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> 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 b

by 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.
  - manquer 4y ago
    It was cited to be insolvent in addition be illquid when be taken over by DFPI[1] and most observers and analysts agree . If it were only illquid, it would be far easier to find a buyer and it would have already been sold by now. [1] https://dfpi.ca.gov/2023/03/10/california-financial-regulator-takes-possession-of-silicon-valley-bank/ https://dfpi.ca.gov/2023/03/10/california-financial-regulato...
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.

by 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.
- manquer 4y ago
  It was cited to be insolvent in addition be illquid when be taken over by DFPI[1] and most observers and analysts agree . If it were only illquid, it would be far easier to find a buyer and it would have already been sold by now. [1] https://dfpi.ca.gov/2023/03/10/california-financial-regulator-takes-possession-of-silicon-valley-bank/ https://dfpi.ca.gov/2023/03/10/california-financial-regulato...

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.