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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#371

Post by ericd »

fl0ps wrote: post #363
dheera wrote: post #322

Earlier quoted context omitted.

> if you're CEO of a bank that's facing a bank run Or just don't mess with money that belongs to customers. Be the world's first reliable bank.

Not a finance guy but I think that would literally be the opposite of how banks work. They have to lend out customers money in various forms, including giving that money to other customers in the form of loans, loaning it in huge chunks to companies for larger percentage rates than they give customers who keep their money in said bank, and so forth. Not sure how a bank that kept every customers money on hand all the…

Well, there are banks that charge you money to hold onto your cash for you.

Re: Bank run on Silicon Valley Bank

#373

Post by lmm »

hollerith wrote: post #276
FormerBandmate wrote: post #137

Earlier quoted context omitted.

They’re selling equity to get capital. That’s pretty dire straits, FTX was doing that before they went under (I’m not saying this is FTX, I’m just saying it can be akin to the nuclear option)

For what reason besides raising cash does a company ever sell shares in itself? How does your statement make any sense? (I am assuming that by "capital" you mean cash.)

> For what reason besides raising cash does a company ever sell shares in itself?

A healthy company doesn't generally sell shares in itself (except perhaps to fund a major expansion). Selling equity is a last resort when you don't have better funding options (retained earnings, debt, ...).

Re: Bank run on Silicon Valley Bank

#374

Post by ericd »

likecarter wrote: post #344
dheera wrote: post #328

Earlier quoted context omitted.

Can't someone open a bank that takes money and just keeps it like a well-behaved child and doesn't secretly mess with it?

Well then customers won't get any interest. And therefore you will have no customers. And therefore no deposits.

People aren’t keeping their money in Chase accounts for the 0.01% interest, given that the risk-free rate is currently >4.5%. So you may want to rethink that.

Re: Bank run on Silicon Valley Bank

#375

Post by kentonv »

ericpauley wrote: post #58

I'm really curious why banks like this are popular in the first place. I get why startups would want to lend from them, but what is the advantage of parking cash in a "startup-focused" bank? The rest of the business is exciting/risky enough, wouldn't you want your banking to be as boring as possible?

To add to the other comments, SVB also courts startup founders for their private banking arm, and there, too, the benefit is that they actually understand startup founders.

Example: After our startup went up in flames in 2017 my wife and I (co-founders) got "regular jobs" with nice salaries. Some time later, we tried to refinance our mortgage with Chase. The banker at Chase was very happy to serve us right up until the point where he asked if we had more than 20% ownership stake in any company. I said, well, yes, technically we own 80% of our defunct startup. He then said he had to look at the startup's tax returns for the last two years. I was like... ok, that's weird, but sure. He then informed us that we did not quality for a loan because he had to consider our company's income along with our own, and our company had lost half a million dollars in its last year of operation, therefore he considered us to have lost half a million dollars.

I was like... "Do you even know what a C corp is?"

We ended up switching to SVB, which had no problem refinancing our mortgage.

(Fortunately our balance in that account today is within FDIC-insured limits...)

Re: Bank run on Silicon Valley Bank

#376

Post by abirch »

TheAlchemist wrote: post #318
dublinben wrote: post #176

Earlier quoted context omitted.

Matt Levine is fond of this highly relevant quote by Bagehot: “Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone.” It seems that CEOs of banks haven't learned anything since 1873 when this was observed.

100% true ! They are already gone. However, not to defend the guy, but as a CEO of this bank he ... has to say something. And whatever he says it will be bad anyway.

Exactly people would be here saying that the CEO hasn't said anything in the past 10 days or whatnot. Damned if you do and damned if you don't

Re: Bank run on Silicon Valley Bank

#377

Post by oa335 »

chollida1 wrote: post #294
jongjong wrote: post #243

Earlier quoted context omitted.

Why does a business need a loan? They can just sell shares/equity to raise funds. It's better in every way; there's skin in the game. Why would anyone even want to loan money to a startups? If the startup founders go out of business and flee the country, the lender loses everything. The downside is unlimited. Yet if the startup does well and it becomes a billion dollar company, the lender will get maybe 20% return on…

Well before mortgages home ownership was about 2% and we had a very small number of people who owned all the real estate because people couldn’t afford it without a loan. If your happy with going back to this that is your perogative but I would Be against your world view.

Could you please share where you got that measure of “2% home ownership” before mortgages?

Re: Bank run on Silicon Valley Bank

#378

Post by lmm »

Retric wrote: post #252
makomk wrote: post #222

Earlier quoted context omitted.

Those government-mandated, ultra-safe capital reserves look like they're actually the big problem that's going to bring down banks right now. Banks have stuck a bunch of their reserves in really safe, predictable, high quality long-term bonds (particularly government issued ones). Because interest rates have gone up, those bonds are now worth substantially less than they were a year or so ago, meaning that the banks'…

Interest on loans should by increase a banks reserves every year barring massive defaults. The ROI for the actual reserves aren’t particularly relevant by comparison. Similarly from a reserve standpoint they don’t need to worry about inflation as they need to pay back deposits in nominal terms not what the money is worth when withdrawn.

> Similarly from a reserve standpoint they don’t need to worry about inflation as they need to pay back deposits in nominal terms not what the money is worth when withdrawn.

The issue is that the sale value of their reserves has dropped below that nominal value. If you take in $1000 of deposits that you're paying 1% interest on and your reserve against that is a 10-year $1000 T-bill with a 2% coupon, you'd think you're fine, right? But if interest rates go up to 3%, you can't sell that T-bill for $1000 any more; if you can hold it to maturity you're fine, but if your customers start pulling their deposits you're in trouble.

Re: Bank run on Silicon Valley Bank

#379

Post by toss1 »

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.

Meanwhile, Peter Theil is openly encouraging everybody to tell each other that SVB is sinking and to pull their money [0].

What a guy.

[0] Thiel Fund, Venture Firms Advise Companies to Pull Money From SVB

Re: Bank run on Silicon Valley Bank

#380

Post by helsontaveras18 »

ericpauley wrote: post #366
necubi wrote: post #180

Earlier quoted context omitted.

Well, just as an example SVB gave my startup a bank account and a no personal recourse credit card days after we'd formed the corporation. No way you'd get that from BofA. They understand the startup ecosystem in a way that big banks don't. Now there's some competition from startup-focused banks like Brex and Mercury, but a five years ago SVB was one of the only games in town.

I totally get why you’d borrow from them, and the card sounds nice, but do you want to be depositing your money with businesses that offer no personal recourse credit cards to brand new businesses?

What’s wrong with that? Credit cards for businesses can be very low risk with the right KYC and underwriting controls.

Consider that startups are most often sitting on mountains of cash.

Also, having founders personally guarantee a credit card by putting up a house as collateral is not ideal for anyone.

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