Bank run on Silicon Valley Bank • Hacker News Board

Re: Bank run on Silicon Valley Bank

#581

Post by UncleOxidant » Fri, Mar 10, 2023, 5:51 AM UTC

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.

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

Banking is supposed to be a very boring business (at least under Glass-Steagal-like regulation). Making "bets" with money they don't have isn't something retail banks are supposed to be doing. Yes, we know that some banks were doing this prior to the '08 GFC, but wasn't that supposed to have been reigned in by the reinstatement of Glass-Steagal-like regulation since then? (of course, there is some distinction between retail banks and investment banks, is SVB the former or the latter?)

Re: Bank run on Silicon Valley Bank

#582

Post by icelancer » Fri, Mar 10, 2023, 5:52 AM UTC

pclmulqdq wrote: post #309

Terretta wrote: post #64

Earlier quoted context omitted.

It's bizarre a recurring thing recurs? Particularly when 'venturing' into areas more profitable because of more risk? Here's their loan risk analysis as of EOY: https://i.imgur.com/ZWG157R.jpg Don't miss 14% to "innovation economy influencers"…

What's bizarre is that this is a particularly big bank to be going under. Most of the ones that die are tiny because banks have a real economy of scale here. Lehman and Washington Mutual were truly exceptional cases in the 2008 crisis, and SVB may be right there with them in a few weeks.

WaMu failing was so strange.

Re: Bank run on Silicon Valley Bank

#583

Post by kragen » Fri, Mar 10, 2023, 5:54 AM UTC

sanderjd wrote: post #532

brutusborn wrote: post #428

Earlier quoted context omitted.

I didn't say they were "good", I'm just pointing out that they generally aren't starving, which means your point was hyperbolic. I don't understand why the government would need to "take over everything" to avoid starvation. There's no technical reason that capitalism can't exist without usury. Again I'm not saying usury is good or bad, just that it doesn't 'need' to exist. I suspect it is good for society when well…

> I don't understand why the government would need to "take over everything" to avoid starvation. If the non-starvation examples are all dictatorships, then what's your point here? I agree that it's possible for capitalism to exist without "usury". Definitions of "usury" tend to define it as "unreasonably high interest rates". Interest rates right now are like 7%, which isn't particularly high and certainly isn't "un…

you're responding to someone using the traditional definition of "usury", a sense already marked as obsolete in web1913: "The practice of taking interest."

that is what is prohibited in sharia, charging interest at all, not charging unreasonably high interest; at least in medieval interpretations of sharia and modern fundamentalist interpretations

plausibly the other commenter should avoid using such confusing terminology, but i found their meaning reasonably clear from context

Re: Bank run on Silicon Valley Bank

#584

Post by borski » Fri, Mar 10, 2023, 5:54 AM UTC

UncleOxidant wrote: post #581

borski wrote: post #477

Earlier quoted context omitted.

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

"its almost like making bets with money you don't actually have yet is a bad idea" Banking is supposed to be a very boring business (at least under Glass-Steagal-like regulation). Making "bets" with money they don't have isn't something retail banks are supposed to be doing. Yes, we know that some banks were doing this prior to the '08 GFC, but wasn't that supposed to have been reigned in by the reinstatement of Glas…

Loans are bets. You’re limiting bets to investments, but lending money is a bet that the person you lent it to will be able to pay it back; albeit a properly collateralized bet with solid underwriting, hopefully. But it’s certainly not a 100% guarantee.

Retail banks absolutely underwrite loans.

Re: Bank run on Silicon Valley Bank

#585

Post by UncleOxidant » Fri, Mar 10, 2023, 5:55 AM UTC

Animats wrote: post #536

This is what a US bank failure looks like.[1] This 2009 picture shows the CEO of a failed bank near Chicago at the moment the 80-person FDIC team has arrived to take over. He's being told that it is no longer his bank. The bank re-opened for withdrawals the next day under FDIC control, and was later sold off to another bank. [1] https://i.postimg.cc/zGQNQmmf/bankfailed.jpg

And an FDIC takeover and forced sale seems like a possible outcome here as well... But the entities that have more than $250K in the failed bank will likely lose some money. As I understand it, those who have over $250K will be issued stock in the new bank so they won't likely completely lose the amount over $250K, but it won't be as liquid as the cash they formerly had either.

Re: Bank run on Silicon Valley Bank

#586

Post by kragen » Fri, Mar 10, 2023, 5:58 AM UTC

humanistbot wrote: post #348

hackernewds wrote: post #283

Earlier quoted context omitted.

curious what are these proxies? I thought under Sharia law charging interest is "illegal"

Different mechanisms, but the most common for financing large purchases is Murabaha, which exists in the West as rent-to-own. Islamic law allows merchants to mark-up prices, to buy low and sell high, and nothing is considered wrong with that. So after a conversation at the bank, the bank buys the desired property at market value, marks up the price in a way that just so happens to be the prevailing interest rate (som…

thank you very much for this explanation

i think this comment is the second most interesting one in the whole thread, following the one that pointed out that svb's stock fell 60% today (true: https://finance.yahoo.com/quote/SIVB/)

Re: Bank run on Silicon Valley Bank

#587

Post by mike_d » Fri, Mar 10, 2023, 6:00 AM UTC

cj wrote: post #447

rabidonrails wrote: post #439

Earlier quoted context omitted.

Maybe you'd say it's worth the risk, but founders should be very careful about making transfers from accounts owned by their business to their personal accounts because this is literally the definition of embezzlement. I'd speak to your accountant and get their blessing first.

Citing the justice department’s website: “The requirement that the defendant act with the intent to deprive the owner of his property makes embezzlement a specific intent crime.” Meaning your safe as long as your intent is not to steal the money. But if your concerned definitely ask your lawyer. (Accountant won’t be able to provide that sort of legal advice)

I think what the person you responded to was trying to point out is that commingling business funds with personal funds is not a wise strategy, even if you believe the companies assets are at risk. For one thing you immediately open yourself up to personal liability if any issues arise where someone may sue your company. Such a transfer could be considered a disbursement by the IRS, requiring you to pay taxes (or at least hire lawyers to clear up the issue). It may also be outright theft or look damn close to it in the eyes of your board or employees. Not to mention complicating claim issues for your company if the bank does become insolvent.

You should absolutely talk to your CFO, board, accountant, and lawyer before taking such a drastic step.

Re: Bank run on Silicon Valley Bank

#588

Post by brutusborn » Fri, Mar 10, 2023, 6:01 AM UTC

sanderjd wrote: post #532

brutusborn wrote: post #428

Earlier quoted context omitted.

I didn't say they were "good", I'm just pointing out that they generally aren't starving, which means your point was hyperbolic. I don't understand why the government would need to "take over everything" to avoid starvation. There's no technical reason that capitalism can't exist without usury. Again I'm not saying usury is good or bad, just that it doesn't 'need' to exist. I suspect it is good for society when well…

> I don't understand why the government would need to "take over everything" to avoid starvation. If the non-starvation examples are all dictatorships, then what's your point here? I agree that it's possible for capitalism to exist without "usury". Definitions of "usury" tend to define it as "unreasonably high interest rates". Interest rates right now are like 7%, which isn't particularly high and certainly isn't "un…

My point is that banning debt wouldn't cause starvation.

Apologies for the terminology, the other commenter is right that I was using the original meaning. I don't think the rate of interest is relevant since the mechanisms that make debt dangerous still exist at 7% or 70%. Lending to a "No Income No Asset" person who has 0 chance of paying off the debt is immoral at any interest rate.

I'm interested why you think the GFC is the "opposite" problem. Immoral lending was central in that story.

Re: Bank run on Silicon Valley Bank

#589

Post by nv22 » Fri, Mar 10, 2023, 6:01 AM UTC

Hate to say this but bank run is hard to stop once it's started. SVB needs a buyer or government bailout.

Re: Bank run on Silicon Valley Bank

#590

Post by rchaud » Fri, Mar 10, 2023, 6:01 AM UTC

anon291 wrote: post #19

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.

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?

That's why depositor insurance laws were passed. Bank runs for retail-facing institutions are rare in developed countries. Even when they happen, retail deposits are made whole up to the insurance limit, which tends to be well above the national median.

A run might be more likely for investment funds like Questrade and Fidelity if their customers liquidate their holdings en mmasse and move to cash deposits and CDs, which would be covered by depositor insurance.