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SVB Hall of Shame

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Re: SVB Hall of Shame

#251

Post by fwlr »

lynx23 wrote: post #215
fwlr wrote: post #83

I’m not going to be using this site to guide my opinions of VCs, I don’t generally outsource that much of my opinion-making to 3rd parties. But it does broadly reflect my opinions, you could get a very rough “general direction” picture of how I think from reading it. “It’s rational to join a bank run, VCs would have been negligent to their companies if they advised to stay” I know! Believe it or not I have studied a…

You're using the word "defect" to describe someone pulling their money from a bank? Seriously? It is so easy to assign blame apparently...

“Cooperate” and “defect” are technical terms in game theory, they don’t carry their usual connotations here.

Re: SVB Hall of Shame

#252

Post by mbreese »

manquer wrote: post #22
bandrami wrote: post #13

Earlier quoted context omitted.

Not insolvent, illiquid. Calling SVB insolvent is like calling Elon Musk "poor" because his income this year was $0.

It was cited to be insolvent in addition be illquid when be taken over by DFPI[1] and most observers and analysts agree . If it were only illquid, it would be far easier to find a buyer and it would have already been sold by now. [1] https://dfpi.ca.gov/2023/03/10/california-financial-regulato...

The FDIC take over only happened after the massive amount of withdrawals/bank run the day before. Which is the nuance in the above statements... they had assets, but after selling what they could to meet immediate withdrawal obligations, the assets they had left (HTM) weren't worth as much if sold immediately than their booked value. If the assets could have been held until maturity (HTM), they would have been worth their book value.

So, only after the run did they become insolvent. The change from illiquid to insolvent happened quickly, but without those withdrawals, the illiquidity could have likely been managed to avoid an outright insolvency (probably through a sale).

Re: SVB Hall of Shame

#253

Post by leereeves »

dehrmann wrote: post #97
naet wrote: post #61

I don't think I agree with this as a mark of "shame". Were these companies wrong to pull money out of SVB when they (correctly) thought the bank might be insolvent or headed for trouble? Are we celebrating those who left their money in, despite the warnings, when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits? Would that have been "hero…

VC and startups were facing a prisoner's dilemma, and they picked a viable strategy.

Defecting is only a good strategy in a prisoner's dilemma when you don't need to cooperate in the future and can't be punished outside the scenario of the prisoner's dilemma.

If this, say, destroys public trust in Silicon Valley startups, or leads to restrictive government regulation, then it might cost more than it saved in the long run.

Re: SVB Hall of Shame

#254

Post by notacoward »

dahdum wrote: post #27

Put another way, this is a list of VCs that prioritize their portfolio companies health and success more than their personal banking relationships or public perception. That’s a pretty strong signal to future startups they’ve got your back when the shit hits the fan. I’m not saying it’s good , but I’m betting a lot of founders are feeling pretty thankful. The bailout was never guaranteed.

No, a strong signal would have been providing material support to portfolio companies harmed by the collapse, instead of just signing an empty statement.

Re: SVB Hall of Shame

#255

Post by notacoward »

ar9av wrote: post #105

These people acted rationally. As soon as there was even a hint of "this bank could fail" it's a no brainer to press a couple buttons on your app and transfer your money even if there is only a 0.1% chance of failure. It's just game theory. The problem is when everyone acts to protect themselves from the 0.1% chance event it actually becomes a 100% likely event. That's why FDIC Insurance was invented in order to prev…

> These people acted rationally. > It's just game theory.

The conclusion from game theory (specifically Prisoner's Dilemma) is not that only one action is rational. Both cooperation and defection are rational; that's what "dilemma" means. The difference lies in the scope or horizon to which reason is applied. Every time I see someone invoke "rationality" or game theory to justify what is really selfishness, it makes me want to throw up.

Re: SVB Hall of Shame

#256

Post by zaroth »

fastball wrote: post #237
drc500free wrote: post #226

Earlier quoted context omitted.

My read is that they were either holding the MBSs as tradeable assets (in which case they had taken a massive real loss that wiped out their equity) or until maturity decades away (in which case they didn't have enough current assets to remain solvent as a bank). The depositor withdrawals forced them to admit that they had taken a massive loss because of insufficient hedging against interest rate hikes, but they didn…

But the withdrawals didn't force them to admit they had taken a massive loss, the withdrawals forced them to take the massive loss at all . It's not a loss until you sell, right? They sold to cover withdrawals. Apparently they had $48B in withdrawals in a one-day period. Trying to imagine any bank that wouldn't need to take losses (to the point of being potentially insolvent) in order to deal with that. Yes, obviousl…

There are two different definitions of the same word.

One is balance sheet insolvency, the other is cash flow insolvency.

But it’s two forms of the same thing! Cash flow insolvency is usually a result of holding illiquid assets that can’t be turned into cash. In this case the assets were perfectly liquid though, so it wasn’t just a cash flow insolvency.

The bank was reporting the future value of the bonds, the problem was the present value was much lower.

Re: SVB Hall of Shame

#257

Post by IG_Semmelweiss »

hn_throwaway_99 wrote: post #95
jsemrau wrote: post #76

Auditors signed-off their audits : https://www.businesstoday.in/silicon-valley-bank/story/silic... with a clean bill of health nonetheless.

This was commented elsewhere, but the auditors were correct in that situation. This was not a case of fraud, where the bank had less money than they said they did. KPMG's job was to verify that SVB's public statements were accurate, and they were. SVB's precarious position was not a secret - saw a good post from mid-Feb that predicted exactly how this eventually played out. The only other thing KPMG could have done i…

>>>This was commented elsewhere, but the auditors were correct in that situation

Sorry, no. Auditors are supposed to effectively run going concern tests as part of their process. Its not only fraud they are looking for. If a company fails 2 weeks after the opinion because of an act of God, thats different. In this case, it was a literal duration mismatch (interest rate risk) that was predicted by blogs elsewhere.

I maybe concede that im not sure it would be reckless to issue FS with a going concern, even if the going concern is true. A more likely scenario would be...no signed opinion. Financial filing would have been delayed. Which itself would have caused the run.

If I was KPMG, I know what scenario I would like to be in, and its certainly NOT the current one, with a signed an opinion -with a wet siganture still- for a company that melted away within 2 weeks.

Re: SVB Hall of Shame

#258

Post by tablespoon »

kondro wrote: post #161
tablespoon wrote: post #149

Earlier quoted context omitted.

> Call me naïve, but if I put money in a bank I should be able to get it back whenever I want. If I didn't want it to be liquid, I'd buy something less liquid. The very concept of a bank run is ridiculous. If all a bank's customers want their cash back, they should be able to get it back without affecting the liquidity of the bank. Then the product you really want is a safe deposit box to put your literal cash in. Th…

Cash is basically illegal for many transactions related to financial services and is likely to become illegal for everything greater than $10k in Australia very soon: https://treasury.gov.au/policy-topics/economy/black-economy/...

> Cash is basically illegal for many transactions related to financial services and is likely to become illegal for everything greater than $10k in Australia very soon:

That's irrelevant. My main point is you appear to not want the traditional "bank account" product, but rather a "secure storage" project. I provided an example of the latter from my jurisdiction, but that was only an example.

Re: SVB Hall of Shame

#259

Post by IG_Semmelweiss »

notacoward wrote: post #255
ar9av wrote: post #105

These people acted rationally. As soon as there was even a hint of "this bank could fail" it's a no brainer to press a couple buttons on your app and transfer your money even if there is only a 0.1% chance of failure. It's just game theory. The problem is when everyone acts to protect themselves from the 0.1% chance event it actually becomes a 100% likely event. That's why FDIC Insurance was invented in order to prev…

> These people acted rationally. > It's just game theory. The conclusion from game theory (specifically Prisoner's Dilemma) is not that only one action is rational. Both cooperation and defection are rational; that's what "dilemma" means. The difference lies in the scope or horizon to which reason is applied. Every time I see someone invoke "rationality" or game theory to justify what is really selfishness, it makes…

Failure was a foregone conclusion non matter what time horizon you wanted to apply.

The bank had wiped its equity before depositors drew on it. It was a matter of time it failed. Its loan portfolio is impaired. Its startups are burning DDA cash without vc funding. The majority of its capital is locked up on long duration bonds.

The bank was bleeding from a thousand cuts. It was put out of misery by a good old run to the head. Eventually some startup was going to try drawing on their checking and it was going to fail.

A bank run is just a symptom of the disease (mismanaged bank risk).

Re: SVB Hall of Shame

#260

Post by dev_tty01 »

pas wrote: post #239
naet wrote: post #61

I don't think I agree with this as a mark of "shame". Were these companies wrong to pull money out of SVB when they (correctly) thought the bank might be insolvent or headed for trouble? Are we celebrating those who left their money in, despite the warnings, when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits? Would that have been "hero…

no need for heroics, just don't "lie" about it by signing statements

> no need for heroics, just don't "lie" about it by signing statements

Have you read the statement? There is no "lie" in pulling money and signing the statement. Here is the text:

"The events that unfolded over the past 48 hours have been deeply disappointing and concerning. In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them."

The statement clearly communicates that they have ended their banking relationship (pulled their money). They are simply stating that if the finances of the bank are straightened out they will start banking there again. I don't see any disconnect or deceit between pulling their money and signing the statement. When the Moody's data came out and it was clear things were headed south, of course they transferred or at least tried to transfer their money out.

The failure of all of these financially savvy VCs was not pulling their money weeks or months ago. The data was all there as others have pointed out. They have all been whistling past the graveyard hoping the problem would go away. If there is any shame, it is in that failure to act earlier.

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