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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’

#171

Post by tveita »

arcticbull wrote: post #50
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.

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…

They're opaque to anyone with less than $250k in the bank, which is almost everyone.

If you are large enough player to be visible in the "systemic risks" picture you should be helping to stabilize the system, not just throwing your weight around like a drunk elephant to see where money falls out.

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

#172

Post by temp2022account »

bagacrap wrote: post #129
Animats wrote: post #46

“There are enough zombie companies with frothy valuations that need restructuring, price discovery and of course re-tooling of their business models to a world of tighter credit, subdued revenue and higher rates,” SVB has nothing to do with that problem. It's about higher interest rates. The end of free money for stupid stuff. Now companies have to make money. So who's going down? TSLA, UBER, and RBLX already made it…

TSLA is a stupid money loser?

Many think it's overvalued by around 50-500x what the company is worth. From what I've seen they're very good at cash management and continually invest in company facilities, very similar to what Bezos was doing pre-AWS with Amazon's tight margins.

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

#173

Post by bagavi »

norgie wrote: post #156
bagavi wrote: post #142

Earlier quoted context omitted.

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.…

Can't you have multiple accounts in the same bank?

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

#174

Post by bagavi »

dalyons wrote: post #158
bagavi wrote: post #142

Earlier quoted context omitted.

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?

The banks don't want you to split the money because they will have to pay higher insurance to FDIC. This will eat into their margins. The business and the customers interests are not aligned in this case.

Until the law changes, you have to look out for yourself and not beg for bailout. Also, this is not complex since software takes care of it behind the scenes. Our company did it from day 1.

Also more than half of deposits by volume are FDIC insured so the system can handle the whole volume if the customers choose to do so

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

#175

Post by bagavi »

youngtaff wrote: post #159
bagavi wrote: post #142

Earlier quoted context omitted.

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

It's thier choice to adopt either solutions.

My point was that the existing tools and infra was enough for svb customers to secure themselves. At a high level, they didn't bother getting an insurance and now they beg for bailout.

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

#176

Post by bagavi »

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 have to play silly games and try to fix the system simultaneously.

You always keep your foot on the brakes in case someone is drunk driving on the road. At the same time, you'll try to fix those issues via legislation (DUI) and technology

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

#177

Post by joe_the_user »

tripletao wrote: post #130
joe_the_user wrote: post #116

Earlier quoted context omitted.

I suppose I shouldn't necessarily imply "truly sophisticated" but one group of depositors would just say "of course the Fed will support the depositors, there's no reason to worry" your argument about insolvency is correct.

That's fair--to the extent truly sophisticated depositors believed "there's no need for a bank run, since the FDIC would take extraordinary measures to back the uninsured deposits even if the SVB collapses while economically insolvent", they were exactly right. The cost of moving money out is so small that you'd have to believe that very strongly not to though, or to get a big auxiliary benefit (access to future cred…

Yeah, I only really wanted to say there were different levels to how might approach this stuff, not try to rank their smartness.

On the one hand, the news reports seemed to vaguely imply that some pretty wealthy people were standing in line for quite a while and I assume that was time they could use to make money other ways.

On the other hand, maybe everyone withdrawing money knew things were safe but also "knew the drill", knew the Fed needed their complaints to bolster it's actions.

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

#178

Post by htss2013 »

LapsangGuzzler wrote: post #29
kurthr wrote: post #8

Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…

SVB also chose not to prioritize hiring a risk manager for months leading up to their collapse, which is just pure stupidity. Anyone worth their salt would've pointed out that they were at risk due to their investment strategy and homogeneous customer base. We're seeing old lessons from the 80's being retaught in the banking world. Never put all of your cash in one bank. Keep your debt and your liquidity held in sepa…

Maybe they didn't "chose" to not hire one. Maybe every competent risk manager they wanted to hire wanted nothing to do with SVB because a competent risk manager would have been able to foresee what happened.

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

#179

Post by Turskarama »

throwawaylinux wrote: post #155
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…

> 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 t…

Ridiculous, how can the average person _possibly_ know if their bank is doing everything properly or not?

Even if they are when you open the account, how often should you check to make sure they still are?

If insurance is necessary then the banks should pay for it, then if they want to have lower insurance premiums it's up to them to lower their risk profile. Yes, they will pass these costs on to the customer, but banks with lower risk profiles will then be cheaper making them more popular, and increasing stability of the entire system.

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

#180

Post by jjeaff »

tripletao wrote: post #145
prottog wrote: post #140

Earlier quoted context omitted.

> 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 pro…

> I think you're right that no bank can withstand a run of that magnitude, They're not right. No bank could sell assets quickly enough to withstand such a run, but that's why the Fed serves as lender of last resort. Even under previous policy, the Fed would lend against the mark-to-market value of the collateral. So in theory any MTM-solvent bank could survive any run, so there was no incentive to start the run in th…

Thanks for the posted paper. But if SVB was able to borrow against the mark to market value of their collateral, I don't understand why they couldn't remain solvent. Because they had plenty of assets, even at mtm value to cover a 50% run. Even all the way to nearly a 90% run, it seems.
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