13 ms·

When did SVB insiders begin to realize they were in trouble?

230 points by akrymski 4y ago

frankfrankfrank 4y ago
Clearly some time before they started selling off their shares.
sampo 4y ago
In the beginning of the movie "Margin Call" (2011), why is Eric Dale, head of risk management, laid off by the bank?
- wmf 4y ago
  I don't think it was ever explained; it looked like general cost-cutting. I think he was just the head of risk for MBS, not for the whole bank.
  - voidfunc 4y ago
    I think it was just a regular down-sizing thing on the other hand it was a little bit weird with the USB hand-off but I dont think it was intended to be sketchy. That movie is a lot of fun, lots of good performances from Spacey, Jeremy Irons, and Zach Quinto.
    - wmf 4y ago
      This ominous hallway conversation could have been an email.
- vsnf 4y ago
  Because he was about to embarrass his boss, the Chief Risk Management Officer, by uncovering intentionally obfuscated negligent trading activity that she was ostensibly in charge of overseeing and preventing.
- irjustin 4y ago
  My personal take - on the surface "cost cutting"; real answer "internal politics" Dale (along with Rogers) opposed Jared Cohen and Sarah Robertson on their plan to repackage the MBS products, or maybe it was the specific method of repackaging, either way... After his exit interview and packing up his desk, he's talking to Emerson - he asks "who was it?... Robertson?" which clearly points to the internal politics.
- paxys 4y ago
  There's a part in the the movie where a higher-up asks Will Emerson who all are left in his risk department after the layoff, and he points to his two junior analysts. So basically Eric Dale's entire department was cut. Sam was constantly having "I told you so" moments with other executives, including the one who fired Eric, implying that they all had a good understanding of what they had been doing all along but willingly chose to ignore the risk. Laying off the risk team was the next natural progression of this, because they were no longer a real part of operations at the firm.
- 62951413 4y ago
  The timing of YT making it free to watch with ads recently (https://www.youtube.com/watch?v=78eq-EtOuaM https://www.youtube.com/watch?v=78eq-EtOuaM) is impeccable.
herpderperator 4y ago
So I keep seeing things like "insiders sold X amount at Y date, they must have known Z" but I thought that as an insider you can only sell a certain amount at certain times that are pre-defined before the true value of the sale could be known and before any future material events actually occurred. Could someone explain how this works?
- richardfeynman 4y ago
  Did you read the article? From the article: "One thing to keep in mind is both Ms. Izurieta’s and Mr. Becker’s 10B5-1 plans were adopted just a month prior to the sales occurring, and these transactions appear to be one-time in nature. They’re arguably open market sales masquerading as 10B5-1 transactions."
  - yodon 4y ago
    > Did you read the article? From the article: ... From the HN Guidelines[0]: Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that." [0]https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
    - richardfeynman 4y ago
      Thanks for this, this is a fair critique!
  - herpderperator 4y ago
    My question was about how this works generally for insiders, not specifically to this article.
- astrange 4y ago
  You're required to preregister stock sales, but you can cancel those preregistered plans anytime, so it's possible to get around it by filing and canceling often.
Natsu 4y ago
Dunno about insiders, but some old tweets called out trouble well before the fact: https://twitter.com/ByrneHobart/status/1628779894183272452 https://twitter.com/ByrneHobart/status/1628779894183272452 https://twitter.com/RagingVentures/status/1615826088038473733 https://twitter.com/RagingVentures/status/161582608803847373... EDIT: This tweet also proposes a timeline for the collapse based on one of those tweets - https://twitter.com/itsurboyevan/status/1634603869752766471 https://twitter.com/itsurboyevan/status/1634603869752766471
- hn_throwaway_99 4y ago
  Wow, some people are really prescient: "And even if the company did run into trouble, there are good political reasons to think that depositors wouldn't be harmed: the people who donate the legal maximum to political campaigns are disproportionately likely to bank with Silicon Valley or work for companies that do."
  - astrange 4y ago
    The legal maximum is around $5000, so this is invoking a conspiracy to protect lower-middle-class thousandaires. So… that's fine then.
    - mrguyorama 4y ago
      Are you purposely ignoring the rules around donating to PACs and similar? They are defacto part of the political influence economy, and are not limited like that.
    - HWR_14 4y ago
      Lower-middle-class thousandaires don't have $5,000 to donate to a single candidate, let alone hundreds of them. I am not sure how much money you need to be making to donate the maximum to a single politician, but I'm guessing it's in the low-to-mid-six figures before you can have a $5,000 donation as a reasonable budget item.
    - noitpmeder 4y ago
jeffbee 4y ago
I’m interested in the fact that this all seems like a whole red flag factory in retrospect but no outsider really saw it coming. If there were people establishing bets against this bank they weren’t doing it on the open market. Options markets for SVIB were almost silent until two days ago.
- mrguyorama 4y ago
  Just like shellshock and heartbleed, something being out in the open does not mean anyone with enough clout has actually looked into it. Transparency does not by default require anyone to look over the documents generated.
- wmf 4y ago
  The stock dropped 60%; what more do you want? And there was that blog post in December.
- jahewson 4y ago
  Not true. Publicly talked about back in December and the author had a short position: https://archive.is/dHmC4 https://archive.is/dHmC4
balozi 4y ago
There have been stories about the one SV honcho asking his portfolio to check their money at svb days before the chaos. Leading me to wonder; are there any laws or regulations against tipping off your friends that the bank you work at is in serious trouble? What happens when some depositors have insider information allowing them to act well in advance of a bank's problems becoming public? Aren't other depositors put at a disadvantage?
- dmix 4y ago
  There's barely laws against making money off inside information that actually result in enforcement in 99% of cases, would it even matter if there's laws against not losing your bank deposits?
- ano88888 4y ago
  with this logic, you will probably end up with laws governing every action you take or does not take. More laws is an intuitive solution but often the wrong one.
  - ofchnofc 4y ago
    [dead]
- jahewson 4y ago
  Want do you want them to do, ring a giant bank run bell?
  - Phlarp 4y ago
    What would you call it if a VC was sending group chats to founders telling them to withdraw from a specific bank? Seems like ringing a bank run bell to me. My understanding is that insider knowledge on the risk literally precipitated the run as more and more founders were trying to move all their money out at the same time.
  - HWR_14 4y ago
    Well, Silvergate called the government and began unwinding. At some point, voluntarily starting the process makes sense instead of trying to hold on a little longer.
anonu 4y ago
Chart KRE (regional bank ETF) against SIVB looking back the last year. You'll notice that SIVB starts to underperform the broader index around the Aug/Sept 2022 time-frame. (Underperformed by more than 30% between Aug-Dec 2022). This is a clear sign that not only insiders were aware by that time, but some savvy market participants were already betting against the company.
blindriver 4y ago
Just because they didn't have a Chief Risk Officer doesn't mean they didn't have a risk management team. They MUST have had an Enterprise Risk Management team whose sole responsibility is to look at risk like this. The main role that the CRO would have is to pound on desks that something had to be done. The biggest problem SVB had was a mismatch of duration between assets and liabilities. As interest rates started jumping, they should have acted on this by hedging or some other mitigation strategy. But this article's insinuations that people must have known as early as 2021 is ridiculous. The first rate hike was March 2022, and the subsequent one in May 2022 was already after the CRO ended her term. For SVB to have problems, it needed 2 distinct problems: 1) interest rates had to rise and 2) customers had to start withdrawing funds. #1 started in March 2022, but I think #2 probably happened later than that. I think funding probably dried up Q3, which probably took startups as a surprise which forced them to burn more cash. By then interest rates started to ratchet up by 75 basis points at a time and the stock market hit their lows in October. One possible scenario is that the ERM team flagged all this throughout 2022, but the CFO couldn't stomach the cost of hedging their portfolio and kept hoping for a reprieve or reversal. Regardless, I think it's definitely possible that they knew something was wrong in Q3-22. The fact they didn't act until end of Q1-23 by selling off all their AFS assets in desperation is a evidence to me that they were holding out for hope and couldn't bear it anymore until the new CRO forced it. It doesn't seem conceivable to me that they had an entire ERM team that sat around with their thumbs up their asses not understanding the problems they had in the back half of 2022. EDIT - There's 3 other things I didn't think of but I just skimmed through their 10K. 1) They had the bulk of the HTM in Mortgage Backed Securities. In a falling rate environment, customers refinance, which means those loans get paid off, and their HTM asset gets converted into cash, which they need to redistribute back into another security. They could have used that cash to pay off depositors withdrawing their cash. But they could As rates go up, all the customers stopped refinancing, customers stopped buying new houses, and SVB wasn't getting those mortgages paid off, which probably cut into their cash. 2) Yes, startups must have been burning through cash, but I also how many of those customers pulling their funds out were just buying US treasuries or moving them into high interest products outside of SVB. This might have been a factor. I myself started buying US Treasuries for over half my portfolio now that 90-day T-bills are over 5%. 3) The 10K was filed on Feb 24, and SVB dumped their AFS portfolio on March 9. That's less than 2 weeks. There's no way that the auditors shouldn't have known about this sale, and they would have raised a huge stink if they knew. So either they were hiding all of this from the auditors, which sounds like fraud or something very acute occurred during those 2 weeks but I can't imagine what that is. I'm going to be extremely interested to hear the reports from the inside because I'm sure people in SVB finance do not want to get pinned with the blame of this. EDIT 2: Found it. Moody's threatened to downgrade which forced the sale of AFS. So that explains it. So maybe everyone thought everything was okay and the surprise threat of the downgrade is what caused the house of cards to fall. https://www.cnbc.com/2023/03/11/silicon-valley-banks-demise-began-with-downgrade-threat.html https://www.cnbc.com/2023/03/11/silicon-valley-banks-demise-...
twblalock 4y ago
The real question is why the regulators didn't notice. Banking is far, far from a free market. Especially since 2008. There is heavy regulation, stress tests, etc. People keep talking about how we need more/better regulations but none of that matters if the regulators look at a bank doing risky stuff and don't realize that it is doing risky stuff. One of the reasons I'm glad about the government's announcement tonight is that I suspect there are a lot of other banks that are similarly exposed to the kind of duration risk SVB was, including First Republic, and now that people are looking for that the chance of further bank runs is pretty high.
- hypothesis 4y ago
  > The real question is why the regulators didn't notice. From what I read, it looks like some banks are trying to stay below $250B threshold that would trigger higher scrutiny.
  - twblalock 4y ago
    Given that the collapse of a bank that had less than that is now the second largest failure ever, lowering that threshold would be a pretty good start.
    - maximilianburke 4y ago
      It was $50bn, it was raised to $250bn in 2018.
      - hypothesis 4y ago
        I couldn’t find earlier data points, but at the end of 2019 they apparently had $61B in deposits… [0] https://mobile.twitter.com/jamiequint/status/1633956163565002752 https://mobile.twitter.com/jamiequint/status/163395616356500...
    - medler 4y ago
      The threshold was $50B until Trump and co raised it to $250B. I agree that lowering it back to $50B should be a priority.
mcguire 4y ago
" It would be good for everyone to understand that in taking his own money out, and encouraging others to do the same, Thiel was protecting himself while actively dooming hundreds of startups to failure. This was a choice to get his and screw everyone else." https://twitter.com/moorehn/status/1634973901230071809?t=RXVXptwhmLLvPMvahQ8lhA&s=19 https://twitter.com/moorehn/status/1634973901230071809?t=RXV...
- twblalock 4y ago
  What was he supposed to do, stay quiet about it and hope nobody else noticed?
- testfoobar 4y ago
  The bank was insolvent. Prisoner's dilemma applies. "The best response, ie. the dominant strategy, is to betray the other, which aligns with the sure-thing principle.[3] The prisoner's dilemma also illustrates that the decisions made under collective rationality may not necessarily be the same as those made under individual rationality. This conflict is also evident in a situation called the "Tragedy of the Commons".[3]". https://en.wikipedia.org/wiki/Prisoner%27s_dilemma https://en.wikipedia.org/wiki/Prisoner%27s_dilemma
  - eganist 4y ago
    The bank became* insolvent as a consequence of the actions taken by a select few to encourage withdrawals; the asset-liability mismatch wouldn't have been consequential had the run not been spurred on. I'm not giving a tutorial about how no bank will survive a run. The bank became insolvent because of a run spurred on by people like Thiel regardless of their issues with realizing losses on their AFS securities. It became insolvent^ last Friday after 42 billion dollars walked out the door The bank doesn't deserve a bailout, sure. But depositors certainly do, and people like Thiel will hopefully be black marks for future lenders who know the risks they bring. Here's a good thread explaining where SVB went wrong - https://twitter.com/MacroAlf/status/1634626124260028419 https://twitter.com/MacroAlf/status/1634626124260028419 - but in the end, they only became both illiquid (unable to sell shares being the last straw after having exhausted AFS securities and cash/equivalents) and insolvent (unable to cover debt obligations) at the hands of the people who spurred on the bank run. ^edit to correct from "illiquid" to "insolvent"
markdown 4y ago
What I'd like to know is why through the all of the posts and comments about this on here, the people responsible are never named. Who are/were the scoundrels running this bank, and why haven't they been run out of their homes and driven out of California with pitchforks?
- wmf 4y ago
  Because that's not the way we do things in the 21st century whether you like it or not. SVB made a dumb and serious mistake but it was still a mistake.
  - markdown 4y ago
    News broadcasts are filled with the "dumb and serious mistakes" of the common man. They're turned into pariah's. Why a different standard for the rich?
    - mrguyorama 4y ago
      Those news broadcasts are owned by the rich. Simple as.
gigel82 4y ago
I tried reading a couple of articles but I'm missing the big picture. How much exactly are they in the hole? I presume they have assets and loans to call upon. If you do the math, how much is it in the red?
- noahtallen 4y ago
  From what I understand, they (SVB) won’t exist any more. The FDIC will give all of the depositors their money back, which will come out of the FDIC insurance fund. Then the FDIC will sell off all the SVB assets, and from their statement and other articles, they expect to get most (if not more) of the money back that they’d pay out to the depositors. That’ll go back into the FDIC insurance fund and SVB won’t exist any more. I don’t think anyone knows the exact math, partly because the assets are obviously illiquid. So you’re not like getting the full value of a bond, you’re just trying to get someone to buy it off you, which means the pricing is dynamic.
  - Gibbon1 4y ago
    I think their assets aren't illiquid, the problem is they pay out a low rate of interest. As in if I can buy a $1M bond that pays 5% interest. How much you think a $1M bond that pays 1.5% is worth. Much Less. In 2020 and 2021 about 2.7 trillion worth of mortgages were refinanced. That gives you an idea of the scale of the problem with the Fed blithely raising rates.
riskneutral 4y ago
The more important question of disclosure has to do with the so-called "held-to-maturity" book, which I want to start affectionally referring to as the "held-to-mortality" book, or the "head-in-the-sand" book. These are all fancy ways of talking about accounting tricks that banks are allowed to employ in order to hide economic losses from their financial statements. Banks would argue that their accounting tricks are blessed by the priesthood of professionals accountants, so it's perfectly legal. Which it is. It is not obvious that real-time mark-to-market accounting would have made things any better, but pretending that massive economic losses were not real was not a sustainable trajectory as soon the accounting fiction (no losses) collided economic reality (the need to sell holdings, in order allow depositors to withdraw their cash demand deposits). Given the panicy herd psychology of humans, it has long been argued (at least since as long as the collapse of Lehman Brothers) that "head-in-the-sand" accounting is preferable to mark-to-market in order to ensure the stability of the financial system. In laymen terms, sometimes it's better for the public not to know how bad things have gotten behind the scenes. That is a kind of common sense practice for governance, and it isn't going to go away. Ironically, the answer to the SVB collapse is that you should have less informed, less rich and less well connected depositors (i.e. tame and docile customers) if you want to reduce the risk of a run on your bank, which is obvious in retrospect.
- sbierwagen 4y ago
  Back in 2008, in contrast to mark-to-market, it was called "mark-to-make believe".
  - mattclarkdotnet 4y ago
    I have the little celebration trinket on my desk for when PWC completed the sale of Lehmans’ assets. They got 130 cents on the dollar for them in the end. Liquidity matters.
    - ketzo 4y ago
      Man, I wish I could staple this comment to the top of every discussion of SVB.
bonadrag 4y ago
[flagged]
- hypothesis 4y ago
  People in this thread are speculating that CRO might be out of job precisely because they weren’t fully on board with things happening there.
- d23 4y ago
  New account. First post is to incomprehensibly blame this SV bank failure on… progressive politics.
  - bonadrag 4y ago
    No. My point is whether these people were interested in doing their jobs. You'd think the CRO of an important bank in the US would be more interested in discussing or showing interest for the subject in which they are experts.
    - haram_masala 4y ago
      LinkedIn is a career and promotional tool. Some people use it to discuss their work, some people discuss their work environment.
      - mrguyorama 4y ago
        It's also the exact kind of "all talk no action" place where you would expect wealthy people to pretend to be woke.

230 points by akrymski 4y ago

frankfrankfrank 4y ago

Clearly some time before they started selling off their shares.

sampo 4y ago

In the beginning of the movie "Margin Call" (2011), why is Eric Dale, head of risk management, laid off by the bank?

wmf 4y ago
I don't think it was ever explained; it looked like general cost-cutting. I think he was just the head of risk for MBS, not for the whole bank.
- voidfunc 4y ago
  I think it was just a regular down-sizing thing on the other hand it was a little bit weird with the USB hand-off but I dont think it was intended to be sketchy. That movie is a lot of fun, lots of good performances from Spacey, Jeremy Irons, and Zach Quinto.
  - wmf 4y ago
    This ominous hallway conversation could have been an email.
vsnf 4y ago
Because he was about to embarrass his boss, the Chief Risk Management Officer, by uncovering intentionally obfuscated negligent trading activity that she was ostensibly in charge of overseeing and preventing.
irjustin 4y ago
My personal take - on the surface "cost cutting"; real answer "internal politics" Dale (along with Rogers) opposed Jared Cohen and Sarah Robertson on their plan to repackage the MBS products, or maybe it was the specific method of repackaging, either way... After his exit interview and packing up his desk, he's talking to Emerson - he asks "who was it?... Robertson?" which clearly points to the internal politics.
paxys 4y ago
There's a part in the the movie where a higher-up asks Will Emerson who all are left in his risk department after the layoff, and he points to his two junior analysts. So basically Eric Dale's entire department was cut. Sam was constantly having "I told you so" moments with other executives, including the one who fired Eric, implying that they all had a good understanding of what they had been doing all along but willingly chose to ignore the risk. Laying off the risk team was the next natural progression of this, because they were no longer a real part of operations at the firm.
62951413 4y ago
The timing of YT making it free to watch with ads recently (https://www.youtube.com/watch?v=78eq-EtOuaM https://www.youtube.com/watch?v=78eq-EtOuaM) is impeccable.

herpderperator 4y ago

So I keep seeing things like "insiders sold X amount at Y date, they must have known Z" but I thought that as an insider you can only sell a certain amount at certain times that are pre-defined before the true value of the sale could be known and before any future material events actually occurred. Could someone explain how this works?

richardfeynman 4y ago
Did you read the article? From the article: "One thing to keep in mind is both Ms. Izurieta’s and Mr. Becker’s 10B5-1 plans were adopted just a month prior to the sales occurring, and these transactions appear to be one-time in nature. They’re arguably open market sales masquerading as 10B5-1 transactions."
- yodon 4y ago
  > Did you read the article? From the article: ... From the HN Guidelines[0]: Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that." [0]https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
  - richardfeynman 4y ago
    Thanks for this, this is a fair critique!
- herpderperator 4y ago
  My question was about how this works generally for insiders, not specifically to this article.
astrange 4y ago
You're required to preregister stock sales, but you can cancel those preregistered plans anytime, so it's possible to get around it by filing and canceling often.

Natsu 4y ago

Dunno about insiders, but some old tweets called out trouble well before the fact: https://twitter.com/ByrneHobart/status/1628779894183272452 https://twitter.com/ByrneHobart/status/1628779894183272452 https://twitter.com/RagingVentures/status/1615826088038473733 https://twitter.com/RagingVentures/status/161582608803847373... EDIT: This tweet also proposes a timeline for the collapse based on one of those tweets - https://twitter.com/itsurboyevan/status/1634603869752766471 https://twitter.com/itsurboyevan/status/1634603869752766471

hn_throwaway_99 4y ago
Wow, some people are really prescient: "And even if the company did run into trouble, there are good political reasons to think that depositors wouldn't be harmed: the people who donate the legal maximum to political campaigns are disproportionately likely to bank with Silicon Valley or work for companies that do."
- astrange 4y ago
  The legal maximum is around $5000, so this is invoking a conspiracy to protect lower-middle-class thousandaires. So… that's fine then.
  - mrguyorama 4y ago
    Are you purposely ignoring the rules around donating to PACs and similar? They are defacto part of the political influence economy, and are not limited like that.
  - HWR_14 4y ago
    Lower-middle-class thousandaires don't have $5,000 to donate to a single candidate, let alone hundreds of them. I am not sure how much money you need to be making to donate the maximum to a single politician, but I'm guessing it's in the low-to-mid-six figures before you can have a $5,000 donation as a reasonable budget item.
  - noitpmeder 4y ago

jeffbee 4y ago

I’m interested in the fact that this all seems like a whole red flag factory in retrospect but no outsider really saw it coming. If there were people establishing bets against this bank they weren’t doing it on the open market. Options markets for SVIB were almost silent until two days ago.

mrguyorama 4y ago
Just like shellshock and heartbleed, something being out in the open does not mean anyone with enough clout has actually looked into it. Transparency does not by default require anyone to look over the documents generated.
wmf 4y ago
The stock dropped 60%; what more do you want? And there was that blog post in December.
jahewson 4y ago
Not true. Publicly talked about back in December and the author had a short position: https://archive.is/dHmC4 https://archive.is/dHmC4

balozi 4y ago

There have been stories about the one SV honcho asking his portfolio to check their money at svb days before the chaos. Leading me to wonder; are there any laws or regulations against tipping off your friends that the bank you work at is in serious trouble? What happens when some depositors have insider information allowing them to act well in advance of a bank's problems becoming public? Aren't other depositors put at a disadvantage?

dmix 4y ago
There's barely laws against making money off inside information that actually result in enforcement in 99% of cases, would it even matter if there's laws against not losing your bank deposits?
ano88888 4y ago
with this logic, you will probably end up with laws governing every action you take or does not take. More laws is an intuitive solution but often the wrong one.
- ofchnofc 4y ago
  [dead]
jahewson 4y ago
Want do you want them to do, ring a giant bank run bell?
- Phlarp 4y ago
  What would you call it if a VC was sending group chats to founders telling them to withdraw from a specific bank? Seems like ringing a bank run bell to me. My understanding is that insider knowledge on the risk literally precipitated the run as more and more founders were trying to move all their money out at the same time.
- HWR_14 4y ago
  Well, Silvergate called the government and began unwinding. At some point, voluntarily starting the process makes sense instead of trying to hold on a little longer.

anonu 4y ago

Chart KRE (regional bank ETF) against SIVB looking back the last year. You'll notice that SIVB starts to underperform the broader index around the Aug/Sept 2022 time-frame. (Underperformed by more than 30% between Aug-Dec 2022). This is a clear sign that not only insiders were aware by that time, but some savvy market participants were already betting against the company.

blindriver 4y ago

Just because they didn't have a Chief Risk Officer doesn't mean they didn't have a risk management team. They MUST have had an Enterprise Risk Management team whose sole responsibility is to look at risk like this. The main role that the CRO would have is to pound on desks that something had to be done. The biggest problem SVB had was a mismatch of duration between assets and liabilities. As interest rates started jumping, they should have acted on this by hedging or some other mitigation strategy. But this article's insinuations that people must have known as early as 2021 is ridiculous. The first rate hike was March 2022, and the subsequent one in May 2022 was already after the CRO ended her term. For SVB to have problems, it needed 2 distinct problems: 1) interest rates had to rise and 2) customers had to start withdrawing funds. #1 started in March 2022, but I think #2 probably happened later than that. I think funding probably dried up Q3, which probably took startups as a surprise which forced them to burn more cash. By then interest rates started to ratchet up by 75 basis points at a time and the stock market hit their lows in October. One possible scenario is that the ERM team flagged all this throughout 2022, but the CFO couldn't stomach the cost of hedging their portfolio and kept hoping for a reprieve or reversal. Regardless, I think it's definitely possible that they knew something was wrong in Q3-22. The fact they didn't act until end of Q1-23 by selling off all their AFS assets in desperation is a evidence to me that they were holding out for hope and couldn't bear it anymore until the new CRO forced it. It doesn't seem conceivable to me that they had an entire ERM team that sat around with their thumbs up their asses not understanding the problems they had in the back half of 2022. EDIT - There's 3 other things I didn't think of but I just skimmed through their 10K. 1) They had the bulk of the HTM in Mortgage Backed Securities. In a falling rate environment, customers refinance, which means those loans get paid off, and their HTM asset gets converted into cash, which they need to redistribute back into another security. They could have used that cash to pay off depositors withdrawing their cash. But they could As rates go up, all the customers stopped refinancing, customers stopped buying new houses, and SVB wasn't getting those mortgages paid off, which probably cut into their cash. 2) Yes, startups must have been burning through cash, but I also how many of those customers pulling their funds out were just buying US treasuries or moving them into high interest products outside of SVB. This might have been a factor. I myself started buying US Treasuries for over half my portfolio now that 90-day T-bills are over 5%. 3) The 10K was filed on Feb 24, and SVB dumped their AFS portfolio on March 9. That's less than 2 weeks. There's no way that the auditors shouldn't have known about this sale, and they would have raised a huge stink if they knew. So either they were hiding all of this from the auditors, which sounds like fraud or something very acute occurred during those 2 weeks but I can't imagine what that is. I'm going to be extremely interested to hear the reports from the inside because I'm sure people in SVB finance do not want to get pinned with the blame of this. EDIT 2: Found it. Moody's threatened to downgrade which forced the sale of AFS. So that explains it. So maybe everyone thought everything was okay and the surprise threat of the downgrade is what caused the house of cards to fall. https://www.cnbc.com/2023/03/11/silicon-valley-banks-demise-began-with-downgrade-threat.html https://www.cnbc.com/2023/03/11/silicon-valley-banks-demise-...

twblalock 4y ago

The real question is why the regulators didn't notice. Banking is far, far from a free market. Especially since 2008. There is heavy regulation, stress tests, etc. People keep talking about how we need more/better regulations but none of that matters if the regulators look at a bank doing risky stuff and don't realize that it is doing risky stuff. One of the reasons I'm glad about the government's announcement tonight is that I suspect there are a lot of other banks that are similarly exposed to the kind of duration risk SVB was, including First Republic, and now that people are looking for that the chance of further bank runs is pretty high.

hypothesis 4y ago
> The real question is why the regulators didn't notice. From what I read, it looks like some banks are trying to stay below $250B threshold that would trigger higher scrutiny.
- twblalock 4y ago
  Given that the collapse of a bank that had less than that is now the second largest failure ever, lowering that threshold would be a pretty good start.
  - maximilianburke 4y ago
    It was $50bn, it was raised to $250bn in 2018.
    - hypothesis 4y ago
      I couldn’t find earlier data points, but at the end of 2019 they apparently had $61B in deposits… [0] https://mobile.twitter.com/jamiequint/status/1633956163565002752 https://mobile.twitter.com/jamiequint/status/163395616356500...
  - medler 4y ago
    The threshold was $50B until Trump and co raised it to $250B. I agree that lowering it back to $50B should be a priority.

mcguire 4y ago

" It would be good for everyone to understand that in taking his own money out, and encouraging others to do the same, Thiel was protecting himself while actively dooming hundreds of startups to failure. This was a choice to get his and screw everyone else." https://twitter.com/moorehn/status/1634973901230071809?t=RXVXptwhmLLvPMvahQ8lhA&s=19 https://twitter.com/moorehn/status/1634973901230071809?t=RXV...

twblalock 4y ago
What was he supposed to do, stay quiet about it and hope nobody else noticed?
testfoobar 4y ago
The bank was insolvent. Prisoner's dilemma applies. "The best response, ie. the dominant strategy, is to betray the other, which aligns with the sure-thing principle.[3] The prisoner's dilemma also illustrates that the decisions made under collective rationality may not necessarily be the same as those made under individual rationality. This conflict is also evident in a situation called the "Tragedy of the Commons".[3]". https://en.wikipedia.org/wiki/Prisoner%27s_dilemma https://en.wikipedia.org/wiki/Prisoner%27s_dilemma
- eganist 4y ago
  The bank became* insolvent as a consequence of the actions taken by a select few to encourage withdrawals; the asset-liability mismatch wouldn't have been consequential had the run not been spurred on. I'm not giving a tutorial about how no bank will survive a run. The bank became insolvent because of a run spurred on by people like Thiel regardless of their issues with realizing losses on their AFS securities. It became insolvent^ last Friday after 42 billion dollars walked out the door The bank doesn't deserve a bailout, sure. But depositors certainly do, and people like Thiel will hopefully be black marks for future lenders who know the risks they bring. Here's a good thread explaining where SVB went wrong - https://twitter.com/MacroAlf/status/1634626124260028419 https://twitter.com/MacroAlf/status/1634626124260028419 - but in the end, they only became both illiquid (unable to sell shares being the last straw after having exhausted AFS securities and cash/equivalents) and insolvent (unable to cover debt obligations) at the hands of the people who spurred on the bank run. ^edit to correct from "illiquid" to "insolvent"

markdown 4y ago

What I'd like to know is why through the all of the posts and comments about this on here, the people responsible are never named. Who are/were the scoundrels running this bank, and why haven't they been run out of their homes and driven out of California with pitchforks?

wmf 4y ago
Because that's not the way we do things in the 21st century whether you like it or not. SVB made a dumb and serious mistake but it was still a mistake.
- markdown 4y ago
  News broadcasts are filled with the "dumb and serious mistakes" of the common man. They're turned into pariah's. Why a different standard for the rich?
  - mrguyorama 4y ago
    Those news broadcasts are owned by the rich. Simple as.

gigel82 4y ago

I tried reading a couple of articles but I'm missing the big picture. How much exactly are they in the hole? I presume they have assets and loans to call upon. If you do the math, how much is it in the red?

noahtallen 4y ago
From what I understand, they (SVB) won’t exist any more. The FDIC will give all of the depositors their money back, which will come out of the FDIC insurance fund. Then the FDIC will sell off all the SVB assets, and from their statement and other articles, they expect to get most (if not more) of the money back that they’d pay out to the depositors. That’ll go back into the FDIC insurance fund and SVB won’t exist any more. I don’t think anyone knows the exact math, partly because the assets are obviously illiquid. So you’re not like getting the full value of a bond, you’re just trying to get someone to buy it off you, which means the pricing is dynamic.
- Gibbon1 4y ago
  I think their assets aren't illiquid, the problem is they pay out a low rate of interest. As in if I can buy a $1M bond that pays 5% interest. How much you think a $1M bond that pays 1.5% is worth. Much Less. In 2020 and 2021 about 2.7 trillion worth of mortgages were refinanced. That gives you an idea of the scale of the problem with the Fed blithely raising rates.

riskneutral 4y ago

The more important question of disclosure has to do with the so-called "held-to-maturity" book, which I want to start affectionally referring to as the "held-to-mortality" book, or the "head-in-the-sand" book. These are all fancy ways of talking about accounting tricks that banks are allowed to employ in order to hide economic losses from their financial statements. Banks would argue that their accounting tricks are blessed by the priesthood of professionals accountants, so it's perfectly legal. Which it is. It is not obvious that real-time mark-to-market accounting would have made things any better, but pretending that massive economic losses were not real was not a sustainable trajectory as soon the accounting fiction (no losses) collided economic reality (the need to sell holdings, in order allow depositors to withdraw their cash demand deposits). Given the panicy herd psychology of humans, it has long been argued (at least since as long as the collapse of Lehman Brothers) that "head-in-the-sand" accounting is preferable to mark-to-market in order to ensure the stability of the financial system. In laymen terms, sometimes it's better for the public not to know how bad things have gotten behind the scenes. That is a kind of common sense practice for governance, and it isn't going to go away. Ironically, the answer to the SVB collapse is that you should have less informed, less rich and less well connected depositors (i.e. tame and docile customers) if you want to reduce the risk of a run on your bank, which is obvious in retrospect.

sbierwagen 4y ago
Back in 2008, in contrast to mark-to-market, it was called "mark-to-make believe".
- mattclarkdotnet 4y ago
  I have the little celebration trinket on my desk for when PWC completed the sale of Lehmans’ assets. They got 130 cents on the dollar for them in the end. Liquidity matters.
  - ketzo 4y ago
    Man, I wish I could staple this comment to the top of every discussion of SVB.

bonadrag 4y ago

[flagged]

hypothesis 4y ago
People in this thread are speculating that CRO might be out of job precisely because they weren’t fully on board with things happening there.
d23 4y ago
New account. First post is to incomprehensibly blame this SV bank failure on… progressive politics.
- bonadrag 4y ago
  No. My point is whether these people were interested in doing their jobs. You'd think the CRO of an important bank in the US would be more interested in discussing or showing interest for the subject in which they are experts.
  - haram_masala 4y ago
    LinkedIn is a career and promotional tool. Some people use it to discuss their work, some people discuss their work environment.
    - mrguyorama 4y ago
      It's also the exact kind of "all talk no action" place where you would expect wealthy people to pretend to be woke.