4 ms·

I read that SVB in fact had lots customers who didn’t want/need loans, as they were depositing loads of venture money. That was part of bank’s problem.

swatcoder 4y ago
Perhaps in some cases, but the venture money deposits could be used collateral for loans, giving the startups access to even more capital. So the bank was drawing in startup clients with these nontraditional loans while requiring that they deposit the venture money with then for surety. It wasn’t just coincidence that they were so disproportionately in one sector and had such a share of uninsured deposits. It was their strategy. It just backfired when that venture money tightened up, and finally blew up when the money spooked. People are focusing the TBill thing thing because that side of the story broke first (and was amplified by VC PR) and glosses over the part that implicates how the startup sector was using them.
twblalock 4y ago
SVB was offering attractive loans to account holders, and many took them up on it. If you just got a funding round you are already running your business on borrowed money. Imagine that a bank told you, deposit the cash from that funding round with us and we will give you even more funding! That's pretty attractive when interest rates are super low. When the free money spigot got turned off, mainly by the Fed raising rates, some of the account holders started spending their cash rather than running on more loans. The same increase in interest rates that caused that change in depositor behavior also caused SVB's long-term bond investments to lose value. SVB effectively doubled down on the low-interest rate era by both depending on depositors living on loans (rather than withdrawing deposits) and investing in low-interest long-term investments at the same time.

4 ms·

I read that SVB in fact had lots customers who didn’t want/need loans, as they were depositing loads of venture money. That was part of bank’s problem.

by hypothesis 4y ago

swatcoder 4y ago
Perhaps in some cases, but the venture money deposits could be used collateral for loans, giving the startups access to even more capital. So the bank was drawing in startup clients with these nontraditional loans while requiring that they deposit the venture money with then for surety. It wasn’t just coincidence that they were so disproportionately in one sector and had such a share of uninsured deposits. It was their strategy. It just backfired when that venture money tightened up, and finally blew up when the money spooked. People are focusing the TBill thing thing because that side of the story broke first (and was amplified by VC PR) and glosses over the part that implicates how the startup sector was using them.
twblalock 4y ago
SVB was offering attractive loans to account holders, and many took them up on it. If you just got a funding round you are already running your business on borrowed money. Imagine that a bank told you, deposit the cash from that funding round with us and we will give you even more funding! That's pretty attractive when interest rates are super low. When the free money spigot got turned off, mainly by the Fed raising rates, some of the account holders started spending their cash rather than running on more loans. The same increase in interest rates that caused that change in depositor behavior also caused SVB's long-term bond investments to lose value. SVB effectively doubled down on the low-interest rate era by both depending on depositors living on loans (rather than withdrawing deposits) and investing in low-interest long-term investments at the same time.