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SVB collapse could mean a $500B venture capital ‘haircut’

bloomberg.com

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Re: SVB collapse could mean a $500B venture capital ‘haircut’

#61

Post by watwut »

bagacrap wrote: post #58
cwilkes wrote: post #48

Earlier quoted context omitted.

The moral hazard is that there isn’t a a limit to the $250k FDIC insurance so people that put money into the bank don’t have to care what the bank does. So there’s no incentive to work with a bank that took the time and money to pass a stress test — in fact the one that didn’t bother to do any testing can give better terms as they aren’t spending money to be safe.

What's an individual supposed to do, pay for an audit of a bank's balance sheet? The bank had poor risk management, regulators were asleep at the wheel, depositors are blameless. Although I will say that a startup with millions in the bank should probably have a CFO.

You can insure larger deposits. It costs a bit more and that is about it.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#63

Post by wbl »

mitthrowaway2 wrote: post #28
kurthr wrote: post #8

Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…

> BTW you can blame the Fed for low interest rates, but it's the yield curve inversion and long rates which caused the liquidity/solvency problem not the short term rate hikes Can't we sort of blame the Fed for that [yield curve inversion and long rates] too? It undertook massive quantitative easing during the pandemic, which depressed the yield of long-term bonds such as those bought by SVB. Perhaps if it hadn't don…

Please explain to me what you think rates would have needed to do given that there was a massive decrease in economic activity due to a pandemic followed by inflation.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#64

Post by grozzle »

kurthr wrote: post #8

Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…

Last week's David Mcwilliams podcast [1] goes into a good explanation, generally matching your reaction. David is an economist who's regularly been around all the top conferences, worked for a couple of central banks, and he is good at explaining how you can tell when the emperor has no clothes.

1 https://podcastaddict.com/episode/154571052

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#65

Post by watwut »

landemva wrote: post #51
kurthr wrote: post #8

Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…

> not raising short rates would increase inflation Proxy war in eastern Europe, with USA dumping big $ there, is causing price rises.

Russian troll.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#66

Post by bagacrap »

lr4444lr wrote: post #22

Pardon my ignorance, but why would VC backed companies not have CFOs and general VC advice against putting all or even a majority of their funds in a single bank? Why would they not split it among several mid to large sized banks? [Edited for typo]

SVB was a large bank fwiw

A lot of their contracts with SVB involved exclusivity clauses apparently. I'm not sure what SVB gave them in return.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#67

Post by bagacrap »

leptoniscool wrote: post #9
gigatexal wrote: post #6

Good. All those 0% interest leveraged VC funds can go burn in a fire. They pumped stupid money into companies and inflated valuations. Now that things are getting saner with real interest rates above 0 and getting higher sanity will reign again in the markets.

Real interest rates (nominal interest rate minus inflation rate) is still negative.

No? Overnight rate is 5% and last month/3 month inflation is running under 5% saar no matter which measure you use.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#68

Post by mitthrowaway2 »

wbl wrote: post #63
mitthrowaway2 wrote: post #28

Earlier quoted context omitted.

> BTW you can blame the Fed for low interest rates, but it's the yield curve inversion and long rates which caused the liquidity/solvency problem not the short term rate hikes Can't we sort of blame the Fed for that [yield curve inversion and long rates] too? It undertook massive quantitative easing during the pandemic, which depressed the yield of long-term bonds such as those bought by SVB. Perhaps if it hadn't don…

Please explain to me what you think rates would have needed to do given that there was a massive decrease in economic activity due to a pandemic followed by inflation.

IMO? Overnight term rates should have been zero from 2020 to about July of 2021, then allowed to rise by 0.25 per month to perhaps about 3.5%. Long-term rates should have been left to float with the market, pricing in the expected risk of inflation. Not that my opinion matters, since I wasn't in charge.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#69

Post by MilnerRoute »

akira2501 wrote: post #41
kurthr wrote: post #8

Play bank run games, win bank run prizes. Really, I don't love the regulatory arbitrage played by SVB and unhedged duration risk, nor the moral hazard created by the bailout, nor the somewhat bizarre attitude of companies holding huge $100Ms of uninsured deposits earning minimal interest (why have more than 1 months cash flow?), but really this was a bank run pure and simple. When you have to plan to lose >20% of you…

> you can blame the Fed for low interest rates, but it's the yield curve inversion and long rates which caused the liquidity/solvency problem not the short term rate hikes I blame the bank management. They left the risk management position open and spent way too much time, money and effort on marketing during that period of time rather than shoring up their shaky position.

And even then, this article is about the venture capital industry and private equity firms - which for the most part is entirely different than banks.

The problem is apparently that some VCs invested in banks - and banks are about to be more heavily regulated. That's a good thing -- it will get banks implementing the backstops they should've had all along. I really don't mind if some VCs make less money than they'd hoped on their investments in risky banks.

Also, this $500B number is spread across the entire VC industry. And even then, most VCs have heavily diversified portfolios. Just for example, one investor in SVB was Insight Partners -- but their web site lists 800 different investments. They're part of that $500B number, but it will have very little effect on their overall portfolio.

Re: SVB collapse could mean a $500B venture capital ‘haircut’

#70

Post by Dr_Birdbrain »

lvl102 wrote: post #15

Can’t be the only one who thinks this is possibly a ploy by VC bros to make Fed blink on interest rate hikes. Only they could have triggered such a bank run and only SVB.

Interesting idea. If so, it was a risky gambit, and also they only get to do it once, because the next bank is bigger than SVB. Do they really care enough about lowering interest rates to play such a risky gambit, which can only be played once?

Also we are coming on the debt ceiling limit at some point in the next few months, which might trigger a crisis of its own. If I were a VC I wouldn’t play my one-time hyper-risky card before seeing how the debt ceiling shenanigans play out.

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