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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#491

Post by cj »

borski wrote: post #477
koromak wrote: post #429

Earlier quoted context omitted.

its almost like making bets with money you don't actually have yet is a bad idea

This is literally the definition of fractional reserve banking, used by almost every bank worldwide.

You're right, but that doesn't necessarily make it a good thing.

As a consumer (or a business client in the case of SVB), how does it benefit you that the bank doesn't simply hold your deposits in a figurative safe somewhere?

At a minimum, I wish I could say it benefits us by banking being free.

Lending could be opt-in. There could exist banks who charge a premium for simply being the custodian of your money. (These must already exist)

Fractional reserve makes money easily available to those seeking money they don't have, at the risk of depositors whose money they're putting on the line.

(For better or worse. I'm not for or against it. I'm certain there are massive benefits to the system. But the reality is the average depositor probably doesn't realize their bank deposits aren't actually theirs - and that's why we have the FDIC)

Re: Bank run on Silicon Valley Bank

#492

Post by dang »

antibasilisk wrote: post #55

[flagged]

Please don't post flamebait and/or unsubstantive comments to HN. We're trying for something different here.

If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html and taking the intended spirit of the site more to heart, we'd be grateful.

(We detached this subthread from https://news.ycombinator.com/item?id=35087135.)

Re: Bank run on Silicon Valley Bank

#494

Post by antihipocrat »

borski wrote: post #474
dgacmu wrote: post #411

Earlier quoted context omitted.

He could be attempting to create a problem so he can take advantage of it.

Entirely possible he shorted SVB.

If the company goes into liquidation before the short seller closes their position, what happens?

Re: Bank run on Silicon Valley Bank

#495

Post by melvinmelih »

boringg wrote: post #116
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.

Poor move by the CEO. It's like he wanted to be honest with everyone but that wasn't a strong signal. Also out most of the banks - you would expect that the clients of SVB are a little more sophisticated than your retail bank demographic being start-up companies and all (big assumption).

> you would expect that the clients of SVB are a little more sophisticated than your retail bank demographic being start-up companies and all

Sometimes you can be too smart for your own good: in this case the CEO might have assumed that everyone knows that all banks inherently carry a risk in case of a bank run, but all the market hears is the word “risk” and panics correspondingly.

Re: Bank run on Silicon Valley Bank

#496

Post by hackerlight »

My surface-level understanding was the federal government started guaranteeing/ensuring customer deposits in order to prevent bank runs from starting. Why is that not happening here? And if it is why wasn't it enough to prevent a bank run?

Re: Bank run on Silicon Valley Bank

#497

Post by tootie »

cj wrote: post #400

I just received an email from one of our investors, sent to all portfolio companies, advising everyone to transfer all of their money out of SVB at 8:30am tomorrow morning. Investment/VC funds are doing the same (we’re talking many, many billions of deposits lost in a span of a few days). There is a chance SVB will freeze assets while they deal w liquidity crunch which may impact startup ability to pay bills, pay sal…

But why? Because everyone else is doing it? Is this a power play by another bank? Is there an actual structural problem at SVB?

Re: Bank run on Silicon Valley Bank

#498

Post by pclmulqdq »

danielmarkbruce wrote: post #181
anon291 wrote: post #19

Earlier quoted context omitted.

Perhaps I'm overly skeptical, but everyone should know that all banks have the risk of 'if everyone takes their money out, the bank won't be able to make it work', right?

Everyone doesn't need to know or care in many cases. The FDIC insures deposits up to $250k. That covers the vast majority of accounts at most banks. So a run won't occur at most banks. There were hardly any runs in 2008 for this reason - the relatively few "run type things" which happened were where big interbank exposures existed. SVB's customers are weighted significantly more towards businesses who will have more…

FDIC insurance can also take time to recover your money. If you need cash tomorrow, you also may need to participate in the bank run.

Re: Bank run on Silicon Valley Bank

#499

Post by jraby3 »

hackerlight wrote: post #496

My surface-level understanding was the federal government started guaranteeing/ensuring customer deposits in order to prevent bank runs from starting. Why is that not happening here? And if it is why wasn't it enough to prevent a bank run?

That’s for personal deposits and limited to I think) $250k.

Lots of startups hold a lot more money there and aren’t protected.

Re: Bank run on Silicon Valley Bank

#500

Post by yieldcrv »

tito wrote: post #357

SVB is our bank, I got in touch with a member of the senior team there and got the following message to share. (My own interpretation is I'm comfortable and I'm not planning to pursue it further at the moment): As you know, we are limited in what we can share until the transaction formally closes next week but in the meantime I’m attaching concise information on the strength of our business, based on our recent mid-q…

Pros:

SVB received all the capital it needed to cover the losses on its bond portfolio liquidations.

Cons:

The announcement of bond sale losses made everyone realize ever bank has a bunch of bonds at a loss if they don't hold to maturity, and SVB is going to need to sell any more of its bonds at a greater loss as more customers pull money out.

Pros:

The losses, percentage wise, aren't that great, so far. As long as perhaps greater than 90% of deposits don't leave then everyone can get paid out and its really business as usual.

Cons:

Large institutional investors are the biggest account holders and they're absolutely pulling out, alongside all of their portfolio companies.

Pros:

Other banks that are more liquid could step in and shore up the capital.

Cons:

- The fed [likely] won't be one of those banks (even if it just meant buying the bonds closer to par value) because that would mean a reversal of policy.

- This didn't help Silvergate bank and the new equity investors are at major losses too now, wiped out.

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