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SVB Hall of Shame

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Re: SVB Hall of Shame

#291

Post by hnfong »

sacnoradhq wrote: post #221
borski wrote: post #199

Earlier quoted context omitted.

I made no such assumption. GP implied that bank runs wouldn’t hurt Australian banks. They would. That’s all.

You didn't quantify or qualify "harm". The ARPA document states AGS permit a bank to stay fully liquid (100% reserve requirements) to cover any potential run. These requirements avoid the failures of bygone eras. Do you have a specific point based on evidence?

"Managing liquidity risk" means the risk isn't zero.

"APRA’s mandate is to protect the community by ensuring that, under all reasonable circumstances, financial promises made by the institutions it supervises are met within a stable, efficient and competitive financial system. So a central part of APRA’s work is to ensure that banks limit the extent of their liquidity risk."

Notice it says "all reasonable circumstances". There's a lot of nuance there, and depositors being a small group of VCs who are squeezed on cash and suddenly pulling out all deposits while interest rates are hiking while the bank bet heavily on 10+year MBS isn't the reasonable situation covered here.

> AGS permit a bank to stay fully liquid

AFAICT this only applies if the current fair value of the AGS covers the liabilities. It doesn't in the case of rapid interest rate hikes like in the US. However, it's probably true that in case of a bank run when interest rates are being lowered, bank assets can probably cover liability even if there's a 100% run.

Do note that this is the government institution explaining why the regulatory system makes things fine and people don't need to worry. I don't doubt the system is as robust as is possible, but reading between the lines, it's quite obvious (to me at least) that a SVB-like scenario can still happen in theory under the system. It will just take even more extreme parameters for that to happen (which admittedly doesn't exist in Australia right now, AFAIK).

Re: SVB Hall of Shame

#292

Post by danielmarkbruce »

tsunamifury wrote: post #219
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. There was only a 1.8 billion dollar temporary hole in the books. If they wanted to they could have plugged this in minutes and ensured their partner in banking survived. Then cashed out with 1:1.01 tbills or whatever in its stead. Follow on benefits would have been a statement of strength and cooperative SV culture. Instead they panicked like children and told everyone else to panic too It’s not a good look and i…

If you read the SEC filings, there was a 12-13 billion hole in their balance sheet. The 1.8 was simply accounting rules which say they only have to recognize the giant hole when they sell and they sold some of the assets in question. Marked to market, ie assets marked to real prices instead of fantasy prices, they were toast.

People who looked at SVB financials knew it was a train wreck. They behaved like serious investment professionals and pulled their money.

Re: SVB Hall of Shame

#293

Post by ineedasername »

Spooky23 wrote: post #246
ineedasername wrote: post #90

Earlier quoted context omitted.

No, it really isn’t. It may lead to insolvency, but that is by no means a foregone conclusion and can play out in different ways. At a simple scale, If I own a $200k home outright and have $50k in credit card debt that I cant pay then I file for bankruptcy, negotiate with creditors to sell my home and pay the debts, and come out with $150k in assets with no liabilities. I was always solvent. This happens daily in the…

The key thing is you are not a bank required to pay depositors on demand.

The math & definitions of solvency & liquidity don't change with scale. They are separate things even if the mechanics of how they influence each other put them in such close proximity to each other that some people confuse the two.

My small scale example illustrated the concept, my large-scale citation of bankruptcy courts show a bit of how it plays out in real life & validates the analogy.

Re: SVB Hall of Shame

#294

Post by ineedasername »

zaroth wrote: post #169
ineedasername wrote: post #72

Earlier quoted context omitted.

Under that interpretation nearly everything is liquid. If you’re going to take a loss by selling an asset prematurely, it is illiquid. Otherwise you’d have to say things like the houses people own are liquid because the person could sell it in a day if they were willing to do so for 80 cents on the dollar. That is not the financial world’s definition of “liquid”

I have to disagree. Liquidity is the ability to sell, period. Not the ability to sell at a profit.

I said nothing about profit. I can sell my house today, yet houses are one of the prototypical examples of something that is illiquid. The ability to sell something fast is not the definition of liquid. Liquidity is specifically the ease (or difficulty) with which you can sell something without taking a haircut.

Re: SVB Hall of Shame

#295

Post by ineedasername »

danielmarkbruce wrote: post #205
ineedasername wrote: post #72

Earlier quoted context omitted.

Under that interpretation nearly everything is liquid. If you’re going to take a loss by selling an asset prematurely, it is illiquid. Otherwise you’d have to say things like the houses people own are liquid because the person could sell it in a day if they were willing to do so for 80 cents on the dollar. That is not the financial world’s definition of “liquid”

Nonsense. Things one can sell at fair value in a few mins are liquid, and things one has to sell slowly or take 80 cents on the dollar to get rid of it fast (like a house in your example) are illiquid. It's a function of buyers and process, not my accounting treatment or tax treatment or whatever other treatment might make me not like the idea of selling right now. What's next? The FX markets aren't liquid because I…

Taking 80 cents on the dollar == illiquid is exactly the point I was making. Selling quickly is a necessary but not sufficient condition to meet the definition of liquid. That 80 bil in bonds isn't liquid if they had it on the books as hold-to-maturity and took a haircut to sell it early.

>Yeah, it is, to us in the financial world.

I get the feeling we're talking around each other, your response indicates that we (probably) agree, and I'll assume it was my own communication failure, so I won't otherwise remark on this snarky & somewhat inaccurate (in its implications) comment.

Re: SVB Hall of Shame

#296

Post by ineedasername »

jrumbut wrote: post #138
ineedasername wrote: post #56

Earlier quoted context omitted.

This is incorrect. such coordination was possible and did happen, only in the opposite direction. A relatively small group of VC firms effectively did coordinate the depositors very effectively to organize except it was to take money out Saying coordination wasn’t possible is therefore incorrect. And had it not occurred, getting people to keep their money in would have been a moot point, the whole thing a non issue.

I wonder if anyone involved had a vested interest in an alternative to banks.

I'm not quite ready to embrace that line of thinking, but the thought did cross my mind. Regardless, if someone was trying to maneuver things that way it may have backfired, making it more difficult for alternatives:

First, the speed of action & (so far) efficacy of containing and stabilizing things while keeping all depositor money safe is both an endorsement of traditional regulated finance as well as a sharp counterpoint to recent crypto collapses that were neither contained nor safeguarded customer money.

Second, some of the most crypto friendly finance partners are now gone.

Sure, Bitcoin is up, but from the point of view of growing an alternative I think crypto as a whole has taken yet another hit. Whatever struggle the sector would have had regaining momentum after the past year now just got at least a little harder.

Re: SVB Hall of Shame

#297

Post by pas »

fmajid wrote: post #289
op00to wrote: post #249

Earlier quoted context omitted.

Why do tech startups have different banking needs than other ventures?

Lots of cash, lumpy or no revenue, no credit history, need to lease equipment like servers for those that run in a data center. Mitchell Hashimoto of HashiCorp describes it here, even if his is an extreme example: https://mitchellh.com/writing/my-startup-banking-story

But that's not really different from boring low-volume high-margin retail. Let's say a car dealership. Or basically consumer banking for anyone without a biweekly/monthly income. Or anyone who goes on vacation. Let's say I open a bank account, put my savings there and go on a long unpaid leave and spend a lot of it.

Banks are just picky, because they can be (and because regulation makes it hard to have a boring bank, so there's no competition). Because banks still don't understand the business they are in (because they can be dumb, because regulation, etc), as the Hashicorp story illustrates.

People want dumb banks, but banks make money buy upselling shit to people. So banks are basically evil MLM machines instead of trusted/trustable financial partners for people. (Because the people who actually need financial support will get taken advantage of in less time than it takes me to type this. And those who don't need it are constantly annoyed by the scam machine. Rightfully.)

And, ridiculously, Chase spent time and effort educating tellers in case the next startup ends up opening an account at them ... instead of making sure that they provide a good service so that founders choose them.

And that story is perfect. Everything went as expected. Nobody bothered the startup. Yes, closing the account was harder than imagined, because they were impatient, still they got it done in 2 days.

Re: SVB Hall of Shame

#298

Post by op00to »

fmajid wrote: post #289
op00to wrote: post #249

Earlier quoted context omitted.

Why do tech startups have different banking needs than other ventures?

Lots of cash, lumpy or no revenue, no credit history, need to lease equipment like servers for those that run in a data center. Mitchell Hashimoto of HashiCorp describes it here, even if his is an extreme example: https://mitchellh.com/writing/my-startup-banking-story

That sounds like a landscaper, no?

Re: SVB Hall of Shame

#299

Post by 462436347 »

hnfong wrote: post #283
462436347 wrote: post #155

Earlier quoted context omitted.

And before any more midwits play the "Prisoner's Dilemma" card to defend this: https://en.wikipedia.org/wiki/Prisoner%27s_dilemma > Two members of a criminal gang, A and B, are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communication with their partner. The guilty parties here could communicate with each other , and could cooperate, just like the banks did today by aiding First…

In a textbook prisoner's dilemma, the prisoners both get a hefty sentence if they failed to cooperate and both defected. They had a lot to gain from cooperating. In the SVB situation, most of the losses are borne by the bank, investors of the bank, and the general public (in the sense that it caused financial instability across the nation). It's not a prisoner's dilemma because the downside to not cooperating is main…

The VCs started the bank run. They were the primary depositor base of SVB. It wasn't a question of whether it was rational or ethical to join a bank run already in progress. Instead it was they, the rational, enlightened VCs, who started the bank run in the first place, becoming prisoners of a dilemma of their own making.

It was in their best interest to cooperate to not run on their bank, and they failed to do so, which in turn brought down SVB, risks bringing down other regional banks in a domino-like fashion, and has already resulted in government bailouts that have made people outside of the SV bubble hate them even more than they already did.

Furthermore, the supposedly "evil" big banks, as I've repeatedly noted, have shown a comparatively greater ability to cooperate for the greater good of their industry and the wider economy, which is embarrassing given how these VCs posture.

Re: SVB Hall of Shame

#300

Post by rswail »

sacnoradhq wrote: post #173
kondro wrote: post #161

Earlier quoted context omitted.

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/...

Australia and India are among those who bought (no pun intended) into the fallacy that cash is for criminals, and you're only a good consumer if you use traceable electronic funds from megacorp SIBs. There are millions, if not billions, of unbanked people whose survival depends on cash. And the US has civil asset forfeiture, were cops call "dibs" on cash and the owner has to essentially disprove a negative they're us…

Australia doesn't have many people that are "unbanked". AUSTRAC already requires notification of any transfer over AUD10K.

India has managed to get a large proportion of their population into the "banked" column by introducing a cheap/easy mechanism for people to store and forward their money. Whether that is also related to the "fallacy that cash is for criminals" is orthogonal to the desirable situation that even the poorest can have a bank account.

Bank accounts allow people to store their funds safely (or at least as safe as the banking regulators), it allows them to receive and send their money much more easily, which allows them greater involvement in the economy.

Australia has a few, large ("too big to fail") banks and government benefits are paid direct to bank accounts. Banks are required to offer basic/fee-free accounts and only require KYC ("100 point") ID checks to open. No one uses cheques/checks.

We have account-to-account transfers with 2 day settlement, but that is replaced by a new system that is instant gross settlement through our Reserve Bank (equivalent of US Fed). See https://www.rba.gov.au/payments-and-infrastructure/new-payme...

Basically, the US banking system is 3rd world and so distributed in terms of both the size of banks (state banks are too small, federal are too big) and regulation (50 state regulators as well as all the feds).

FedNow will hopefully start to fix this by replacing the clunky ACH and move the US to a modern EU/CA/AU/NZ/UK type banking system.

It'd help if the US used the USPS to deliver a basic banking service that is zero-fee. It would also help if the US had both an EFT debit card system that wasn't tied to the Visa/MC duopoly and merchants were forced to go to Chip+PIN, not the ridiculous Chip+Signature that is as far as they've got so far.

It would be to the distinct advantage of the majority of the US's "unbanked" population if they could have a cheap/zero-cost banking solution.

All of that is orthogonal to your worries about "fallacies" about cash and the fear of civil forfeiture. In fact, on that last item, it would be much harder for the average local police force to forfeit someone's bank account than it is for them to seize physical cash, requiring a warrant as well as working through a bank's own legal and other departments.

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