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The collapse of SVB exposes the largest crack in the economy

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Re: The collapse of SVB exposes the largest crack in the economy

#251

Post by ta1243 »

npunt wrote: post #169
TooSmugToFail wrote: post #2

SVB used an exemption from Basel III, which allowed it to run a riskier business, and eventually led to its implosion. Basel III was introduced to force banks to be more conservative, and thus more safe. Downside: this also means bank is going to be less profitable. European banks were forced to implement Basel III, while the US bankers managed to lobby a loophole for certain types of banks. And sure enough, SVB leve…

What other banks that startups use have an exemption to Basel III? Would love to understand broader risk to startup ecosystem.

Why would a startup use a risky bank?

Re: The collapse of SVB exposes the largest crack in the economy

#252

Post by izacus »

soundsgoodtome wrote: post #224
1vuio0pswjnm7 wrote: post #150

The author myopically tries to extrapolate this incident to "the economy" and "other industries". SVB's customers panicked. But who are SVB's customers. For the most part, VC, PE and non-profitable "tech" startups. Not surprising they would panic. They produce nothing themselves, conduct surveillance, sell advertising services, pay employees from funding rounds and call this a "business model". This is not "the econo…

Hey can we save this kind of comment for Reddit? Literally the majority the tech you use today was born from companies that were unprofitable and leveraged VC funds at some point. I don’t know about you, but I come to HN for discourse that I could not get on race-to-the-bottom social media sites.

It absolutely was not.

Re: The collapse of SVB exposes the largest crack in the economy

#253

Post by catiopatio »

monodeldiablo wrote: post #249
astrange wrote: post #147

Earlier quoted context omitted.

We have chip-and-nothing, or contactless, which is better than Chip-and-PIN. (Note Apple Pay and similar are basically chip-and-PIN because it's authenticated by the phone passcode.) > And who still uses cheques these days?! US uses them for business-to-customer payments, especially unsolicited ones, because we don't want to give random businesses we don't know our bank account numbers.

Those numbers at the bottom of a cheque? Yeah, they include your account number. There's no inherent information risk to giving out an account number that justifies an outdated paper-based system. Especially when one considers the accompanying fraud risk thereof. The instant I moved to Europe, I realized just how far behind consumer banking is in the US. It's pitiful.

> Those numbers at the bottom of a cheque? Yeah, they include your account number.

Yes, as well as the routing number.

> There's no inherent information risk to giving out an account number …

Of _course_ there is. In the US, the account + routing number is sufficient to perform a ACH transfer, write checks against that account, etc.

The risk is enormous.

> Especially when one considers the accompanying fraud risk thereof.

I’m assuming you misunderstood the risk when you wrote the above. It is, in fact, extremely high.

Re: The collapse of SVB exposes the largest crack in the economy

#254

Post by cezart »

ThrustVectoring wrote: post #223
guhcampos wrote: post #90

This whole discussion around bonds makes me feel like I'm either too stupid or too smart, because it does not make sense to me that SVB would not have any sort of hedging around government bonds? I don't know much about US bonds, but Brazil issues 3 types of bonds: fixed rate, inflation-indexed floating rates and interest-indexed floating rates. It's common sense between investors you need to hold a mix of the 3 to h…

You only get paid to take on risk. If SVB hedged away the interest-rate risk that they take on by buying long-term bonds, they would no longer be taking on as much risk and thus no longer potentially earning as much profit.

Or so little profit, as in this particular turn of events

Re: The collapse of SVB exposes the largest crack in the economy

#255

Post by zamnos »

twic wrote: post #170
tialaramex wrote: post #151

Earlier quoted context omitted.

The UK government owns several banks, one of these banks is for exactly this purpose. National Savings & Investment Bank (NS&I) does not offer loans, but money you save with this bank is in practice just part of the country's general fund, they're paying you interest on your savings because if they borrowed that money commercially they'd have to pay interest too. This has one obvious big advantage for the saver - it'…

Three modest notes about premium bonds. Firstly, you can cash in bonds at any time, so it's effectively an instant access account. Secondly, the current rate is 3.30%. Thirdly, the payouts are tax-free. 3.30% on an instant access account is actually pretty great (best i see elsewhere is 2.51%; i see a six month fixed term deposit at 3.28%), and getting it tax-free without having to have it in an ISA makes it even bet…

I might be misunderstanding what you wrote, but in the US, Wealthfront Cash is offering 4% APY, which is a bit higher than 3.3.

Re: The collapse of SVB exposes the largest crack in the economy

#256

Post by Scoundreller »

andreareina wrote: post #225
aqme28 wrote: post #190

Earlier quoted context omitted.

What is a "30 day" bank run? How is a bank run measured in time?

Seems to just mean 30 days of average outflows, i.e. a bank should be ok for that long without any money coming in via new deposits, loan repayments, etc. Of course the issue is when you have larger-than-average withdrawals... https://www.investopedia.com/terms/l/liquidity-coverage-rati...

Probably doesn’t help that this is very a niche bank. Lots of orgs running their payroll from this bank, but few retail account holders.

At a typical community/regional bank, payday is just a bunch of bill entries: debit the corp account and credit the employees accounts. Meanwhile a business-focussed bank will just have huge debits every Friday without corresponding credits: those are happening at other banks.

And with a small number of account holders, it doesn’t take many actors to cause an a bank run.

Payday sealed the fate here.

Re: The collapse of SVB exposes the largest crack in the economy

#257

Post by Scoundreller »

ta1243 wrote: post #251
npunt wrote: post #169

Earlier quoted context omitted.

What other banks that startups use have an exemption to Basel III? Would love to understand broader risk to startup ecosystem.

Why would a startup use a risky bank?

Given how popular this bank was with startups/tech orgs, it suggests that they were otherwise unbankable by the usual players.

I’m unsure what special services a startup needs from their bank that any other bank serving businesses couldn’t offer.

Re: The collapse of SVB exposes the largest crack in the economy

#258

Post by Scoundreller »

mullingitover wrote: post #153
astrange wrote: post #114

Earlier quoted context omitted.

Same-day ACH, aka why you now get paid two days earlier than you used to. Check deposits by smartphone camera. Most of the stuff on https://www.bitsaboutmoney.com .

Are these really innovations, or just convoluted workarounds for problems that other countries have actually solved? I don't think anyone under 40 in Europe has ever written a check, for example, because wires are far more convenient there.

System-wide Innovation is a lot easier when one’s country has a handful of banks. USA has ~4500 banks, 12x the #2 country, Russia.

https://www.helgilibrary.com/charts/what-country-has-the-mos...

Re: The collapse of SVB exposes the largest crack in the economy

#259

Post by MrBuddyCasino »

TooSmugToFail wrote: post #2

SVB used an exemption from Basel III, which allowed it to run a riskier business, and eventually led to its implosion. Basel III was introduced to force banks to be more conservative, and thus more safe. Downside: this also means bank is going to be less profitable. European banks were forced to implement Basel III, while the US bankers managed to lobby a loophole for certain types of banks. And sure enough, SVB leve…

This btw is Jay Ersapah, Head of Financial Risk at SVB. Apparently DEI & LGBTQ issues were more important than making sure their assets & obligations are balanced: https://twitter.com/the_real_fly/status/1634035956188688385

Re: The collapse of SVB exposes the largest crack in the economy

#260

Post by Scoundreller »

rich_sasha wrote: post #242
guhcampos wrote: post #90

This whole discussion around bonds makes me feel like I'm either too stupid or too smart, because it does not make sense to me that SVB would not have any sort of hedging around government bonds? I don't know much about US bonds, but Brazil issues 3 types of bonds: fixed rate, inflation-indexed floating rates and interest-indexed floating rates. It's common sense between investors you need to hold a mix of the 3 to h…

Every bank in existence fundamentally borrows short-term at a low, floating rate, and lends back out long term at a higher rate. The lending rate can be fixed or floating. This kind of thing is bank risk management 101. For example, in Europe, banks tend not to lend out long term at all at a fixed rate, precisely for reasons like this. Broadly this is called "duration marching" IIRC, duration being the name of sensit…

> this is basically moronic.

No, it’s smart! If it works out, you cashout and go on the speaking circuit patting yourself on the back for your ygenius. If it doesn’t, you’ve limited your own liability and someone else comes in and cleans up your mess.

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