SVB in talks to sell itself after attempts to raise capital fail
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FDIC Takes over Silicon Valley Bank - https://news.ycombinator.com/item?id=35096877 - March 2023 (737 comments)
"Silicon Valley Bank is the first FDIC-insured institution to fail this year."
Four failed in 2020. Four failed in 2019. None failed in 2022 or 2018. Banks fail fairly regularly, but it's the size of the bank and the types of deposits that are concerning in this case.
I knew this whole thing was big as I personally know a lot of friends use SVB for their startups, but I failed to realize how big deal this is. How can the 16th biggest bank in the country fail so rapidly?
Bank runs are rapid.
They wouldn't be runs if they weren't.
Most years seem to have a few failed banks, and a lot in the 2008-20011 era, but the past few years don't seem to have as many.
The story seems to be that SV put all their deposits into 10 y bonds in 2021. I'll use that as an approximation.
A 10Y bond will usually move about 8x as much as the underlying interest rate (it's called "duration"). So if SVB did nothing but buy these bonds and sit on them, then they would have lost about 36% on these (8 x 4.5% rate movement). That's a lot but also better than losing everything. And you'd hope the bank wasn't idiotic enough to take no precautions: no hedging of IR changes, putting all assets into just that.
My finger in the air haircut would thus be maybe 15-20% loss of deposits, if this simplified model has anything to do with reality. That's a lot but also means depositors get 80-85% of their money back.
It's possibly pushing the limits of my toy model here but a 10Y bond bought in 2021 is now only an 8Y bond, because time has passed. So instead of 8x you get more like 6x and the pessimistic haircut number is thus 29%.
I never traded cash bonds but would struggle to imagine it would be hard to liquidate. Sure, over a week, but surely SVB can't be a major bondholder.
Principle is simple. Why would you buy from someone a piece of paper saying someone else(even government) will pay you 1,5% a year. When you could directly buy from then similar paper paying 4%.
Bonds are actually well known for having terrible liquidity. It's common for corps and munis even with good credit ratings to be no-bid, and even Treasuries, once they're off-the-run, aren't easy to move without moving markets.
Depositors have been getting 100% of their money back. [and will still do if they are quick (or has the bankruptcy been declared already?) - edited: too late!]
The loss - that is an amount measured in dollars, not an abstract percentage - is going to be supported by a smaller number of depositors.
If 70% of depositors exit (which actually seems possible) the bank does not have adequate assets for the remaining depositors and the bank fails.
That's not what happens. Let's say 100 clients each deposited $1 in the bank, and the bank loses $20, so only has $80 to pay out when liquidated.
Let's say half (50) depositors withdraw their funds early, they each get $1 back. So now the bank has $30 in assets and has to pay 50 people. Suppose 20 people demand withdrawals, and the bank pays $20 to them. Now the bank has $10 and has to pay 30 people.
I admit that I don't know when/whether a bank can actually refuse withdrawals in such situations, or when bankruptcy proceedings are triggered, but the earlier you withdraw the less likely you're going to lose money, and the later you withdraw the more likely you'll lose a significant part of your deposits.
Sure your calculus still works out on average, but I'm not sure that means anything and it's no consolation for the ones that reacted last.
There is an extensive comparison of the two processes in [1]. Specifically:
> the Bankruptcy Code provides trustees the authority to avoid, that is, claw-back or reverse, certain transfers (subject to certain limitations52) made by debtors
> the FDIC as conservator or receiver may not avoid (i.e., reverse or claw-back) any property transfer pursuant to a qualified financial contract unless the transfer was performed with the "actual intent to hinder, delay, or defraud."
> The Corporation as receiver for any covered financial company may avoid a transfer of an interest of the covered financial company in property [...] that enables the creditor to receive more than the creditor would receive if [...] the covered financial company had been liquidated under chapter 7 of the Bankruptcy Code... (12 U.S.C. 5390(a)(11)(b))
It also calls the 90-day clawback period out explicitly.
Imagine all the big businesses with millions in the bank. FDIC will not help them.
[0] https://ir.svb.com/financials/sec-filings/sec-filings-detail...
We'll see what happens, but I would be surprised if more than 20% of deposits were withdrawn.
Well, not at the same time. No bank can do that.
Who is "we?" The US is not a democracy. Nothing could stop US elites from overturning the Bretton Woods system, passing NAFTA, and bailing out the banks in the mortgage crisis, so what makes you think "we" could change this policy decision?
Karl Marx showed us how capitalism works 150 years ago. The ruling class rules and the working class works. If you don't like it, you need to move beyond capitalism.
Guns
[0] https://www.frbservices.org/financial-services/fednow/about....
Not sure who told you that, its incorrect.
https://twitter.com/jamiequint/status/1633956163565002752?s=...
[0]: https://www.sec.gov/Archives/edgar/data/719739/0001193125230...
Svb had to sell at a huge loss for two reasons.
- the duration risk, this applies to both assets. Though shortened dates treasuries would have far less loss due to duration than MBS would.
- the size of the trade compared to the market. Treasuries are treasuries but each MBS has specific terms that make the market for them much smaller.
This only affects their MBS
If the held treasuries they’d be in far better shape due to the much smaller haircut they’d take.
Sadly this wasn’t th care.
If SVB really parked most of the cash in 10-year old treasury bonds that sounds.... questionable...
It's bad, but likely still a contained collapse (hopefully!)
I'll take that as a sign that the economy remains robust.
They quite literally changed the definition of a recession. Just because it's not a historically accurate recession does not mean we are not in, nor that are not heading into, one.
ZIRP is dead, there's no indication interest rates will go down any time soon, CPI indicates food costs are not moving, energy is still expensive, layoffs are picking up steam, housing is at it's most unaffordable time in history, etc.
You look at the gestalt sitting in front of you and you say "the economy remains robust". Lord, I wish I had your naivity^W^W^W^W^W^W^W optimism. I lived through the GFC and suffered the consequences of hedonistic money policy. History may not repeat but it certainly rhymes and all of this is starting to smell very familiar to me. I'm not in possession of a crystal ball but as it stands there is still too much money in the economy. The VAST majority of stock value since the GFC has been from stock buyback programs and not bottom line increases. That alone should tell you the possible origin of the next disaster.
There are a fuck-ton of factors that all have not-so-rosey outlooks.
Its amazing we dont have an actual game "sim America" and you get to fiddle with all the various economic levers in our tax code and see the output based on real data coming from various sources in the economic space (like farm, military, foreign subsidies, etc)
One that takes in the budget proposal from .gov and lets you fiddle with the model and such and crowdsource the best model outcomes through millions of game players - rewarded kind of like the lottery - everyone pays $1 a month to come up with the best model - its run through many simulations and the best model wins a bunch of cash. and then, wait for it, chatGPT writes an actual budget bill to be voted on.
I wonder how many others did similar?
The government printed a ton of money and demand for loans crashed after the pandemic started. People even paid loans down. Many companies weren't borrowing much because of supply chain issues - why borrow if you can't use it? I'm not blaming the government - unemployment went through the roof for awhile and they had to protect people. But this is a side effect that no one really saw. That the treasuries would lose a lot of value because of super rapid interest rate increases while companies start eating away at their runway because no new investment is coming.
It all makes sense today but literally no one saw this coming a couple weeks ago.
> But this is a side effect that no one really saw.
Literally everyone except SVB saw that long term bonds would decrease in value post pandemic when interest rates increase. Interest rate increases lowering the value of bonds is quite literally the most basic rule of bonds.
[1] https://www.nytimes.com/2021/08/25/business/banks-government...
It's why the fed is currently bailing out the industry by being willing to take them all at par value, not market value, in exchange for cash.
OK, now comes 2022, inflation is high and you think the Fed will increase rates. Now your bonds have already dropped in price due to the anticipated rate hikes. The billion dollar question now is whether you believe the Fed's "it's fine, don't worry we can get inflation under control", and keep your bonds, or whether you believe aggressive rate hikes are coming? It's easy to ridicule in hindsight, but as the saying goes hindsight is 20-20.
No one said SVB is going to be insolvent on 3/10, but lots of people thought SV and investors were making bad decisions in general over the past several years.
SVB is a victim of its own culture. You would never be hired as an exec at SVB is you said "Lets keep all these deposits in 1-month Tbills and cash since most of these startups are garbage and are going to need to take withdrawals within a couple years."
The risk has been discussed for almost a year at least:
https://www.fitchratings.com/research/banks/us-banks-face-hi...
The short interest in SVB would indicate that alot of people saw this failure moths ago.
That and SI have been two of the most crowded trades by hedge funds since December. Borrow has been 50%+ for the banks. That would indicate that alot of people saw this coming 4 months go.
We’ve had 15 years of people getting billions for phone apps made in 12 months and forgotten in 6. Random individual software startups are valued more than basically the entire hardware industry under them. Bitcoin peaked out at 1.28 trillion and it still has no use beyond being a converter from dollars, to crypto, to dollars again with the occasional hand wavey “dude it’s totally completely secure and stable and everyone will use it in the future as a currency! Look how much I made by investing at the peak!” story.
Sure, you might claim those people are unhinged and don't count, but they'd say the same to you. Unless you actually start going to your broker and buy a bunch of PSQ your comments here carry as much weight as mine.
I was out of work for 18 months during that period. Luckily I had a background in Animation and Architecture to fall back on and got a job designing tech companies when the crisis lifted.
2008 was worse though.
I look to Sequoia because, of any VC fund, they are the most likely to be able to pull off a takeover of SVB. I am still gobsmacked that they invested hundreds of millions in a company with no board or CFO (FTX)
1) FDIC insurance only applies in situations where the bank doesn't have the assets to make depositors whole. SVB has a ton of assets; most sources I've found asserting 100% deposit coverage, just not liquid. Even if the FDIC takes over (which isn't even likely) (edit: this aged well), the insurance element is irrelevant; its about operations and finding funding to drive liquidity.
2) When startups close a round of funding, they don't just get a check for $20M and throw it in their SVB account. Funding rounds are an agreement between the VC firm and the startup for that money, which transitively represents an agreement between the VC firm and its partners, and the money is generally delivered "just in time", not all at once. When the startup needs an infusion, they go to the VC, who then goes to their own bank accounts or their partners, who then go to their own bank accounts, and wire transfers happen. SVB is only one player here; yeah, its absolutely true that many startups (maybe most) directly use SVB, but its less common the further up the chain you move as the money gets more and more boring (when you hear "partner" think "old boring local business magnate who has banked with JP Morgan for 50 years"). And more-over short of systemic bankruptcy the VCs are still on the hook for that $20M.
The risk that SVB, the financial industry, and regulators are worried about right now is short-term liquidity. Startups may have $xxx,000 in their SVB account which they use to make payroll every two weeks and pay vendors and such, which is separate from the $xxM on contract with the VC. If SVB can't meet outflow demands, the people staying and trying to make payroll are going to get caught up with the panic'ed people trying to pull all their money out, and short-term liabilities like payroll are at risk. That's part of of the reason why some VCs are pushing their startups to pull money out; its not about "oh my god we're going to lose all our money", its because they don't want to get caught in the herd and be forced to pull money from other sources which are also less liquid, like long-term investments or going to their partners. Put another way, SVB's liquidity issues could spiral to cause liquidity issues further down the chain; and no one in the industry wants that to happen.
But, its a macroeconomic prisoners dilemma. And, to be frank, and I mean this absolutely genuinely and sincerely; most VCs are just rich idiots. Lets be real, the industry is proud of the fact that if one bet in fifty pays out 100x it'll make up for 49 bad bets, yet we treat them as paragons of investing genius? Their biggest motivation is to avoid embarrassment among their drinking buddies (read: investing partners) during the next trip to Jackson.
Some startups definitely deposit $X-$XX MM directly into an account at SVB. Depending on a bunch of factors, these funds can be risk for availability in the short term.
SVB's assets are not liquid enough to cover all of those funds, obviously. If depositors panic in a meaningful way (they have, and will continue to do so), then SVB will be under new management by Monday.
Startups' $XX MM will not be lost. Today's payroll might fail. Next week's will be fine.
I've never heard of the "just in time" funding - and if that's more common than I think I'm also very surprised that we don't hear more of the "fund committed $100M, but the business went south and they declined to fund it fully" sort of stories.
> the "fund committed $100M, but the business went south and they declined to fund it fully" sort of stories.
My understanding is that its contractually obligated, and there would be legal ramifications for doing such a thing (or, there are clauses in the contract which allow it, or, you know, its pretty common for VC partners to sit on the board of the businesses they fund, so there are definitely options for the VC to assert sway over the company's finances and spend short of turning off the hose and breaking a contract).
Q1 of 2023 has stabilized a bit and began with a market rally, but it could just be a dead cat bounce on the path to lower lows as the year goes on. Seeing SVB implode suddenly is ominous not so much because of them, but what it means for the industry right now. I was hoping that we maybe hit the trough in Q4 of 2022 but it would appear this year will be bleak and I sadly suspect we'll be seeing more layoffs in the second half of this year if the first half continues to miss.
I hope I'm wrong. We are about at the point where a bear market ends (around 9 months) but that's just an average. We could very well have quite a few more months or even the entire year and into next year ahead. High flying tech has been in a bear market now for over a year, although it probably needed a correction.
(I understand that Big tech is also doing layoffs because they massively overhirred during the pandemic)
Will missing payrolls result in layoffs/resignations? Thus, increasing unemployment rate that the FED desires. If contagion doesn’t spread outside of tech/startup, does the government have any incentive to intervene? Maybe this is not too big to fail.
A sale seems like the most likely scenario out of this liquidity problem (insolvency). It’ll be dirt cheap and has to make sense to its buyer.
edit: Even with recent downturn in tech, there is still sizable value in having tech as banking clients.
So, in that light, losing these jobs would be like throwing away the kid with the bathwater.
I personally don’t agree with all the premises and conclusions I’ve enumerated above, but imo that’s how a mainstream economist (like one working for the FED right now) is most likely to view things.
If all the cash evaporated from my company's account, we were forced to declare bankruptcy, that's pretty much game over. The employees would be among other creditors figuring out their turn to pick over the remains. The employees may end up near the top of the list, but they wouldn't get to hold the C-Suite or shareholders accountable on a personal level.
They're contractually obligated to pay their employees, but that contractual obligation rolls up to the company level, not the people who run or own it.
I've also worked at both startups and large companies where problems with the bank or payroll software delayed payroll a day. In those situations there's typically overcommunication about the steps being done to get it resolved ASAP so employees don't walk out.
However, sad to see what looks to be another government caused implosion.
- First, via the massive government stimulus COVID19 SVB got enormous amount of deposits in 2020/2021. They have to put that money to work, and the traditional lending it back out was not going to work, the market was already flooded with money from the government. So they sadly locked themselves in those MBSs.
- Then the gov finally reacts to their own stimulus and zero interest rates programs and they rapidly raise interest rates in attempts to lower inflation.
- And as a result, the MBSs that SVB holds are underwater in mark to market. Investments into startups fall, so no more influx of customer deposits into SVB. And finally, due to the difficult market (and VC market), all the startups are drawing down their deposits rapidly through their current burn rate. And SVB ends belly up.
Good luck to all the startups that might have just lost anything they had in SVB over $250k.
It's possible that uninsured deposits will eventually be recovered at full value, but losing access to depository funds is itself a loss which often has a very real costs, and when the Depository Insurance National Bank taking SVBs place opens no later than Monday, uninsured depositors are going to only have a claim against the potential realized value of SVB assets beyond what is necessary to cover the insured deposits, while insured depositors will have access to actual money in actual deposit accounts in an actual (solvent) bank.
You mean the one that would have been caused by the government's draconian lockdowns?
Good thing the government came in to rescue everybody...
Fed hasn't raised fast enough and is looking at +.50% next meeting.
Powell was kept on by both Trump and Biden. For all of the hoopla about "politicalization of the Fed", Powell has kept his chair.
Its not perfectly insulated. Both Trump and Biden can whisper to Powell and encourage certain behaviors. Ex: Trump pushed for lower rates, and Biden pushed for higher rates respectively.
The Fed has two mandates. Maintain low unemployment and low inflation. There is no way they could have achieved both in the last three years, but inflation is way preferable to economic collapse.
They were going to have to say something sooner-or-later. I think the biggest part is that before they could raise capital, they needed to be honest about their books or risk securities fraud charges.
This is wrong. DETR, the Nevada Unemployment Office, gave out 1.4B too much [0]. I am absolutely sure this is not an isolated case. The absolute level of corruption disguised at absolute incompetence is too high to let the government off that easily. 2020-2021 was the biggest wealth transfer from the poor to the ultra rich in the history of the world. The stimulus didn't even have a clawback attached to it.
[0] https://www.ktnv.com/13-investigates/detr-sent-out-1-4-billi...
Sure, keep the lender of last resort; but maybe let the market determine interest rates through money markets, with incentive-control through judicious laws, instead of by fiat.
The obvious example is the panic of 1907, and if your argument is that today’s fed looks anything like 1929’s fed, that’s gonna be a tough road to hoe.
Instead of letting that lead to complete chaos we let it lead to some chaos and some inflation.
I felt no pain in ‘08, in ‘20, also thanks to the fed. It was just news to me, abstract and happening to other people. That would not have been true without the fed.
It's not realistic in a society this size to just chuck something like the Federal Reserve.
You'd think technologists of all people would understand that to get rid of a legacy system you need to make something so much better it becomes obsolete (or, at the very least, the embrace-extend-extinguish approach).
Banks are in the business to manage risk.
The sad part is this risk management and investment process is concentrated in a very small group. Most of the bank employees are very good, had no idea what was happening, and some will lose their jobs as their equity goes to zero.
But they used to have a sheet they posted on the wall near the tellers - this was in 2007-2009 at the height of that particular financial fraud collapse (lehman, etc)
The sheet showed how much the bank was making on over draft fees - and every time I was in the bank I would check that number - and it was stunning to see as deeper we got into that recession, how much that number increased.
They were making about 500k per month on _overdraft_ fees alone...
That said a lot about the state of peoples finances alone.
Let's see what happens. If only SVB goes belly up, then yes, only SVB was the one that couldn't read the tea leaves of the government's actions. But if SVB is just the first of more banks that will go belly up, then perhaps it is not just an error on SVB's part.
There is nothing natural about the interest rates policies and stimulus packages from the governments last couple of decades.
The market bet against the fed, assuming fed was all talk no action. Wrong move.
Most of the market is still anticipating a fed pivot / fed put and / or tax-payer bailout. Time will tell.
In 2022. Up till the end of 2021, they kept saying inflation is "transitory". According to reports SVB bought a bunch of 10 year MBS in 2021.
SVB is obviously incompetent in believing in that Fed BS about transitory inflation -- wait but should they have believed in the rate hikes as well then?
That's putting it lightly. Powell has been saying over and over again "more inflation, more rate hikes." Even giving us approximately how many they are planning on doing in a given timeline. I don't understand why so many people think it's a good idea to prepare for the opposite of what the government is literally telling us it's going to do. That does not seem like a smart bet, but maybe that's just me.
You can blame the government for some stuff but at some point companies have to own the decisions they make in the face of not just evidence, but also clear statements, that run counter to how they are operating. SVB made their bed in a large way here.
Could they not have cut interest rates and take the dip in profit with shorter duration bonds? Was there really no sensible way to prevent this?
Businesses fail all the time from things outside their control, but I've yet to see any indication that's the case here.
SVB didn't implode on their own, Thiel decided all the startups he backed should withdraw their deposits. Then other VCs followed the trend.
SVB was what, $2B short on their balance sheets, out of >$200B assets? VC initiated bank run is the only real issue here.
Waiting to see how this all benefits Thiel.
The fed has a huge advantage in that they can just print money, buy assets that deliver 1% returns and when those assets mature delete the printed money. The fed is basically leveraged to infinity.
https://www.bloomberg.com/news/articles/2023-03-10/us-regula...
edit: At the very least, FDIC should issue a statement guaranteeing beyond the $250K/depositor limit sooner rather than later in order to stem some of the outflow.
Not worth $20B to me, but there are dozens of vain people with billions that may disagree.
At this point, does SVB have positive brand value anymore, or are they negative?
SVB has positive brand value and (much more importantly) positive book value. At $16bn market cap EOD two days ago, they are also a relative minnow in the banking world.
This slip-up is tarnishing to their management, but the main side-effect is that it makes them a prime acquisition target.
is there precedent for that?
I don't remember tbh, but IndyMac (in July 08) was before Lehman (in Sept) so I think the answer is yes.
If it's only a handful, it's in the gov't interest to ensure that businesses and people don't loose their savings.
Again, it would be better to have a comment from someone who banks for a living, but back in 2008 when the FDIC limit was $100K, ISTR Sheila Bair making a statement to that effect (IndyMac?). One large issue was that companies would regularly be above the limit in order to run their payrolls, and so got caught in a bad position. That started companies with other banks worrying about where they were parking money, contributing to a systemic issue.
This is a liquidity problem (so far). This isn’t because loans went bad or anything, just that they needed cash quick and had to fire sale things (the things they took losses on were US Treasuries. Mostly.)
They still have a big loan book that is probably worth more than their liabilities.
A large player with liquidity could get those loan assets on the cheap if they agree to provide the short term capital liquidity (a reassuring name also probably stems any bank run risk).
Also the FDIC is pay in pay out insurance. The commercial accounts at SVB are in the hundreds of millions and no payments were made for those accounts. The FDIC probably won’t help.
In theory they could hold that shit to maturity but in practice they can’t because some folks want money now and all depositors will want higher interest on deposits eventually to match market rates.
How is that known currently? Edit: As opposed to a solvency problem?
What we know happened is that they sold US treasuries for less than they paid. They did this because people withdrew money faster than they expected.
If that has an impact on their loan book (mostly loans to investors), at the very least, that line of connection has not yet been drawn.
[0]https://s201.q4cdn.com/589201576/files/doc_financials/2022/q...
That said, if I'm an SVB customer...do I want to stick with the bank that's had this issue? Even so, would I want to bank with the acquirer?
Seems like the reason for acquiring this risking market would be to transition your the clients who succeed into the parent bank for their future banking needs. Sure you will get a bunch of small/medium sized clients for a mega bank, but they are just fishing for a couple giant paydays and want the next Apple or Amazon to start banking with them.
One reason that it was done in the past was because it saves the taxpayers money by bailing out a single meltdown rather than something systemic.
But you should recognize: The taxpayers back up the FDIC, but singleton meltdowns are paid out of the insurance fund, which is paid into by the banks themselves. As long as that fund does not get exhausted (ie a systemic meltdown) it doesn't cost the taxpayers directly.
I for one am tired of privatizing the profits, and socializing the losses.
In the extremely unlikely case that the fdic insurance fund couldn’t make insured deposits while the tax payer is on the hook.
The bank's continued existence isn't the FDIC's concern. Making the depositors whole is.
I think odds are good that we see that this weekend.
Edit: aaand FDIC couldn't wait until COB
https://finance.yahoo.com/news/fdic-closes-silicon-valley-ba...
If the natural incentive of the bank's assets isn't enough, its literally the job of the FDIC to add that incentive. That's what the FDIC does. "We'll pay you $100M to continue operations of this bank" this happened dozens upon dozens of times during 2008. The insurance component of their mandate is an absolute last ditch "holy shit actually they had nothing it was all smoke and mirrors" tool.
It won't come to that because, well first of all, regulations don't allow banks to get to that point anymore, but also: SVB is actually a solid bank, who made a couple fuck-ups, caused a panic, and their customers are generally more agile and cutthroat than industry average. There are so many tools they, the industry, and regulators have to stabilize things that if you walked into the meetings that are happening about this right now and said "we should raise our insurance guarantees above $250k" you'd be laughed out of the room.
The FDIC doesn't give a shit about stemming outflows from SVB. The FDIC cares about the system, not SVB's bottom line or stock price. Customers should be able to withdraw their money. If they're even involved at this point (and that's a huge if), their primary concern would be to make sure customers still can get money out, not changing the incentive structure or adding limitations toward getting that money out.
> At the very least, FDIC should issue a statement guaranteeing beyond the $250K/depositor limit sooner rather than later in order to stem some of the outflow.
The FDIC chose instead to shut the bank in the middle of the business day. They apparently don't see this as inciting a systemic event, where other uninsured deposits at other banks will now begin flowing out.
That imho is not playing it safe, given some of the price drops in the other banks today.
They’d have to I assume to value their new books.
If yes that’s a lot of valuation haircuts.
It’s done.
What advantages did SVB provide that other brand named bank didn't? Wouldn't it have been safer to put your startup's money in Bank of America, or JP Morgan, etc? I've never heard of SVB until the crash.
SVB would be lenient to the entire portfolio in exchange for access to the best performing companies.
i.e. Company A is a Series A start-up that needs non-dilutive financing to bridge itself to the next round. SVB would be willing to lend when no one else would. In exchange, VC’s would introduce SVB to much healthier growth stage or pre-IPO companies that need a banking partner.
The lending keeps money coming in (repayments), makes money (interest), etc. - so how was SVB supposed to make money and maintain liquidity without much of that?
But it is a good lesson in money management…something about eggs and just one basket?
It seems like it would be better for VCs to keep the money, invest it (in, I don’t know, the S&P500), and then pay out to the companies on a monthly basis or some other terms.
I can’t fathom how there are hundreds of companies, each with 10s of millions of dollars, just sitting in a zero interest bank account?
I'm not sure who is ultimately custodial of that money, and whether it's at risk today. My instinct is that it's at BlackRock, any idea if that's true?
Laddered CD’s, money markets, treasuries and other semi-liquid fixed income investments are probably better than the S&P500. Most boards (and shareholders) would frown on investing funds in the market. The value is supposed to be in the company, not the stock market.
It’s a good idea to collateralize (leverage) the funds following a raise for a line of credit with one or even two banks to have short-term cash options. The longer you build a trust relationship with a bank VP and use a line of credit responsibly, the better position you’ll be in when it’s crunch time or there is a big opportunity to go after with big short term cash requirements that can’t come from selling equity.
I’ve seen too many product-oriented startups try to raise bridge rounds because they are cash poor when they should have secured a banking relationship when they had funds available.
Given this, it's pretty attractive for a buyer. The buyer just needs to provide some capital to bring the reserves back into compliance.
To be fair, the government may find value in shoring this bank up. That's a different story. The bank will be essentially nationalized at that point.
Right
Chase getting a whole bunch of branches in the Southeast and Washington state for practically free probably left them better off in the long run.
How do these keep blowing up?
Silvergate's failure doesn't affect BTC on paper, yet Bitcoin did go down.
SVB's failure doesn't affect the USD on paper, yet the dollar is down today[1].
All currencies, fiat or otherwise, are affected by catastrophic events in their ecosystem. The folks having a good day today are the precious metals.
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[1] Although to be fair, there are a myriad of factors at play in FX, whereas Bitcoin probably has few. However, "bank failure" and the US Treasury announcing they are monitoring some small and regional banks, doesn't fill one with confidence.
It's alright if things fail or lose value. That's a natural part of markets. Taxpayers money going to bail out banks, otoh, is pretty much what started Bitcoin.
"Chancellor on the Brink of Second Bailout for Banks" - still encoded in the genesis BTC block.
They'll probably be in line with anybody else and being foreign makes enforcement and lawsuits so much more expensive and difficult.
I guess that's a price they were willing to pay to get more favorable conditions in SV in the past as opposed to whatever they could find locally.
My guess is the feds come in today and do it. They love to close banks on a Friday and work it through the weekend
"Two ways. Gradually, then suddenly.”
― Ernest Hemingway, The Sun Also Rises
It does make fully on-chain USDC and DAI stablecoins look like refuges though.
They say treasuries are as good as cash, but seemingly it is not entirely so.