26 ms·

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 b

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.
  - slowmovintarget 3y ago
    Or something old and understood is happening. Tragedy of the Commons? The same behavior that causes traffic jams? (If everyone slowed down and evened traffic out, there wouldn't be waves leading to a cascading stoppage.)
  - RestlessMind 3y ago
    You are right if it's only a single business failing. However, even JPM or BofA won't survive if >25% of their customer deposits are withdrawn in a matter of days, let alone other smaller banks. If 100% of businesses in a certain sector are a "failure" according to your definition, then I suggest your definition is wrong.
RestlessMind 3y ago
> What's irrational about taking your money out of an insolvent bank? Nothing. But what happened here was that multiple people decided to take money all at once out of a solvent bank, thus making it insolvent. Banks are in fractional reserve banking business, not custodian business. So no bank in the US can survive >25% withdrawals.

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.
- slowmovintarget 3y ago
  Or something old and understood is happening. Tragedy of the Commons? The same behavior that causes traffic jams? (If everyone slowed down and evened traffic out, there wouldn't be waves leading to a cascading stoppage.)
- RestlessMind 3y ago
  You are right if it's only a single business failing. However, even JPM or BofA won't survive if >25% of their customer deposits are withdrawn in a matter of days, let alone other smaller banks. If 100% of businesses in a certain sector are a "failure" according to your definition, then I suggest your definition is wrong.

RestlessMind 3y ago

> What's irrational about taking your money out of an insolvent bank? Nothing. But what happened here was that multiple people decided to take money all at once out of a solvent bank, thus making it insolvent. Banks are in fractional reserve banking business, not custodian business. So no bank in the US can survive >25% withdrawals.