Sell-off in US bank stocks due to concerns over solvency of Silicon Valley Bank | Hacker News Reader

Sell-off in US bank stocks due to concerns over solvency of Silicon Valley Bank

afr.com

57 pointshestefisk22 comments

SV Bank going out of runway just might be the most SV thing ever

In the other thread someone mentioned that loads of startups are pulling their money out of SV Bank - if you pull out too late, is it feasible that some startups that have their venture capital in SV Bank will get into serious problems as well as they cannot access their funds anymore?

If that were the case, we would probably see lots of companies with dramatically reduced runway in the near future. And all that in a difficult VC market. Doesn't bode well.

Back the day, when I still tried to get my own boot-strapped start-up of the ground (I didn't succeed), I always made a point in working, were needed and when mission-critical, with large, legacy and global vendors. That included software (it came from Wisetech for everything ops relevant, and MS for the rest), insurance (Allianz), banking (I used a local, decades old bank that is part of a national network of similar banks using the same brand and offering all the account security one can imagine)... Why on earth would a SV start-up put its tens to hundreds (?) of millions in a bank that is not too big to fail? And why is the money sitting in a single bank, instead of multiple conservative and secure ones? Deutsche Bank won't go under ever, neither will UBS.

SVB sounds like one of those start-up like fintechs that constantly advertise on Youtube for everything from insurance to taxes to banking, assuming Youtube users are on average to young to know that solid, legacy solutions for all of this exist already.

A big part of it is exclusivity and branding.

I banked with SVB with my first startup. It got the job done, but the UI sucked, and there was nothing special about it compared to other banks. It was actually a very inconvenient bank to work with because SVB doesn't have any public branches so you can't walk into SVB and deposit a check or withdraw cash, it's all done over the phone, by mail, etc.

When starting my 2nd startup, I applied for an account and was denied. (What kind of bank denies a client an account?)

To be a SVB client, you need to be networked with other SVB clients (e.g. investors banking with SVB). This creates a big bubble where all of SVB clients are interconnected with one another, which might have been a good growth strategy for SVB by being "the exclusive" bank to be accepted into, but at the same time creates major concentration risk when all clients are in the same/similar industry (tech) and backed by the same group of investors.

SVB is not a fintech startup, it was founded in 1983 and is a big "oldschool" bank: https://en.wikipedia.org/wiki/Silicon_Valley_Bank

You are right about it not being a fintech startup, and 40 years is a lot for those (as well as tech companies). But even then Apple, Intel, Oracle are all older than SVB. And in the banking industry, 40 years is nothing really. The "oldschool" banks have usually gone through a history of mergers and acquisitions for hundreds of years. Usually this means founding dates somewhere in the 19th century, say Deutsche Bank which was founded in 1869.

Because working with "legacy" institutions is anywhere from a monumental pain in the ass to literally impossible depending on your business.

AML/KYC/etc. has utterly destroyed the ability to do anything that isn't "industry standard" and super boring. Do anything whatsoever just a tiny bit interesting and you will find your banking access cut off or severely restricted.

After dealing with that mess, I can absolutely see why founders avoid it. They are there to build a business, not dick around with compliance officers all day.

HSBC did quite a few interesting and innovative things with certain organizations in Mexico, in fact more so then any 'fintech' challenger bank I've heard of, and I'm sure lots of banks would take on a similar level of risk for more legitimate enterprises in the Bay Area.

You just need to have billions moving around every month, with very high fees, to make it worth the time to take on that risk.

In the case of HSBC,

> So rampant was the practice, prosecutors said, that on some days drug traffickers deposited hundreds of thousands of dollars at HSBC Mexico accounts. To speed things along, the criminals even designed “specially shaped boxes” that fit the size of teller windows at HSBC branches, according to the documents.

https://www.reuters.com/article/us-hsbc-probe-idUSBRE8BA05M2...

Now that's financial innovation!

So, again something VC backed start-ups cannot be bothered with, after taxes and general compliance we have the pains of traditional banking. Something every fast food truck or small retail store manages on a daily basis.

And this refusal to follow existing rules and practices of how businesses are generally run, opens up an opportunity for all kinds of shady, borderline grifters. Sorry, I meant disruptive start-ups. But hey, it's not my money after all.

what the hell are you even talking about? what is an "interesting" banking function. I have been a banking client as a regular person and with big banks and sell side brokerages and they were all focused on facilitating our business. if you want stability and not to have your shit taken by cartels when you get big enough to be noticed, you have to operate in a jurisdiction with law and order and rules. there are no "interesting" startups in places with no rules.

If withdraws are frozen then yes it would mean whoever's left in is insolvent - they can't make payroll.

At that point, you'd need a fed bailout. Because they're FDIC insured you'd have up-to 250k coming back, but that's probably not helpful.

I know someone who attempted to executed a $25MM transfer yesterday and has heard nothing from the bank. Looks grim unfortunately. For anyone wondering where to go I've had great experience with HSBC and JPMC are not awful.

Here's a practical advice question -- if one's holdings / savings in brokerages, etc. are in government money market funds, are you safe from a bank run? I.e. it's not explicitly cash that the bank could have lent out, but rather a fund? I assume of course that stock holdings, ETFs, etc. are absolutely things you "own" once they are settled in your account. Right...?

(say, like you keep most of your stuff in Fidelity or Vanguard typical kinds of brokerage accounts)

This depends on your jurisdiction and how it handles regulation of financial instutitions; in particular it depends on what regulatory rules there are that force a ringfencing between client assets and the assets of the financial instutition itself and that deter a struggling bank/brokerage from being tempted to "borrow" from the client funds. It also matters whether there's a compensation type scheme for the case where the institution did break the law and use client funds for its own purposes.

As a concrete example for the UK: I had an ISA (a tax-exempt share account) with a UK financial institution which went bust. The brokerage had correctly kept client and its own money separated, but it had burnt through all of its own money by the time it went into administration. Somebody has to pay the administrator's fees for correctly winding up the business and returning everybody's shares to them, and that somebody, it turns out, is the clients, if the finiancial institution itself has no assets left. Luckily the UK has a compensation scheme for individual private investors and the cost-per-client of the administration was less than the scheme limit, so effectively the result was "the government paid for this", so in the end I was not financially out any money. However, I did end up without access to the shares for the best part of a year until the administrator had found another brokerage willing to take on the customer base and the share holdings were transferred over.

https://www.fscs.org.uk/making-a-claim/failed-firms/beaufort... is the FSCS page on the firm. It cost the FSCS 27 million quid in total, apparently: https://www.ftadviser.com/regulation/2022/02/18/fscs-pays-ou...

My understanding is that yes if they just hold the metadata about the fact that you own equities or treasuries or etc, then they cannot use that as leverage that puts those assets at risk. They make money on the transactions that lead to cash and or fees and or gravity associated with you being there. But I'd love to hear this double checked by someone with more expertise: mine is anecdotal

https://www.ft.com/content/82b70f3e-092f-449f-b32d-38b3dc66e...

> European and Asian stocks rattled after sell-off in US bank shares

> Fears over health of banks’ bond portfolios compound nervousness ahead of publication of key US economic data

This analysis [1] from the same FT is also quite insightful:

> SVB is not a canary in the banking coal mine

Even though this paragraph didn't make me too confident, contrary to what the author wanted to convey:

> Second, few other banks have as much of their assets locked up in fixed-rate securities as SVB, rather than in floating-rate loans. Securities are 56 per cent of SVB’s assets. At Fifth Third, the figure is 25 per cent; at Bank of America, it is 28 per cent.

28 per cent at the scale of Bank of America is a lot of money, big quantity (of money, in this case) by itself in many cases "transforms" into a quality thingie.

[1] https://archive.is/DpqFg

Once the bank run thing gets going it takes on a life of its own.

Reply on news.ycombinator.com