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It’s whether or not they have HTM assets that will bring them under if they have a run on the bank. A lot of the depositors are rich Silicon Valley residents and they may get spooked and pull their money. That’s the issue in this phase of the contagion.
Why? Because I'm really nervous that SVB was in no unique situation -- after all VCs / Startups share a lot of low confidence and low cash traits in common with other investors.
I’m not super well informed about this space, but my understanding was that SVB’s issue wasn’t that its depositors were from the tech sector, but rather that it had put a ton of capital into investments that are significantly less valuable (on the open market today) now than they were a year ago due to increasing interest rates. I’m curious how the tech sector matters here specifically?
I’m not super well informed about this space, but my understanding was that SVB’s issue wasn’t that its depositors were from the tech sector, but rather that it had put a ton of capital into investments that are significantly less valuable (on the open market today) now than they were a year ago due to increasing interest rates. I’m curious how the tech sector matters here specifically?
Matt Levine reports that the reason they had to buy those low-yield investments that plummeted is because it’s tech-sector customers had too much money in the boom times. Too much deposits means they need to buy a lot of something , and in the boom times that was low-yield stuff.
It will also be interesting to see if someone is going to wind up in jail for initiating the bank run. Someone shared confidential info that started this whole thing.
I’m not super well informed about this space, but my understanding was that SVB’s issue wasn’t that its depositors were from the tech sector, but rather that it had put a ton of capital into investments that are significantly less valuable (on the open market today) now than they were a year ago due to increasing interest rates. I’m curious how the tech sector matters here specifically?
The tech sector isn’t an issue in itself, it’s that (1) all their deposits all came in at once because it’s one sector, so there was a huge demand surge for deposit interest, leading to a supply shortfall of loans they could issue and hence kinda desperately parking the money somewhere, which ended up putting their risk balance off kilter (bonds with interest rate risk); (2) all of their depositors (aka creditors) talk to each other and listen to the same people, so bank runs happen really fast. Compare this to First Republic bank: demand for deposit interest does not surge dramatically because there is finite liquid cash needing to be deposited and so one sector getting a cash infusion comes at the cost of another. It smoothes out. Plus their customers don’t all talk to each other and behave like worst-case bank runners.
All sectors are pretty highly correlated in the cash they have on hand and how they behave with it. It would be equally risky to be a bank that only deals with oil companies. Nevertheless it offers efficiencies for acquiring new customers and new business, so banks do it.
I’m not super well informed about this space, but my understanding was that SVB’s issue wasn’t that its depositors were from the tech sector, but rather that it had put a ton of capital into investments that are significantly less valuable (on the open market today) now than they were a year ago due to increasing interest rates. I’m curious how the tech sector matters here specifically?
The investments were long term treasuries and mortgage backed securities, yielding about 1.6%? As rates have increased, long duration treasuries and MBSes are now worth 20-30% less.
I’m not super well informed about this space, but my understanding was that SVB’s issue wasn’t that its depositors were from the tech sector, but rather that it had put a ton of capital into investments that are significantly less valuable (on the open market today) now than they were a year ago due to increasing interest rates. I’m curious how the tech sector matters here specifically?
SVB did have some issues with losses but they likely were still solvent; the bigger issue was just a lack of liquidity and a sudden bank run - 45 billion (out of ~175 billion in deposits) was withdrawn in a single day before they ran out of liquidity.
But keep in mind that people also went through a pandemic, where panic was the go-to option.
I’m not super well informed about this space, but my understanding was that SVB’s issue wasn’t that its depositors were from the tech sector, but rather that it had put a ton of capital into investments that are significantly less valuable (on the open market today) now than they were a year ago due to increasing interest rates. I’m curious how the tech sector matters here specifically?
I’m not super well informed about this space, but my understanding was that SVB’s issue wasn’t that its depositors were from the tech sector, but rather that it had put a ton of capital into investments that are significantly less valuable (on the open market today) now than they were a year ago due to increasing interest rates. I’m curious how the tech sector matters here specifically?
Every asset is a risk. Banks should have right to do exactly two things. Keep their customers saving and issue loans. There's plenty of risks even in that activity. Every other thing bank does is just piling up risk to unreasonable levels.