Without reading the article, I can give you the answer immediately. SVB failed because they were bankrupt. This is what it is called when your liabilities are in excess of your assets.
How the last-ditch effort to save Silicon Valley Bank failed
31–40 of 93 posts
Re: How the last-ditch effort to save Silicon Valley Bank failed
#32Earlier quoted context omitted.
No business is going to park their working capital with a bank that has those requirements.
no bank is going to give carte blanche to large customers to run the bank, they can't, and even if they promise it... As with all businesses, like a restaurant wants you to enjoy your food so you come back, the bank wants to provide the services the customers need. But everybody can't have everything especially all at once, and banks can't provide liquidity that has dried up. sure, customers will periodically get mad…
> no bank is going to give carte blanche to large customers to run the bank
If the funds are in a DDA (Demand Deposit Account a/k/a standard US checking account), the bank is legally obligated to honor outflow transfers of any size, at any time.
(Not physical cash withdrawals, although they have to make timely arrangements to satisfy these too)
Banks can make DDAs unattractive for large balances (e.g. no interest), but I'm not aware of any limitation on a customer's right to access their funds held in a DDA.
If banks could bend these rules, bank runs would never happen.
Re: How the last-ditch effort to save Silicon Valley Bank failed
#33My bank (in Canada) has limits on how much I can withdraw per day, per week, per month. Furthermore, there could be a delay of up to 5 business days before I can get the money to its destination. And that’s for money in the thousands only. How is that money in the billions can be withdrawn so quickly esp. since these were high value accounts each in the millions/billions? Couldn’t they just use one of their terms or…
How would you pay for a house? Or a car?
I presume a withdrawal is different from a wire transfer or cheque.
Re: How the last-ditch effort to save Silicon Valley Bank failed
#34Oh thank they didn't manage to do it on time, else that shitshow might've not happened. Banking evidently needs to learn some more hard lessons and this fall is a good one.
Re: How the last-ditch effort to save Silicon Valley Bank failed
#35Earlier quoted context omitted.
They're conflating 2 issues. The first issue is liquidity management. The second is accounting. If the accounting auditors are doing their job then the bank managers don't get to cook the books. The accounting rules are set by the accounting industry. If the financial statements don't reflect what's happening, it's the accountants fault. So, it's incorrect to imply that bankers are doing something nefarious. At this…
> What's more likely is just the incompetence with liquidity management, incompetence with the crisis handling. no, what's more likely (if what has been said between the two of us comports with reality) is that the incentives for the officers of the bank are in conflict with the healthy management of the bank. Bankers running a bank into the ground cannot be blamed on regulators or the accounting profession which onl…
In this case, those folks lost all their money, so it seems like they actually did have pretty well aligned incentives...
I think the more subtle distinction would be making short term risk adjusted incentive identical to long term risk adjusted incentive, so people don't mistakenly think gambling is a good idea.
Re: How the last-ditch effort to save Silicon Valley Bank failed
#36Earlier quoted context omitted.
no bank is going to give carte blanche to large customers to run the bank, they can't, and even if they promise it... As with all businesses, like a restaurant wants you to enjoy your food so you come back, the bank wants to provide the services the customers need. But everybody can't have everything especially all at once, and banks can't provide liquidity that has dried up. sure, customers will periodically get mad…
> no bank is going to give carte blanche to large customers to run the bank If the funds are in a DDA (Demand Deposit Account a/k/a standard US checking account), the bank is legally obligated to honor outflow transfers of any size, at any time. (Not physical cash withdrawals, although they have to make timely arrangements to satisfy these too) Banks can make DDAs unattractive for large balances (e.g. no interest), b…
> the bank is legally obligated to honor outflow transfers of any size, at any time
they should have legally obligated SVB to remain solvent!
Re: How the last-ditch effort to save Silicon Valley Bank failed
#37"It was a dark and stormy night when the regulators showed up at the {$RecentlyFailedFinancialInstitution} and greeted the ashen faced C suite" is a genre the journal excels at. It's like scary campfire stories for CEOs.
Re: How the last-ditch effort to save Silicon Valley Bank failed
#38Earlier quoted context omitted.
> no bank is going to give carte blanche to large customers to run the bank If the funds are in a DDA (Demand Deposit Account a/k/a standard US checking account), the bank is legally obligated to honor outflow transfers of any size, at any time. (Not physical cash withdrawals, although they have to make timely arrangements to satisfy these too) Banks can make DDAs unattractive for large balances (e.g. no interest), b…
> the bank is legally obligated to honor outflow transfers of any size, at any time they should have legally obligated SVB to remain solvent!
> they should have legally obligated SVB to remain solvent!
They did!
When SVB failed to meet those regulatory obligations, the bank was seized and the depositors were made whole.
So the system worked, right?
Re: How the last-ditch effort to save Silicon Valley Bank failed
#39My bank (in Canada) has limits on how much I can withdraw per day, per week, per month. Furthermore, there could be a delay of up to 5 business days before I can get the money to its destination. And that’s for money in the thousands only. How is that money in the billions can be withdrawn so quickly esp. since these were high value accounts each in the millions/billions? Couldn’t they just use one of their terms or…
You're confusing real money with fake money. In America, we can only withdraw so much real money every day, too. The banks will tell you things like "We only keep $2000 in real money in the safe."
But the fake money never gets printed. It just lives in bits and bytes. You can move it around as much as you want.
Fortunately, it's as good as real money. It's just not as good as real wealth. Real wealth is in ammunition. Never goes down in price, skyrockets in price when the world gets more dangerous, and can be used to protect itself. That's where America has you beat, because we can turn fake money into ammunition whenever we want, as fast as we want.
Not to mention, it's a consumable resource that keeps well in storage but requires a high level of technology to produce. And even under non-apocalyptic conditions, it's about half as efficient as silver coins by weight and volume.
People downvoting this are politically opposed to guns because that's the fashionable thing to be in SV, but hackers have a strong gun culture. Always have, always will. Because we're practically all either anarchists or military.
Re: How the last-ditch effort to save Silicon Valley Bank failed
#40"It was a dark and stormy night when the regulators showed up at the {$RecentlyFailedFinancialInstitution} and greeted the ashen faced C suite" is a genre the journal excels at. It's like scary campfire stories for CEOs.
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