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Bank run on Silicon Valley Bank

techcrunch.com

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Re: Bank run on Silicon Valley Bank

#21

Post by recursivedoubts »

Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long.

As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time. If they locked deposits for a period of time they could safely (and morally) loan that money out without lying, and, in fact, there wouldn't need to be a reserve ratio at all.

Demand deposits should cost a low service fee, since the money can't be safely lent.

Yes, I'm a lot of fun at parties, why do you ask?

Re: Bank run on Silicon Valley Bank

#22

Post by barnabee »

anon291 wrote: post #19
rippercushions wrote: post #15

From https://techcrunch.com/2023/03/09/silicon-valley-banks-share... : Becker said the bank has “ample liquidity” to support its clients “with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge.” Pro tip: if you're CEO of a bank that's facing a bank run, don't tell the press that you'll be in trouble if everybody takes their money out.

Perhaps I'm overly skeptical, but everyone should know that all banks have the risk of 'if everyone takes their money out, the bank won't be able to make it work', right?

Yes, but if a bank has to remind people of that, it may be a signal it has already lost.

Re: Bank run on Silicon Valley Bank

#23

Post by throwaway20222 »

pjc50 wrote: post #13
colesantiago wrote: post #2

Is this an incoming tech crash?

It's more slow dominoes from the crypto crash, I suspect. I'm not worrying about contaigion yet, these guys aren't exactly Lehman.

Anecdotally about SVB and crypto; I really wanted to put my funding round assets into Silicon Valley Bank for my last start up. However, when I was speaking to their bankers, I mentioned that there was a possible element of the platform that would be Web3 based. The SVB team immediately paused my application and insisted that they do a deep dive into all of my investors, my bank accounts, and my pitch decks. My pitch deck did not include materials about web3 since it was so tertiary to our core strategy, and this discrepancy between what I had told them and the paper materials was such that it raised enough of an alarm at SVB that the refused to take my deposit.

They were really concerned about anything web3 so I wonder if they limited their exposure. Or maybe it was just us they didn’t like.

Re: Bank run on Silicon Valley Bank

#24

Post by WJW »

anon291 wrote: post #19
rippercushions wrote: post #15

From https://techcrunch.com/2023/03/09/silicon-valley-banks-share... : Becker said the bank has “ample liquidity” to support its clients “with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge.” Pro tip: if you're CEO of a bank that's facing a bank run, don't tell the press that you'll be in trouble if everybody takes their money out.

Perhaps I'm overly skeptical, but everyone should know that all banks have the risk of 'if everyone takes their money out, the bank won't be able to make it work', right?

It's true that all banks have that problem, but for most banks it is not necessary for the CEO to remind everyone of that fact in a press release. The fact that they feel the need to make this statement makes it clear that SV bank is having much higher withdrawals than normal right now.

Re: Bank run on Silicon Valley Bank

#25

Post by s1artibartfast »

recursivedoubts wrote: post #21

Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long. As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time. If they locked deposits for a period of time they could safely (and morally) loan that money out without lying, and, in fact, there…

My understanding is that the problem was that the dollars they owned were in US treasuries, as required by law, and the value of those assets tanked.

Re: Bank run on Silicon Valley Bank

#26

Post by cjensen »

anon291 wrote: post #19
rippercushions wrote: post #15

From https://techcrunch.com/2023/03/09/silicon-valley-banks-share... : Becker said the bank has “ample liquidity” to support its clients “with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge.” Pro tip: if you're CEO of a bank that's facing a bank run, don't tell the press that you'll be in trouble if everybody takes their money out.

Perhaps I'm overly skeptical, but everyone should know that all banks have the risk of 'if everyone takes their money out, the bank won't be able to make it work', right?

If the Bank is federally insured, it's not a problem that the bank won't be able to make it work. That's why generally speaking bank runs only happen on uninsured banks in the US. SVB is not, as far as I can see, insured and should definitely be careful in their choice of words.

Re: Bank run on Silicon Valley Bank

#27

Post by jsemrau »

recursivedoubts wrote: post #21

Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long. As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time. If they locked deposits for a period of time they could safely (and morally) loan that money out without lying, and, in fact, there…

We used to call that concept matched-funding where I used to work and it was quite an important part of Asset/Liability management within the Risk Management function.

Re: Bank run on Silicon Valley Bank

#28

Post by ianferrel »

recursivedoubts wrote: post #21

Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long. As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time. If they locked deposits for a period of time they could safely (and morally) loan that money out without lying, and, in fact, there…

Does that provide a better outcome for society than something like FDIC deposit insurance and the occasional run?

Seems like for the vast majority of people it does not. Most banks make enough money to pay their FDIC premiums and some interest on demand accounts and profit for their shareholders, and the few that don't are covered by insurance. That seems way better than having to pay a monthly fee to keep my money safe and liquid.

>there wouldn't need to be a reserve ratio at all.

Wouldn't there? The bank could still end up with bad loans in excess of their models and require some capital to take the loss before depositors. Or are you suggesting that banks are simply a market maker between depositors and those with loans? That seems even less optimal, societally.

Re: Bank run on Silicon Valley Bank

#29

Post by mikesun »

cjensen wrote: post #26
anon291 wrote: post #19

Earlier quoted context omitted.

Perhaps I'm overly skeptical, but everyone should know that all banks have the risk of 'if everyone takes their money out, the bank won't be able to make it work', right?

If the Bank is federally insured, it's not a problem that the bank won't be able to make it work. That's why generally speaking bank runs only happen on uninsured banks in the US. SVB is not, as far as I can see, insured and should definitely be careful in their choice of words.

FDIC only insures up to $250K
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