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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#501

Post by xur17 »

tootie wrote: post #497
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?

Tbh, yes - a bank run by definition occurs if "everyone else is doing it", and in this case it sure seems like we're moving in that direction. And it's beneficial to be the first out, with no real benefit to waiting and seeing.

Re: Bank run on Silicon Valley Bank

#502

Post by peyton »

dheera wrote: post #328
fallingknife wrote: post #57

Earlier quoted context omitted.

Every bank is screwed if everybody takes all their money out. And everybody already knows it.

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?

Doesn’t seem like you can get a banking license for that. Look up “narrow banking.”

Re: Bank run on Silicon Valley Bank

#503

Post by somenameforme »

regpertom wrote: post #433
wbl wrote: post #396

Earlier quoted context omitted.

So did Louisiana banks issue loans?

How could they issue loans? 10 x 10$ deposits means you can loan 100$? Where as the modern way is more like 100$ in deposits means you can lend out 1000$ because chances are everyone won’t not pay it back? And then can’t you say that since you’ve lent out 1000$ and chances are you’ll get paid back, you’ve basically got 1104.56$ and so can lend out 10k$? And then you bundle those together and sell them to each other d…

Especially in contemporary times banks make money in an immense amount of ways that don't involve touching customer funds: debit transaction fees, international exchange rate "adjustments", ATM fees, the million 'special processing fee' type fees, and so on. In other countries I've even had to pay a fee when depositing, which was quite odd.

Of course this all is going to pale in comparison to the amount that banks make by d̶u̶m̶p̶i̶n̶g̶ ̶c̶o̶n̶s̶u̶m̶e̶r̶ ̶f̶u̶n̶d̶s̶,̶ ̶h̶e̶a̶v̶i̶l̶y̶ ̶l̶e̶v̶e̶r̶a̶g̶e̶d̶,̶ ̶i̶n̶t̶o̶ ̶h̶i̶g̶h̶ ̶r̶i̶s̶k̶ ̶a̶s̶s̶e̶t̶s̶ responsibly investing deposits. But of course banks under '100% deposits maintained' type systems could then engage in more typical behavior with their own funds above and beyond what's made from deposits. Under such a regime no bank would ever be "too big to fail", customer deposits would be 100% guaranteed at all times, and more. In exchange you'd see substantially slower overall economic growth and monetary multiplication, but I'm increasingly convinced that would not have been a bad thing.

Re: Bank run on Silicon Valley Bank

#504

Post by tootie »

helsontaveras18 wrote: post #77
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?

Banks don't understand startups. Startups have no history and just appear out of thin air with millions of dollars in their bank account. And then they proceed to burn tens if not hundreds of thousands of dollars month on month until they die, or get flooded with more millions. That's some weird stuff!! A bank that understands this, knows it's not fraudulent, and makes it easy to withdraw, deposit, get credit cards,…

I feel like this is unlikely. Startups didn't spring into existence in 2005. Every business was a startup at one point. Even venture capital isn't new. I'd wager every suit and tie wall st old guard firm knows how to handle startups just fine. SVB just had the right branding for young entrepreneurs who assumed JP Morgan wouldn't talk to them.

Re: Bank run on Silicon Valley Bank

#505

Post by dgacmu »

antihipocrat wrote: post #494
borski wrote: post #474

Earlier quoted context omitted.

Entirely possible he shorted SVB.

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

You win but you may get stuck paying the borrow costs still for a while until either the stock is tradable or whatever happens with the resolution of the bankruptcy settles out (the residual shares potentially have _some_ value). In practice, before that, your broker or whomever you borrowed the shares from will probably just declare it a loss and close it out. They'll then get a little something from the bankruptcy, maybe.

That's assuming a traditional short, and not something like selling naked calls. In the latter case they just expire worthless.

Re: Bank run on Silicon Valley Bank

#506

Post by femto113 »

amluto wrote: post #483
RC_ITR wrote: post #364

Earlier quoted context omitted.

The point is not what you’re assuming it to be. The point is that a bank run is a liquidity event (i.e. we still own more than what we owe, it’s just hard to turn it into cash fast enough). SVB has a fine balance sheet for now, they’re just running out of easy things to sell. The quote is referencing liquidity events, where the problem is everyone wants their money because they’re nervous about the bank, but the only…

> SVB has a fine balance sheet for now, they’re just running out of easy things to sell. Do they? If SVB is sitting on a pile of Treasury bonds that mature in 20 years, they can “hold to maturity” and get their principal plus some very low interest rate. But this is useless! In a fantasy world in which all their depositors leave and they keep those bonds for 20 years, they are indeed worth that amount in 20 years, wh…

HTM accounting isn't the problem, it's one tool among many and has its uses. SVB's mistake was buying long term paper just as the country was heading into a rising rate environment. This has already put them in a hole they probably can never dig themselves out of (selling stock is clearly not gonna work). I think the only non-disastrous path forward here is an acquisition by another bank big enough to just absorb that paper into its balance sheet. If SVB is smart they'll try to get this done while there's still some value left to sell--if they wait too long it'll turn into another WaMu.

Re: Bank run on Silicon Valley Bank

#507

Post by notch898a »

ta1243 wrote: post #443
regpertom wrote: post #433

Earlier quoted context omitted.

How could they issue loans? 10 x 10$ deposits means you can loan 100$? Where as the modern way is more like 100$ in deposits means you can lend out 1000$ because chances are everyone won’t not pay it back? And then can’t you say that since you’ve lent out 1000$ and chances are you’ll get paid back, you’ve basically got 1104.56$ and so can lend out 10k$? And then you bundle those together and sell them to each other d…

Doesn't stop a run 10 people put $10 in your bank. You give someone a loan for $50 and leave $50 in the vault. 7 of your customers take $10 out, you are screwed.

Depends. If they take it out electrically, send it to another bank then it just shows up as debt in a database from bank A to bank B. Cash is dirty and boring nowadays.

Re: Bank run on Silicon Valley Bank

#508

Post by borski »

cj wrote: post #491
borski wrote: post #477

Earlier quoted context omitted.

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…

Loans are what drive the economy. I’ve used loans for cars and my home, as have most people in the country. Many people make decisions based on income, and not on cash they already have, as few people have massive accumulated cash wealth.

Loans are not always a bad thing.

Re: Bank run on Silicon Valley Bank

#509

Post by ncallaway »

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?

FDIC isn’t designed to prevent runs entirely. It designed to prevent runs from having a serious financial impact on retail banking customers, and as such is capped at 250k per depositor per bank.

SVB probably has a disproportionate number of its customers being mid to large businesses, for which FDIC protection isn’t as helpful. So they’re probably more vulnerable to runs than a bank that mostly holds retail customer funds.

I don’t think the FDIC intends to stop every possible bank run, but rather dramatically reduce the number of them and reduce the impact when they happen. I think on that front the FDIC has been enormously successful

Re: Bank run on Silicon Valley Bank

#510

Post by nostromo »

tootie wrote: post #497
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?

They sold a bunch of treasuries at a loss to raise cash. They also tried to raise cash by selling a few billion in stock.

These aren't the actions of a healthy bank. Of course, their problems are now much much worse as people got wind that the bank was in trouble.

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