I see. So useful for companies who are considered too high risk for "regular big banks" --- but they're all clumping together so it should be your second choice, only if you couldn't get a loan from a regular big bank.
It’s not that they catered to high risk clients it’s that they understood that the definition of risk was not universal. What may look risky to Bank of America isn’t actually more risky if you know the nuances of startups.
Or put another way, the odds that a new commercial Bank of America company goes on to become a 10 billion dollar company is probably 1 in a billion. The odds that an SVB customer would go on to become one is probably 1 in a thousand.
But the important thing is that SVB didn’t fail because of bad credit or bad loans - something you’d expect from riskier clients. SVB’s problem was that they had more deposits and cash than they could handle, they literally had too much money and the fed has raised interest rates too fast for them to absorb.
Do you know why couldn't they handle it? Banks usually have to manage their Credit, Interest Rate, Liquidity, Price, Foreign Exchange, Transaction, Compliance, Strategic and Reputation risk. And then from an investment POV, all investors have to handle portfolio risk. So I wonder whether SVB just wasn't sophisticated enough to handle these risks.
If they're the 16th largest bank in the US, it seems to me that they should have had the chops to "handle" large amounts of cash...
1. way more deposits than they historically managed, with no-where good to put it.
2. failure to do what banks do, which is arbitrage their position, putting a huge amount into long-term low interest bonds
3. looking for loopholes in liquidity & stress tests, and reporting exemptions that might have raised earlier alarms
#3 is inexecusable but the other points are in the "bad at your job" category.
It took two factors.
3x the money you manage in 2021 specifically
Have well networked clients that carry out a bank run together.
That’s just not how America has worked for a long time now, and I don’t think most folks would describe American businesses as any riskier than in say Serbia.
This isn’t a “bad guy” story, as far as I can tell.
Funny how tables have turned recently. Now it's other way around more often. If your start up is actually manufacturing something, a physical item, the banks deem the business as non traditional... Go figure...
I agree. There are no bad guys here. There's just a bank that took and chance and it bit them.
It is about having a company checking account for payroll and somewhere your investors can put money.