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Silicon Valley Bank Failure [pdf]

am.jpmorgan.com

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Re: Silicon Valley Bank Failure [pdf]

#51

Post by benchaney »

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.

SVB didn’t collapse because of the bank run. There was a bank run because they collapsed. It is true that the bank run may have accelerated the collapse slightly but they were in really bad shape before it started.

A lot of people want to blame depositor panic, but I don’t think that is really fair. In a properly managed bank, the assets exceed the liabilities, which means that if people want their money out, the bank can liquidate their assets to pay them and still have money left over. SVB’s assets are worth far less than their liabilities (to the tune of nearly $100B dollars by some estimates). Panicking depositors didn’t cause that.

Re: Silicon Valley Bank Failure [pdf]

#52

Post by mixdup »

dboreham wrote: post #43

On reflection, one wonders why all bank deposits don't have insurance. I'm guessing the answer is: something something make more profit... E.g. my businesses are required to carry liability insurance. I have to do that because we have big company customers who made it a condition of doing business with them. So why do big companies hand $nB over to another company for safe keeping but not require insurance?

The only truly viable deposit insurance is from the government, because they can print money

What good is private insurance from an insurance company if they go insolvent because of massive numbers of bank failures

So, now the answer to your question is a political one: are we willing as a society and government to potentially put that much taxpayer money at risk. I think it's a perfectly valid discussion to have, but it's one we haven't had yet, and one we refuse to have until the shit has hit the fan

Re: Silicon Valley Bank Failure [pdf]

#53

Post by ChrisMarshallNY »

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…

The last ten years have been a wild, Bacchanalian orgy of loose money.

It is now time for Bilious[0] to appear.

[0] https://discworld.fandom.com/wiki/Bilious

Re: Silicon Valley Bank Failure [pdf]

#54

Post by m00dy »

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…

We just need tokenised tbills. We will be building a better financial system for sure.

Re: Silicon Valley Bank Failure [pdf]

#55

Post by [deleted] »

itsoktocry wrote: post #34
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.

[deleted]

Re: Silicon Valley Bank Failure [pdf]

#56

Post by mixdup »

Scubabear68 wrote: post #28

An important stand out quote to me here: “ It’s fair to ask about the underwriting discipline of VC firms that put most of their liquidity in a single bank with this kind of risk profile“. I really don’t understand why these firms didn’t use at least two banks for their deposits. Surely these tech firms have heard of single points of failure being problematic?

In other articles I've read where some of these VCs had "levers" into the bank where they could keep track of what their companies were doing. Not sure what exactly that means, or if it was legal, but it makes sense.

Re: Silicon Valley Bank Failure [pdf]

#57

Post by metalspot »

senttoschool wrote: post #20
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 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.

no. the problem with long term AAA securities was only 100B of their 200B book. the dead loans to startups are a much bigger problem and why nobody would buy them.

Re: Silicon Valley Bank Failure [pdf]

#58

Post by schrodinger »

dboreham wrote: post #43

On reflection, one wonders why all bank deposits don't have insurance. I'm guessing the answer is: something something make more profit... E.g. my businesses are required to carry liability insurance. I have to do that because we have big company customers who made it a condition of doing business with them. So why do big companies hand $nB over to another company for safe keeping but not require insurance?

Isn't it up to the depositor in a way? Normal people are 100% protected up to $250k, and then large investors can choose between boring, low interest, extremely safe banks vs high interest risky banks. Although as the analysis pointed out, the higher interest was nominal in this situation so it was a poor choice.

Re: Silicon Valley Bank Failure [pdf]

#59

Post by macinjosh »

itsoktocry wrote: post #34
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.

Give me a break, no one is getting high interest returns from their cash savings account. A pittance is given to savers so banks cause my money for lending. Yet, when I want to borrow money from the bank on their credit card the interest rate is in the double digit percentages.

Re: Silicon Valley Bank Failure [pdf]

#60

Post by mrkurt »

tempsy wrote: post #3

the irony of this whole situation is VCs and startups pouncing on the chaos to encourage people to move their money into even more opaque neobanks eg Mercury/Brex/Ramp as if they don’t have the same issues with relying on VC funded startup deposits but even worse in that their balance sheets are hidden.

We use Mercury, they're a frontend though. They're not a bank. Our checking/savings are with Choice Financial, and swept into at least four of these banks: https://co-mercury-prod.s3.amazonaws.com/legal/Choice+-+Depo...

We use their Treasury account type for most of our cash. It's split between Morgan Stanley and Vanguard funds.

Now, if Mercury fails it's going to be a pain in the ass to get at the money in these backer accounts. So we keep what we need for 2 months of operations with another bank. We were using SVB for this, now we have to find a new emergency backup bank.

Brex and Ramp are similar to Mercury.

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