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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’

#151

Post by rlucas »

phoehne wrote: post #124
MilnerRoute wrote: post #69

Earlier quoted context omitted.

And even then, this article is about the venture capital industry and private equity firms - which for the most part is entirely different than banks. The problem is apparently that some VCs invested in banks - and banks are about to be more heavily regulated. That's a good thing -- it will get banks implementing the backstops they should've had all along. I really don't mind if some VCs make less money than they'd h…

Actually, I think what they're talking about is that VCs have a lot of investments they would not dump more money into. They use these investments as collateral for loans, based on some kind of valuation (which, given the lack of price discovery is arbitrary). Essentially, they're zero value investments. If these investments were repriced, the actual value of the VC fund would fall. As the interviewee indicates, if t…

54% of SVB’s loan book was loans “to” VCs and PEs, but they weren’t loans based upon the funds’ portfolio holdings. They were Capital Call lines, based on the power of the VC to demand that its LPs make good on capital commitments.

(Yes, the fund portfolio holdings were pledged as additional collateral here but that’s secondary. The only thing that could make the CCLOC outstandings get marked down is if the well-heeled institutions and individuals who’ve committed to VC funds stop making their capital calls.)

Even SVB is not crazy enough to lever up against VC portfolio marks.

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

#152

Post by n8ta »

gorm wrote: post #134

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…

To try to answer the first question: It's about who your customers are.

If you're a business with 30 employees all making 150k/yr you have 375k in payroll costs every month. Holding even 1 months payroll in cash puts you above the FDIC limit of 250k. Normal people rarely need more than 250k in cash so the ratio of business to normal people in customer base matters.

To make things worse let's say you're VC funded and you don't have monthly revenue to put towards your payroll. Instead you have X months of payroll/runway in cash in an account being slowly drawn down. Now you might have 1 year of payroll in cash. Nearly all of that is uninsured.

Quick googling shows me that SVB was only 15% insured. Likely because of their focus in startups with large balances vs regular ppl with low balances. For context BOFA is 40% insured and JP morgan is 35%.

https://time.com/6262009/silicon-valley-bank-deposit-insuran... https://www.forbes.com/advisor/banking/bank-of-america-revie...

But I do see your point, short term treasuries probably would make sense for startups right now. With a 4.2% rate on the 1 month treasuries it would make sense to setup a ladder with bonds coming due as you needed them. But in the very recent low interest rate past this probably wasn't worth the hassle for many startups.

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

#153

Post by HWR_14 »

dilyevsky wrote: post #88
cwilkes wrote: post #48

Earlier quoted context omitted.

The moral hazard is that there isn’t a a limit to the $250k FDIC insurance so people that put money into the bank don’t have to care what the bank does. So there’s no incentive to work with a bank that took the time and money to pass a stress test — in fact the one that didn’t bother to do any testing can give better terms as they aren’t spending money to be safe.

Right lets all just play silly accounting games breaking up your 100M into 400 individual bank accounts instead of doing something productive and just raising fdic limit to something sensible for a small-medium business

You mean spread you 100MM into 400 individual banks so we have diversification when a single bad bank CEO decides to take stupid high-risk positions?

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

#154

Post by HWR_14 »

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…

SVB was warned by the Fed numerous times about their risky strategies. Certainly that implies they were pursuing a risk strategy. In 2021, the Fed issued citations and said SVB had "serious weaknesses in how it was handling key risks,"

Meanwhile, the bank run happened because people noticed the horrible risk management, not randomly. And those people talked.

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

#155

Post by throwawaylinux »

Turskarama wrote: post #126
doktorhladnjak wrote: post #119

Earlier quoted context omitted.

There is absolutely moral hazard for depositors. If uninsured SVB depositors had gotten something like 90¢ on the dollar for deposits, every company with uninsured deposits would start thinking about how reliable their bank might be. More due diligence would happen. Of course, we also would have seen runs on many more regional banks. The "too big to fail" banks like JP Morgan and BofA would only have gotten much larg…

It shouldn't be up to depositors to do "due diligence" on their bank, making sure they're compliant is exactly the kind of thing government is _for_. Imagine if you had to do several hours of research on every single thing you purchased and investment you made, you'd never have time for anything else and there's still a chance you miss something. Compare that to experts doing it and spending a lot more time on it, th…

> It shouldn't be up to depositors to do "due diligence" on their bank, making

It certainly should be if they aren't paying for their accounts to be insured. The government does not exist to prevent private companies from going out of business.

> sure they're compliant is exactly the kind of thing government is _for_.

And if regulations magically remove all risk, then insurance should be very cheap so no reason not to get it.

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

#156

Post by norgie »

bagavi wrote: post #142
Turskarama wrote: post #126

Earlier quoted context omitted.

It shouldn't be up to depositors to do "due diligence" on their bank, making sure they're compliant is exactly the kind of thing government is _for_. Imagine if you had to do several hours of research on every single thing you purchased and investment you made, you'd never have time for anything else and there's still a chance you miss something. Compare that to experts doing it and spending a lot more time on it, th…

Break up your deposit into 250k$ accounts, each insured by FDIC. Let software handle the logistics of payments via multiple bank accounts. Asking depositors to do the due deligence is a strawman.

> Asking depositors to do the due deligence is a strawman.

Except that there are many commenters in this exact thread making that argument.

As for splitting up your deposit into $250k chunks, I agree, companies should do this as much as possible. But it would be hard for some companies. An extreme case is Circle, who says they had $3.3 billion in SVB. To get all of this covered, would require 13,200 different banks. It looks like there are only 4,236 FDIC-insured banks in the US. Add in another 4,853 NCUA-insured credit unions, and we're still left with $873 million uninsured, despite using nearly 10,000 accounts.

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

#157

Post by lxgr »

landemva wrote: post #127
lxgr wrote: post #114

Earlier quoted context omitted.

> Computer chips and PCs are largely back in stock. Not sure if car manufacturers, the Raspberry Pi foundation, and many others would agree with that assessment. Energy prices in Europe have started coming down again as well. And Corona payments may have ended, but the money is still sloshing around in the system.

Right, the specialized chips are still catching up. And Dell forecasts a 20% revenue drop this quarter. https://www.electropages.com/blog/2023/02/semiconductor-over... I had read that rpi started selling bulk to companies which is leaving little supply for consumers. Maybe upstarts like Orange Pi will step in to fill the void for consumers. http://www.orangepi.org/html/hardWare/computerAndMicrocontro... >> payments m…

Because it's making people itchy to spend it (or invest it into something productive or at least inflation-neutral).

Until either inflation itself or other forces (such as interest rates) counterbalance that effect, we'll be seeing increased spending velocity – the other component of inflation besides the amount.

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

#158

Post by dalyons »

bagavi wrote: post #142
Turskarama wrote: post #126

Earlier quoted context omitted.

It shouldn't be up to depositors to do "due diligence" on their bank, making sure they're compliant is exactly the kind of thing government is _for_. Imagine if you had to do several hours of research on every single thing you purchased and investment you made, you'd never have time for anything else and there's still a chance you miss something. Compare that to experts doing it and spending a lot more time on it, th…

Break up your deposit into 250k$ accounts, each insured by FDIC. Let software handle the logistics of payments via multiple bank accounts. Asking depositors to do the due deligence is a strawman.

Why? What is anyone gaining by forcing individuals and businesses to utilize middlemen to split their cash across dozens of bank accounts? Just guarantee deposits for all and skip the performative complicated BS.

Spread 250ks all comes out of the same fdic pool anyway, so why bother?

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

#159

Post by youngtaff »

bagavi wrote: post #142
Turskarama wrote: post #126

Earlier quoted context omitted.

It shouldn't be up to depositors to do "due diligence" on their bank, making sure they're compliant is exactly the kind of thing government is _for_. Imagine if you had to do several hours of research on every single thing you purchased and investment you made, you'd never have time for anything else and there's still a chance you miss something. Compare that to experts doing it and spending a lot more time on it, th…

Break up your deposit into 250k$ accounts, each insured by FDIC. Let software handle the logistics of payments via multiple bank accounts. Asking depositors to do the due deligence is a strawman.

Asking large depositors to split their deposit amongst multiple banks is unreasonable

Asking them to insure their own funds is a reasonable thing to do though

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

#160

Post by youngtaff »

jimnotgym wrote: post #39
varispeed wrote: post #16

The whole idea of venture capital comes from the broken taxation model. The people who actually produce things, you know doing the work and have knowledge how to do something are burdened with heavy taxation, because years ago, when companies had high headcount, it was a way to make companies pay taxes. Now that everything gets offshored, including work, that model doesn't work anymore, but politicians for known reas…

This is a good comment. In the UK capital gains are taxed at around half the rate of employees. There are other incentives to 'investors' too. VCs and Hedge Funds are parasites on those that know how to produce wealth. They should pay more. Or what is the alternative, if they didn't get their tax breaks they would do what? Stop wanting money? I don't think so

Yeh, Carried Interest is one of the biggest tax cons going
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