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SVB collapse could mean a $500B venture capital ‘haircut’

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Re: SVB collapse could mean a $500B venture capital ‘haircut’

#131

Post by [deleted] »

phoehne wrote: post #103
arcticbull wrote: post #50

Earlier quoted context omitted.

I don't think it should ever be the depositors responsibility to figure out whether a bank is properly managing their risk backing your deposits. That's both intentionally meant to be opaque to depositors - you get dollars in an account, not share in an MMF for instance - and also, it is incredibly difficult for even professionals to evaluate. This is the responsibility of regulators plain and simple. And I'd argue b…

It is and it isn't the depositor's responsibility. It's totally expected for a large company to take a long, hard look at their bank. When I was an undergrad in Econ and in Accounting, the issue of insured account limits was literally in the text books. In the accounting/finance/economics area it's already well understood that a CFO (or their office) is responsible for vetting the bank. Moreover, it's the CFO's job t…

[deleted]

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#132

Post by __derek__ »

lvl102 wrote: post #15

Can’t be the only one who thinks this is possibly a ploy by VC bros to make Fed blink on interest rate hikes. Only they could have triggered such a bank run and only SVB.

No, you're not the only one:[1]

> It’s important to take the time to celebrate that the VC’s attempt to gin up a banking crisis to pause rate increases failed and now they’re well and truly boned

[1]: https://twitter.com/SMTuffy/status/1638609733702524936?s=20

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#133

Post by redeeman »

why are we all acting as if its impossible to have a bank that DOESNT spend all the depositors money on god knows what positions?

imagine if you will, some kind of place you could deposit your money, and they WOULDNT get to gamble with it, outside of with consent.

imagine the depositor being able to say "i wish to allow the depositors to be used for whatever the bank pleases", or "i wish to not participate in this"

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#134

Post by gorm »

But why were these companies holding so much money in an uninsured account? I heard something mentioned about SVB incentivizing them somehow? I can't understand why these companies didn't put the money in short term treasuries instead of keeping the money uninsured. If they needed short term liquidity it would not be a problem. Did SVB have an obligation to give them floating interest rate without properly adjusting for the risk? It's not possible that all these companies didn't expect a yield curve inversion as it was obvious it would happen.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#136

Post by adam_arthur »

bagacrap wrote: post #67
leptoniscool wrote: post #9

Earlier quoted context omitted.

Real interest rates (nominal interest rate minus inflation rate) is still negative.

No? Overnight rate is 5% and last month/3 month inflation is running under 5% saar no matter which measure you use.

Core CPI is above 5% by many measures (annualized using recent months numbers). Median CPI, which removes outliers, was 0.6% MoM last month.

https://www.clevelandfed.org/indicators-and-data/median-cpi

That being said, I don't think the effect of the funds rate will be felt linearly like most academic models assume, and don't think funds rate has to be above CPI to be restrictive.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#137

Post by wcarss »

gumby wrote: post #42
cs702 wrote: post #4

Startup valuations had gotten too rich. Now they're coming down to more reasonable levels, in fits and starts. VCs and their LPs don't want the write-offs. They're painful. But ultimately, I think the write-offs will prove healthy.

> Startup valuations had gotten too rich. What possible value is there for entrepreneurs of a secular reduction in valuations? Currently those of us in tech are suffering due to the absurdities of the SaaS obsession. Edit: I mean developing technology, what has to be called “deep tech” these days.

> What possible value is there for entrepreneurs of a secular reduction in valuations?

If the valuations were just speculative, then it could represent a return to a world where cause and effect and value are more rational, which is theoretically far better for a smart investor/entrepreneur to participate in than something between a game of craps and a ponzi scheme.

I don't mean to assert that any of that is reality, but that's a possible avenue for value to be found in a reduction of valuations.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#139

Post by kevin_thibedeau »

jjeaff wrote: post #77
LapsangGuzzler wrote: post #30

Earlier quoted context omitted.

> Can't we sort of blame the Fed for that too? No. SVB chose to pursue a risky investment strategy with no risk manager at the helm for months, the banking equivalent of stupidly storing all of your nitrous fertilizer in one place and then being surprised when the whole thing blows up. SVB made numerous, critical mistakes in their management. If anything, one could argue the Fed enabled this stupidity by keeping rate…

I haven't seen a lot of evidence yet that SVB was necessarily pursuing a risky strategy. Certainly, proceeding at all without a risk manager is risky in and of itself. However, the "risky" investments that I have heard described thus far are mostly treasury securities. They simply had too many for a time horizon too far out. There is no bank right now that could withstand a withdrawal rate of nearly 50% of total asse…

The COVID money printer was guaranteed to cause inflation. Raising rates to combat that was an inevitability. If you don't understand such basic economics and lack the wherewithal to hedge against likely future outcomes you shouldn't be running a bank.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#140

Post by prottog »

jjeaff wrote: post #125
nafey wrote: post #83

Earlier quoted context omitted.

> However, the "risky" investments that I have heard described thus far are mostly treasury securities You assume that all risk is default risk. The risk that SVB took wasn't that the US govt will default on its bonds. It was that the treasuries will lose their value in case of interest rate changes. SVB bought billions of dollars of US treasuries which lost their value in the last year due to rate hikes. This showed…

No, I understand the liquidity risk involved in having too much tied up in long term treasuries. But I am yet to see evidence that any bank could have withstood a run of that magnitude. Nor have I seen much evidence that most other banks have significantly less liquidity risk than svb did.

> But I am yet to see evidence that any bank could have withstood a run of that magnitude.

I think you're right that no bank can withstand a run of that magnitude, and it has been pointed out elsewhere in the thread that entities that can do so aren't really a bank anymore. However, the bank run only occurred because it was public knowledge that SVB had terrible duration risk, so it's somewhat of a chicken-or-egg problem.

All the findings that came out since then points to minimal duration hedging on SVB's part, so all in all it sounds like a bank that was poorly managed, perhaps adapted too well to a ZIRP world, and was ripe for a run to happen.

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