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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.
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.
And everyone is panicking.
Your words are almost the same as what the CEO of SVB said, and then immediately the VCs panicked, telling their portfolio companies to withdraw from SVB.
> 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…
The issue is not that SVB has loaned too much to companies that can't pay it back. The issue is that SVB took in a lot of deposits in 2021-2022, and locked them into 10 year bonds at 2.5% interest. Now in 2023, a lot of their customers are burning money (withdrawing funds) and aren't raising money (depositing funds), and so they need to start liquidating the 10 year bonds. The issue is that the 2021 bonds are discoun…
EDIT: Elsewhere in the comment thread people have clarified that the bonds are the big problem on the assets side. They had a bunch of low interest rate bonds that now have to be sold at a loss because interest rates are much higher.
Earlier quoted context omitted.
SVB has an extremely low loan to deposit ratio (~.45). Most of their assets are in the form of treasuries, bonds, etc. Depositor concentration is definitely high but that’s not particularly uncommon in banks (though for one of this size it is). But that concentration is what fueled their growth as well.
> 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.)
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.)
Interest rates went up. That would be fine if they could hold the bonds until maturity, but to honor withdrawals now they are forced to sell at a loss.
Earlier quoted context omitted.
SVB has an extremely low loan to deposit ratio (~.45). Most of their assets are in the form of treasuries, bonds, etc. Depositor concentration is definitely high but that’s not particularly uncommon in banks (though for one of this size it is). But that concentration is what fueled their growth as well.
> 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.)
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.
Earlier quoted context omitted.
SVB has an extremely low loan to deposit ratio (~.45). Most of their assets are in the form of treasuries, bonds, etc. Depositor concentration is definitely high but that’s not particularly uncommon in banks (though for one of this size it is). But that concentration is what fueled their growth as well.
> 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.)
> 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…
It was a major red flag! You're right about their liabilities, but their assets are mostly longish duration bonds. When interest rates go up their main customer base (startups) will have a harder time raising money (bad for them) and the value of their bonds will go down (because new bonds offer more interest). And now they're forced to sell these bonds at a loss to cover the money outflow (customers leaving). They'r…
Resilient system design doesn't just apply to engineers.
> 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…
The issue is not that SVB has loaned too much to companies that can't pay it back. The issue is that SVB took in a lot of deposits in 2021-2022, and locked them into 10 year bonds at 2.5% interest. Now in 2023, a lot of their customers are burning money (withdrawing funds) and aren't raising money (depositing funds), and so they need to start liquidating the 10 year bonds. The issue is that the 2021 bonds are discoun…
Earlier quoted context omitted.
Odds are the San Francisco Fed has been working overtime since last night and announce SVB is bought out by another bank this weekend.
CNBC this morning has had a few chirons implying private capitalization/sales talks have failed edit: maybe just the raise, and sales talks continue? https://www.cnbc.com/2023/03/10/silicon-valley-bank-financia...