881–890 of 1001 posts
Even _if_ depositors are made whole those loans could still be called in and wreck a lot of startups.
I am naive in this area. But what I don't really understand is.. why are all of these start ups using Silicon Valley Bank? It's a relatively small regional bank, that happens to have a ton of cash. Why aren't start ups using Bank of America, Wells Fargo, etc. It's odd to me that >90% of a sector uses this one regional bank.
Earlier quoted context omitted.
I have some family who (with some other partners) founded a small community bank that has grown over the years. They expanded in some areas by buying other small community banks, specifically in areas where there was a big increase in income in the local area (from mineral rights, etc). The smaller banks that they bought were in a situation where suddenly they had large amounts of cash incoming, and customers who wer…
At first glance, bank balance sheets are unintuitive and feel 'the wrong way round'. When someone deposits $1m at a bank, the bank doesn't have $1m more assets, it has $1m more liabilities. (Yes, this is a gross over-simplification)
So given an interest per annum of 1% (for example), a $1m deposit would add $1m liquid, non-earning assets while also adding $1.01m to their liabilities. So, effectively, they’d have $10,000 in unsecured liabilities.
To counter that imbalance (as well as protect the cash from the effects of inflation), they’d have to put some of that cash to work via various investments.
For those saying that depositors will probably only take a small haircut, it’s all going to come down to the recoverable value of SVBs outstanding loans. 40% of their assets were loans made to startups, their founders, etc. The value of those loans is inextricably tied to those startups accessing their funds at SVB. Even _if_ depositors are made whole those loans could still be called in and wreck a lot of startups.
They may try to sell their loan books to another bank in order to meet withdrawal- which may be very challenging in the current environment.
SVB did exactly this with some of it's mortgage backed securities (a much deeper market) and took a significant hair cut to par value. This was the move that kicked off the bank run. If they tried to do it with corporate loans it'd be even more bloody.
If we’re going to treat the US government like an underwriter, maybe we should allow the FDIC to charge fees that look a bit more like insurance. We won’t stop you from doing X, but the fees are higher because you’re more likely to default. As things are every time so thing like this happens either taxes go up, the national debt goes up, or we trigger inflation to solve it.
I am naive in this area. But what I don't really understand is.. why are all of these start ups using Silicon Valley Bank? It's a relatively small regional bank, that happens to have a ton of cash. Why aren't start ups using Bank of America, Wells Fargo, etc. It's odd to me that >90% of a sector uses this one regional bank.
> In many cases, startups exclusively banked with SVB because doing so was listed as a covenant of their debt!
> So CEOs across the tech sector on March 9 faced a hard choice: You can pull your deposits from the bank in order to save them, but then you would be in breach of covenant, and at risk of default on your venture debt. Of course, the alternative was that you risked losing everything if the bank failed. Many chose to hold tight as SVB’s outright failure seemed outlandish even a few short hours ago.
Garry Tan: "30% of YC companies exposed through SVB can’t make payroll in the next 30 days. If you or your company are affected, I recommend that you reach out to your local congressman to get this on their radar TODAY." https://twitter.com/garrytan/status/1634286688922132481
I suspect all depositors will be made whole. The bank had a liquidity crisis; it had reserves in excess of its liabilities. Every bank borrows short term (you can walk up and withdraw your money at any time) but lends long (e.g. mortgages, though SVB writes few of those). The recent management grabbed some very long federal bonds; as rates have risen the resale value of those long term assets (paying a lower interest…
Agreed. Lots of people here in the comments are making assumptions about a system they don't understand. Depositors with > $250k aren't necessarily going to "take a haircut," for the reason you mentioned, plus a few others. Additionally: 1. Any financial advisor who recommended to these startups that they should keep >250k in a regular bank account should be fired. It's totally possible (and regularly done) to spread…
Looks like not just startups, e.g. Roku had ~500M in SVB
https://edition.cnn.com/2023/03/10/business/roku-svb-cash/in...
I am naive in this area. But what I don't really understand is.. why are all of these start ups using Silicon Valley Bank? It's a relatively small regional bank, that happens to have a ton of cash. Why aren't start ups using Bank of America, Wells Fargo, etc. It's odd to me that >90% of a sector uses this one regional bank.
The irony is, if this doesn’t resolve itself relatively soon, we won’t be able to pay down the loan precisely _and only_ because of the terms of the loan that they set in the first place.
I don’t know yet how it’s all going to shake out, but I’m pretty excited to have the experience of trying to navigate through all of it.
An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it's accurate): "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021. - As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!…
One of the differences between a central bank and regular bank is that the regular banks should do the riskier stuff and offer the higher interest rates. This in theory creates a diverse non-correlated system of capital deployment with the best projects winning over the bad ones. However when the central bank offers interest rates that a private bank cannot match even when it's deploying into safe and endorsed assets…