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This is nonsense. The bank broke itself by making bad investments. We will see other banks that are unrelated to Silicon Valley's tech industry fail in the next

This is nonsense. The bank broke itself by making bad investments. We will see other banks that are unrelated to Silicon Valley's tech industry fail in the next few weeks as well, because they made similar investments, but that won't fit the cute anti-tech narrative.

lmaoge 4y ago
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PaulHoule 4y ago
There is some truth in it. The bank had a relatively small shortfall (I think about 2%) compared to its total assets, but any shortfall at all is dangerous for a bank since it is liable for 100% of assets. The bank was trying to get some financing to cover the gap, which it might have been able to do, but its customers heard the rumors and tried to pull out around 25% of the assets. Had the bank gotten the financing before the freakout, there might have been no problem. As it is, the Fed and FDIC seem to be able to put the situation together by finding another bank that is willing to eat the shortfall to buy $200B of AUM. It's a easy resolution with the minus that now instead of two big banks there will be one even bigger bank and we've got too many banks that are too big.
- frellus 4y ago
  You need to dig into the bonds and understand what happened here. It wasn't 2%, it was about liquidity of those assets when the interest rates rose.
  - fisherjeff 4y ago
    I think a more accurate description would be something like: 1) SVB deposits were suddenly up ~4x 2) Interest rates were ~0% and few customers needed loans 3) The only way to generate a spread (i.e., keep the doors open) was to buy long-dated securities 4) SVB crosses their fingers and hopes rates don’t rise 5) Oops, rates rise quickly, assets devalue quickly 6) SVB is a little tight on liquidity and wants very badly to avoid selling their devalued assets, but can probably ride it out, provided they can raise a little cash and don’t lose more than maybe 15-20% of their deposits per year 7) People get nervous 8) SVB loses an absolute shit ton of deposits 9) “Hi, we’re from the FDIC and you’re all fired”
- matheusmoreira 4y ago
  Wait... So this bank failed because of a good old fashioned bank run? That's hilarious and awesome.
  - IIAOPSW 4y ago
    If you think that's funny, I've got a ton of great news to show you!
Overtonwindow 4y ago
The public relations folks are hard at work to make sure that the people responsible for this, are never held accountable. Be thankful for your government, it's the best that money can buy.
- kristjansson 4y ago
  The run or the weakness at SVB?
- cscurmudgeon 4y ago
  I mean the government paved the way for this indirectly by disallowing safer banks. https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-the-narrow-bank https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
vba616 4y ago
If other banks fail, I expect it will not be for the same reason. That's not based on any original thinking or analysis, but others have pointed out that most banks have more diverse depositors who don't have as much money individually and don't all talk to each other, making a bank run much less likely. The other banks also have an easier time putting deposits to work in a way that isn't so sensitive to interest rate increases. Allegedly, a normal well run bank should actually increase profits overall as rates rise. There are a lot of lame attempts at anti-tech snark, but it does make sense that this bank was unusual. Matthew Levine wrote: "You are the Bank of Startups, and startups are a low-interest-rate phenomenon. When interest rates are low everywhere, a dollar in 20 years is about as good as a dollar today, so a startup whose business model is “we will lose money for a decade building artificial intelligence, and then rake in lots of money in the far future” sounds pretty good. When interest rates are higher, a dollar today is better than a dollar tomorrow, so investors want cash flows. When interest rates were low for a long time, and suddenly become high, all the money that was rushing to your customers is suddenly cut off. " This does not apply to a random regional bank that, like, lends money to local people to buy houses outside of CA. Regular banks have a certain amount of assets with variable rates, like, say, my HELOC, that cushion rate increases. Also, if you want anti-tech snark, Levine is the best: "... 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." . . . "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."

lmaoge 4y ago

[dead]

PaulHoule 4y ago

There is some truth in it. The bank had a relatively small shortfall (I think about 2%) compared to its total assets, but any shortfall at all is dangerous for a bank since it is liable for 100% of assets. The bank was trying to get some financing to cover the gap, which it might have been able to do, but its customers heard the rumors and tried to pull out around 25% of the assets. Had the bank gotten the financing before the freakout, there might have been no problem. As it is, the Fed and FDIC seem to be able to put the situation together by finding another bank that is willing to eat the shortfall to buy $200B of AUM. It's a easy resolution with the minus that now instead of two big banks there will be one even bigger bank and we've got too many banks that are too big.

frellus 4y ago
You need to dig into the bonds and understand what happened here. It wasn't 2%, it was about liquidity of those assets when the interest rates rose.
- fisherjeff 4y ago
  I think a more accurate description would be something like: 1) SVB deposits were suddenly up ~4x 2) Interest rates were ~0% and few customers needed loans 3) The only way to generate a spread (i.e., keep the doors open) was to buy long-dated securities 4) SVB crosses their fingers and hopes rates don’t rise 5) Oops, rates rise quickly, assets devalue quickly 6) SVB is a little tight on liquidity and wants very badly to avoid selling their devalued assets, but can probably ride it out, provided they can raise a little cash and don’t lose more than maybe 15-20% of their deposits per year 7) People get nervous 8) SVB loses an absolute shit ton of deposits 9) “Hi, we’re from the FDIC and you’re all fired”
matheusmoreira 4y ago
Wait... So this bank failed because of a good old fashioned bank run? That's hilarious and awesome.
- IIAOPSW 4y ago
  If you think that's funny, I've got a ton of great news to show you!

Overtonwindow 4y ago

The public relations folks are hard at work to make sure that the people responsible for this, are never held accountable. Be thankful for your government, it's the best that money can buy.

kristjansson 4y ago
The run or the weakness at SVB?
cscurmudgeon 4y ago
I mean the government paved the way for this indirectly by disallowing safer banks. https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-the-narrow-bank https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...

vba616 4y ago

If other banks fail, I expect it will not be for the same reason. That's not based on any original thinking or analysis, but others have pointed out that most banks have more diverse depositors who don't have as much money individually and don't all talk to each other, making a bank run much less likely. The other banks also have an easier time putting deposits to work in a way that isn't so sensitive to interest rate increases. Allegedly, a normal well run bank should actually increase profits overall as rates rise. There are a lot of lame attempts at anti-tech snark, but it does make sense that this bank was unusual. Matthew Levine wrote: "You are the Bank of Startups, and startups are a low-interest-rate phenomenon. When interest rates are low everywhere, a dollar in 20 years is about as good as a dollar today, so a startup whose business model is “we will lose money for a decade building artificial intelligence, and then rake in lots of money in the far future” sounds pretty good. When interest rates are higher, a dollar today is better than a dollar tomorrow, so investors want cash flows. When interest rates were low for a long time, and suddenly become high, all the money that was rushing to your customers is suddenly cut off. " This does not apply to a random regional bank that, like, lends money to local people to buy houses outside of CA. Regular banks have a certain amount of assets with variable rates, like, say, my HELOC, that cushion rate increases. Also, if you want anti-tech snark, Levine is the best: "... 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." . . . "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."