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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#711

Post by gorm »

ericd wrote: post #370
danielmarkbruce wrote: post #310

Earlier quoted context omitted.

The mechanism is to watch the banks you have money in. A company still has to pay it's bills. To pay bills, you need some money in a bank, it's unavoidable. So, let's say you are a company with 4 banks accounts. Each has $500k in it. One of them is SVB. You probably just move the $500k into one of the other bank accounts. It's no big deal per se, but you do it. That's a run on the bank if lots of companies do the sam…

There’re always T-Bills…

Not after hyperinflation

Re: Bank run on Silicon Valley Bank

#712

Post by redwood »

Danieru wrote: post #572
FanaHOVA wrote: post #553

Earlier quoted context omitted.

I will not be giving advice or opinions, but please don’t post anecdotes as facts to generate panic. This isn’t what most VC funds are doing.

It costs what, a transfer, a bit of explaining to the accountants, and a few days lost interest, to protect your company if SVB pulls through. If you risk it and SVB goes into receivership: you might fail to make payroll. You might not have money for the taxman. You might default on liabilities. These are not balanced risks. Any executive which does not pull their company's money to surefire safety is being negligent…

It's musical chairs once the panic sets in... that's why folks are trying to discourage panic.

Another bank will likely swoop in, probably no need to panic

Re: Bank run on Silicon Valley Bank

#713

Post by neom »

EGreg wrote: post #630

I have barely been in silicon valley but this level of centralization sounds absolutely bonkers. Why did 50% of VCs and their startups and their mom bank all bank at the same bank ? Decentralization seems to get a bad rap in the valley

Bum rubs and handsakes. The amount of pressure I see founders get to put the funds in SVB is nuts, I presume a lot of VCs/founders must personally have invested in the bank stock.

Re: Bank run on Silicon Valley Bank

#714

Post by acd »

The higher central bank interest rates is affecting Future discounted cash flow and valuations startups. I wrote a blog entry about it last year where I predicted a lot of non profitable startups would be effected about it.

The king without clothes fairy tale of startup unicorns is starting to hit reality of financing capital at high interest rates.

Many startups have not had sound viable business models which yields black profit numbers but have instead run on red minus numbers year after year. Due to very low interest rates it has been too easy to start new companies. Thus many startups have been started without viable business ideas. The startups have been funded by venture capital, venture capital have calculated on future discounted cash flow when valuing the investments. Now that central banks are raising interest rates to fight inflation the higher interest rate will effect venture capital firms calculations. Venture capital uses future discounted cash flow. Now central banks artifically altered the interest rates by quantive easing which forced interest rates lower than the natural market yield.

“Application

To apply the method, all future cash flows are estimated and discounted by using cost of capital to give their present values (PVs). The sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value of the cash flows in question;[[1]](https://en.wikipedia.org/wiki/Discounted_cash_flow#cite_note...) see below.”

source: https://en.wikipedia.org/wiki/Discounted_cash_flow

According to the investopedia article four values are among other used to value startups:

* Cost-to-Duplicate

* Market Multiple

* Discounted Cash Flow (DCF)

* Valuation by Stage.

source: https://www.investopedia.com/articles/financial-theory/11/va...

Re: Bank run on Silicon Valley Bank

#715

Post by chii »

xur17 wrote: post #501
tootie wrote: post #497

Earlier quoted context omitted.

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.

> with no real benefit to waiting and seeing.

what the bank could do is announce a period of time, where you'd get a much higher interest payment for keeping the deposits in.

So at least a portion of people would prefer getting the interest payments, rather than withdraw, and thus give breathing room. The bank might suffer a loss in the short term from paying out the interest, but would not collapse due to the (now non-existent) run.

Re: Bank run on Silicon Valley Bank

#716

Post by smcl »

raspberry1337 wrote: post #702
smcl wrote: post #663

Earlier quoted context omitted.

You're downvoted but I don't think you're wrong. In general it seems to be the case that if you're waging a war and you're not getting completely crushed the electorate (or at least the "undecided" voters") tends to rally around whoever happens to be in charge. And indeed I think it's fairly safe to say that most agree that Thatcher benefitted electorally from a strong response to the invasion. I should add that as a…

Gulf war didn't save Senior Bush from the bad-economy, neither did the Iraq War help Tony Blair's popularity. It's a lot more complex than war-helps-current-leader, at least outside the US. It depends on the war and the context.

Fair point, these are actually great counterexamples

Re: Bank run on Silicon Valley Bank

#717

Post by justinzollars »

exhibitapp wrote: post #12

this is definitely happening (context series A founder from t1 VCs) Every VC is talking to their portfolio companies right now about this. Text/slacks/emails. Half of them screaming panic telling founders to pull money out, the other half holding the line to stay strong Most founders i know arent taking the risk and moving money...

What if this is their only bank account?

Re: Bank run on Silicon Valley Bank

#718

Post by chii »

jcbrand wrote: post #696
brianmcc wrote: post #672

Just to be clear for everyone: banks don't keep 100% deposits in a big vault, where a full-customer-withdrawal can and should be expected and permitted. Banks even at their simplest "Main Street local level", need to keep, say, 15% or 20% of their deposited funds available, as determined centrally e.g. the Fed or the Bank of England. The rest by design is to be lent out, that's how banks offer loans, mortgages etc. S…

> The rest by design is to be lent out, that's how banks offer loans, mortgages etc. When banks lend out money, they don't lend out existing deposits, they create new (debt-based) money from nothing and this new money is fractionally backed by deposits. With 10% fractional reserves, if they have $100 in deposits, they can lend out $1000, thereby creating $900 of new money from nothing.

> thereby creating $900 of new money from nothing.

and if all of a sudden, the depositors decide to take out their $100 in deposits, the bank is in trouble, because they'd still have the $1000 in loans, which is now not backed by any reserves.

They, if this were to happen, would be required to obtain the reserves somehow - borrow from another bank, from central bank, or attract new depositors.

so in essence, the idea that the depositor's money is "lent out" is not technically correct, but the idea is not too different.

Re: Bank run on Silicon Valley Bank

#719

Post by justinzollars »

vonnik wrote: post #192

SVB is an institution that has supported a lot of businesses in tech. There are a lot of harmful clowns out there fearmongering. They should stop. The failure of a bank like this, if it occurs, would be bad for a lot of people.

SVB has real liquidity issues that represents a material risk to your business when your account has more than 250k in funds.

Re: Bank run on Silicon Valley Bank

#720

Post by justinzollars »

johnbellone wrote: post #81
carom wrote: post #4

Specific issues with SVB, not systemic. [1] 1. https://techcrunch.com/2023/03/09/silicon-valley-bank-firms-...

All due respect, nah, nope. Today I learned that many startups park their money at one bank. I hope that isn’t true. If it is I’d be moving my funds regardless right now.

What do they do if this is their only account?
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