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Comment by tootie | Hacker News Reader

But why? Because everyone else is doing it? Is this a power play by another bank? Is there an actual structural problem at SVB?

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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.

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?

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.

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.

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