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Silicon Valley Bank Failure [pdf]

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Re: Silicon Valley Bank Failure [pdf]

#31

Post by JumpCrisscross »

siftrics wrote: post #23
ericpauley wrote: post #10

This really sheds clarity on the situation. SVB was in bad shape long before the run, and there is no apparent next domino to fall. FDIC limits are very well understood and relatively easy to work with (despite the rampant FUD about “who’s going to use multiple bank accounts”, deposit sweep programs are highly available and convenient). This is a risk management failure by depositors (in addition to the bank of cours…

This is not risk management failure by depositors. Depositors can and should assume that regulations prevent banks from assuming outsize risk like this. This is a policy failure of the regulators that oversee banks. Banks should not be allowed to have so little cash on hand, especially when we knew with high likelihood the fed would raise rates.

> Depositors can and should assume that regulations prevent banks from assuming outsize risk like this

Small depositors, yes. Institutional depositors, no.

Not all banks are equal. SVB was borderline investment grade before it collapsed. Treasury advice strikes me as low-hanging fruit VCs could have guided their companies on. Instead, most universally recommended SVB because the priority was reducing friction, not risk.

Re: Silicon Valley Bank Failure [pdf]

#32

Post by didip »

It is important for banks to always have a balanced portfolio and regulations to force them to have it.

Otherwise, it’s weakness will soon be recognized by some billionaires, Thiel in this case, and they will take advantage of this weakness to become even richer.

Re: Silicon Valley Bank Failure [pdf]

#33

Post by lbotos »

nonethewiser wrote: post #5

I think we’re too accustomed to startups here to recognize that SVB was actually assuming quite a bit of risk. We acknowledge most banks don’t want to touch startups and that startups will have a harder time banking in the future. Yet I don’t see much consideration for the fact that there is a good reason most banks see startups as risky. It’s just explained away as “they don’t understand .” Also consider the past 10…

I mean their risk here wasn’t exposure to startups but too many MBS in an env where the fed’s “risk free money” is better investment than the MBSes.

It wasn’t because of “Startups”.

Re: Silicon Valley Bank Failure [pdf]

#34

Post by itsoktocry »

notmindthegap wrote: post #17

Maybe a stupid question: if banks can collapse from a bank run, shouldn’t the entire model be questioned? A bank run is simply when a threshold number of customers decide to withdraw their cash, with every right to do so. With social media + frictionless mobile banking, the entire notion of teetering your model on mitigating the risk of a “bank run” seems anti-customer, regressive, and unsustainable.

>How can a business model rely on this?

Customers also want to earn easy, high interest, that's the main issue. You're taking a risk (albeit a small one) with your deposits; your money is being lent by the bank and they pay you interest in return.

If you only want your cash to be held safely, put it in a safety deposit box.

Re: Silicon Valley Bank Failure [pdf]

#35

Post by JumpCrisscross »

awill wrote: post #30
senttoschool wrote: post #20

Earlier quoted context omitted.

I don’t think startups will have a harder time banking in the future. This isn’t even the fault of startups. It’s a complete risk management mistake on the side of the bank. Buying 10 year low yield securities and not hedging them against rising rates. Plenty of banks would love to have the deposits of startups and VCs. I bet a bank like Mercury or some other ones will grow to take SVB’s place.

This is exactly right. This has nothing to do with the startups using the bank

> has nothing to do with the startups using the bank

The proximate cause is short-term funding from risky depositors, i.e. start-ups. The ultimate cause was insolvency. (Yes, not illiquidity, simple illiquidity is solved by the Fed’s discount window.)

Re: Silicon Valley Bank Failure [pdf]

#36

Post by Gare »

notmindthegap wrote: post #17

Maybe a stupid question: if banks can collapse from a bank run, shouldn’t the entire model be questioned? A bank run is simply when a threshold number of customers decide to withdraw their cash, with every right to do so. With social media + frictionless mobile banking, the entire notion of teetering your model on mitigating the risk of a “bank run” seems anti-customer, regressive, and unsustainable.

Yes, the alternative is CBDC (central bank digital currency). But it also has its problems.

Re: Silicon Valley Bank Failure [pdf]

#37

Post by dhbanes »

ericpauley wrote: post #10

This really sheds clarity on the situation. SVB was in bad shape long before the run, and there is no apparent next domino to fall. FDIC limits are very well understood and relatively easy to work with (despite the rampant FUD about “who’s going to use multiple bank accounts”, deposit sweep programs are highly available and convenient). This is a risk management failure by depositors (in addition to the bank of cours…

There is an apparent next domino to fall - First Republic Bank.

Re: Silicon Valley Bank Failure [pdf]

#38

Post by LandR »

yCombLinks wrote: post #26
notmindthegap wrote: post #17

Maybe a stupid question: if banks can collapse from a bank run, shouldn’t the entire model be questioned? A bank run is simply when a threshold number of customers decide to withdraw their cash, with every right to do so. With social media + frictionless mobile banking, the entire notion of teetering your model on mitigating the risk of a “bank run” seems anti-customer, regressive, and unsustainable.

Most depositor's money is insured by the government, so there is no reason people would panic withdrawal their money

In the UK, you are only covered up to £80k though... I could understand people wanting to get at least money over £80k out, but also how long does it take to get access to your cash if you have to go through the government insurance procedure. Is it days, weeks, months ? I have no idea and wouldn't want to have to find out.

Re: Silicon Valley Bank Failure [pdf]

#39

Post by ericpauley »

JumpCrisscross wrote: post #31
siftrics wrote: post #23

Earlier quoted context omitted.

This is not risk management failure by depositors. Depositors can and should assume that regulations prevent banks from assuming outsize risk like this. This is a policy failure of the regulators that oversee banks. Banks should not be allowed to have so little cash on hand, especially when we knew with high likelihood the fed would raise rates.

> Depositors can and should assume that regulations prevent banks from assuming outsize risk like this Small depositors, yes. Institutional depositors, no. Not all banks are equal. SVB was borderline investment grade before it collapsed. Treasury advice strikes me as low-hanging fruit VCs could have guided their companies on. Instead, most universally recommended SVB because the priority was reducing friction, not ri…

Exactly. 250k to me seems like a very logical threshold to expect at least some sophistication. Deposit sweeps get you to 3M many places after which it seems perfectly reasonable to expect people to manage treasuries. If Bogleheads can do it VCs can.

Then again, you have people like Mark Cuban who clearly don’t know about basic cash management (https://twitter.com/mcuban/status/1634413306948603905), so maybe American lack of financial literacy has truly trickled all the way up.

Re: Silicon Valley Bank Failure [pdf]

#40

Post by Gare »

LandR wrote: post #38
yCombLinks wrote: post #26

Earlier quoted context omitted.

Most depositor's money is insured by the government, so there is no reason people would panic withdrawal their money

In the UK, you are only covered up to £80k though... I could understand people wanting to get at least money over £80k out, but also how long does it take to get access to your cash if you have to go through the government insurance procedure. Is it days, weeks, months ? I have no idea and wouldn't want to have to find out.

I was suprised to learn that in the US deposits are insured up to $250K since 2008. In the EU it's only 100K euros and it seems low.
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