16 ms·

SVB Hall of Shame

416 points by bsamuels 4y ago

idopmstuff 4y ago
> The board was asleep at the switch. They are now unemployable. That's not really how this works. The CAO of the bank was CFO of Lehman. People in these positions just get credit for the fact that they had a front row seat for this sort of financial implosion, so they can (theoretically) help whoever else's board they join avoid that sort of thing. > But those players within the venture capital community who were singularly responsible for triggering and then exacerbating this run will not escape accountability. The people in the VC community who triggered the bank run did the right thing by their startups. They don't have a responsibility to SVB. If they saw a run on the bank starting, it was in their best interests and the best interests of the startups in which they invested for those startups to get their money out as quickly as possible.
- gmd63 4y ago
  It's unknown whether it was in their best interest, because we can't observe the alternate reality where 42 billion dollars wasn't withdrawn in one day. The raindrop never feels responsible for the flood, but it is.
- cowpig 4y ago
  > The people in the VC community who triggered the bank run did the right thing by their startups. How do you arrive at this conclusion? Without a run on the bank none of this would have happened.
  - simonh 4y ago
    You are in charge of a startup and are responsible for its finances and the jobs of the people who work there. You can see that a bank run is starting. If you don’t pull out your money, what are the chances this will prevent the bank run happening?
    - manquer 4y ago
      Nobody is blaming any startup who took that decision, the rational decision is to take out the money. However it was not the rational decision for a fund to do so. You have a) substantially larger voice and also ability to coordinate for better outcomes, for a fund it is no longer a gamer theory 101 standard prisoner's dilemma. The larger funds could have - Banded together and made a joint statement ( like they were able to organize and do after the run) reassuring every startup of their confidence in the bank - Participated in the equity infusion into the bank - Organized and bought debt in the bank to give it liquidity - Simply moved their own money as new deposits into the bank. Just doing a joint statement - which wouldn't have costed them a single penny would have gone long way to reassure the markets and also gained the key guys a lot of clout and established their influence J P Morgan style.
  - RA_Fisher 4y ago
    They ostensibly noticed the bank was insolvent and shared that important information with their startups. The bank should never have been anywhere near insolvent.
  - nickff 4y ago
    The bank run seems to have occurred after the insolvency. The bank was appears to have been insolvent (from the currently available information), though they avoided their books showing the fact by having bonds marked as “HTM”. When a bank is insolvent, it’s best to shut it down as soon as possible, to avoid the bank engaging in risky behavior to ‘make back’ the missing money.
    - bandrami 4y ago
      Not insolvent, illiquid. Calling SVB insolvent is like calling Elon Musk "poor" because his income this year was $0.
      - taxman22 4y ago
        SVB was insolvent.
        ineedasername 4y ago
        SVB became insolvent.
        taxman22 4y ago
        SVB was insolvent last quarter.
        remote_phone 4y ago
        You don’t know what the definition of insolvent is, if you believe that.
        danielmarkbruce 4y ago
        There isn't an agreed upon definition of insolvent. SVB certainly was insolvent under some definitions of the word.
      - 4y ago
  - 23B1 4y ago
    Rumor is uncontrollable and often unattributable – and each organization acted in the best interests of its employees and shareholders, as is their duty. Ugly, but rational.
  - deleted 4y ago
    [deleted]
  - nl 4y ago
    > Without a run on the bank none of this would have happened. A bank run is an almost inevitable consequence of a loss of confidence in a bank. The loss of confidence was caused by their $1.8B loss on securities sales and plan to go to the market for $2B in funding. The next day shares plummeted, and people began to remove their money (including those advised by VCs)[1] Given the fact that only $250K of funds is FDIC guaranteed, in the face of a balance sheet crisis at the bank the withdrawal of funds was entirely rational. Arguably not doing it would have been irresponsible. Even if there hadn't been a bank run it's pretty easy to see cases where the bank would have "temporarily restricted the amount of money an entity can withdraw in a day" or something. That potential restriction on liquidity is something any responsible business owner would want to avoid. [1] https://abcnews.go.com/Business/timeline-silicon-valley-bank-collapse/story?id=97846565 https://abcnews.go.com/Business/timeline-silicon-valley-bank...
  - ineedasername 4y ago
    Once the run started then VCs who had not previously had a negative stance on SVB may have done right by their startups, but yeah not the ones who actually started it in the first place.
    - twelve40 4y ago
      I have no idea if this is correct or not, but by some accounts, there were noticeable issues with regular transfers which caused the initial concern about the bank. It's not like someone started this out of boredom. https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-founders-fund-withdrew-millions-from-silicon-valley-bank https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-f...
      - danielmarkbruce 4y ago
        They lost $12 billion on an interest rate bet. The fact they didn't need to mark it to market under an accounting rule didn't mean people ignored it. It was a giant, known problem. It's why they were out trying to raise capital.
        twelve40 4y ago
        I'm talking about the "rumors" that caused the bank run. From what I've read (quoted above), these weren't really rumors but problems with day-to-day transfers that prevented the fund(s) from completing their deals, in which case one has to be insane not to let their friends know that the bank is not transferring money like they are supposed to. In hindsight we know they had problems like you said, but the "spread rumors" part seems to have been triggered by legitimate problems with regular transfers.
        danielmarkbruce 4y ago
        It wasn't hindsight though. They filed their 10-k well before the run and it showed a disaster of a situation. Their balance sheet was progressively getting worse, it was already bad the 10-q before. People knew it was problematic months ago, this didn't come out of nowhere.
- mikesena 4y ago
  +1 this
- davidw 4y ago
  > The people in the VC community who triggered the bank run did the right thing by their startups. I don't really have a horse in this race, but: while the above argument makes sense, what about all their future startups? Everyone says nice things about how it was good to have this bank that understood startups and treated them well, and now that is all gone. And no one who had deposits lost their money anyway. It seems to me that everyone is worse off. It was a lose/lose move.
  - simonh 4y ago
    As individuals they couldn’t stop the bank run happening, so pulling out their money was the rational thing to do. If all the depositors could have got together in a room, they could all have agreed to keep their money in. That coordination wasn’t possible though.
    - ineedasername 4y ago
      This is incorrect. such coordination was possible and did happen, only in the opposite direction. A relatively small group of VC firms effectively did coordinate the depositors very effectively to organize except it was to take money out Saying coordination wasn’t possible is therefore incorrect. And had it not occurred, getting people to keep their money in would have been a moot point, the whole thing a non issue.
      - simonh 4y ago
        Propagating a run simply takes propagating the info that a run is happening. No other communication is necessary. That signal is enough. Coordinating stopping a run would take a huge amount of much more sophisticated and time consuming back and forth communication and negotiation, reassurance and confidence building. You’d have to convince people that together right now in this situation you can stop the run. How would you do that? That coordinated consensus building would have to happen and propagate through the community, all of the community, at least as fast as the news of a run in order to stop the run. If it’s slower it’s too late, the people that heard there’s a run before they heard there was a movement to stop it already pulled out their money. You see the problem?
- lotsofpulp 4y ago
  https://www.verifythis.com/article/news/verify/business-verify/joseph-gentile-former-lehman-brothers-exec-not-involved-in-svb-collapse/536-89448c06-0507-4e94-b469-a68438304701 https://www.verifythis.com/article/news/verify/business-veri... >Joseph Gentile, the subject of the viral tweets, is currently the Chief Administrative Officer at SVB Securities, which is an investment firm. SVB Securities is a subsidiary of Silicon Valley Bank’s former parent company that is financially independent from the collapsed bank. He had previously been the CFO of a division within the greater Lehman Brothers’ bank and left about a year and a half before the bank filed for bankruptcy.
- deleted 4y ago
  [deleted]
- tptacek 4y ago
  Isn't this misinformation? The Chief Admin Officer of SVB Securities was an exec at Lehman, but SVB Securities is independent of SVB. If you Google [svb lehman], you get pages and pages debunking this.
  - idopmstuff 4y ago
    The fact that SVB securities is independent is irrelevant to the point, which is that people who play roles in financial catastrophes do not become unemployable as a result.
    - tptacek 4y ago
      You didn't say that. You said "the CAO of the bank" was a Lehman person. That's not true.
- deleted 4y ago
  [deleted]
- cmurf 4y ago
  Wasn't it in the best interest of everyone's best interest to avoid having such high amounts of uninsured deposits? Was it a requirement or recommendation to concentrate cash in SVB, and why?
cecida 4y ago
[flagged]
- lokar 4y ago
  They are merely following the example of their leader, Rand.
- throw123123123 4y ago
  Why are you on this website. Honestly. This is literally a website by the people you are criticizing, for the people you are criticizing.
  - davidw 4y ago
    I really wish I could cash in my HN points for real money, but alas...
  - gmd63 4y ago
    I thought this website was for hackers, not dudes who beg for bailouts from the government and turn around and spend them on bitcoin
    - throw123123123 4y ago
      You would be wrong. This is the social media channel of a VC, specifically one that was impacted and lobbied for depositor safety on this very topic.
nl 4y ago
Hmm It was 100% possible to genuinely hold the belief that "Silicon Valley Bank is safe" and to advise portfolio companies to remove money to reduce risk. In-fact, that looks like it was the prudent way to behave: depositors probably haven't lost their money but it sure is a lot less liquid. And this is exactly why bank runs are dangerous - once there is risk of one the safe thing to do is to remove your money as well. The only way to stop one is for an institution with a LOT of money to step in an guarantee it.
- TheJoeMan 4y ago
  If you’re interested in maintaining the partnership, why not leave the FDIC insured amount?
- rexreed 4y ago
  The best way to prevent a bank run is not to run. A stampede isn't caused by the movement of a lone animal, but by the herd. It's a classic feedback loop.
  - quesera 4y ago
    > The best way to prevent a bank run is not to run No, the only way to prevent a bank run is to get everyone else not to run. And since that's impossible, there's only one rational choice to make, which is to be first out the door. This is bad! But it's true.
    - deleted 4y ago
      [deleted]
    - NineStarPoint 4y ago
      Metaphorically you should aim to be the second out the door really. It’s the first person out the door who starts the run, and starting the run is rarely rational. Once the run has begun, yeah you should aim to be out the door fast. Unfortunately it’s very rare to have the knowledge and/or connections necessary to guarantee that you can not instigate a run, but still withdraw before the collapse.
tree24005 4y ago
Bank runs are when depositors rush to withdraw their money from the bank en masse.
Areibman 4y ago
Wouldn’t it make more sense to shame people who pulled out of SVB while simultaneously advocating for a bailout? Only a couple of prominent investors on that list fit the bill
7e 4y ago
VCs are lemmings. This run is yet another example. Very few think for themselves.
dahdum 4y ago
Put another way, this is a list of VCs that prioritize their portfolio companies health and success more than their personal banking relationships or public perception. That’s a pretty strong signal to future startups they’ve got your back when the shit hits the fan. I’m not saying it’s good, but I’m betting a lot of founders are feeling pretty thankful. The bailout was never guaranteed.
- deleted 4y ago
  [deleted]
- tsunamifury 4y ago
  No. There was only a 1.8 billion dollar temporary hole in the books. If they wanted to they could have plugged this in minutes and ensured their partner in banking survived. Then cashed out with 1:1.01 tbills or whatever in its stead. Follow on benefits would have been a statement of strength and cooperative SV culture. Instead they panicked like children and told everyone else to panic too It’s not a good look and it broke trust in SV.
  - pas 4y ago
    yep, even though it seems "can't find their own mouth" level incompetence to try to raise cash through equity sale (which prompts everyone to think about their situation) instead of getting a loan, but they may have already exhausted that option. ... though finance is very much about connections, charisma and acting tough, and backchannels. aaand sometimes fundamentals. it's very hard to know if they could have organized/coordinated/managed to put together a rescue package. there was a 15B liquidity hole after all. https://blogs.cfainstitute.org/marketintegrity/2023/03/13/the-svb-collapse-fasb-should-eliminate-hide-til-maturity-accounting/ https://blogs.cfainstitute.org/marketintegrity/2023/03/13/th... by forcing a bank run and crying about payroll they managed to get the government to step in and basically undo SVB's bad deals, at the cost of sacrificing SVB itself. but VCs are happy now, they had the opportunity to both enjoy SVB up to now and have a financially zero-cost exit. if the fallen SVB management gets the same treatment as the fallen WeWork management their egos will be fine at the golf courses.
taxman22 4y ago
I can’t believe this narrative is at the top of HN. It’s disappointing.
- pizlonator 4y ago
  Yeah.
- labster 4y ago
  I admire that it can get to the top of HN, though, in that there is no heavy-handed moderation coming from the top. It shows a good working knowledge of the Streisand effect.
petesergeant 4y ago
> But those players within the venture capital community who were singularly responsible for triggering and then exacerbating this run will not escape accountability. Future founders will know your worth. Future founders will know that the VCs helped them protect their cash?
BoiledCabbage 4y ago
The single largest learning point from this experience was how entirely hollow the whole Silicon Valley libertarian ethos really was. And yet again, another group that claims to say "leave us be, take away restrictions and oversight we'll take care of ourselves, be more efficient an ask nothing of you", turnouts to be just another form of "leave us along so we can benefit, and then come save us when we need help". And to be very clear, the lesson to take away from this isn't: don't save a group when it needs help - because in the end the Yellen and FDIC did the right thing. To do any differently would have been to cut off our nose to spite our face. The lesson is stop letting groups be allowed to be build these fake worlds. Every single time it works out to be "libertarian when convenient and socialist when suffering". As we saw with the "code is law", and other cases - as much as people like the concepts it never holds up when people's assets/health are actually at stake. It is human nature they will always turn back to society for help after having refused to pay into it to get there (or directly taking advantage of it to profit). If you want to profit off of the hard work of an existing society, you must also pay the costs of maintaining society. Anything otherwise is just a "free rider" problem waiting to explode. We're simply lucky we could contain it this time (so far). There is a reason why every long-run solution to the prisoners dilemma is to cooperate. There is a reason why every society since antiquity has been based on society cooperation. The only long term stable solution is cooperation and eliminating free-riders who claim to be exempt from rules. SV's VC ethos was completely hollow.
- notch898a 4y ago
  [flagged]
- jmyeet 4y ago
  It's so much worse than that. The same people who cry to be bailed out of a bank run are the same people who wring their hands about the moral hazard of student debt relief. You will find that theme repeated. Any government money spent on poor people we simply cannot afford. The rich never stop asking the government for money. They expect it. They certainly never refuse it. Never forget that. "Libertarians" are pretty much just Reagan-era deregulation conservatives. It is utterly self-serving.
- 4y ago
drc500free 4y ago
The amount of victim-blaming astroturfing I've seen on hn this week has been quite surprising. Depositors are never, ever to blame for bank runs. Edit: From the about page: > Who I am is not important. Holding accountable the hypocrites responsible for Silicon Valley Bank’s collapse is. I can be reached at svbhallofshame@protonmail.com. All correspondence will be kept anonymous. It's just missing a PAC called something like "Citizens for Depositor Accountability."
- croes 4y ago
  Can't you kill any bank with a bank run?
  - throw123123123 4y ago
    If you are solvent, in principle, you can get a loan from another bank to cover illiquidity. Yes, runs can kill any bank, but insolvency killed SVB first.
    - fastball 4y ago
      I don't think that's true? SVB was insolvent because they had to sell bonds at a massive loss in order to cover illiquidity that was a problem due to the bank run.
      - zaroth 4y ago
        They’ve been insolvent for some time. The bank run didn’t cause the insolvency, the bank run exposed it, and laid it bare.
        fastball 4y ago
        What is your source for this? From everything I have read, the first point at which they were clearly insolvent was what I mentioned previously, when they sold a huge swath of bonds at a massive loss at or around March 8th 2023, which was less than two weeks ago.
dluan 4y ago
A list of VCs who did not learn game theory correctly
zemo 4y ago
seeing this here is funny because there are a lot of HN users that are VCs that don't know how to code :)
wnevets 4y ago
Watching Calacanis claiming he was responsible for the federal government's aid was quite shameful
kevinwang 4y ago
Here's a defense of those critiqued here (I am uninformed, so please correct me with more nuance): Bank runs are similar to prisoners' dilemmas. If all depositors could agree to not bank run, then they would have. Without this agreement, it does make sense to participate in the bank run (earlier is better), since if the bank run happens and you tried to be "good" by not running, you could be the one holding the bag at the end. And if the bank run doesn't happen, then no cost is incurred. So unfortunately, a bank run is one of those situations where everyone makes really rational decisions in the absence of coordination, but the outcome is bad. Is this a valid defense?
twelve40 4y ago
If Bloomberg is to be believed, the run started after the funds started experiencing real problems with regular money movement. In which case, it is kind of an emergency? > But the firm learned that its limited partners were encountering issues using SVB services as they tried to transfer the funds — they weren’t immediately going through as expected, the person said. https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-founders-fund-withdrew-millions-from-silicon-valley-bank https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-f... But the funny part is that this story is still unfolding. The bank's new management is soliciting new business under the same "startup-friendly" pitch (and presumably a large number of the same assets and liabilities), and again vulnerable to _the same exact run on a small-ish number of uninsured deposits_ (as opposed to diversified banks with lots of insured accounts across many industries). Except, now they also pitch it as fully insured! So how does this even end? Is it a temporary thing until the bridge bank gets acquired by somebody, or do they have now perpetual 100% protection from the FDIC? Really trying to understand. What good is a friendly bank that collapses from mismanagement and is propped up to serve the same small segment, vulnerable to the same run again?
- lmm 4y ago
  > So how does this even end? Is it a temporary thing until the bridge bank gets acquired by somebody, or do they have now perpetual 100% protection from the FDIC? Really trying to understand. That will depend on what the FDIC does, and I don't think even they know what the end result will be. They'd like to get it back into private hands (and to that end they want to keep it operating normally, to make it as attractive as possible to buy, at least for the time being), but that depends on finding someone willing to take it. If they can't, they might start gradually winding it down in orderly fashion (e.g. close to new accounts, start giving people a while to transition), or they might keep running it in the current limbo forever (just look at Freddy and Fannie).
asdfaoeu 4y ago
SVB didn't fail because people pulled money, it failed because of a lack of risk management. Complaining about those pulling money out is silly. If anything they should have pulled it out much earlier.
benatkin 4y ago
Contagions gonn contage. If it was in a vacuum maybe they could have kept a lid on it. But I disagree that they should have stayed calm about it with what happened prior with TerraUSD, Luna, Celsius, and FTX. The length of the list shows that it would have been infeasible to collude to stay quiet. This hall of shame feels like an ego trip.
davesque 4y ago
Wait, they're trying to say that this was all the fault of the depositors? No, sorry. While I often find it hard to empathize with wealthy tech bros, I don't have much trouble at all imagining myself doing the same thing.
mrinfinite 4y ago
Wow, sad. The only thing a bank run can be on is on "DEMAND" deposits. If you have a savings account or negotiate a similar thing then no bank run possible. A bank checking (called Demand Deposits) are to be fulfilled on DEMAND. How dare customers demand their demand deposits. how rude, right? All the bank had to do was upsell their customers into savings accounts and then no bank run is possible.
naet 4y ago
I don't think I agree with this as a mark of "shame". Were these companies wrong to pull money out of SVB when they (correctly) thought the bank might be insolvent or headed for trouble? Are we celebrating those who left their money in, despite the warnings, when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits? Would that have been "heroic" in some way? I personally don't think so, that seems more like stupidity if the potential consequence is your company losing all it's money and going bankrupt for outside reasons. SVB as an institution sponsored lobbyists to lobby against regulations meant to keep banks stable, then without those regulations they failed to self-regulate properly and failed massively. That is IMO pretty shameful. But I don't blame any clients of theirs for taking money out when they saw a potential instability. They did not create that instability; that instability created the bank run.
- dahdum 4y ago
  In a slightly different reality… “Sorry team, our main VC advised us to keep our money in SVB because it’s the right thing to do. We can’t make payroll. Our VC, true to their ideals, kept their cash in SVB too. They can’t help us. Kindly cast your blame on the thousands of startup peers that withdrew and remain unscathed. Their blatant self-interest may have killed us, but we are the true moral victors.”
  - deleted 4y ago
    [deleted]
  - gmd63 4y ago
    Or in another "How was your weekend?" "Oh nice had a walk with the boys, saw a bald eagle" We don't know that this would have been a crisis without a sudden 42 billion dollar withdrawal over 24 hours
    - 2-718-281-828 4y ago
      I don't get that joke. Please, elaborate.
mrinfinite 4y ago
Banks don't have to issue demand deposit accounts if they want to invest your money while you "loan it to them". How rude for the contractual obligation of a bank be asked to uphold their end of the deal. thats rude and racist. customers at that bank were real jerks.
walterbell 4y ago
Why didn't more SVB depositors take advantage of the SVB offering for sweeping cash funds into insured accounts? https://prospect.org/economy/2023-03-13-silicon-valley-bank-bailout-deregulation/ https://prospect.org/economy/2023-03-13-silicon-valley-bank-... > Importantly, SVB was part of the network of cash sweep banks; it had an offer on its website about it. But according to Adam Levitin, there were only $469 million in reciprocal deposits, which is where cash sweep would show up. In other words, almost nobody banking at SVB used them.
- evancox100 4y ago
  Roku had nearly half a _billion_ uninsured at SVB! I get how a small startup maybe overlooks their cash management, but how do you get to the size of Roku and have that? Treasurer/CFO should be fired.
  - jessaustin 4y ago
    Roku should have been nationalized.
chad_strategic 4y ago
Hmm... If I was a powerful VC I would have shorted the stock and then went to the latest Silicon Valley venture capital social hour event and made a point of mentioning I had with drawn my billions. This plot right out of Billions. Since I'm not material investor in SVB, I can't see that this would be a red flag for the SEC?
462436347 4y ago
These people absolutely deserve to be named and shamed. If the big, "evil" banks can cooperate for the collective good of their industry and the wider economy as they did today by injecting $30 billion of deposits into First Republic to forestall its collapse, there's no reason why these supposedly enlightened, rational VCs couldn't at a minimum collectively agree to just not completely withdraw their deposits from SVB in a stampede, or perhaps go a bit further and actually help them raise additional capital. Instead they gutted the bank that provided them with banking services for 40 years, often when other banks would not. Some of them even did so two-facedly, publicly claiming to support SVB while pulling their and their companies' money out of it: > Y Combinator advised its portfolios to collapse SVB, while Garry Tan petitioned the government for a bailout Union Square: > Signed the statement [of support of SVB] after contributing to the run. Fred Wilson seems like a great example of PG's "Mean People Fail" delusion.
- 462436347 4y ago
  And before any more midwits play the "Prisoner's Dilemma" card to defend this: https://en.wikipedia.org/wiki/Prisoner%27s_dilemma https://en.wikipedia.org/wiki/Prisoner%27s_dilemma > Two members of a criminal gang, A and B, are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communication with their partner. The guilty parties here could communicate with each other, and could cooperate, just like the banks did today by aiding First Republic. Instead, it appears that while they did communicate and cooperate, it was only towards the end of running on SVB. And as others have pointed out, even if the framing of it as a Prisoner's Dilemma is correct, it's not a single iteration variant: if the VC community could have come to some sort of an agreement, any party that refused to cooperate, or worse, that pledged to and then betrayed the others, would suffer a substantial loss of trust from other VCs and startups going forward.
  - hnfong 4y ago
    In a textbook prisoner's dilemma, the prisoners both get a hefty sentence if they failed to cooperate and both defected. They had a lot to gain from cooperating. In the SVB situation, most of the losses are borne by the bank, investors of the bank, and the general public (in the sense that it caused financial instability across the nation). It's not a prisoner's dilemma because the downside to not cooperating is mainly borne by other people. The VCs and the startups who decided to "defect" are fine. I'm personally unable to understand the anger here and finger pointing here, the bank was obviously in a bad shape due to their assets being underwater, why would bank clients have a moral responsibility to continue depositing in a bad and failing bank? ---- And btw, the fact that parties could communicate with each other doesn't really change the game much. And nobody in their right mind would sign an agreement to keep assets in a bank or face penalties just because of some moral obligation to protect shareholders of a bank that made risky bets. That's just nuts IMHO. Anyone is free to create a time deposit if that's what they want to do.
Mizoguchi 4y ago
Every reasonable human being with money in SVB should be in this list.
ivraatiems 4y ago
All of this honor-amongst-thieves bellyaching is bullshit. I'm sorry. These are venture capitalists, emphasis on capitalist. The only thing they have ever or will ever care about is the amount of money a given action makes or loses them. That's it, full stop. SVB lent to these people knowing that full well, and knowing the risks of relying on VCs for their long bets. They are to blame for their choices. I have sympathy for nobody in this debacle, except maybe the federal government for having to clean up the mess.
jsemrau 4y ago
Auditors signed-off their audits : https://www.businesstoday.in/silicon-valley-bank/story/silicon-valley-bank-collapse-kpmg-stands-by-its-audit-of-svb-signature-bank-amid-backlash-373443-2023-03-15 https://www.businesstoday.in/silicon-valley-bank/story/silic... with a clean bill of health nonetheless.
- hn_throwaway_99 4y ago
  This was commented elsewhere, but the auditors were correct in that situation. This was not a case of fraud, where the bank had less money than they said they did. KPMG's job was to verify that SVB's public statements were accurate, and they were. SVB's precarious position was not a secret - saw a good post from mid-Feb that predicted exactly how this eventually played out. The only other thing KPMG could have done is give a "going concern" warning, and that would have been incredibly reckless because it would itself have caused a run on the bank.
  - jsemrau 4y ago
    Well, when I was working with auditors (internal AND external) in previous roles in major financial institutions, we always performed tests if risk management tools are sufficient and reserves are proper. In the case of SVB it would have been possible to point out the concentration risk before bringing this into the public domain. But then, I do agree with you that the situation evolved as a sum of many parts, which included the, at the time, highly unlikely result of a bank run by the VC community. Looking back, I still shake my head how this came to be.
  - IG_Semmelweiss 4y ago
    >>>This was commented elsewhere, but the auditors were correct in that situation Sorry, no. Auditors are supposed to effectively run going concern tests as part of their process. Its not only fraud they are looking for. If a company fails 2 weeks after the opinion because of an act of God, thats different. In this case, it was a literal duration mismatch (interest rate risk) that was predicted by blogs elsewhere. I maybe concede that im not sure it would be reckless to issue FS with a going concern, even if the going concern is true. A more likely scenario would be...no signed opinion. Financial filing would have been delayed. Which itself would have caused the run. If I was KPMG, I know what scenario I would like to be in, and its certainly NOT the current one, with a signed an opinion -with a wet siganture still- for a company that melted away within 2 weeks.
indigodaddy 4y ago
OP website is complete hogwash. Blaming VCs for deposit drawdowns fully within their right is shortsighted. Now the entire banking industry will need to reassess their treasury bond investment risk. Of course mass actions related to derisking those exposures could also spiral out of control within the ecosystem, with further weak banks with way too much risk exposed and failing, but it’s likely necessary.
fwlr 4y ago
I’m not going to be using this site to guide my opinions of VCs, I don’t generally outsource that much of my opinion-making to 3rd parties. But it does broadly reflect my opinions, you could get a very rough “general direction” picture of how I think from reading it. “It’s rational to join a bank run, VCs would have been negligent to their companies if they advised to stay” I know! Believe it or not I have studied a fair bit of game theory, enough to go beyond “it was a prisoners dilemma” and analyze the SVB collapse as an iterated prisoners dilemma with variable information/reputation and a small number of rounds (in this case the amount of information/reputation broadcasting very quickly drove the whole population to “defect always” and the ecosystem rapidly collapsed). I trust myself to be capable of assigning blame for the bank run correctly (broadly speaking: I. nobody started the run, everyone joined it; II. joining the run earlier is very slightly more blameful than joining the run later; III. being part of the run “loudly” is very significantly more blameful than being part of the run “quietly”). That is maybe 20%, while the other 80% and thus the real albatross here is the demand to be made whole afterwards. Roughly speaking the least blameful is “you’ll get 250k immediately, a substantial fraction soon, and almost all eventually; if this still kills your business let us know and we’ll try to arrange bridging finance”, while the most blameful is “the government must promise to make us whole on Monday morning or the contagion will spread; use taxpayer money if you have to, this is that important”.
- lynx23 4y ago
  You're using the word "defect" to describe someone pulling their money from a bank? Seriously? It is so easy to assign blame apparently...
  - flandish 4y ago
    I agree. This all reads like a solid reminder that two things happen in that realm of highly VC funded systems: - Investment/money management often happens by people who are very new to this process and make swift sometimes stupid decisions. - Everyone else is clearly in the “protect profit” game, even if that means ignoring the clearly stupid things svb (and really the entire system) did/does. Mort backed securities, crap from the 08 markets, deregulation.. etc. A failing bank should not crash the economy nor should a bunch of startups failing as a result crash too. Poor startup decisions are one thing. But “too big to fail” things maybe need to be smaller or nationalized? I realize the site I’m on, and know I am still learning about this. I have just, in all my (short 43) years, felt the “too big to fail” reason pop up more than it seems it should because, to me, it means “gov must protect my profit, or I’ll deadman switch the economy.”
kondro 4y ago
Call me naïve, but if I put money in a bank I should be able to get it back whenever I want. If I didn't want it to be liquid, I'd buy something less liquid. The very concept of a bank run is ridiculous. If all a bank's customers want their cash back, they should be able to get it back without affecting the liquidity of the bank. Transaction accounts don't earn me anything and have fees of their own. There's little incentive to stay at one bank over another. If they want equity, they should sell long-term secured loans with LVRs under 100% or lock in my cash with term deposits or any number of other less liquid asset classes. But why should I feel guilt over moving my cash from one bank to another? Maybe it's because I'm Australian but I feel our banking industry is significantly more stable. The last time a bank had any serious issue was 1990 and it was a (single bank that itself was bailed out by the government). Australian banks make their money through mortgages (averaging less than 80% LVR or insurance-backed if higher and with fixed terms of generally no longer than 5 years), credit cards and management fees on long-term investment products -- they don't rely on investing cash deposits on long-term illiquid instruments. The fact this doesn't seem to be the case should raise questions over the entire US banking industry. Cash should be liquid. Edit: For reference, APRA (bank regulator in Australia) has some very strict liquidity risk management requirements and most banks own liquidity requirements are significantly higher than this: https://www.apra.gov.au/apra-explains-liquidity-banking https://www.apra.gov.au/apra-explains-liquidity-banking -- an Australian bank would never be allowed to purchase a 10-30 year bond to match against cash assets.
- whateveracct 4y ago
  To be pedantic, I'm pretty sure a big enough bank run could topple your banks too. Where do you think they get the cash to lend out from?
  - kondro 4y ago
    Australian banks have a mandated 100% LCR and most banks hold 130%+ LCR (remember LCR is calculated based on a 30 day stress outflow). Even if a run lasts longer than the period above they're backed mostly by mortgages that are priced significantly higher than their borrowing costs and LVRs that average lower than 80% and the way AU banks price interest rates will always cost significantly less than their borrowing costs. They're never going to have trouble raising money on prime, variable interest (average fixed terms are always less than 5 years here) debt. APRA standards all but eliminate a sub-prime problem here. Loan affordability has been a very hot topic here over the last decade.
aristophenes 4y ago
I’m sorry, this was an utter mess, shouldn’t have happened and lots of people share blame. But I don’t think it was wrong for depositors to pull deposits from an insolvent (or nearly insolvent) bank. Neither is it wrong to encourage companies you’ve invested in to move money. The only thing I have a problem with is when some of the VCs, like Jason Calacanis, deliberately tried to spread panic to other banks to make SVB more important to the government so they’d backstop his deposits. That was pretty bad. But realizing your badly run bank is badly run and pulling your funds and encouraging others to do the same is a very reasonable thing to do. Certainly not worthy of this virtual tar and feathering. They are, or would have been, the innocent victims of this banks poor risk management. Edit: Link to tweet of screenshot of Jason trying to get everyone to panic about the entire banking system, with the only fix is the government to backstop large SVB deposits. https://mobile.twitter.com/nuancerocket/status/1634922146555392004 https://mobile.twitter.com/nuancerocket/status/1634922146555...
- breck 4y ago
  Agreed.
vivegi 4y ago
You can't blame the depositors or the VCs in this case for SVB's failure. Only SVB was responsible for taking on naked long-term risk and being unable to meet current obligations. At the time the VCs advised their portfolio cos to pull funds out of SVB, it was a perfectly rational reason because only 2.7% of SVB's deposits were FDIC insured. That means, there was no guarantee of the Fed, treasury and FDIC would take the action to make good all depositors. The entire site appears like something from an affected party (shareholder/investor/exec/boardmember of SVB) who lost their shirt in this fiasco and has an axe to grind. Just saying. Not sure why the are not naming and shaming the former SVB execs and boardmembers who missed to identify these risks early on and mitigate them. The failure of SVB is just capitalism, isn't it? They risked their capital on a business that took bad decisions, so it is only fair that the specific company (SVB) ceases to exist and something else comes up to take its place.
pizlonator 4y ago
I don’t see the point of shaming these folks.
ar9av 4y ago
These people acted rationally. As soon as there was even a hint of "this bank could fail" it's a no brainer to press a couple buttons on your app and transfer your money even if there is only a 0.1% chance of failure. It's just game theory. The problem is when everyone acts to protect themselves from the 0.1% chance event it actually becomes a 100% likely event. That's why FDIC Insurance was invented in order to prevent bank runs and is why we have had so few in the hundreds years since it was invented. The obvious solution is to waive the FDIC insurance caps and probably increase the cost of the insurance to make up for the increased risk of failure.
- notacoward 4y ago
  > These people acted rationally. > It's just game theory. The conclusion from game theory (specifically Prisoner's Dilemma) is not that only one action is rational. Both cooperation and defection are rational; that's what "dilemma" means. The difference lies in the scope or horizon to which reason is applied. Every time I see someone invoke "rationality" or game theory to justify what is really selfishness, it makes me want to throw up.
  - IG_Semmelweiss 4y ago
    Failure was a foregone conclusion non matter what time horizon you wanted to apply. The bank had wiped its equity before depositors drew on it. It was a matter of time it failed. Its loan portfolio is impaired. Its startups are burning DDA cash without vc funding. The majority of its capital is locked up on long duration bonds. The bank was bleeding from a thousand cuts. It was put out of misery by a good old run to the head. Eventually some startup was going to try drawing on their checking and it was going to fail. A bank run is just a symptom of the disease (mismanaged bank risk).
sky_rw 4y ago
It's not immoral to yell fire in a crowded theater if the theater is in fact on fire.
periram 4y ago
Isn't this one of the stable Nash equilibriums in game theory. You keep X of your X money if you withdraw, with a chance that someone else will lose their money OR you keep your faith in the system with a chance that you lose 100% of X.
vishnugupta 4y ago
Sequoia is conspicuously absent in that list. Knowing how dump their recent moves/investments have been I'm very surprised. Anyone knows how did they manage to dodge this, if at all?
davtbaum 4y ago
Perhaps I’m an outlier here, but doesn’t this feel a bit exaggerated? I’m not sure why the author (or, for that matter HN in general) feels so strongly about this. In the end, everyone was made whole. VCs acted in the best interest of the companies they back, and SVB made some really poor decisions which caused them to implode. What exactly is the story here?
- hnfong 4y ago
  Some misguided people thinking tech startups are supposed to care more about maintaining the stability of the banking sector over whether they can pay their employees next week. Interestingly enough nobody is blaming politicians and/or the Fed for causing all this in the first place. I mean, I get that tech and VC money in particular benefitted hugely from the zero interest rate environment in 2011~2021, but still, I fail to see where the moral obligations come from.
yafbum 4y ago
It's weird that SVB, or any one particular bank, would be "playing a pivotal role in serving the startup community". Loans are loans. The stories coming out about SVB "sticking with the founders through tough times" when none of the other banks would, well, they sound a bit like what you'd hear about a bank taking reckless risks with its lending practice.
chernevik 4y ago
The question for the VCs is not, "why did you advise your portfolio companies to leave SVB?" It is, "why did you not advise your portfolio companies to hold their capital in a t-bill money market?" This obvious step for capital protection was somehow neglected by venture capital firms who pride themselves on advising their portfolio on a host of mundane business issues. A VC would be considered mad if one of its companies didn't run financing docs through a lawyer, or handled payroll on its own. This should have been one of the most obvious and simple items on the checklist. Yet somehow it was not. Why not? The failure of any bank should have been a shruggable matter for every startup funded with capital. Instead it was portrayed as an existential issue for all. (This was entirely and obviously false, but let that pass.) If it were an existential threat that was a lapse of the VCs supposedly guiding these business novices. I very much suspect that the hue and cry for a bailout was driven in part by VCs eager to cover this lapse. And to suppress attention on the relationships with SVB that lead them to recommend their companies provide SVB with cheap deposits rather than prudently protect their capital. The answer to a bank run is not "stand by your bank". It is "be indifferent to what happens to your bank in the first place".
dzhar11 4y ago
2020 Panic buying === 2023 Panic withdrawing https://en.wikipedia.org/wiki/Panic_buying https://en.wikipedia.org/wiki/Panic_buying
fastball 4y ago
Seems like a lot of people are missing the point of this website. 90% of the criticism seems to be "depositors are never morally wrong for withdrawing money from a bank, so this website is bad". But mostly this website's focus seems to be on the hypocrisy, e.g. the VCs who said "don't run on the bank" while telling their portfolio companies to run ASAP. That is much more obviously a moral wrong (to me at least). I'm mostly basing this on the fact that the website explicitly said "You will be remembered for your hypocrisy." rather than "You will be remembered for running."
soumyadeb 4y ago
Scenario planning on two VC reactions on Thus (3/9) 1) VC1 - SVB is perfectly safe . Don't worry and keep the money there. 2) VC2 - We are hearing rumors about SVB. You should play safe and move it to another bank. Here is a guy who can help with opening accounts etc. And SVB shuts down on Friday (3/10). Guess, which VC would I recommend to a new founder? Yes. Feds saved SVB but there is a world where it might not have and my money could have been locked for days forcing me to miss payroll. In any case, I would have had a sleepless weekend. Founder here.
mathattack 4y ago
The VCs did what they had to do. It’s poor financial management to not run for the door when the last one standing may be holding the bag. I just find it strange that after all that SVB is using the bailout as marketing. “All your new dollars are safe too!”
aj7 4y ago
The board was asleep at the switch. They are now unemployable. You’re dreaming. Boards are mainly hired to do nothing in established companies.
w10-1 4y ago
Shame is toxic, but the issue is critical for startup's and worth discussing. Depositors making individual decisions? Ok. Funds advising their companies? Ok, but it really hides the agency: deciders are in the funds (what CEO would refuse that advice?), but the companies are the responsible actors. Now, would it matter if most of those funds were responding to their investors, say, Saudi's or Russians or the Chinese Communist Party, or to a consortium of friends who had shorted the bank? Most would say it does matter, but AFAICT it's perfectly legal, and no outsider would ever know the difference. Market self-regulation, insurance, and investment diversification all depend on agents acting independently in their own interests, say, of making money. Once agents are coordinating, or colluding, or have other dominant strategic interests, market self-regulation fails. And everyone else, who reasonably relied on the market behaving stochastically or in response to economic forces, loses. One might hope that if this were all good, the response to a wall of shame would be a wall of honor, with transparency around decisions. But confidentiality is a key feature for any investment firms, so the best we'll get are retrospective letters of intent. Aside from bad actors, the irony is that high federal rates means more risk-taking from banks, not less. SVB assets were good and safe, albeit not worth much (as the auction is showing). I would have no problem with new rules saying that firms with assets big enough relative to the bank needed to schedule major withdrawals in advance. There's really no other reason than a bank run to move $100M emergently. (There'll be a secondary market for large urgent transfers, but it won't cost much, securitized with a pending transfer.) So: yes the system is susceptible to bad actors, and there's no good way to respond without throwing out the baby with the bathwater. Really society's only defense is that the wealthy are getting wealthy enough legally that there's no real need to go all-out. Aside from the moral hazard of covering bank risks, there's another moral hazard in creating opportunity and incentive for an already-confidential and largely unregulated industry to collude. It might push good investors into combines with bad actors, amplifying ill effects. What's shameful really is that these systemic gaps are relatively obvious to thousands of the involved engineer/MBA/JD's, but everyone greedily grabs their local maxima, instead of insisting the system work right. That's where I'd welcome leadership, some way to reduce coordination costs.
sacnoradhq 4y ago
This comes off as a strawman job. There was no grand conspiracy ahead-of-time to cause a run. It would be dumb on the part of investors and VCs to not facilitate moving vast sums of their money to safer places in an orderly fashion. OTOH, there existed an opportunity to steer cash in directions favorable to the influencers after SVB was already sinking. So I don't see any evidence it was anything other than mismanagement by growing too big too quickly and betting on riskier financial instruments than should've been allowed.
adityaathalye 4y ago
Siren call for a VC Union? I'm only half-serious :) Under the circumstances, I'd have pulled out money while I could. Money in hand is better than a hope in hell. But seriously, I wonder if it makes sense to have some common ground to greatly reduce odds of SVB-likes happening? Dealing with this kind of emergency is all about communication. The final collapse happened frightfully quickly. There is no time to organise when the car pile-up has begun. You got to have groundwork in advance, and comms open too. Maybe its too black of a black swan that you can't ever prevent. Maybe the competitive dynamics of the startup world do not lend support for a commons. Yet, maaaybe if you can see that your number one business partner's books have become crazy, someone should be able to say something, at the very least?
krick 4y ago
This is laughable. I won't start on how it's my money and all that jazz, so just one thing: keeping your money and your clients' money in a bank that is on the verge of a bank run is not a sign of valor, it's either a sign of being stupid and irresponsible, or a sign that you know something that others don't.
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gmd63 4y ago
As I post this, the original post has 360 points posted 3 hours ago and is ranked lower than a post with 260 posted 14 hours ago. Interesting.
- erik_seaberg 4y ago
  Scores decay over time; HN doesn’t want the same high scoring articles stuck to the front page forever. http://www.righto.com/2013/11/how-hacker-news-ranking-really-works.html http://www.righto.com/2013/11/how-hacker-news-ranking-really...
  - gmd63 4y ago
    Yes. But as I mentioned, there was an older, lower scoring article that was ranked higher than this one while it was fresh (~3 hours old)
antics 4y ago
I am a founder who had assets tied up in SVB. As someone with something to lose, I'm going to be honest that I think the people on this list mostly look incredibly stupid—both at the time and in retrospect. And I think it's worth dwelling on why. * In a catastrophic (_i.e._, non-backstopped) bank run, _most_ deposits are not getting out of the bank. Especially when the deposit sizes are very large, as they are with corporate treasuries. * Thus, if a catastrophic bank run is already in progress you are unlikely to succeed at saving any of your portfolio treasuries. * BUT, if a catastrophic bank run is not in progress, the downside is that you lose 100% of portfolio treasuries because you started one. I am seeing a lot of people like Elizabeth Yin say that they are proud for telling everyone to pull the plug. I get it. They are on the side of their founders and they want to be helpful, and they believe decisive action helps. My message to all of those investors is that "makes swift but extremely stupid decisions" is not a quality that is admirable in a capital allocator. I don't think this rises to a moral failing but pretty much everyone on this list is going on my personal docket of people who are too stupid and impulsive to trust in emergency business contexts.
- notch898a 4y ago
  I had to parse this a few times to understand. I think your thesis is that an investor has multiple ventures in their portfolio. And many of those ventures park their treasuries at the same bank. And by telling them a run is happening, your thesis is some or none of those ventures pull their money out faster than others, and the stragglers of the portfolio can't due to the bank run started by the investor and/or other companies in the investor's portfolio?
  - deleted 4y ago
    [deleted]
  - antics 4y ago
    During a bank run, 0 withdrawals will complete. So if you warn portcos to withdraw _during_ the run, you save 0 treasuries. If you warn portcos to withdraw _before_ the run, you might trigger the run in which case you'd almost certainly lose 70% of portco treasuries. I'm proposing in neither case it makes sense to encourage portcos to move their money.
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op00to 4y ago
I don’t understand the vitriol. It’s shitty, yes, but I honestly doubt the players are somehow blacklisted.

416 points by bsamuels 4y ago

> The board was asleep at the switch. They are now unemployable. That's not really how this works. The CAO of the bank was CFO of Lehman. People in these positions just get credit for the fact that they had a front row seat for this sort of financial implosion, so they can (theoretically) help whoever else's board they join avoid that sort of thing. > But those players within the venture capital community who were singularly responsible for triggering and then exacerbating this run will not escape accountability. The people in the VC community who triggered the bank run did the right thing by their startups. They don't have a responsibility to SVB. If they saw a run on the bank starting, it was in their best interests and the best interests of the startups in which they invested for those startups to get their money out as quickly as possible.

gmd63 4y ago
It's unknown whether it was in their best interest, because we can't observe the alternate reality where 42 billion dollars wasn't withdrawn in one day. The raindrop never feels responsible for the flood, but it is.
cowpig 4y ago
> The people in the VC community who triggered the bank run did the right thing by their startups. How do you arrive at this conclusion? Without a run on the bank none of this would have happened.
- simonh 4y ago
  You are in charge of a startup and are responsible for its finances and the jobs of the people who work there. You can see that a bank run is starting. If you don’t pull out your money, what are the chances this will prevent the bank run happening?
  - manquer 4y ago
    Nobody is blaming any startup who took that decision, the rational decision is to take out the money. However it was not the rational decision for a fund to do so. You have a) substantially larger voice and also ability to coordinate for better outcomes, for a fund it is no longer a gamer theory 101 standard prisoner's dilemma. The larger funds could have - Banded together and made a joint statement ( like they were able to organize and do after the run) reassuring every startup of their confidence in the bank - Participated in the equity infusion into the bank - Organized and bought debt in the bank to give it liquidity - Simply moved their own money as new deposits into the bank. Just doing a joint statement - which wouldn't have costed them a single penny would have gone long way to reassure the markets and also gained the key guys a lot of clout and established their influence J P Morgan style.
- RA_Fisher 4y ago
  They ostensibly noticed the bank was insolvent and shared that important information with their startups. The bank should never have been anywhere near insolvent.
- nickff 4y ago
  The bank run seems to have occurred after the insolvency. The bank was appears to have been insolvent (from the currently available information), though they avoided their books showing the fact by having bonds marked as “HTM”. When a bank is insolvent, it’s best to shut it down as soon as possible, to avoid the bank engaging in risky behavior to ‘make back’ the missing money.
  - bandrami 4y ago
    Not insolvent, illiquid. Calling SVB insolvent is like calling Elon Musk "poor" because his income this year was $0.
    - taxman22 4y ago
      SVB was insolvent.
      - ineedasername 4y ago
        SVB became insolvent.
        taxman22 4y ago
        SVB was insolvent last quarter.
        remote_phone 4y ago
        You don’t know what the definition of insolvent is, if you believe that.
        danielmarkbruce 4y ago
        There isn't an agreed upon definition of insolvent. SVB certainly was insolvent under some definitions of the word.
    - 4y ago
- 23B1 4y ago
  Rumor is uncontrollable and often unattributable – and each organization acted in the best interests of its employees and shareholders, as is their duty. Ugly, but rational.
- deleted 4y ago
  [deleted]
- nl 4y ago
  > Without a run on the bank none of this would have happened. A bank run is an almost inevitable consequence of a loss of confidence in a bank. The loss of confidence was caused by their $1.8B loss on securities sales and plan to go to the market for $2B in funding. The next day shares plummeted, and people began to remove their money (including those advised by VCs)[1] Given the fact that only $250K of funds is FDIC guaranteed, in the face of a balance sheet crisis at the bank the withdrawal of funds was entirely rational. Arguably not doing it would have been irresponsible. Even if there hadn't been a bank run it's pretty easy to see cases where the bank would have "temporarily restricted the amount of money an entity can withdraw in a day" or something. That potential restriction on liquidity is something any responsible business owner would want to avoid. [1] https://abcnews.go.com/Business/timeline-silicon-valley-bank-collapse/story?id=97846565 https://abcnews.go.com/Business/timeline-silicon-valley-bank...
- ineedasername 4y ago
  Once the run started then VCs who had not previously had a negative stance on SVB may have done right by their startups, but yeah not the ones who actually started it in the first place.
  - twelve40 4y ago
    I have no idea if this is correct or not, but by some accounts, there were noticeable issues with regular transfers which caused the initial concern about the bank. It's not like someone started this out of boredom. https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-founders-fund-withdrew-millions-from-silicon-valley-bank https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-f...
    - danielmarkbruce 4y ago
      They lost $12 billion on an interest rate bet. The fact they didn't need to mark it to market under an accounting rule didn't mean people ignored it. It was a giant, known problem. It's why they were out trying to raise capital.
      - twelve40 4y ago
        I'm talking about the "rumors" that caused the bank run. From what I've read (quoted above), these weren't really rumors but problems with day-to-day transfers that prevented the fund(s) from completing their deals, in which case one has to be insane not to let their friends know that the bank is not transferring money like they are supposed to. In hindsight we know they had problems like you said, but the "spread rumors" part seems to have been triggered by legitimate problems with regular transfers.
        danielmarkbruce 4y ago
        It wasn't hindsight though. They filed their 10-k well before the run and it showed a disaster of a situation. Their balance sheet was progressively getting worse, it was already bad the 10-q before. People knew it was problematic months ago, this didn't come out of nowhere.
mikesena 4y ago
+1 this
davidw 4y ago
> The people in the VC community who triggered the bank run did the right thing by their startups. I don't really have a horse in this race, but: while the above argument makes sense, what about all their future startups? Everyone says nice things about how it was good to have this bank that understood startups and treated them well, and now that is all gone. And no one who had deposits lost their money anyway. It seems to me that everyone is worse off. It was a lose/lose move.
- simonh 4y ago
  As individuals they couldn’t stop the bank run happening, so pulling out their money was the rational thing to do. If all the depositors could have got together in a room, they could all have agreed to keep their money in. That coordination wasn’t possible though.
  - ineedasername 4y ago
    This is incorrect. such coordination was possible and did happen, only in the opposite direction. A relatively small group of VC firms effectively did coordinate the depositors very effectively to organize except it was to take money out Saying coordination wasn’t possible is therefore incorrect. And had it not occurred, getting people to keep their money in would have been a moot point, the whole thing a non issue.
    - simonh 4y ago
      Propagating a run simply takes propagating the info that a run is happening. No other communication is necessary. That signal is enough. Coordinating stopping a run would take a huge amount of much more sophisticated and time consuming back and forth communication and negotiation, reassurance and confidence building. You’d have to convince people that together right now in this situation you can stop the run. How would you do that? That coordinated consensus building would have to happen and propagate through the community, all of the community, at least as fast as the news of a run in order to stop the run. If it’s slower it’s too late, the people that heard there’s a run before they heard there was a movement to stop it already pulled out their money. You see the problem?
lotsofpulp 4y ago
https://www.verifythis.com/article/news/verify/business-verify/joseph-gentile-former-lehman-brothers-exec-not-involved-in-svb-collapse/536-89448c06-0507-4e94-b469-a68438304701 https://www.verifythis.com/article/news/verify/business-veri... >Joseph Gentile, the subject of the viral tweets, is currently the Chief Administrative Officer at SVB Securities, which is an investment firm. SVB Securities is a subsidiary of Silicon Valley Bank’s former parent company that is financially independent from the collapsed bank. He had previously been the CFO of a division within the greater Lehman Brothers’ bank and left about a year and a half before the bank filed for bankruptcy.
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tptacek 4y ago
Isn't this misinformation? The Chief Admin Officer of SVB Securities was an exec at Lehman, but SVB Securities is independent of SVB. If you Google [svb lehman], you get pages and pages debunking this.
- idopmstuff 4y ago
  The fact that SVB securities is independent is irrelevant to the point, which is that people who play roles in financial catastrophes do not become unemployable as a result.
  - tptacek 4y ago
    You didn't say that. You said "the CAO of the bank" was a Lehman person. That's not true.
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cmurf 4y ago
Wasn't it in the best interest of everyone's best interest to avoid having such high amounts of uninsured deposits? Was it a requirement or recommendation to concentrate cash in SVB, and why?

cecida 4y ago

[flagged]

lokar 4y ago
They are merely following the example of their leader, Rand.
throw123123123 4y ago
Why are you on this website. Honestly. This is literally a website by the people you are criticizing, for the people you are criticizing.
- davidw 4y ago
  I really wish I could cash in my HN points for real money, but alas...
- gmd63 4y ago
  I thought this website was for hackers, not dudes who beg for bailouts from the government and turn around and spend them on bitcoin
  - throw123123123 4y ago
    You would be wrong. This is the social media channel of a VC, specifically one that was impacted and lobbied for depositor safety on this very topic.

nl 4y ago

Hmm It was 100% possible to genuinely hold the belief that "Silicon Valley Bank is safe" and to advise portfolio companies to remove money to reduce risk. In-fact, that looks like it was the prudent way to behave: depositors probably haven't lost their money but it sure is a lot less liquid. And this is exactly why bank runs are dangerous - once there is risk of one the safe thing to do is to remove your money as well. The only way to stop one is for an institution with a LOT of money to step in an guarantee it.

TheJoeMan 4y ago
If you’re interested in maintaining the partnership, why not leave the FDIC insured amount?
rexreed 4y ago
The best way to prevent a bank run is not to run. A stampede isn't caused by the movement of a lone animal, but by the herd. It's a classic feedback loop.
- quesera 4y ago
  > The best way to prevent a bank run is not to run No, the only way to prevent a bank run is to get everyone else not to run. And since that's impossible, there's only one rational choice to make, which is to be first out the door. This is bad! But it's true.
  - deleted 4y ago
    [deleted]
  - NineStarPoint 4y ago
    Metaphorically you should aim to be the second out the door really. It’s the first person out the door who starts the run, and starting the run is rarely rational. Once the run has begun, yeah you should aim to be out the door fast. Unfortunately it’s very rare to have the knowledge and/or connections necessary to guarantee that you can not instigate a run, but still withdraw before the collapse.

tree24005 4y ago

Bank runs are when depositors rush to withdraw their money from the bank en masse.

Areibman 4y ago

Wouldn’t it make more sense to shame people who pulled out of SVB while simultaneously advocating for a bailout? Only a couple of prominent investors on that list fit the bill

7e 4y ago

VCs are lemmings. This run is yet another example. Very few think for themselves.

dahdum 4y ago

Put another way, this is a list of VCs that prioritize their portfolio companies health and success more than their personal banking relationships or public perception. That’s a pretty strong signal to future startups they’ve got your back when the shit hits the fan. I’m not saying it’s good, but I’m betting a lot of founders are feeling pretty thankful. The bailout was never guaranteed.

deleted 4y ago
[deleted]
tsunamifury 4y ago
No. There was only a 1.8 billion dollar temporary hole in the books. If they wanted to they could have plugged this in minutes and ensured their partner in banking survived. Then cashed out with 1:1.01 tbills or whatever in its stead. Follow on benefits would have been a statement of strength and cooperative SV culture. Instead they panicked like children and told everyone else to panic too It’s not a good look and it broke trust in SV.
- pas 4y ago
  yep, even though it seems "can't find their own mouth" level incompetence to try to raise cash through equity sale (which prompts everyone to think about their situation) instead of getting a loan, but they may have already exhausted that option. ... though finance is very much about connections, charisma and acting tough, and backchannels. aaand sometimes fundamentals. it's very hard to know if they could have organized/coordinated/managed to put together a rescue package. there was a 15B liquidity hole after all. https://blogs.cfainstitute.org/marketintegrity/2023/03/13/the-svb-collapse-fasb-should-eliminate-hide-til-maturity-accounting/ https://blogs.cfainstitute.org/marketintegrity/2023/03/13/th... by forcing a bank run and crying about payroll they managed to get the government to step in and basically undo SVB's bad deals, at the cost of sacrificing SVB itself. but VCs are happy now, they had the opportunity to both enjoy SVB up to now and have a financially zero-cost exit. if the fallen SVB management gets the same treatment as the fallen WeWork management their egos will be fine at the golf courses.

taxman22 4y ago

I can’t believe this narrative is at the top of HN. It’s disappointing.

pizlonator 4y ago
Yeah.
labster 4y ago
I admire that it can get to the top of HN, though, in that there is no heavy-handed moderation coming from the top. It shows a good working knowledge of the Streisand effect.

petesergeant 4y ago

> But those players within the venture capital community who were singularly responsible for triggering and then exacerbating this run will not escape accountability. Future founders will know your worth. Future founders will know that the VCs helped them protect their cash?

BoiledCabbage 4y ago

The single largest learning point from this experience was how entirely hollow the whole Silicon Valley libertarian ethos really was. And yet again, another group that claims to say "leave us be, take away restrictions and oversight we'll take care of ourselves, be more efficient an ask nothing of you", turnouts to be just another form of "leave us along so we can benefit, and then come save us when we need help". And to be very clear, the lesson to take away from this isn't: don't save a group when it needs help - because in the end the Yellen and FDIC did the right thing. To do any differently would have been to cut off our nose to spite our face. The lesson is stop letting groups be allowed to be build these fake worlds. Every single time it works out to be "libertarian when convenient and socialist when suffering". As we saw with the "code is law", and other cases - as much as people like the concepts it never holds up when people's assets/health are actually at stake. It is human nature they will always turn back to society for help after having refused to pay into it to get there (or directly taking advantage of it to profit). If you want to profit off of the hard work of an existing society, you must also pay the costs of maintaining society. Anything otherwise is just a "free rider" problem waiting to explode. We're simply lucky we could contain it this time (so far). There is a reason why every long-run solution to the prisoners dilemma is to cooperate. There is a reason why every society since antiquity has been based on society cooperation. The only long term stable solution is cooperation and eliminating free-riders who claim to be exempt from rules. SV's VC ethos was completely hollow.

notch898a 4y ago
[flagged]
jmyeet 4y ago
It's so much worse than that. The same people who cry to be bailed out of a bank run are the same people who wring their hands about the moral hazard of student debt relief. You will find that theme repeated. Any government money spent on poor people we simply cannot afford. The rich never stop asking the government for money. They expect it. They certainly never refuse it. Never forget that. "Libertarians" are pretty much just Reagan-era deregulation conservatives. It is utterly self-serving.
4y ago

drc500free 4y ago

The amount of victim-blaming astroturfing I've seen on hn this week has been quite surprising. Depositors are never, ever to blame for bank runs. Edit: From the about page: > Who I am is not important. Holding accountable the hypocrites responsible for Silicon Valley Bank’s collapse is. I can be reached at svbhallofshame@protonmail.com. All correspondence will be kept anonymous. It's just missing a PAC called something like "Citizens for Depositor Accountability."

croes 4y ago
Can't you kill any bank with a bank run?
- throw123123123 4y ago
  If you are solvent, in principle, you can get a loan from another bank to cover illiquidity. Yes, runs can kill any bank, but insolvency killed SVB first.
  - fastball 4y ago
    I don't think that's true? SVB was insolvent because they had to sell bonds at a massive loss in order to cover illiquidity that was a problem due to the bank run.
    - zaroth 4y ago
      They’ve been insolvent for some time. The bank run didn’t cause the insolvency, the bank run exposed it, and laid it bare.
      - fastball 4y ago
        What is your source for this? From everything I have read, the first point at which they were clearly insolvent was what I mentioned previously, when they sold a huge swath of bonds at a massive loss at or around March 8th 2023, which was less than two weeks ago.

dluan 4y ago

A list of VCs who did not learn game theory correctly

zemo 4y ago

seeing this here is funny because there are a lot of HN users that are VCs that don't know how to code :)

wnevets 4y ago

Watching Calacanis claiming he was responsible for the federal government's aid was quite shameful

kevinwang 4y ago

Here's a defense of those critiqued here (I am uninformed, so please correct me with more nuance): Bank runs are similar to prisoners' dilemmas. If all depositors could agree to not bank run, then they would have. Without this agreement, it does make sense to participate in the bank run (earlier is better), since if the bank run happens and you tried to be "good" by not running, you could be the one holding the bag at the end. And if the bank run doesn't happen, then no cost is incurred. So unfortunately, a bank run is one of those situations where everyone makes really rational decisions in the absence of coordination, but the outcome is bad. Is this a valid defense?

twelve40 4y ago

If Bloomberg is to be believed, the run started after the funds started experiencing real problems with regular money movement. In which case, it is kind of an emergency? > But the firm learned that its limited partners were encountering issues using SVB services as they tried to transfer the funds — they weren’t immediately going through as expected, the person said. https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-founders-fund-withdrew-millions-from-silicon-valley-bank https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-f... But the funny part is that this story is still unfolding. The bank's new management is soliciting new business under the same "startup-friendly" pitch (and presumably a large number of the same assets and liabilities), and again vulnerable to _the same exact run on a small-ish number of uninsured deposits_ (as opposed to diversified banks with lots of insured accounts across many industries). Except, now they also pitch it as fully insured! So how does this even end? Is it a temporary thing until the bridge bank gets acquired by somebody, or do they have now perpetual 100% protection from the FDIC? Really trying to understand. What good is a friendly bank that collapses from mismanagement and is propped up to serve the same small segment, vulnerable to the same run again?

lmm 4y ago
> So how does this even end? Is it a temporary thing until the bridge bank gets acquired by somebody, or do they have now perpetual 100% protection from the FDIC? Really trying to understand. That will depend on what the FDIC does, and I don't think even they know what the end result will be. They'd like to get it back into private hands (and to that end they want to keep it operating normally, to make it as attractive as possible to buy, at least for the time being), but that depends on finding someone willing to take it. If they can't, they might start gradually winding it down in orderly fashion (e.g. close to new accounts, start giving people a while to transition), or they might keep running it in the current limbo forever (just look at Freddy and Fannie).

asdfaoeu 4y ago

SVB didn't fail because people pulled money, it failed because of a lack of risk management. Complaining about those pulling money out is silly. If anything they should have pulled it out much earlier.

benatkin 4y ago

Contagions gonn contage. If it was in a vacuum maybe they could have kept a lid on it. But I disagree that they should have stayed calm about it with what happened prior with TerraUSD, Luna, Celsius, and FTX. The length of the list shows that it would have been infeasible to collude to stay quiet. This hall of shame feels like an ego trip.

davesque 4y ago

Wait, they're trying to say that this was all the fault of the depositors? No, sorry. While I often find it hard to empathize with wealthy tech bros, I don't have much trouble at all imagining myself doing the same thing.

mrinfinite 4y ago

Wow, sad. The only thing a bank run can be on is on "DEMAND" deposits. If you have a savings account or negotiate a similar thing then no bank run possible. A bank checking (called Demand Deposits) are to be fulfilled on DEMAND. How dare customers demand their demand deposits. how rude, right? All the bank had to do was upsell their customers into savings accounts and then no bank run is possible.

naet 4y ago

I don't think I agree with this as a mark of "shame". Were these companies wrong to pull money out of SVB when they (correctly) thought the bank might be insolvent or headed for trouble? Are we celebrating those who left their money in, despite the warnings, when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits? Would that have been "heroic" in some way? I personally don't think so, that seems more like stupidity if the potential consequence is your company losing all it's money and going bankrupt for outside reasons. SVB as an institution sponsored lobbyists to lobby against regulations meant to keep banks stable, then without those regulations they failed to self-regulate properly and failed massively. That is IMO pretty shameful. But I don't blame any clients of theirs for taking money out when they saw a potential instability. They did not create that instability; that instability created the bank run.

dahdum 4y ago
In a slightly different reality… “Sorry team, our main VC advised us to keep our money in SVB because it’s the right thing to do. We can’t make payroll. Our VC, true to their ideals, kept their cash in SVB too. They can’t help us. Kindly cast your blame on the thousands of startup peers that withdrew and remain unscathed. Their blatant self-interest may have killed us, but we are the true moral victors.”
- deleted 4y ago
  [deleted]
- gmd63 4y ago
  Or in another "How was your weekend?" "Oh nice had a walk with the boys, saw a bald eagle" We don't know that this would have been a crisis without a sudden 42 billion dollar withdrawal over 24 hours
  - 2-718-281-828 4y ago
    I don't get that joke. Please, elaborate.

mrinfinite 4y ago

Banks don't have to issue demand deposit accounts if they want to invest your money while you "loan it to them". How rude for the contractual obligation of a bank be asked to uphold their end of the deal. thats rude and racist. customers at that bank were real jerks.

walterbell 4y ago

Why didn't more SVB depositors take advantage of the SVB offering for sweeping cash funds into insured accounts? https://prospect.org/economy/2023-03-13-silicon-valley-bank-bailout-deregulation/ https://prospect.org/economy/2023-03-13-silicon-valley-bank-... > Importantly, SVB was part of the network of cash sweep banks; it had an offer on its website about it. But according to Adam Levitin, there were only $469 million in reciprocal deposits, which is where cash sweep would show up. In other words, almost nobody banking at SVB used them.

evancox100 4y ago
Roku had nearly half a _billion_ uninsured at SVB! I get how a small startup maybe overlooks their cash management, but how do you get to the size of Roku and have that? Treasurer/CFO should be fired.
- jessaustin 4y ago
  Roku should have been nationalized.

chad_strategic 4y ago

Hmm... If I was a powerful VC I would have shorted the stock and then went to the latest Silicon Valley venture capital social hour event and made a point of mentioning I had with drawn my billions. This plot right out of Billions. Since I'm not material investor in SVB, I can't see that this would be a red flag for the SEC?

462436347 4y ago

These people absolutely deserve to be named and shamed. If the big, "evil" banks can cooperate for the collective good of their industry and the wider economy as they did today by injecting $30 billion of deposits into First Republic to forestall its collapse, there's no reason why these supposedly enlightened, rational VCs couldn't at a minimum collectively agree to just not completely withdraw their deposits from SVB in a stampede, or perhaps go a bit further and actually help them raise additional capital. Instead they gutted the bank that provided them with banking services for 40 years, often when other banks would not. Some of them even did so two-facedly, publicly claiming to support SVB while pulling their and their companies' money out of it: > Y Combinator advised its portfolios to collapse SVB, while Garry Tan petitioned the government for a bailout Union Square: > Signed the statement [of support of SVB] after contributing to the run. Fred Wilson seems like a great example of PG's "Mean People Fail" delusion.

462436347 4y ago
And before any more midwits play the "Prisoner's Dilemma" card to defend this: https://en.wikipedia.org/wiki/Prisoner%27s_dilemma https://en.wikipedia.org/wiki/Prisoner%27s_dilemma > Two members of a criminal gang, A and B, are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communication with their partner. The guilty parties here could communicate with each other, and could cooperate, just like the banks did today by aiding First Republic. Instead, it appears that while they did communicate and cooperate, it was only towards the end of running on SVB. And as others have pointed out, even if the framing of it as a Prisoner's Dilemma is correct, it's not a single iteration variant: if the VC community could have come to some sort of an agreement, any party that refused to cooperate, or worse, that pledged to and then betrayed the others, would suffer a substantial loss of trust from other VCs and startups going forward.
- hnfong 4y ago
  In a textbook prisoner's dilemma, the prisoners both get a hefty sentence if they failed to cooperate and both defected. They had a lot to gain from cooperating. In the SVB situation, most of the losses are borne by the bank, investors of the bank, and the general public (in the sense that it caused financial instability across the nation). It's not a prisoner's dilemma because the downside to not cooperating is mainly borne by other people. The VCs and the startups who decided to "defect" are fine. I'm personally unable to understand the anger here and finger pointing here, the bank was obviously in a bad shape due to their assets being underwater, why would bank clients have a moral responsibility to continue depositing in a bad and failing bank? ---- And btw, the fact that parties could communicate with each other doesn't really change the game much. And nobody in their right mind would sign an agreement to keep assets in a bank or face penalties just because of some moral obligation to protect shareholders of a bank that made risky bets. That's just nuts IMHO. Anyone is free to create a time deposit if that's what they want to do.

Mizoguchi 4y ago

Every reasonable human being with money in SVB should be in this list.

ivraatiems 4y ago

All of this honor-amongst-thieves bellyaching is bullshit. I'm sorry. These are venture capitalists, emphasis on capitalist. The only thing they have ever or will ever care about is the amount of money a given action makes or loses them. That's it, full stop. SVB lent to these people knowing that full well, and knowing the risks of relying on VCs for their long bets. They are to blame for their choices. I have sympathy for nobody in this debacle, except maybe the federal government for having to clean up the mess.

jsemrau 4y ago

Auditors signed-off their audits : https://www.businesstoday.in/silicon-valley-bank/story/silicon-valley-bank-collapse-kpmg-stands-by-its-audit-of-svb-signature-bank-amid-backlash-373443-2023-03-15 https://www.businesstoday.in/silicon-valley-bank/story/silic... with a clean bill of health nonetheless.

hn_throwaway_99 4y ago
This was commented elsewhere, but the auditors were correct in that situation. This was not a case of fraud, where the bank had less money than they said they did. KPMG's job was to verify that SVB's public statements were accurate, and they were. SVB's precarious position was not a secret - saw a good post from mid-Feb that predicted exactly how this eventually played out. The only other thing KPMG could have done is give a "going concern" warning, and that would have been incredibly reckless because it would itself have caused a run on the bank.
- jsemrau 4y ago
  Well, when I was working with auditors (internal AND external) in previous roles in major financial institutions, we always performed tests if risk management tools are sufficient and reserves are proper. In the case of SVB it would have been possible to point out the concentration risk before bringing this into the public domain. But then, I do agree with you that the situation evolved as a sum of many parts, which included the, at the time, highly unlikely result of a bank run by the VC community. Looking back, I still shake my head how this came to be.
- IG_Semmelweiss 4y ago
  >>>This was commented elsewhere, but the auditors were correct in that situation Sorry, no. Auditors are supposed to effectively run going concern tests as part of their process. Its not only fraud they are looking for. If a company fails 2 weeks after the opinion because of an act of God, thats different. In this case, it was a literal duration mismatch (interest rate risk) that was predicted by blogs elsewhere. I maybe concede that im not sure it would be reckless to issue FS with a going concern, even if the going concern is true. A more likely scenario would be...no signed opinion. Financial filing would have been delayed. Which itself would have caused the run. If I was KPMG, I know what scenario I would like to be in, and its certainly NOT the current one, with a signed an opinion -with a wet siganture still- for a company that melted away within 2 weeks.

indigodaddy 4y ago

OP website is complete hogwash. Blaming VCs for deposit drawdowns fully within their right is shortsighted. Now the entire banking industry will need to reassess their treasury bond investment risk. Of course mass actions related to derisking those exposures could also spiral out of control within the ecosystem, with further weak banks with way too much risk exposed and failing, but it’s likely necessary.

fwlr 4y ago

I’m not going to be using this site to guide my opinions of VCs, I don’t generally outsource that much of my opinion-making to 3rd parties. But it does broadly reflect my opinions, you could get a very rough “general direction” picture of how I think from reading it. “It’s rational to join a bank run, VCs would have been negligent to their companies if they advised to stay” I know! Believe it or not I have studied a fair bit of game theory, enough to go beyond “it was a prisoners dilemma” and analyze the SVB collapse as an iterated prisoners dilemma with variable information/reputation and a small number of rounds (in this case the amount of information/reputation broadcasting very quickly drove the whole population to “defect always” and the ecosystem rapidly collapsed). I trust myself to be capable of assigning blame for the bank run correctly (broadly speaking: I. nobody started the run, everyone joined it; II. joining the run earlier is very slightly more blameful than joining the run later; III. being part of the run “loudly” is very significantly more blameful than being part of the run “quietly”). That is maybe 20%, while the other 80% and thus the real albatross here is the demand to be made whole afterwards. Roughly speaking the least blameful is “you’ll get 250k immediately, a substantial fraction soon, and almost all eventually; if this still kills your business let us know and we’ll try to arrange bridging finance”, while the most blameful is “the government must promise to make us whole on Monday morning or the contagion will spread; use taxpayer money if you have to, this is that important”.

lynx23 4y ago
You're using the word "defect" to describe someone pulling their money from a bank? Seriously? It is so easy to assign blame apparently...
- flandish 4y ago
  I agree. This all reads like a solid reminder that two things happen in that realm of highly VC funded systems: - Investment/money management often happens by people who are very new to this process and make swift sometimes stupid decisions. - Everyone else is clearly in the “protect profit” game, even if that means ignoring the clearly stupid things svb (and really the entire system) did/does. Mort backed securities, crap from the 08 markets, deregulation.. etc. A failing bank should not crash the economy nor should a bunch of startups failing as a result crash too. Poor startup decisions are one thing. But “too big to fail” things maybe need to be smaller or nationalized? I realize the site I’m on, and know I am still learning about this. I have just, in all my (short 43) years, felt the “too big to fail” reason pop up more than it seems it should because, to me, it means “gov must protect my profit, or I’ll deadman switch the economy.”

kondro 4y ago

Call me naïve, but if I put money in a bank I should be able to get it back whenever I want. If I didn't want it to be liquid, I'd buy something less liquid. The very concept of a bank run is ridiculous. If all a bank's customers want their cash back, they should be able to get it back without affecting the liquidity of the bank. Transaction accounts don't earn me anything and have fees of their own. There's little incentive to stay at one bank over another. If they want equity, they should sell long-term secured loans with LVRs under 100% or lock in my cash with term deposits or any number of other less liquid asset classes. But why should I feel guilt over moving my cash from one bank to another? Maybe it's because I'm Australian but I feel our banking industry is significantly more stable. The last time a bank had any serious issue was 1990 and it was a (single bank that itself was bailed out by the government). Australian banks make their money through mortgages (averaging less than 80% LVR or insurance-backed if higher and with fixed terms of generally no longer than 5 years), credit cards and management fees on long-term investment products -- they don't rely on investing cash deposits on long-term illiquid instruments. The fact this doesn't seem to be the case should raise questions over the entire US banking industry. Cash should be liquid. Edit: For reference, APRA (bank regulator in Australia) has some very strict liquidity risk management requirements and most banks own liquidity requirements are significantly higher than this: https://www.apra.gov.au/apra-explains-liquidity-banking https://www.apra.gov.au/apra-explains-liquidity-banking -- an Australian bank would never be allowed to purchase a 10-30 year bond to match against cash assets.

whateveracct 4y ago
To be pedantic, I'm pretty sure a big enough bank run could topple your banks too. Where do you think they get the cash to lend out from?
- kondro 4y ago
  Australian banks have a mandated 100% LCR and most banks hold 130%+ LCR (remember LCR is calculated based on a 30 day stress outflow). Even if a run lasts longer than the period above they're backed mostly by mortgages that are priced significantly higher than their borrowing costs and LVRs that average lower than 80% and the way AU banks price interest rates will always cost significantly less than their borrowing costs. They're never going to have trouble raising money on prime, variable interest (average fixed terms are always less than 5 years here) debt. APRA standards all but eliminate a sub-prime problem here. Loan affordability has been a very hot topic here over the last decade.

aristophenes 4y ago

I’m sorry, this was an utter mess, shouldn’t have happened and lots of people share blame. But I don’t think it was wrong for depositors to pull deposits from an insolvent (or nearly insolvent) bank. Neither is it wrong to encourage companies you’ve invested in to move money. The only thing I have a problem with is when some of the VCs, like Jason Calacanis, deliberately tried to spread panic to other banks to make SVB more important to the government so they’d backstop his deposits. That was pretty bad. But realizing your badly run bank is badly run and pulling your funds and encouraging others to do the same is a very reasonable thing to do. Certainly not worthy of this virtual tar and feathering. They are, or would have been, the innocent victims of this banks poor risk management. Edit: Link to tweet of screenshot of Jason trying to get everyone to panic about the entire banking system, with the only fix is the government to backstop large SVB deposits. https://mobile.twitter.com/nuancerocket/status/1634922146555392004 https://mobile.twitter.com/nuancerocket/status/1634922146555...

breck 4y ago
Agreed.

vivegi 4y ago

You can't blame the depositors or the VCs in this case for SVB's failure. Only SVB was responsible for taking on naked long-term risk and being unable to meet current obligations. At the time the VCs advised their portfolio cos to pull funds out of SVB, it was a perfectly rational reason because only 2.7% of SVB's deposits were FDIC insured. That means, there was no guarantee of the Fed, treasury and FDIC would take the action to make good all depositors. The entire site appears like something from an affected party (shareholder/investor/exec/boardmember of SVB) who lost their shirt in this fiasco and has an axe to grind. Just saying. Not sure why the are not naming and shaming the former SVB execs and boardmembers who missed to identify these risks early on and mitigate them. The failure of SVB is just capitalism, isn't it? They risked their capital on a business that took bad decisions, so it is only fair that the specific company (SVB) ceases to exist and something else comes up to take its place.

pizlonator 4y ago

I don’t see the point of shaming these folks.

ar9av 4y ago

These people acted rationally. As soon as there was even a hint of "this bank could fail" it's a no brainer to press a couple buttons on your app and transfer your money even if there is only a 0.1% chance of failure. It's just game theory. The problem is when everyone acts to protect themselves from the 0.1% chance event it actually becomes a 100% likely event. That's why FDIC Insurance was invented in order to prevent bank runs and is why we have had so few in the hundreds years since it was invented. The obvious solution is to waive the FDIC insurance caps and probably increase the cost of the insurance to make up for the increased risk of failure.

notacoward 4y ago
> These people acted rationally. > It's just game theory. The conclusion from game theory (specifically Prisoner's Dilemma) is not that only one action is rational. Both cooperation and defection are rational; that's what "dilemma" means. The difference lies in the scope or horizon to which reason is applied. Every time I see someone invoke "rationality" or game theory to justify what is really selfishness, it makes me want to throw up.
- IG_Semmelweiss 4y ago
  Failure was a foregone conclusion non matter what time horizon you wanted to apply. The bank had wiped its equity before depositors drew on it. It was a matter of time it failed. Its loan portfolio is impaired. Its startups are burning DDA cash without vc funding. The majority of its capital is locked up on long duration bonds. The bank was bleeding from a thousand cuts. It was put out of misery by a good old run to the head. Eventually some startup was going to try drawing on their checking and it was going to fail. A bank run is just a symptom of the disease (mismanaged bank risk).

sky_rw 4y ago

It's not immoral to yell fire in a crowded theater if the theater is in fact on fire.

periram 4y ago

Isn't this one of the stable Nash equilibriums in game theory. You keep X of your X money if you withdraw, with a chance that someone else will lose their money OR you keep your faith in the system with a chance that you lose 100% of X.

vishnugupta 4y ago

Sequoia is conspicuously absent in that list. Knowing how dump their recent moves/investments have been I'm very surprised. Anyone knows how did they manage to dodge this, if at all?

davtbaum 4y ago

Perhaps I’m an outlier here, but doesn’t this feel a bit exaggerated? I’m not sure why the author (or, for that matter HN in general) feels so strongly about this. In the end, everyone was made whole. VCs acted in the best interest of the companies they back, and SVB made some really poor decisions which caused them to implode. What exactly is the story here?

hnfong 4y ago
Some misguided people thinking tech startups are supposed to care more about maintaining the stability of the banking sector over whether they can pay their employees next week. Interestingly enough nobody is blaming politicians and/or the Fed for causing all this in the first place. I mean, I get that tech and VC money in particular benefitted hugely from the zero interest rate environment in 2011~2021, but still, I fail to see where the moral obligations come from.

yafbum 4y ago

It's weird that SVB, or any one particular bank, would be "playing a pivotal role in serving the startup community". Loans are loans. The stories coming out about SVB "sticking with the founders through tough times" when none of the other banks would, well, they sound a bit like what you'd hear about a bank taking reckless risks with its lending practice.

chernevik 4y ago

The question for the VCs is not, "why did you advise your portfolio companies to leave SVB?" It is, "why did you not advise your portfolio companies to hold their capital in a t-bill money market?" This obvious step for capital protection was somehow neglected by venture capital firms who pride themselves on advising their portfolio on a host of mundane business issues. A VC would be considered mad if one of its companies didn't run financing docs through a lawyer, or handled payroll on its own. This should have been one of the most obvious and simple items on the checklist. Yet somehow it was not. Why not? The failure of any bank should have been a shruggable matter for every startup funded with capital. Instead it was portrayed as an existential issue for all. (This was entirely and obviously false, but let that pass.) If it were an existential threat that was a lapse of the VCs supposedly guiding these business novices. I very much suspect that the hue and cry for a bailout was driven in part by VCs eager to cover this lapse. And to suppress attention on the relationships with SVB that lead them to recommend their companies provide SVB with cheap deposits rather than prudently protect their capital. The answer to a bank run is not "stand by your bank". It is "be indifferent to what happens to your bank in the first place".

dzhar11 4y ago

2020 Panic buying === 2023 Panic withdrawing https://en.wikipedia.org/wiki/Panic_buying https://en.wikipedia.org/wiki/Panic_buying

fastball 4y ago

Seems like a lot of people are missing the point of this website. 90% of the criticism seems to be "depositors are never morally wrong for withdrawing money from a bank, so this website is bad". But mostly this website's focus seems to be on the hypocrisy, e.g. the VCs who said "don't run on the bank" while telling their portfolio companies to run ASAP. That is much more obviously a moral wrong (to me at least). I'm mostly basing this on the fact that the website explicitly said "You will be remembered for your hypocrisy." rather than "You will be remembered for running."

soumyadeb 4y ago

Scenario planning on two VC reactions on Thus (3/9) 1) VC1 - SVB is perfectly safe . Don't worry and keep the money there. 2) VC2 - We are hearing rumors about SVB. You should play safe and move it to another bank. Here is a guy who can help with opening accounts etc. And SVB shuts down on Friday (3/10). Guess, which VC would I recommend to a new founder? Yes. Feds saved SVB but there is a world where it might not have and my money could have been locked for days forcing me to miss payroll. In any case, I would have had a sleepless weekend. Founder here.

mathattack 4y ago

The VCs did what they had to do. It’s poor financial management to not run for the door when the last one standing may be holding the bag. I just find it strange that after all that SVB is using the bailout as marketing. “All your new dollars are safe too!”

aj7 4y ago

The board was asleep at the switch. They are now unemployable. You’re dreaming. Boards are mainly hired to do nothing in established companies.

w10-1 4y ago

Shame is toxic, but the issue is critical for startup's and worth discussing. Depositors making individual decisions? Ok. Funds advising their companies? Ok, but it really hides the agency: deciders are in the funds (what CEO would refuse that advice?), but the companies are the responsible actors. Now, would it matter if most of those funds were responding to their investors, say, Saudi's or Russians or the Chinese Communist Party, or to a consortium of friends who had shorted the bank? Most would say it does matter, but AFAICT it's perfectly legal, and no outsider would ever know the difference. Market self-regulation, insurance, and investment diversification all depend on agents acting independently in their own interests, say, of making money. Once agents are coordinating, or colluding, or have other dominant strategic interests, market self-regulation fails. And everyone else, who reasonably relied on the market behaving stochastically or in response to economic forces, loses. One might hope that if this were all good, the response to a wall of shame would be a wall of honor, with transparency around decisions. But confidentiality is a key feature for any investment firms, so the best we'll get are retrospective letters of intent. Aside from bad actors, the irony is that high federal rates means more risk-taking from banks, not less. SVB assets were good and safe, albeit not worth much (as the auction is showing). I would have no problem with new rules saying that firms with assets big enough relative to the bank needed to schedule major withdrawals in advance. There's really no other reason than a bank run to move $100M emergently. (There'll be a secondary market for large urgent transfers, but it won't cost much, securitized with a pending transfer.) So: yes the system is susceptible to bad actors, and there's no good way to respond without throwing out the baby with the bathwater. Really society's only defense is that the wealthy are getting wealthy enough legally that there's no real need to go all-out. Aside from the moral hazard of covering bank risks, there's another moral hazard in creating opportunity and incentive for an already-confidential and largely unregulated industry to collude. It might push good investors into combines with bad actors, amplifying ill effects. What's shameful really is that these systemic gaps are relatively obvious to thousands of the involved engineer/MBA/JD's, but everyone greedily grabs their local maxima, instead of insisting the system work right. That's where I'd welcome leadership, some way to reduce coordination costs.

sacnoradhq 4y ago

This comes off as a strawman job. There was no grand conspiracy ahead-of-time to cause a run. It would be dumb on the part of investors and VCs to not facilitate moving vast sums of their money to safer places in an orderly fashion. OTOH, there existed an opportunity to steer cash in directions favorable to the influencers after SVB was already sinking. So I don't see any evidence it was anything other than mismanagement by growing too big too quickly and betting on riskier financial instruments than should've been allowed.

adityaathalye 4y ago

Siren call for a VC Union? I'm only half-serious :) Under the circumstances, I'd have pulled out money while I could. Money in hand is better than a hope in hell. But seriously, I wonder if it makes sense to have some common ground to greatly reduce odds of SVB-likes happening? Dealing with this kind of emergency is all about communication. The final collapse happened frightfully quickly. There is no time to organise when the car pile-up has begun. You got to have groundwork in advance, and comms open too. Maybe its too black of a black swan that you can't ever prevent. Maybe the competitive dynamics of the startup world do not lend support for a commons. Yet, maaaybe if you can see that your number one business partner's books have become crazy, someone should be able to say something, at the very least?

krick 4y ago

This is laughable. I won't start on how it's my money and all that jazz, so just one thing: keeping your money and your clients' money in a bank that is on the verge of a bank run is not a sign of valor, it's either a sign of being stupid and irresponsible, or a sign that you know something that others don't.

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gmd63 4y ago

As I post this, the original post has 360 points posted 3 hours ago and is ranked lower than a post with 260 posted 14 hours ago. Interesting.

erik_seaberg 4y ago
Scores decay over time; HN doesn’t want the same high scoring articles stuck to the front page forever. http://www.righto.com/2013/11/how-hacker-news-ranking-really-works.html http://www.righto.com/2013/11/how-hacker-news-ranking-really...
- gmd63 4y ago
  Yes. But as I mentioned, there was an older, lower scoring article that was ranked higher than this one while it was fresh (~3 hours old)

antics 4y ago

I am a founder who had assets tied up in SVB. As someone with something to lose, I'm going to be honest that I think the people on this list mostly look incredibly stupid—both at the time and in retrospect. And I think it's worth dwelling on why. * In a catastrophic (_i.e._, non-backstopped) bank run, _most_ deposits are not getting out of the bank. Especially when the deposit sizes are very large, as they are with corporate treasuries. * Thus, if a catastrophic bank run is already in progress you are unlikely to succeed at saving any of your portfolio treasuries. * BUT, if a catastrophic bank run is not in progress, the downside is that you lose 100% of portfolio treasuries because you started one. I am seeing a lot of people like Elizabeth Yin say that they are proud for telling everyone to pull the plug. I get it. They are on the side of their founders and they want to be helpful, and they believe decisive action helps. My message to all of those investors is that "makes swift but extremely stupid decisions" is not a quality that is admirable in a capital allocator. I don't think this rises to a moral failing but pretty much everyone on this list is going on my personal docket of people who are too stupid and impulsive to trust in emergency business contexts.

notch898a 4y ago
I had to parse this a few times to understand. I think your thesis is that an investor has multiple ventures in their portfolio. And many of those ventures park their treasuries at the same bank. And by telling them a run is happening, your thesis is some or none of those ventures pull their money out faster than others, and the stragglers of the portfolio can't due to the bank run started by the investor and/or other companies in the investor's portfolio?
- deleted 4y ago
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- antics 4y ago
  During a bank run, 0 withdrawals will complete. So if you warn portcos to withdraw _during_ the run, you save 0 treasuries. If you warn portcos to withdraw _before_ the run, you might trigger the run in which case you'd almost certainly lose 70% of portco treasuries. I'm proposing in neither case it makes sense to encourage portcos to move their money.

deleted 4y ago

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op00to 4y ago

I don’t understand the vitriol. It’s shitty, yes, but I honestly doubt the players are somehow blacklisted.