Huh. My spidey sense is tingling on this one. I mean, a $42 billion run on a bank in a single day?
A couple options include the Certificate of Deposit Account Registry Service or the Depositors Insurance Fund. Though note that my knowledge of these options is only theoretical, as I spread my millions across multiple banks and investment firms.
This New York mag article specifically blames it on idiot venture capitalists who panicked even after they were told to hold off. Since they were the ones who wound up taking the worst losses and nobody seems to be winners, I’d doubt that crooked stuff was happening. If it were who was it and how did they come out ahead?
Would you want to “hold off” and be left holding the (empty) bag? It’s not a realistic expectation, that’s what bank runs are all about, i.e. human nature that wants to rescue what it can during a potential disaster, especially if the only thing preventing the disaster is good behavior by a bunch of other people.
Yeah, though one may find some fault in Thiel (it HAD to be Thiel, didn’t it…) and others for speeding up the run, ISTM what we had were the big VCs with the really big accounts weighing how SVB were handling their cap shortfall, not liking what they saw, and dumping SVB preemptively – and by taking away very large deposits, creating a further losing position and feeding the spiral and causing the next tier of depositors, and the next, to try and get out what they can. That is just classic bank panic.
What is sad is the start-ups who worked hard to get their capital, and who had the payroll in their SVB accounts, only to see them locked up and who knows how much will they get back.
As pointed out in the articles, SVB failed to get ahead of the interest-rates curve and to act in a timely manner to get things stabilized before important people started getting nervous, and then was clumsy and confusing in the messaging about what they were doing about it. In the environment they operated they needed to have given themselves more options for “what may go wrong” well ahead of this.
And from the article I seem get something about the current environment: especially where financing and tech border one another, people are SPOOKED and this will only make them more so. Even if you are most definitely not FTX, and are a real banker trying to really solve a real problem, by now just saying you have the problem will only make things worse as far as outside observers are concerned.
Bank panics are not foredestined. Historically some been prevented by the proper people stepping in and saying the right thing or putting money in the right places.
Venture capitalists are supposed to be the adults in the room. When they start throwing the kids overboard they hurt themselves in the long run.
“You’re thinking of this place all wrong, as if I have the money back in a safe! Elon, your money’s in Jeff’s start-up. And in Mark’s start-up. And in a hundred other start-ups! You’re lending them the money to launch poorly-thought-out, completely unnecessary tech companies and they’ll pay you back as soon as they figure out how to monetize!”
“Everybody! Old Man Thiel’s paying 50 cents on the dollar! I’m going over to him!”
Not this crowd these days. Not a J. P. Morgan in the whole bunch.
The comments in this thread makes fun reading.
SVB was the 16th largest bank in the country. Roku, not a VC, had $487 million in SVB, not their entire cash hoard, but enough to hurt.
That’s the funniest thing I’ve heard all week.
I personally know someone (well enough to be in a group chat with them on Friday) who was trying to withdraw over $1B from SVB on Friday morning on behalf of a few dozen clients.
For a while it looked like the withdrawals had been processed and then 45 minutes later they were reversed.
None of this is their (person’s) money or even their employer’s money. It belongs to a slew of VCs for whom the firm acts as some kind of outsourced Treasurer.
Me and the others in the group are all Financial professionals with at least 20 years of experience. Many of us have been employed by companies that have gone under, going through bankruptcy reorganization and liquidation. None of us can understand exactly what is going on that they are describing.
The legal relationship between the VCs, the startups and the fund (employer of my source) seems extremely murky. Every time they use the term “our” it’s unclear if they mean their employer, their investor clients or their funding clients.
Note that in a “bad year” for the last 15 years or so, this person took home >$100k in BONUSES, most years it is >$300k. So hearing them freak out about losing their job was not generating as much sympathy as they expected among us working stiffs.
Silicon Bankman-Fraud
… hasn’t been a good year for the “ThE fInAnCiAl mArKeTs ArE tOo ReGuLaTeD!” team, tbh.
“Well there’s your problem.” Friday morning was already too late.
People are writing as though funds held in the bank have been lost. This is not remotely true. Losses on their bond portfolio were around $15 billion at year end, and interest rates now are no higher than at year end. Most of that loss is covered by wiping out equity capital. Until the run, reports were that a $2 billion capital raise would have been sufficient.
This was a liquidity squeeze, but all reports I’ve seen are that assets are sufficient to cover the bulk (if not all) deposit liabilities. Even if no buyer is found, I’ve seen nothing to suggest that depositors won’t get most of their money back.
The league table of bank failures is quite misleading. What matters is not gross assets, but the shortfall between assets and liabilities.
No bailout.
That’s as it should be. I think it’s likely that it will be acquired as a whole and people won’t lose anything, but an outcome where assets are sold and account holders end up losing 10-30% of their deposits is still healthy. It’s hardly going to destroy the industry. The moral hazard created by an assumption of complete bailout is unhealthy. There should be sufficient risk in bank deposits that large depositors with financial knowledge and resources have an incentive to scrutinize stupid behavior by bankers, so that banks that prioritize stability and safety over risky profits are rewarded.
The unfortunate thing with no easy solution is that it’s very difficult to remove the moral hazard with respect to the largest banks. Despite Yellen’s claims, everyone knows that some banks are too big to fail. Strict regulation of what banks are allowed to do is the only sensible answer.
Welp, the stock market is going to absolutely crater this week. It’s the Crash of 2023.
Based on what? Yellen’s comment is not surprising - there are plenty of assets there, the losses on SVB’s bond portfolio are peanuts from a systemic perspective.
A panic is brewing. This is how they start.
So your argument is that there will be a panic because a panic is brewing? I find that unconvincing. The market may drop further, it may rally sharply if they announce that SVB is acquired by Monday. Trying to guess gyrations like this is a mug’s game.
The best advice for an investor is to ignore stuff like this.