer for the customers.
- bloodyplonker22 4y ago
  This makes complete sense, however, why would big banks not want to compete against SVB by establishing a smaller division that handles startups? Obviously, the market is small compared to their usual markets, but there is still a lot of good money to be made.
  - frankchn 4y ago
    If the deposits are going on the parent bank's balance sheet, it would be subject to the same controls.

rickreynoldssf 4y ago

This is bad. This is real bad. ...and I don't think we're going to know the depth of the badness for a while. Think the credit crunch that precipitated the 2008 crash. Though this will be localized to tech startups and it's only the kinds of people who read Hacker News who are going to be affected. A massive wrench has been tossed into the economic machinery of Silicon Valley and other tech hubs. A bunch of companies now have no or little operating cash and all they're going to have on Monday is $250k each.

mtoner23 4y ago
Nope, this is why we have the FDIC, most americans wont even notice
- postalrat 4y ago
  Did you even read the comment you replied to?
  - mtoner23 4y ago
    the FDIC does more than hand out 250k checks. They will find a buyer for this bank who can successfully manage its assets. and most likely will payout uninsured account holders at least 90 cents on the dollar. Probably even all 100 cents. Remember the bailouts the goverments made to banks on 08, we didnt lose a cent on those. the govt made money. We are gonna be ok
    - rickreynoldssf 4y ago
      This isn't going to happen before Monday. Or before the AWS bill is due. $250k isn't going to cover most company's operating cash needs.
      - mtoner23 4y ago
        fair point. we'll see how it goes though, i dont expect it to be a banking collapse thougu

jakozaur 4y ago

My take: 1. Some mighty people/companies will bail out all depositors as this would cause a chain effect damaging the whole USA innovation. 2. Still, the consequences will be grim as many startups will lose access to venture debt and need to do layoff quickly.

TaylorGood 4y ago
A friends AI startup already laid off 30 to control the bleed as their working capital was at SVB.
- lovich 4y ago
  They laid off 30 people in less than 24 hours of this announcement? That sounds like those people were already getting laid off and this was a convenient cover
UncleOxidant 4y ago
> 1. Some mighty people/companies will bail out all depositors Yeah, I'm sure Elon Musk can just write a check to cover this... oh, wait. Seriously, who do you think would have the capital to swoop in here and cover something north of $170B in shortfall? Especially right now given that money is pretty tight everywhere.
- celestialcheese 4y ago
  Where are you getting 170b in shortfall?
  - UncleOxidant 4y ago
    In one of the other threads discussing this SVB was said to have ~$200B in assets, 93% of which were not covered by FDIC. That actually comes out to $186B.
- jakozaur 4y ago
  The shortfall is much smaller. The challenge is $80Bln mortgage-backed securities, which they likely have to sell at a 20-30% markdown and cover that.

elzbardico 4y ago

Why in the fucking hell someone thought it would be a good idea for banks to use the deposit money to buy securities?

swarnie 4y ago
I think some regulation was rolled back at some point, wasn't it the L-Express rider with a sub-par dry cleaning service?
dboreham 4y ago
The someone who wanted to make a profit?
frankchn 4y ago
Treasury bonds are securities as well.

deleted 4y ago

[deleted]

dang 4y ago

Related ongoing thread: FDIC Takes over Silicon Valley Bank - https://news.ycombinator.com/item?id=35096877 https://news.ycombinator.com/item?id=35096877 - March 2023 (708 comments)

marcopicentini 4y ago

Does Coinbase could have the same problem since it’s business is based on stacking (USDC) during this moment of low volumes ?

aliasxneo 4y ago

Can someone ELI5 how the increased interest rates hurt the bank's strategy? I've read a few articles now and still can't parse through the language to understand what's happening.

jmstfv 4y ago
Roughly speaking: They were holding some candies that became less valuable because you can buy better candies for the same price in the shop. They needed the money, so they had to sell those candies for cheaper. Some friends of theirs noticed they were selling those candies for cheaper and started getting suspicious and panicky and asking for their toys back. * Candies - fixed income securities, like mortgage backed-securities and US treasuries * Candies becoming less valuable - government raising the interest rates, which makes fixed income products, like treasuries and mortgage-backed securities less valuable, because you can get the same securities but with higher returns in the market * Friends panicking - investors and depositors * Friends asking for their toys back - withdrawing money from the bank, which starts the bank run
mandevil 4y ago
Matt Levine's invaluable Money Stuff (free newsletter) did a fabulous job of just that: https://www.bloomberg.com/opinion/articles/2023-03-09/crypto-bank-had-a-boring-collapse https://www.bloomberg.com/opinion/articles/2023-03-09/crypto... was before the FDIC moved in, https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run#xj4y7vzkg https://www.bloomberg.com/opinion/articles/2023-03-10/startu... was from today.
kentonv 4y ago
Say you buy a bond for $100 with 10-year maturity. This means the bond will pay $100 in 10 years. What is it worth today? Let's say you are looking for an investment to pay 1% yield year over year, because that's the going market rate (which highly correlates to interest rates). Then this bond should be worth about $90.53 to you. You buy it at that price. Now suddenly rates change and everyone is expecting investments to pay 3% year over year. Then an equivalent bond is now worth only $74.41. That's OK. You don't have to sell your bond. You can hold on until it matures, and just live with the fact that you aren't getting the same yield as others. But now imagine you need to come up with a lot of money quickly to satisfy some requirement (like customers withdrawing a lot of money). Now you have no choice but to sell your bond. And that means you have to admit you lost the money. And now you may not have enough money to cover your obligations, even though you would have if you could have waited for the bond to mature.