Hacker News Reader

Comment by cj | Hacker News Reader

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 salaries, etc.

If you use SVB, transfer your money out now (as in Friday morning at 8:30am), even if it’s to your personal account while you set up a business account elsewhere.

This is a serious issue and may result in wide ranging damage to the entire tech industry.

SVB is the most commonly used bank by startups and investors. This isn’t media trying to hype a story for clicks, this is a real an major issue.

View on HN

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.

Yes you should do all those things if you’re comfortable risking all of your company’s money on a bank about to collapse which could happen in a matter of hours.

the legal system is not black and white. You go to court and there’s a judge and possibly a jury that hears your story, and decides if what you did deserves punishment.

Attempting to safeguard your company’s assets hours before a bank’s potential collapse will garner sympathy from just about everyone.

I understand your points; but people banking with SVB may not be able to run this month’s payroll if they don’t move their money. That will cause more problems than anything else we’re talking about right now.

Unfortunately a bank run is very likely due to VCs mass emailing portfolio companies. I hate to be yet another person promoting this, but it’s always best to be the first ones out during a collapse.

Putting yourself in a position to prove intent (which is basically impossible) still isn't a great idea

Strongly disagree, now that we see SVB clients are currently screwed.

It’s very easy to prove good intent when you didn’t benefit in any way. Besides, it’s the prosecution’s burden to improve intent, not the defendant’s.

Transferring $10 million to a personal account for 1 day then transferring again to a permanent business account a day later has zero legal risk when the bank you’re moving away from is literally collapsing.

Embezzlement is using company funds for your own personal gain. It doesn't have to be transferred to your own account.

If you move company funds in one blob from SVB to Personal account, and then move the same blob from Personal account to Bank XYZ, and document the process, you'll be fine.

Of course, you can use your personal account for a while until you setup another business account (which you should have at least a couple if you are well funded) but while it's technically not illegal, it can massively complicate your accounting later.

I realize you're talking in practical terms. I read about embezzlement because I was curious.[0]

> Embezzlement is using company funds for your own personal gain.

AFAIK, the criteria for embezzlement is much broader than "personal gain." You have to take possession (rightfully), but do something with it (unrightfully).

I can see an argument that the scenario of an employee taking its money from SVB and putting in another bank IS embezzlement if this is done without the CFO/officer's consent. In practical terms, you're probably fine as long as you're trying to act in best interests. [1]

[0] https://en.wikipedia.org/wiki/Embezzlement [1] https://en.wikipedia.org/wiki/Conversion_(law)

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. Your duty is to your employees, your shareholders, and your suppliers. Not the owners of SVB, or to make the FDIC's job easier.

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

Musical chairs for assets currently in SVB or at other banks?

If SVB, it is probably too late to stop it, that game has already started and once a bank run starts only a miracle (or a powerful external actor) can stop it. If other banks I do not see a risk of contagion. And should the contagion spread to major banks feds will certainly step in (to save our core banking system, blah blah). My 2c.

•probably no need to panic” is accurate.

But at least with my company’s money, there’s no room for “probably” when it comes to my ability to pay our employees.

Our company will be dead if we can’t make payroll or if we can’t pay our credit card bills. That’s not something any CEO wants to risk just to avoid a bank run.

A CEO has a fiduciary responsibility which includes making decisions that are in the best interest of the company. Taking no action at this point is just irresponsible.

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

This didn't age well.

Too early to tell. We’ll know more on Monday.

Wouldn't they be FDIC insured?

Just up to 250k. And even if you have less than that. Would your business be OK if your money got locked up for weeks/months before you get that reimbursed? How you will pay the company bills etc

His advice was good though. If you were one of the first to pull out funds you would have escaped with your money. The people who waited and didn't panic lost their money.

12 hours later, this has not aged well.

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.

But what started it?

Lots of speculation right now, but we'll eventually find out. Like Buffet is fond of saying: you find out who is swimming naked when the tide goes out.

Liquidity crunch, probably as startups are drawing down cash to pay bills/payroll/interest payments… Trying to convert eg. long term treasuries held by the bank to cash for satisfying customer withdrawals takes time, and has costs. If too many customers attempt to do this in a short period of time, you start having to delay withdrawals, panic spreads and the process escalates and feeds back on itself.

> 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.

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.

I have no clue about the actual internals at SVB, but an example of why: say a bank has $200bn in assets that they put into mortgage backed securities yielding 1.5% for 10 years. Lets say that means they paid $86 per $100 bond. Now rates rise to 6%, so they're worth $60 per bond. They just lost 30% of $200bn. If their net capital had been +$10bn before this, it's now -$50bn. So, if every single person demanded their money back, the bank would only be able to give 75 cents on the dollar. But if you get your money before everyone else, then maybe they give you back the full dollar. On the other hand, if you let $100bn worth of capital flow out before you try to get yours, now there's only 50 cents on the dollar left over.

So, in cases where you think this is a risk, it's best to move swiftly.

But why did they pile into bonds all at once? Wouldn't you normally do the equivalent to Dollar Cost Averaging? Did they have no other choice but to park a huge chunk of money into various government bonds at exactly the wrong time?

They didn't get it all in at exactly the wrong time, but it does appear they lost something like $10-15 bill on around $80-$90 bill or so of securities. That's a lot of money given the entire shareholders equity is around $16 bill.

They are public, you can see their filings at the SEC. I'd guess some hedge fund paying attention noticed this weeks ago and just made a killing.

What makes you think they did it all at once?

Yes, there is a structural problem. https://twitter.com/FedGuy12/status/1634031134505066496

No. They had a liquidity problem and sold bonds at a huge loss to shore up liquidity. There is a real problem here.

I agree. Consider all the tech companies with SVB credit facilities. Guess what? Those facilities are going away right now.

Telling everyone to withdraw their money at exactly the same time is a great way to cause more damage to those startups by creating an actual bank run.

Do you now if that "investor" is short Silicon Valley Bank's stock, took out long puts, or has other conflicts of interest?

Because if so, they just committed a felony.

That "investor" had better hope one of the recipients doesn't forward the email to the SEC.

Are you short Silicon Valley Bank, by chance?

It's a pretty standard example of a prisoners dilemma. Each VC telling their companies to pull is the right thing for them in isolation.

The fractional reserve banking system is a perpetual prisoner's dilemma, and VC's are smart enough to know this.

The same VC funds influence all of the startups with deposits at SVB. This happens on the tails of Silvergate, where the major exchanges (who also share investors and have overlapping board control) coordinate a bank run, while Elizabeth Warren did everything she could to rug that bank, by spreading FUD and also by forcing them to pay back their emergency loan.

This entire thing is honestly more than a little fishy. Call me crazy, but it feels like a controlled demolition and open financial warfare on the startup and crypto industries.

It will be interesting to see if there isn't new regulation that gives the government far more power conveniently sitting on the shelf that's about to be pushed through.

It could just be unlucky revenue management at these banks, where they locked up way too much of their deposits in fixed rate bonds before the Fed decided to jack up rates, but that begs the question... why didn't the Fed know that raising rates this aggressively would cause bank failures? The Fed should have been aware of the bank's position with Treasuries. On some level this is a controlled demolition. It's just a matter of who is doing the demolition.

>> Call me crazy

Crazy :)

It's a pretty bog standard bank run. Bank takes a stupid risk, blows up. We see less of them now because of the FDIC, but most of SVB's deposits were non-insured so it was almost an 1890's style bank run. There was nothing "controlled" about it.

That sounds remarkably similar to a crypto exchange blowing up.

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.

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 must already exist)

Fractional reserve makes money easily available to those seeking money they don't have, at the risk of depositors whose money they're putting on the line.

(For better or worse. I'm not for or against it. I'm certain there are massive benefits to the system. But the reality is the average depositor probably doesn't realize their bank deposits aren't actually theirs - and that's why we have the FDIC)

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.

Loans aren't a bad thing as long as they are effectively collateralized.

If someone misjudges the value, volatility, etc, of collateral used for loans, those loans could be a bad thing if the borrower stops paying.

Sure. That’s true of any financial instrument.

You’re looking for a brokerage.

Maybe the whole economic system just isn't viable, as we've seen time and time again?

Citation needed. Also, I’m all ears for a viable replacement that doesn’t devolve into autocracy or government-endorsed corruption, and still allows for taking risk and forward progress.

https://en.wikipedia.org/wiki/Great_Depression

https://en.wikipedia.org/wiki/Great_Recession

Here's some citation for ya.

As for viable replacements that allow for forward progress: https://en.wikipedia.org/wiki/Workers%27_self-management

(Also, for that matter, it's not like capitalism doesn't tend to devolve into autocracy and corruption)

That there have been downturns is not an indicator that capitalism does not inherently work in the long term. There are always downturns, no matter the system.

Henry George would argue that it's the landlords, not the capitalists, who are causing the downturns :)

These links do not support your claims.

Pretty sure worker-owned companies still need investment and loans.

For what it's worth, I agree with you and feel those examples are indeed emblematic of our current economic mode.

The "alternative" you envision is premised on shifting power back to the masses, but I think it's also important to mention guardrails to prevent excessive capital accumulation. There would still be an economy, but it would be driven by a more egalitarian aggregate demand and less likely to suffer the shocks of boom bust cycles associated with financial malarkey.

Every single man-made institution devolves into corruption. Capitalism isn't the outlier here.

Islamic finance.

"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?)

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.

Maybe running an economy on interest bearing loans was not a good idea after all, who would have known? We've had checks notes only a few thousand years to know that.

Fractional reserve banking isn't a thing anymore.

What? This is literally how nearly all banks around the entire world work.

The Bank of England explains why the fractional reserve mental model of banking is not really accurate. See https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

This is the point where you realize most modern startups are built on the same shaky promises as crapto.

What? Not even remotely the same.

"our unprofitable startup that sells to other unprofitable startups which is also coincidentally funded by the same VCs and needs annual cash infusions just to pay the bills is surely built on strong financial foundations, unlike all those pesky crypto companies that sometimes actually make profits".

We wish that's what a crypto exchange blowing up was like! Every exchange crisis is either a liquidity crisis or a solvency crisis, we keep on wishing crypto exchange crises are liquidity crises but they inevitably get revealed as solvency crises where crime or incompetence means the money everyone thought was there is just flat out gone.

Reply on news.ycombinator.com