3 ms·

It's so boring to see people get blamed for taking their own money somewhere else in time.

whatever1 4y ago
And also rallying their dependents to do the same. How noble of them.
Lazare 4y ago
The article is blaming people for creating and spreading panic, not (just) for moving money out. (And in the context of a bank run, there's a pretty good argument that the author is correct too.)
- stametseater 4y ago
  [dead]
astrange 4y ago
That's what a bank run is. If you don't take it out, there is no run and no problem. And as we can see, there was nothing to be in time for, because nobody's lost any deposits. If the bank was in that much trouble it could've been wound down in a more orderly fashion than this though.
- andy_ppp 4y ago
  If people stop trusting banks because of good reasons they have a right to withdraw funds.
  - astrange 4y ago
    They don't have a good reason, they have a bank run. Which they have the right to do, but now there isn't a usable startup bank anymore.
  - 7speter 4y ago
    You can manufacture seemingly good reasons
    - andy_ppp 4y ago
      Like, for example, having a vast majority of deposits from an industry that is quite unstable and rumours travel extremely fast?
- mytailorisrich 4y ago
  This is an unrealistic rationalisation after the fact. If you have lost confidence in your bank you will not sit tight and see what happens, you will withdraw your money to protect yourself. The article also contains quite a gem: "Every VC I know was telling people, ‘We think your deposits are safe with SVB. It would be prudent to take some money because you could have a liquidity crisis for a week, but we don’t think a run on the bank makes sense.’" That's a very strange thing to say. If it is prudent to take some money out then deposits are not safe and you should get everything out ASAP. Those who saw it coming did exactly that.
  - astrange 4y ago
    It doesn't matter if you have confidence in your bank. You just need confidence in the FDIC. They have a history of recovering everything including uninsured assets. > This is an unrealistic rationalisation after the fact. It's clearly correct that they were worried about nothing because 1. nothing bad happened to anyone who didn't withdraw funds 2. by withdrawing funds they now don't have a bank anymore. Which is a problem if it was the only one willing to handle startups.
    - mytailorisrich 4y ago
      >You just need confidence in the FDIC. The FDIC insures up to $250k only. You are not asking for confidence but for faith that somehow they'd be willing to guarantee 100% out of their good hearts. That's an irrational thing to do when your money is at risk. Regarding your second paragraph: hindsight is such a wonderful thing! Also strange to claim that they don't have a bank anymore...
      - astrange 4y ago
        > The FDIC insures up to $250k only. No, they directly insure $250k and repeatedly and consistently demonstrate their ability to recover everything else by repossessing failing banks and selling them to other parties. They don't promise it's all immediately available past $250k, so it may take some time, but for you to expect a haircut you would need an example of someone getting one. I would prefer this be more explicit policy though. > That's an irrational thing to do when your money is at risk. If you know what a bank run is you know this is causing it, so this is bad game theory (as we see since it caused the bank to fail). You should actually pursue a strategy of stopping everyone else from withdrawing. Screaming at all your founders and panicking in group chats is not that. > Also strange to claim that they don't have a bank anymore... They ain't got one. SVB no longer exists. If you want a new checking account for a new business you cannot get one from DINB of Santa Clara.
- trompetenaccoun 4y ago
  >If you don't take it out, there is no run and no problem. I have heard this "argument" before from people like Alex Mashinsky, who's accused of having run a ponzi scheme. One would think all customers being able to withdraw their funds should be the base minimum requirement any legitimate bank must be able to fulfill.
  - xiphias2 4y ago
    What you are describing is called a narrow bank, and it exists in Norway. There were people trying to create narrow banks, but they were rejected by regulators, because ,,everybody would take their money out of current banks and put it there’’. Also there is one narrow bank in Norway, if you have at least $50M, maybe big companies should think about voting with their wallets.
    - trompetenaccoun 4y ago
      Very interesting, thanks for the info! I wasn't aware a narrow bank already existed. And apparently the Norwegian financial system has not collapsed :)
  - astrange 4y ago
    Why would a bank need to support withdrawing 100% of its funds at once with no warning? Nobody wants to do that. (It's actually impossible to create a bank that allows doing that; regulators won't allow it.)
    - trompetenaccoun 4y ago
      Most are under the illusion that when they give money to a bank, the bank keeps it safe for them. The FED not allowing safe banks but actually forcing them to take unnecessary risks is part of the problem¹. It's completely false that nobody wants safe banking, many asset managers do for obvious reasons because this is a huge risk for anyone dealing with accounts in excess of the insured amount. Also if you think banks that support full withdrawals (and thus making bank runs impossible) should not exist, what percentage do you think they should support? 50%, 30%? Should they have enough money to at least handle 10% of customers withdrawing? The real legal requirement might worry you if you know the figure. I encourage you to look it up. ¹ https://www.chicagobooth.edu/review/safest-bank-fed-wont-sanction https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...
polygamous_bat 4y ago
You can exit a theater (i.e. take your own self out of it) any time. Only if you shout "fire" and create a stampede does it become a problem. The situation in this analogy is complicated by the fact that there _was_ a fire at the theater. However, even in that situation panic can be detrimental to the system as a whole.
- checkcircuits 4y ago
  Not a great analogy IMO. This is akin to seeing a terrible movie, announcing to the markets you're selling every share you own of the company, and then everyone doing the same. Victim blaming isn't useful here. Bank depositors are de facto investors in the bank. Pulling your money and saying "this company is terrible leave" is not illegal and not a problem. Don't have a bad business with bad business practices controlling tens of billions of people's money. If a bank can't produce the money I gave them that's their problem. They deserve to collapse and I deserve to be made whole. This whole "forgive the banks they have to make money too" non-sense ignores the fact the fed told these same banks they don't need any reserves in march of 2020. It's borderline criminal just like the idea of fractional reserve banking itself.
spaceman_2020 4y ago
You can’t wear a fireman’s uniform, walk into a theater, yell “fire” into a loudspeaker, and walk away. These were not ordinary people just moving money around. They had public trust, authority, and an outsized voice.

And also rallying their dependents to do the same. How noble of them.

The article is blaming people for creating and spreading panic, not (just) for moving money out. (And in the context of a bank run, there's a pretty good argument that the author is correct too.)

stametseater 4y ago
[dead]

astrange 4y ago

That's what a bank run is. If you don't take it out, there is no run and no problem. And as we can see, there was nothing to be in time for, because nobody's lost any deposits. If the bank was in that much trouble it could've been wound down in a more orderly fashion than this though.

andy_ppp 4y ago
If people stop trusting banks because of good reasons they have a right to withdraw funds.
- astrange 4y ago
  They don't have a good reason, they have a bank run. Which they have the right to do, but now there isn't a usable startup bank anymore.
- 7speter 4y ago
  You can manufacture seemingly good reasons
  - andy_ppp 4y ago
    Like, for example, having a vast majority of deposits from an industry that is quite unstable and rumours travel extremely fast?
mytailorisrich 4y ago
This is an unrealistic rationalisation after the fact. If you have lost confidence in your bank you will not sit tight and see what happens, you will withdraw your money to protect yourself. The article also contains quite a gem: "Every VC I know was telling people, ‘We think your deposits are safe with SVB. It would be prudent to take some money because you could have a liquidity crisis for a week, but we don’t think a run on the bank makes sense.’" That's a very strange thing to say. If it is prudent to take some money out then deposits are not safe and you should get everything out ASAP. Those who saw it coming did exactly that.
- astrange 4y ago
  It doesn't matter if you have confidence in your bank. You just need confidence in the FDIC. They have a history of recovering everything including uninsured assets. > This is an unrealistic rationalisation after the fact. It's clearly correct that they were worried about nothing because 1. nothing bad happened to anyone who didn't withdraw funds 2. by withdrawing funds they now don't have a bank anymore. Which is a problem if it was the only one willing to handle startups.
  - mytailorisrich 4y ago
    >You just need confidence in the FDIC. The FDIC insures up to $250k only. You are not asking for confidence but for faith that somehow they'd be willing to guarantee 100% out of their good hearts. That's an irrational thing to do when your money is at risk. Regarding your second paragraph: hindsight is such a wonderful thing! Also strange to claim that they don't have a bank anymore...
    - astrange 4y ago
      > The FDIC insures up to $250k only. No, they directly insure $250k and repeatedly and consistently demonstrate their ability to recover everything else by repossessing failing banks and selling them to other parties. They don't promise it's all immediately available past $250k, so it may take some time, but for you to expect a haircut you would need an example of someone getting one. I would prefer this be more explicit policy though. > That's an irrational thing to do when your money is at risk. If you know what a bank run is you know this is causing it, so this is bad game theory (as we see since it caused the bank to fail). You should actually pursue a strategy of stopping everyone else from withdrawing. Screaming at all your founders and panicking in group chats is not that. > Also strange to claim that they don't have a bank anymore... They ain't got one. SVB no longer exists. If you want a new checking account for a new business you cannot get one from DINB of Santa Clara.
trompetenaccoun 4y ago
>If you don't take it out, there is no run and no problem. I have heard this "argument" before from people like Alex Mashinsky, who's accused of having run a ponzi scheme. One would think all customers being able to withdraw their funds should be the base minimum requirement any legitimate bank must be able to fulfill.
- xiphias2 4y ago
  What you are describing is called a narrow bank, and it exists in Norway. There were people trying to create narrow banks, but they were rejected by regulators, because ,,everybody would take their money out of current banks and put it there’’. Also there is one narrow bank in Norway, if you have at least $50M, maybe big companies should think about voting with their wallets.
  - trompetenaccoun 4y ago
    Very interesting, thanks for the info! I wasn't aware a narrow bank already existed. And apparently the Norwegian financial system has not collapsed :)
- astrange 4y ago
  Why would a bank need to support withdrawing 100% of its funds at once with no warning? Nobody wants to do that. (It's actually impossible to create a bank that allows doing that; regulators won't allow it.)
  - trompetenaccoun 4y ago
    Most are under the illusion that when they give money to a bank, the bank keeps it safe for them. The FED not allowing safe banks but actually forcing them to take unnecessary risks is part of the problem¹. It's completely false that nobody wants safe banking, many asset managers do for obvious reasons because this is a huge risk for anyone dealing with accounts in excess of the insured amount. Also if you think banks that support full withdrawals (and thus making bank runs impossible) should not exist, what percentage do you think they should support? 50%, 30%? Should they have enough money to at least handle 10% of customers withdrawing? The real legal requirement might worry you if you know the figure. I encourage you to look it up. ¹ https://www.chicagobooth.edu/review/safest-bank-fed-wont-sanction https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...

polygamous_bat 4y ago

You can exit a theater (i.e. take your own self out of it) any time. Only if you shout "fire" and create a stampede does it become a problem. The situation in this analogy is complicated by the fact that there _was_ a fire at the theater. However, even in that situation panic can be detrimental to the system as a whole.

checkcircuits 4y ago
Not a great analogy IMO. This is akin to seeing a terrible movie, announcing to the markets you're selling every share you own of the company, and then everyone doing the same. Victim blaming isn't useful here. Bank depositors are de facto investors in the bank. Pulling your money and saying "this company is terrible leave" is not illegal and not a problem. Don't have a bad business with bad business practices controlling tens of billions of people's money. If a bank can't produce the money I gave them that's their problem. They deserve to collapse and I deserve to be made whole. This whole "forgive the banks they have to make money too" non-sense ignores the fact the fed told these same banks they don't need any reserves in march of 2020. It's borderline criminal just like the idea of fractional reserve banking itself.

spaceman_2020 4y ago

You can’t wear a fireman’s uniform, walk into a theater, yell “fire” into a loudspeaker, and walk away. These were not ordinary people just moving money around. They had public trust, authority, and an outsized voice.