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Ask HN: How is the SVB situation affecting your startup?

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Re: Ask HN: How is the SVB situation affecting your startup?

#101

Post by mbreese »

adamsmith143 wrote: post #60
lolinder wrote: post #5

> most startups in the US bank with them Is this true? And if so, how was this not a major red flag for investors earlier? From what I gather as an outsider, it sounds like SVB has most of its assets in the form of loans to tech startups and most of its liabilities in the form of deposits from tech startups. This seems like an obvious recipe for disaster in the event of a tech downturn, no? EDIT: People have clarifie…

What could possibly go wrong running a bank by working with the most volatile companies on Earth with failure rates above 90% lol.

They aren't loaning money to the startups (well, mostly). They handled the banking. This current problem has nothing to do with their clientele, it has to do with long term bonds.

They sell banking services to startups... all companies need some way to manage payroll (for example). Regardless of the balance sheets of their clients, they should have been able to manage assets such that they could fulfill day to day banking needs.

It's that failure to manage assets on the bank side that we're talking about. Startups/clients failing should be a normal event at SVB, given their focus.

Re: Ask HN: How is the SVB situation affecting your startup?

#102

Post by gizmo »

asimpletune wrote: post #74
gizmo wrote: post #61

Earlier quoted context omitted.

When assets This isn't just a liquidity problem, this is a solvency problem. The bonds they have aren't temporarily worth less because nobody wants to buy them, the bonds are liquid and have a fair market value based on the current interest rate environment. Your cash isn't at the bank anymore. Your cash has been invested in bonds and those bonds are now worth less than the number you see in your bank account. That's…

It's not a solvency problem. The bonds are valued based on when they mature, not what they fetch on the open market. It is a liquidity issue, which means the money is there, but they can not access the money in the amount of time they need it by.

It is a solvency issue because they are legally obligated to give people their money back when they ask for it. If none of the customers would withdraw money for the next 10 years they would be fine.

But the customers are startups that have expenses like payroll and AWS. And the climate for raising money is bad, which means a lot of money is being withdrawn every month, and not much new money is getting deposited.

Re: Ask HN: How is the SVB situation affecting your startup?

#103

Post by mikeyouse »

diebeforei485 wrote: post #84
ak_111 wrote: post #65

Earlier quoted context omitted.

May I ask you why do you sound so calm and confident that your money will not evaporate permanently (above the FDIC guarantee)? Banks going bust is a totally normal thing in a capitalist system, and bigger more established banks than SVB have done so only a decade ago.

There have been pretty much zero instances of people's money evaporating from U.S. bank accounts, even above the FDIC guarantee.

Not sure why this is downvoted. FDIC-insured accounts have never lost funds in the nearly 100 years since the FDIC was established. And I think there was one? maybe two? times depositors lost funds in excess of the FDIC limits over that same time frame?

Re: Ask HN: How is the SVB situation affecting your startup?

#105

Post by dudeDDRrulez »

whitemary wrote: post #96
toomuchtodo wrote: post #82

Earlier quoted context omitted.

A bailout is not guaranteed. How long it takes to be made whole is unknown. How long can you go without cash while regulators work out the details. How long will payroll and creditors wait for you to get your cash back. Hope for the best, plan for the worst. Edit (epoch time 16784666958): https://www.cnbc.com/2023/03/10/silicon-valley-bank-is-shut-... (Silicon Valley Bank is shut down by regulators, FDIC to protect i…

Nonsense. A bailout has more precedent now, and the current political situation with the Democrats in the White House virtually guarantees it. The last bailout never had a precedent or approval of the American people, but they did it anyway and they will do it again. Capitalism doesn’t allow planning for the worst. Karl Marx showed us this 150 years ago, and the working class is regularly reminded in blood, but the r…

Dodd Frank did away with bail outs. It will be a “bail in” using customer deposits this time around.

Re: Ask HN: How is the SVB situation affecting your startup?

#106

Post by albatross13 »

nemothekid wrote: post #77
gizmo wrote: post #61

Earlier quoted context omitted.

When assets This isn't just a liquidity problem, this is a solvency problem. The bonds they have aren't temporarily worth less because nobody wants to buy them, the bonds are liquid and have a fair market value based on the current interest rate environment. Your cash isn't at the bank anymore. Your cash has been invested in bonds and those bonds are now worth less than the number you see in your bank account. That's…

> The bonds they have aren't temporarily worth less because nobody wants to buy them, the bonds are liquid and have a fair market value based on the current interest rate environment. Maybe I’m missing something but couldn’t you just potentially wait for the bonds to mature?

From what I understand, for this method to become profitable (or even reasonably close) the interest rates have to drop down to where they were when the bonds were purchased. Otherwise the bond yields will never be worth it and the price of the bond(s) continue to stay lower than what they were purchased for.

These bonds were most likely purchased when interest rates were near 0 and I don't think anyone is banking on those rates returning any time soon.

That being said, I'm going off of some basic reading I've done this morning: https://www.fbfs.com/learning-center/bonds-interest-rates-an...

Re: Ask HN: How is the SVB situation affecting your startup?

#107

Post by est31 »

whitemary wrote: post #81
ak_111 wrote: post #65

Earlier quoted context omitted.

May I ask you why do you sound so calm and confident that your money will not evaporate permanently (above the FDIC guarantee)? Banks going bust is a totally normal thing in a capitalist system, and bigger more established banks than SVB have done so only a decade ago.

The banks a decade ago got bailed out. None of their customers lost money.

Not all of the banks got bailed out. Lehman Brothers is the one that started the panic because the feds didn't bail it out.

Re: Ask HN: How is the SVB situation affecting your startup?

#108

Post by lordnacho »

lordnacho wrote: post #26
lolinder wrote: post #16

Earlier quoted context omitted.

> Most of their assets are in the form of treasuries, bonds, etc. I believe you know what you're talking about, but if that's the case why are they struggling to raise capital to pay depositors? (I'm asking as an ignorant outsider to banking in general and SVB in particular.)

What doesn't seem to be so explicitly stated is that due to rates going up, the bonds are worth less than they were when rates were high. So they wouldn't have enough money if they turned the bonds into money. Guy lends you 100 at 3%, you buy 100 of bonds than pay you 5%. Guy asks for his money back, your bonds are worth only 80, big problem.

Looks I said high when I meant low. For people who aren't in finance, if rates go up, bond prices go down: an instrument that pays 10% a year on 100 is worth less when there are new instruments paying 15% a year on 100. For the rates to match the original 100 is now lower, because that's the only way you get the same amount of interest per dollar spent buying the bond.

Re: Ask HN: How is the SVB situation affecting your startup?

#109

Post by mikeyouse »

raesene9 wrote: post #19
hkhanna wrote: post #2

Personally, I don't think there's a real problem unless everyone panics. Banks are well-regulated and stable and have been for decades. That said, my investors & cofounder have both expressed gratitude that our startup banks with Mercury and not SVB.

Whilst banks may have lots of regulations (depending on their country of operation), banks do fail reasonably regularly. For example this list of US bank failures https://en.wikipedia.org/wiki/List_of_largest_U.S._bank_fail...

This seems to reinforce the 'don't panic' aspect though -- depositors have never lost FDIC insured funds in the ~90 years it's been operating. And none of the depositors in the list of failed US banks lost a penny either.

Re: Ask HN: How is the SVB situation affecting your startup?

#110

Post by morelisp »

AdamJacobMuller wrote: post #70
chasely wrote: post #48

Earlier quoted context omitted.

Why would they buy 10-year bonds when their depositors are startups, many of whom won't exist in 10 years? Seems like shorter-term T-bills would have been more appropriate, but I know next to nothing about finance.

They made a gamble that if they needed to redeem them early that they would be able to do so without much penalty and that they wouldn't need to redeem too much if any (new deposits would cover old assets). They lost on multiple fronts, interest rates rose so much that it became a huge loss to sell these bonds, the tech market slowed down meaning that fewer companies were getting infusions of cash and more of them we…

> They lost on multiple fronts, interest rates rose... the tech market slowed... word of all this got out

The first two are the same thing and the latter is not really an "event" but rather the legally-mandatory observation of the first two? (Unless they want to commit fraud, of course.)

ISTM the issue was that their core product was as shallow as their customers'.

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