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So it seems like they mismanaged their assets and their liabilities, taking on a lot of expensive deposits while investing at low yield. What I don't get is al

So it seems like they mismanaged their assets and their liabilities, taking on a lot of expensive deposits while investing at low yield. What I don't get is all this pro-SVB, anti-VC sentiment, how "some VC's yelled fire in a crowded theater" and caused the poor bank to collapse. Isn't it just common sense though, to protect your money? The bank fucked up by doing risky reckless things, it got exacerbated because the customer base is not as diverse as a big bank - it's all startups that are subject to the same patterns, and SVB is not as big for the govt to bail out, so the bank customers did the only logical thing which is to withdraw your money before it disappears, yet they get lectured for doing that. https://twitter.com/msuster/status/1634203251758469120 https://twitter.com/msuster/status/1634203251758469120 https://www.linkedin.com/pulse/few-thoughts-svb-jeremy-solomon/ https://www.linkedin.com/pulse/few-thoughts-svb-jeremy-solom...

opportune 4y ago
This, these bonds/mbs are liquid instruments, they just lost value at market prices. When I make a deposit in a bank I am not purchasing a CD - I expect full liquidity. If the bank invested my deposit in something that lost money but should be worth my deposit amount in X years that is purely the bank’s fault, not my fault.
- alfalfasprout 4y ago
  Here's the more mindblowing thing... not only are those MBS and treasuries completely liquid... they're correlated to interest rates! The fed has been forecasting interest rate hikes every single quarter. Every. Single. Quarter. They had plenty of time to roll over these investments at a slight loss. Heck, even reducing their exposure 50% would have been enough to not end up in this mess. Instead, they waited until it was way too late (by most accounts, the fed is going to do another 50bps hike next) and all it took was some fear for the house of cards to come crumbling down. This does feel like a regulatory failure though. Reserve requirements don't quite prevent a bank taking on massive undiversified risk like this.
  - Randalthorro 4y ago
    Reserve requirements should be based on current market price or at least last quarter or last year, not purchase price. They would have had to recapitalize way earlier if that was the case.
    - deleted 4y ago
      [deleted]
    - fooker 4y ago
      > Reserve requirements should be based on current market price or at least last quarter or last year, not purchase price. This is the kind of thing you could get a Nobel prize for, if it was backed with data and people agreed with the conclusion.
      - albert_e 4y ago
        Isn't the requirement already accounting for change in market value of "assets" in the quarterly balance sheet?
        alfalfasprout 4y ago
        Apparently the MBS can be valued at their maturity price for the purposes of reserve requirements.
        kurthr 4y ago
        I completely agree, but not discounting the duration risk (which the big guys do and buy insurance for) and/or adjusting for expected inflation (kind of is the yield curve), and allowing banks (other than the Reserve Bank) to mark them to maturity assuming no inflation is pretty bogus. Of course Bank of England had to bail out their pension funds for very similar reasons so it's not like this is something they're unaware of. My guess is that come Monday they backstop all of this and only the shareholders of SVB get wiped out, sort of like the reverse of Bear Sterns (bailed out early) vs Lehman (allowed to fail). It's not "fair", it's just risk.
- worik 4y ago
  > This, these bonds/mbs are liquid instruments It is all relative, not all relevant Anything is liquid if you will lower the price enough
  - kgwgk 4y ago
    Liquidity is defined as being able to sell quickly at a fair price. Surely they did sell those treasuries without any hiccup. (I'm not 100% certain about the MBS they hold but the main problem is that the fair value is down and not the discount relative to that price that would be required to sell quickly.)
    - worik 4y ago
      Liquidity is being able to sell, it is relative to price There is no "fair price". Price is a scaler, it has no morals or ethics
      - kgwgk 4y ago
        Fair price in the sense of "you get the same price if you want to sell and if you want to buy". It's not true that "Anything is liquid if you will lower the price enough" if we understand liquidity in the usual sense. Bonds and stocks are liquid because the bid-ask spread is small. It doesn't matter if you bought the bond at $1000, if you can get $799 for it and it would cost you $801 to buy one you may be unhappy but your problems are unrelated to liquidity (of course that $800 market price has nothing to do with ethics or morale). A lingot of gold is more liquid than a gold tiara. A participation in a private company is not liquid. Being able to sell with a large enough discount doesn't make it a liquid asset.
gregruss 4y ago
If you don't understand the sentiment, I recommend that you read about what happens in a "run on the bank". Too many large withdrawals at the same time results in a liquidity crisis. No bank in the country has enough reserves to pay all of its customer accounts at the same time; it's part of our system of fractional reserve banking. A massive spike in withdrawals forces a bank to sell long term securities in a disadvantageous environment, often for a huge loss. That undermines customer confidence and exacerbates the issue, causing more people to withdraw. A single person could bring the most successful bank to its knees in that environment, as long as enough customers believe them; it's a self-fulfilling prophecy. https://en.wikipedia.org/wiki/Bank_run https://en.wikipedia.org/wiki/Bank_run
- twelve40 4y ago
  So my personal takeaway: pick a bank that is too big to fail, because if it happened to a bigger, non-niche bank they probably would have used the taxpayers' money to bail it out. PS. the sentiment still makes no sense, SVB customers did not sign up for the bank to gamble with their money and they have a full moral right to do whatever it takes to get their working capital back the second they start to sense any trouble. These withdrawals are not just stupid meme stock lulz, this money belongs to the customers.
  - kelnos 4y ago
    I was talking to some friends in finance about this, and unfortunately most of SVB's customers couldn't just pick another bank. Allowing a company to open a business account requires a bank to do a lot of know-your-customer stuff, as well as taking on a bunch of money-laundering and criminal-enterprise risk (that is, there are laws that punish banks if they hold funds that are used for criminal activities, especially terrorism-related activities). Many banks, even the big ones like Bank of America, Wells Fargo, and Chase, do not want to do this for random new small companies with no history and unknown founders. SVB was -- I believe -- founded in part to fill this gap. Beyond that, there are also come contractual relationships between some VCs and SVB that require some VC portfolio companies to hold their deposits (at least some amount of them) with SVB. (I don't entirely understand this point, but even if I'm getting it wrong, the previous point is enough.)
danielmarkbruce 4y ago
Of course the VCs who told their portfolio companies to pull the money were doing the right thing, by the people they are obliged to do the right thing by. They want to protect their companies and their investors. They'd be mad not to, and they are legally obliged in many cases. I think you'll find a lot of the people complaining are people who got hit and are bitter about it. e.g. some CFO's seem to be complaining about VCs - the CFOs likely didn't do their job, one part of it is "treasury/cash management". Some VCs are complaining about other VCs - probably they weren't paying attention and their portfolio companies got hammered. Remember - SVB dusted ~$15 bill on their long term bond bet, it was almost their entire equity base. Pulling your money out was the only sensible action.
- FiberBundle 4y ago
  No, it actually was incredibly stupid and short-sighted by VCs. Here's Matt Levine on that point [1]: > Also, I am sorry to be rude, but there is another reason that it is maybe not great to be the Bank of Startups, which is that nobody on Earth is more of a herd animal than Silicon Valley venture capitalists. What you want, as a bank, is a certain amount of diversity among your depositors. If some depositors get spooked and take their money out, and other depositors evaluate your balance sheet and decide things are fine and keep their money in, and lots more depositors keep their money in because they simply don’t pay attention to banking news, then you have a shot at muddling through your problems. But if all of your depositors are startups with the same handful of venture capitalists on their boards, and all those venture capitalists are competing with each other to Add Value and Be Influencers and Do The Current Thing by calling all their portfolio companies to say “hey, did you hear, everyone’s taking money out of Silicon Valley Bank, you should too,” then all of your depositors will take their money out at the same time. In fact, Bloomberg reported yesterday: Unease is spreading across the financial world as concerns about the stability of Silicon Valley Bank prompt prominent venture capitalists including Peter Thiel’s Founders Fund to advise startups to withdraw their money. … Founders Fund asked its portfolio companies to move their money out of SVB, according to a person familiar with the matter who asked not to be identified discussing private information. Coatue Management, Union Square Ventures and Founder Collective also advised startups to pull cash, people with knowledge of the matter said. Canaan, another major VC firm, told firms it invested in to remove funds on an as-needed basis, according to another person. SVB Financial Group Chief Executive Officer Greg Becker held a conference call on Thursday advising clients of SVB-owned Silicon Valley Bank to “stay calm” amid concern about the bank’s financial position, according to a person familiar with the matter. Becker held the roughly 10-minute call with investors at about 11:30 a.m. San Francisco time. He asked the bank’s clients, including venture capital investors, to support the bank the way it has supported its customers over the past 40 years, the person said. Nah, man, you don’t get to be a successful venture capitalist by taking a long view or investing in relationships or being contrarian. I’m sorry, I’m sorry, this is unfair. Of course they were right — Silicon Valley Bank did collapse, and if you got your money out early that was good for you — but that is largely self-fulfilling; if all the VCs hadn’t decided all at once to pull their money, SVB probably would not have collapsed.[6] [1] https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run https://www.bloomberg.com/opinion/articles/2023-03-10/startu...
ofchnofc 4y ago
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roguecoder 4y ago
"Common sense" that just fucked over the industry & a whole lot of workers in it. In more mature industries, people would have been confident that the government wouldn't let their bank go under, because the government usually doesn't, and as a result the government usually doesn't have to. Instead, startup culture is so low-trust that we shot ourselves in the foot.
ksniwmidjd 4y ago
[dead]

opportune 4y ago

This, these bonds/mbs are liquid instruments, they just lost value at market prices. When I make a deposit in a bank I am not purchasing a CD - I expect full liquidity. If the bank invested my deposit in something that lost money but should be worth my deposit amount in X years that is purely the bank’s fault, not my fault.

alfalfasprout 4y ago
Here's the more mindblowing thing... not only are those MBS and treasuries completely liquid... they're correlated to interest rates! The fed has been forecasting interest rate hikes every single quarter. Every. Single. Quarter. They had plenty of time to roll over these investments at a slight loss. Heck, even reducing their exposure 50% would have been enough to not end up in this mess. Instead, they waited until it was way too late (by most accounts, the fed is going to do another 50bps hike next) and all it took was some fear for the house of cards to come crumbling down. This does feel like a regulatory failure though. Reserve requirements don't quite prevent a bank taking on massive undiversified risk like this.
- Randalthorro 4y ago
  Reserve requirements should be based on current market price or at least last quarter or last year, not purchase price. They would have had to recapitalize way earlier if that was the case.
  - deleted 4y ago
    [deleted]
  - fooker 4y ago
    > Reserve requirements should be based on current market price or at least last quarter or last year, not purchase price. This is the kind of thing you could get a Nobel prize for, if it was backed with data and people agreed with the conclusion.
    - albert_e 4y ago
      Isn't the requirement already accounting for change in market value of "assets" in the quarterly balance sheet?
      - alfalfasprout 4y ago
        Apparently the MBS can be valued at their maturity price for the purposes of reserve requirements.
        kurthr 4y ago
        I completely agree, but not discounting the duration risk (which the big guys do and buy insurance for) and/or adjusting for expected inflation (kind of is the yield curve), and allowing banks (other than the Reserve Bank) to mark them to maturity assuming no inflation is pretty bogus. Of course Bank of England had to bail out their pension funds for very similar reasons so it's not like this is something they're unaware of. My guess is that come Monday they backstop all of this and only the shareholders of SVB get wiped out, sort of like the reverse of Bear Sterns (bailed out early) vs Lehman (allowed to fail). It's not "fair", it's just risk.
worik 4y ago
> This, these bonds/mbs are liquid instruments It is all relative, not all relevant Anything is liquid if you will lower the price enough
- kgwgk 4y ago
  Liquidity is defined as being able to sell quickly at a fair price. Surely they did sell those treasuries without any hiccup. (I'm not 100% certain about the MBS they hold but the main problem is that the fair value is down and not the discount relative to that price that would be required to sell quickly.)
  - worik 4y ago
    Liquidity is being able to sell, it is relative to price There is no "fair price". Price is a scaler, it has no morals or ethics
    - kgwgk 4y ago
      Fair price in the sense of "you get the same price if you want to sell and if you want to buy". It's not true that "Anything is liquid if you will lower the price enough" if we understand liquidity in the usual sense. Bonds and stocks are liquid because the bid-ask spread is small. It doesn't matter if you bought the bond at $1000, if you can get $799 for it and it would cost you $801 to buy one you may be unhappy but your problems are unrelated to liquidity (of course that $800 market price has nothing to do with ethics or morale). A lingot of gold is more liquid than a gold tiara. A participation in a private company is not liquid. Being able to sell with a large enough discount doesn't make it a liquid asset.

gregruss 4y ago

If you don't understand the sentiment, I recommend that you read about what happens in a "run on the bank". Too many large withdrawals at the same time results in a liquidity crisis. No bank in the country has enough reserves to pay all of its customer accounts at the same time; it's part of our system of fractional reserve banking. A massive spike in withdrawals forces a bank to sell long term securities in a disadvantageous environment, often for a huge loss. That undermines customer confidence and exacerbates the issue, causing more people to withdraw. A single person could bring the most successful bank to its knees in that environment, as long as enough customers believe them; it's a self-fulfilling prophecy. https://en.wikipedia.org/wiki/Bank_run https://en.wikipedia.org/wiki/Bank_run

twelve40 4y ago
So my personal takeaway: pick a bank that is too big to fail, because if it happened to a bigger, non-niche bank they probably would have used the taxpayers' money to bail it out. PS. the sentiment still makes no sense, SVB customers did not sign up for the bank to gamble with their money and they have a full moral right to do whatever it takes to get their working capital back the second they start to sense any trouble. These withdrawals are not just stupid meme stock lulz, this money belongs to the customers.
- kelnos 4y ago
  I was talking to some friends in finance about this, and unfortunately most of SVB's customers couldn't just pick another bank. Allowing a company to open a business account requires a bank to do a lot of know-your-customer stuff, as well as taking on a bunch of money-laundering and criminal-enterprise risk (that is, there are laws that punish banks if they hold funds that are used for criminal activities, especially terrorism-related activities). Many banks, even the big ones like Bank of America, Wells Fargo, and Chase, do not want to do this for random new small companies with no history and unknown founders. SVB was -- I believe -- founded in part to fill this gap. Beyond that, there are also come contractual relationships between some VCs and SVB that require some VC portfolio companies to hold their deposits (at least some amount of them) with SVB. (I don't entirely understand this point, but even if I'm getting it wrong, the previous point is enough.)

danielmarkbruce 4y ago

Of course the VCs who told their portfolio companies to pull the money were doing the right thing, by the people they are obliged to do the right thing by. They want to protect their companies and their investors. They'd be mad not to, and they are legally obliged in many cases. I think you'll find a lot of the people complaining are people who got hit and are bitter about it. e.g. some CFO's seem to be complaining about VCs - the CFOs likely didn't do their job, one part of it is "treasury/cash management". Some VCs are complaining about other VCs - probably they weren't paying attention and their portfolio companies got hammered. Remember - SVB dusted ~$15 bill on their long term bond bet, it was almost their entire equity base. Pulling your money out was the only sensible action.

FiberBundle 4y ago
No, it actually was incredibly stupid and short-sighted by VCs. Here's Matt Levine on that point [1]: > Also, I am sorry to be rude, but there is another reason that it is maybe not great to be the Bank of Startups, which is that nobody on Earth is more of a herd animal than Silicon Valley venture capitalists. What you want, as a bank, is a certain amount of diversity among your depositors. If some depositors get spooked and take their money out, and other depositors evaluate your balance sheet and decide things are fine and keep their money in, and lots more depositors keep their money in because they simply don’t pay attention to banking news, then you have a shot at muddling through your problems. But if all of your depositors are startups with the same handful of venture capitalists on their boards, and all those venture capitalists are competing with each other to Add Value and Be Influencers and Do The Current Thing by calling all their portfolio companies to say “hey, did you hear, everyone’s taking money out of Silicon Valley Bank, you should too,” then all of your depositors will take their money out at the same time. In fact, Bloomberg reported yesterday: Unease is spreading across the financial world as concerns about the stability of Silicon Valley Bank prompt prominent venture capitalists including Peter Thiel’s Founders Fund to advise startups to withdraw their money. … Founders Fund asked its portfolio companies to move their money out of SVB, according to a person familiar with the matter who asked not to be identified discussing private information. Coatue Management, Union Square Ventures and Founder Collective also advised startups to pull cash, people with knowledge of the matter said. Canaan, another major VC firm, told firms it invested in to remove funds on an as-needed basis, according to another person. SVB Financial Group Chief Executive Officer Greg Becker held a conference call on Thursday advising clients of SVB-owned Silicon Valley Bank to “stay calm” amid concern about the bank’s financial position, according to a person familiar with the matter. Becker held the roughly 10-minute call with investors at about 11:30 a.m. San Francisco time. He asked the bank’s clients, including venture capital investors, to support the bank the way it has supported its customers over the past 40 years, the person said. Nah, man, you don’t get to be a successful venture capitalist by taking a long view or investing in relationships or being contrarian. I’m sorry, I’m sorry, this is unfair. Of course they were right — Silicon Valley Bank did collapse, and if you got your money out early that was good for you — but that is largely self-fulfilling; if all the VCs hadn’t decided all at once to pull their money, SVB probably would not have collapsed.[6] [1] https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run https://www.bloomberg.com/opinion/articles/2023-03-10/startu...

ofchnofc 4y ago

[dead]

roguecoder 4y ago

"Common sense" that just fucked over the industry & a whole lot of workers in it. In more mature industries, people would have been confident that the government wouldn't let their bank go under, because the government usually doesn't, and as a result the government usually doesn't have to. Instead, startup culture is so low-trust that we shot ourselves in the foot.

ksniwmidjd 4y ago

[dead]