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There is absolutely no hedge that can stop a bank run, there is literally not a single financial invention that allows both banking and enough liquidity to stop

There is absolutely no hedge that can stop a bank run, there is literally not a single financial invention that allows both banking and enough liquidity to stop the run. Except for insurance on that sort of bank run. Really it comes down to irrational VCs starting this bank run, which inevitably led to the destruction of the only bank that really understands tech startups. And now the same folks are making fools of themselves doubting all economic data (public or private, they all agree) that shows that most sectors are doing fantastically, just not tech. They are also backing a presidential candidate that thinks WiFi causes cancer, and has some of the worst anti-science views out there; in addition these same VCs are pretty much solely responsible for the community backlash against tech, the change from appreciation of tech to hate of tech, as they are outliers with their weird political obsessions that don't even match the rest of the industry. The result of the interest rate hikes was that there were going to be some bank failures, that's the whole point of trying to cool things off. That it happened in tech and not elsewhere is due to a few bad actors that have more economic power than wisdom to wield it well.

deleted 3y ago
[deleted]
lesuorac 3y ago
1) What's irrational about taking your money out of an insolvent bank? Sure SVB collapsed immediately from the bank run; but whose to say it wouldn't've gone bankrupt 5 months from now (it's not like 2% mortgages are worth any more now than then!)? 2) It's not like the Fed didn't warn them quarters ahead of time that SVB wasn't hedged against rising interest rates. The Fed does not need to give banks advanced notice of what they're doing; the bank should be hedged for w/e the Fed does so that they don't become insolvent triggering a bank run. Sure it would be much better if the VCs had gotten together and agreed to either loan SVB money or etc so it would be paper solvent. But my original point is, don't be blaming the Fed for SVB's collapse. SVB had a duty to manage their risks and they did not.
- epistasis 3y ago
  If it were not for the bank run, the bank wouldn't have gone under. There was no need to loan SVB any money! The only thing that causes this run was a coordinated withdrawal of lots of accounts all at once, and without that, with norma behavior everything would have been fine with SVB. The biggest critique of SVB isn't that they needed money (they didn't) or that they didn't hedge properly (it was pretty standard stuff) it was that they had correlated clients that were far less diverse than one would guess by looking at the number of accounts. That was the risk that SVB "did not manage" in that a lot of the money was actually controlled by a very tiny number of people, even if it was in the account of a startup, that startup was going to follow the advice of they major financial backers.
  - lesuorac 3y ago
    The bank wouldn't've gone under when it did without a bank run. This doesn't mean that the bank would've never failed. The bank was literally (pre-run) trying to raise cash; they already didn't have enough cash before people tried to withdrawal 40B! If your bank is insolvent and trying to raise money; it's incredible rational to withdrawal your money before it collapses.
    - FireBeyond 3y ago
      > If your bank is insolvent and trying to raise money; it's incredible rational to withdrawal your money before it collapses. To me one of the concerns there is it certainly seemed like Peter Thiel had a lot more specific insights on how real this solvency concern was, given that late Wednesday night he told his companies to have their money out of SVB by COB the next day, and that a loan application app needed to be up and running by noon Friday.
  - ballenf 3y ago
    Something's wrong when a business's excuse for failure is that each of their customers acted rationally.
    - 3y ago
powera 3y ago
It wasn't "irrational VCs" starting a bank run that caused the SVB problems. It was the very clear fact that the bank was insolvent, except under "we can pretend all their customers will leave their money at below-market interest rates for a decade" accounting. Perhaps if SVB had less-informed customers, the bank failure would have happened at the speed of First Republic. But the writing was on the wall: SVB was certain to require some form of bail-out or acquisition.
- epistasis 3y ago
  They are only "insolvent" if they mark to market rather than holding the treasuries to maturity; which as I said above is true to pretty much every bank out there. This is inherent to banking, if there's a run then there is not enough liquidity. In all my reading of SVB, I have never once seen an anaylsis that says that a bailout would be necessary. For that matter, neither have I seen an analysis claim that acquisition was necessary. An acquisition would have been far preferable, and causing a bank run was far more irrational than allowing an acquisition to happen.
  - dantheman 3y ago
    This is inherent to fractional reserve banking - not all banking. Demand deposits should not be lent out, if banks want to make loans then the capital should come from longer term assets not demand deposits. This isn't hard, it's just far less profitable.
smileysteve 3y ago
> There is absolutely no hedge that can stop a bank run In this case there were a significant number of hedges available to prevent a bank run. 1. Diversify Depositors (Sequoia's terms to keep balances at SVB is a risk to the bank, you hedge this by marketing to mom and pops); 2. Offer high rate CDs until your long term depositors are > X% of deposits. Yes this results in negative marginal returns until the bank rebalances its investments. 3. Private insurance (charged as fees to depositors) to accounts over FDIC limit (encourages #1 and #2) 4. Shorter term financial instruments
FireBeyond 3y ago
> Really it comes down to irrational VCs starting this bank run I really wish there was more investigation of Peter Thiel on this. He issued very specific edicts to startups he was invested in on Wednesday night saying that they were all to have all funds out by COB Thursday. He also then specifically directed one of his companies to have a loan application app up and running, and that it would need to be ready by noon on Friday (the Feds shut the doors Friday morning). These were remarkably ... prescient ... predictions, and very precise and specific. I cannot help but wonder if Thiel had some insider information on this going down. I'm sure he's probably quite friendly with SVB's board given how much money he's pushed their way. It should also be noted that encouraging or pushing a bank run is in fact a felony.

deleted 3y ago

[deleted]

lesuorac 3y ago

1) What's irrational about taking your money out of an insolvent bank? Sure SVB collapsed immediately from the bank run; but whose to say it wouldn't've gone bankrupt 5 months from now (it's not like 2% mortgages are worth any more now than then!)? 2) It's not like the Fed didn't warn them quarters ahead of time that SVB wasn't hedged against rising interest rates. The Fed does not need to give banks advanced notice of what they're doing; the bank should be hedged for w/e the Fed does so that they don't become insolvent triggering a bank run. Sure it would be much better if the VCs had gotten together and agreed to either loan SVB money or etc so it would be paper solvent. But my original point is, don't be blaming the Fed for SVB's collapse. SVB had a duty to manage their risks and they did not.

epistasis 3y ago
If it were not for the bank run, the bank wouldn't have gone under. There was no need to loan SVB any money! The only thing that causes this run was a coordinated withdrawal of lots of accounts all at once, and without that, with norma behavior everything would have been fine with SVB. The biggest critique of SVB isn't that they needed money (they didn't) or that they didn't hedge properly (it was pretty standard stuff) it was that they had correlated clients that were far less diverse than one would guess by looking at the number of accounts. That was the risk that SVB "did not manage" in that a lot of the money was actually controlled by a very tiny number of people, even if it was in the account of a startup, that startup was going to follow the advice of they major financial backers.
- lesuorac 3y ago
  The bank wouldn't've gone under when it did without a bank run. This doesn't mean that the bank would've never failed. The bank was literally (pre-run) trying to raise cash; they already didn't have enough cash before people tried to withdrawal 40B! If your bank is insolvent and trying to raise money; it's incredible rational to withdrawal your money before it collapses.
  - FireBeyond 3y ago
    > If your bank is insolvent and trying to raise money; it's incredible rational to withdrawal your money before it collapses. To me one of the concerns there is it certainly seemed like Peter Thiel had a lot more specific insights on how real this solvency concern was, given that late Wednesday night he told his companies to have their money out of SVB by COB the next day, and that a loan application app needed to be up and running by noon Friday.
- ballenf 3y ago
  Something's wrong when a business's excuse for failure is that each of their customers acted rationally.
  - 3y ago

powera 3y ago

It wasn't "irrational VCs" starting a bank run that caused the SVB problems. It was the very clear fact that the bank was insolvent, except under "we can pretend all their customers will leave their money at below-market interest rates for a decade" accounting. Perhaps if SVB had less-informed customers, the bank failure would have happened at the speed of First Republic. But the writing was on the wall: SVB was certain to require some form of bail-out or acquisition.

epistasis 3y ago
They are only "insolvent" if they mark to market rather than holding the treasuries to maturity; which as I said above is true to pretty much every bank out there. This is inherent to banking, if there's a run then there is not enough liquidity. In all my reading of SVB, I have never once seen an anaylsis that says that a bailout would be necessary. For that matter, neither have I seen an analysis claim that acquisition was necessary. An acquisition would have been far preferable, and causing a bank run was far more irrational than allowing an acquisition to happen.
- dantheman 3y ago
  This is inherent to fractional reserve banking - not all banking. Demand deposits should not be lent out, if banks want to make loans then the capital should come from longer term assets not demand deposits. This isn't hard, it's just far less profitable.

smileysteve 3y ago

> There is absolutely no hedge that can stop a bank run In this case there were a significant number of hedges available to prevent a bank run. 1. Diversify Depositors (Sequoia's terms to keep balances at SVB is a risk to the bank, you hedge this by marketing to mom and pops); 2. Offer high rate CDs until your long term depositors are > X% of deposits. Yes this results in negative marginal returns until the bank rebalances its investments. 3. Private insurance (charged as fees to depositors) to accounts over FDIC limit (encourages #1 and #2) 4. Shorter term financial instruments

FireBeyond 3y ago

> Really it comes down to irrational VCs starting this bank run I really wish there was more investigation of Peter Thiel on this. He issued very specific edicts to startups he was invested in on Wednesday night saying that they were all to have all funds out by COB Thursday. He also then specifically directed one of his companies to have a loan application app up and running, and that it would need to be ready by noon on Friday (the Feds shut the doors Friday morning). These were remarkably ... prescient ... predictions, and very precise and specific. I cannot help but wonder if Thiel had some insider information on this going down. I'm sure he's probably quite friendly with SVB's board given how much money he's pushed their way. It should also be noted that encouraging or pushing a bank run is in fact a felony.