4 ms·

This really sheds clarity on the situation. SVB was in bad shape long before the run, and there is no apparent next domino to fall. FDIC limits are very well un

This really sheds clarity on the situation. SVB was in bad shape long before the run, and there is no apparent next domino to fall. FDIC limits are very well understood and relatively easy to work with (despite the rampant FUD about “who’s going to use multiple bank accounts”, deposit sweep programs are highly available and convenient). This is a risk management failure by depositors (in addition to the bank of course), and should be treated as such.

siftrics 4y ago
This is not risk management failure by depositors. Depositors can and should assume that regulations prevent banks from assuming outsize risk like this. This is a policy failure of the regulators that oversee banks. Banks should not be allowed to have so little cash on hand, especially when we knew with high likelihood the fed would raise rates.
- JumpCrisscross 4y ago
  > Depositors can and should assume that regulations prevent banks from assuming outsize risk like this Small depositors, yes. Institutional depositors, no. Not all banks are equal. SVB was borderline investment grade before it collapsed. Treasury advice strikes me as low-hanging fruit VCs could have guided their companies on. Instead, most universally recommended SVB because the priority was reducing friction, not risk.
  - ericpauley 4y ago
    Exactly. 250k to me seems like a very logical threshold to expect at least some sophistication. Deposit sweeps get you to 3M many places after which it seems perfectly reasonable to expect people to manage treasuries. If Bogleheads can do it VCs can. Then again, you have people like Mark Cuban who clearly don’t know about basic cash management (https://twitter.com/mcuban/status/1634413306948603905 https://twitter.com/mcuban/status/1634413306948603905), so maybe American lack of financial literacy has truly trickled all the way up.
    - morelisp 4y ago
      The alternative take would be that Cuban knows exactly how it works but sees a chance to push for what's essentially a federal startup subsidy because his fanboys don't know.
      - ericpauley 4y ago
        For sure, the assumption of ignorance definitely doesn’t apply here.
      - tome 4y ago
        Yes, my reading is that he knows well, he just wants to socialise his insurance costs (including self-insurance, by splitting deposits across several institutions).
dhbanes 4y ago
There is an apparent next domino to fall - First Republic Bank.
- ericpauley 4y ago
  We’ll see, but tweets last night to this effect were pretty clearly FUD.
  - dhbanes 4y ago
    Bank runs start with FUD. That’s how it works.
patientplatypus 4y ago
This appears to be the case - the JPMorgan analyst is (paraphrasing) saying that if you did a fire sale on all of the assets of the banks in isolation the difference between their capital ratios (the amount that they have to have on hand to meet depositors) is minimal. Notice that of all of the banks in the fifth chart the blue line and the bronze line are nearly even - except for SIVB, which has no bronze line. That's not good. I can't speak to this person's methodology, but if what he is saying is true there's almost no risk of contagion in the broader banking sector. And if that's true then there's $152 billion dollars of VC capital that's going to evaporate Monday morning. It should be noted that JPMorgan participated in the bailout in 2008, with the resulting headaches that that entailed, and Dimon has explicitly stated that he wouldn't participate in a current bailout. So JPMorgan may not be entirely objective. However, to my eyes, this appears rather clear.
metalspot 4y ago
what you have to ask is how much of the "deposits" were loans from SVB? that is the real issue. SVB "loaning" money to startups on the premise that they would park it in SVB accounts. nobody knows how big that number is, but it is the real problem.

siftrics 4y ago

This is not risk management failure by depositors. Depositors can and should assume that regulations prevent banks from assuming outsize risk like this. This is a policy failure of the regulators that oversee banks. Banks should not be allowed to have so little cash on hand, especially when we knew with high likelihood the fed would raise rates.

JumpCrisscross 4y ago
> Depositors can and should assume that regulations prevent banks from assuming outsize risk like this Small depositors, yes. Institutional depositors, no. Not all banks are equal. SVB was borderline investment grade before it collapsed. Treasury advice strikes me as low-hanging fruit VCs could have guided their companies on. Instead, most universally recommended SVB because the priority was reducing friction, not risk.
- ericpauley 4y ago
  Exactly. 250k to me seems like a very logical threshold to expect at least some sophistication. Deposit sweeps get you to 3M many places after which it seems perfectly reasonable to expect people to manage treasuries. If Bogleheads can do it VCs can. Then again, you have people like Mark Cuban who clearly don’t know about basic cash management (https://twitter.com/mcuban/status/1634413306948603905 https://twitter.com/mcuban/status/1634413306948603905), so maybe American lack of financial literacy has truly trickled all the way up.
  - morelisp 4y ago
    The alternative take would be that Cuban knows exactly how it works but sees a chance to push for what's essentially a federal startup subsidy because his fanboys don't know.
    - ericpauley 4y ago
      For sure, the assumption of ignorance definitely doesn’t apply here.
    - tome 4y ago
      Yes, my reading is that he knows well, he just wants to socialise his insurance costs (including self-insurance, by splitting deposits across several institutions).

dhbanes 4y ago

There is an apparent next domino to fall - First Republic Bank.

ericpauley 4y ago
We’ll see, but tweets last night to this effect were pretty clearly FUD.
- dhbanes 4y ago
  Bank runs start with FUD. That’s how it works.

patientplatypus 4y ago

This appears to be the case - the JPMorgan analyst is (paraphrasing) saying that if you did a fire sale on all of the assets of the banks in isolation the difference between their capital ratios (the amount that they have to have on hand to meet depositors) is minimal. Notice that of all of the banks in the fifth chart the blue line and the bronze line are nearly even - except for SIVB, which has no bronze line. That's not good. I can't speak to this person's methodology, but if what he is saying is true there's almost no risk of contagion in the broader banking sector. And if that's true then there's $152 billion dollars of VC capital that's going to evaporate Monday morning. It should be noted that JPMorgan participated in the bailout in 2008, with the resulting headaches that that entailed, and Dimon has explicitly stated that he wouldn't participate in a current bailout. So JPMorgan may not be entirely objective. However, to my eyes, this appears rather clear.

metalspot 4y ago

what you have to ask is how much of the "deposits" were loans from SVB? that is the real issue. SVB "loaning" money to startups on the premise that they would park it in SVB accounts. nobody knows how big that number is, but it is the real problem.