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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

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.)
Randalthorro 4y ago
The same thing happened to all these stupid crypto exchanges and banks and yield scams. The point is that they are supposed to have capitalization requirements and regulations that show they actually have more assets than liabilities. But in reality they don’t so fractional reserve doesn’t work here. In fractional reserve the bank still has assets worth more than liabilities. That’s the whole point of the regulation. This bank doesn’t meet that basic requirement. This is due to the rate hikes, yes, but just like all the recent events if the bank had properly adjusted its portfolio after the hikes, making losses and having a shitty stock price for a while, it would have been able to weather this storm. The storm came because the bank never adjusted until too late. It waited until it was negative from asset devaluation due to interest rate hikes
lolinder 4y ago
I think we all understand why VCs telling people to get their money out caused or accelerated the collapse. But what was any individual VC supposed to do, tell their startups to just go down with the ship? It's the same dynamic as the toilet paper shortages at the beginning of covid: most people weren't panic buying because they thought that there wouldn't be enough toilet paper to go around if everyone kept cool, they were panic buying because they knew not enough other people were keeping cool. If it looks like the only reward you'll get for keeping your cool is a few weeks with a dirty bottom, it's hard to avoid joining in the run.
- hn_throwaway_99 4y ago
  "When there is a run on the bank, it's important to be first in line." Bank runs are fascinating psychological dilemmas to me. On one hand the SVB CEO was correct - everything would have been fine if every depositor hadn't run for the door. But, when a bank says "please don't run for the door", it's already too late.
  - twelve40 4y ago
    Yeah, he was basically asking for the customers to keep fronting his risky shit. I'm almost certain SVB CEO already knew what was going to happen in the next 24 hours after his "stay calm" interview - FDIC doesn't get dispatched like that for no reason. https://www.barrons.com/articles/svb-financial-stock-sale-ceo-greg-becker-f5089a4d https://www.barrons.com/articles/svb-financial-stock-sale-ce...
    - kelnos 4y ago
      Fronting risky shit or not, on the whole, SVB's depositors would have been better off if every one of them had calmed down and done nothing right now. I would certainly understand if depositors would then build a measured plan to diversify their deposits over the next year or so, but while SVB certainly caused lack of faith, the reaction to that was what caused SVB to fail. So ok, we've "punished" SVB's management's poor money-management practices, but in the process we've also punished a lot of companies who had millions of dollars but now only have $250k (with uncertain future access to some portion of the remainder). Good job! Stick it to those SVB execs! Talk about cutting off your nose to spite your face... or I guess cutting off the noses of others...
kmod 4y ago
It sounds like you're saying "if you don't sell you can't lose money"

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.)

Randalthorro 4y ago

The same thing happened to all these stupid crypto exchanges and banks and yield scams. The point is that they are supposed to have capitalization requirements and regulations that show they actually have more assets than liabilities. But in reality they don’t so fractional reserve doesn’t work here. In fractional reserve the bank still has assets worth more than liabilities. That’s the whole point of the regulation. This bank doesn’t meet that basic requirement. This is due to the rate hikes, yes, but just like all the recent events if the bank had properly adjusted its portfolio after the hikes, making losses and having a shitty stock price for a while, it would have been able to weather this storm. The storm came because the bank never adjusted until too late. It waited until it was negative from asset devaluation due to interest rate hikes

lolinder 4y ago

I think we all understand why VCs telling people to get their money out caused or accelerated the collapse. But what was any individual VC supposed to do, tell their startups to just go down with the ship? It's the same dynamic as the toilet paper shortages at the beginning of covid: most people weren't panic buying because they thought that there wouldn't be enough toilet paper to go around if everyone kept cool, they were panic buying because they knew not enough other people were keeping cool. If it looks like the only reward you'll get for keeping your cool is a few weeks with a dirty bottom, it's hard to avoid joining in the run.

hn_throwaway_99 4y ago
"When there is a run on the bank, it's important to be first in line." Bank runs are fascinating psychological dilemmas to me. On one hand the SVB CEO was correct - everything would have been fine if every depositor hadn't run for the door. But, when a bank says "please don't run for the door", it's already too late.
- twelve40 4y ago
  Yeah, he was basically asking for the customers to keep fronting his risky shit. I'm almost certain SVB CEO already knew what was going to happen in the next 24 hours after his "stay calm" interview - FDIC doesn't get dispatched like that for no reason. https://www.barrons.com/articles/svb-financial-stock-sale-ceo-greg-becker-f5089a4d https://www.barrons.com/articles/svb-financial-stock-sale-ce...
  - kelnos 4y ago
    Fronting risky shit or not, on the whole, SVB's depositors would have been better off if every one of them had calmed down and done nothing right now. I would certainly understand if depositors would then build a measured plan to diversify their deposits over the next year or so, but while SVB certainly caused lack of faith, the reaction to that was what caused SVB to fail. So ok, we've "punished" SVB's management's poor money-management practices, but in the process we've also punished a lot of companies who had millions of dollars but now only have $250k (with uncertain future access to some portion of the remainder). Good job! Stick it to those SVB execs! Talk about cutting off your nose to spite your face... or I guess cutting off the noses of others...

kmod 4y ago

It sounds like you're saying "if you don't sell you can't lose money"