So a bank like SVP seems designed to enable VCs with easy credit to de-facto control an important (and balooning) niche of the economy and by their control over the beauty pageant of which startup idea gets money (and PR) they also control what kind of technology becomes dominant. (For example, these VCs share significant credit/blame for creating the surveillance tech. They share blame for creating an engineering culture that must serve full throttle growth business models. etc.)
Is there a social graph of SVP and VCs involved? Are these people pals, friends, "effective" ideologues, etc.?
Maybe, but I was talking specifically about startups themselves being given loans by SVB then requiring the startup to bank there. But I am sure investors also pushed startups to SVB... if your investor (who maybe is highly invested in SVB ... ) says "you should use this bank" are you going to say no? The pressure is immense.
> Is there a social graph of SVP and VCs involved? Are these people pals, friends, "effective" ideologues, etc.?
I'd be more surprised if they weren't.
"The rise and stunning fall of Silicon Valley Bank" - https://www.axios.com/2023/03/11/silicon-valley-bank-rip
When was the last time you went over their deposit base and asset allocation?
A few times but only for a short time and a small percentage of the capital. Was already a full grown adult in 2008, have good memory, and are still licking many old lion financial battle scars...
Sweep account and credit rating. First is a one-time option. Second, an occasional check.
https://ir.svb.com/shareholder-and-bondholder-information/cr...
Borderline investment grade isn’t “high as possible.”
On the other hand, a CFO with millions in cash is a professional whose job is to manage corporate risk. A competent CFO needs to account for things like bank failures, which do happen.
So if my nascent 5-person startup raises 1.2M your suggestion is I need to hire a CFO? That's going to help innovation?
Why not just let the FDIC do their job, trust in the banking system and save yourself the trouble of worrying about a bank run.
For something you can't afford to lose, you sure fon't seem to be treating it that way.
But that rate has been creeping up for months now.
SVB was too small to qualify for risk assessment under the revised banking rules. So they could get away with money in volatile securities that were very interest rate sensitive.
That said, SVB seemed very solid until Thursday morning.
That sounds a bit like "it's not risky to driver a motor vehicle as long as you don't get into an accident".
It's like driving into a parking structure and seeing exposed rebar. It might still be standing now; but if you're smart, you need to find somewhere else to park.
Or that VC should have their risk controls? Only conservative old school bankers should invest in startups? Or what exactly?
"A: In the unlikely event of a bank failure, the FDIC responds in two capacities."
"First, as the insurer of the bank's deposits, the FDIC pays insurance to depositors up to the insurance limit. Historically, the FDIC pays insurance within a few days after a bank closing, usually the next business day, by either 1) providing each depositor with a new account at another insured bank in an amount equal to the insured balance of their account at the failed bank, or 2) issuing a check to each depositor for the insured balance of their account at the failed bank....
...In some cases—for example, deposits that exceed $250,000 and are linked to trust documents or deposits established by a third-party broker—the FDIC may need additional time to determine the amount of deposit insurance coverage and may request supplemental information from the depositor in order to complete the insurance determination..."
"Second, as the receiver of the failed bank, the FDIC assumes the task of selling/collecting the assets of the failed bank and settling its debts, including claims for deposits in excess of the insured limit. If a depositor has uninsured funds (i.e., funds above the insured limit), they may recover some portion of their uninsured funds from the proceeds from the sale of failed bank assets. However, it can take several years to sell off the assets of a failed bank. As assets are sold, depositors who had uninsured funds usually receive periodic payments (on a pro-rata "cents on the dollar" basis) on their remaining claim."
"Deposit Insurance FAQs" - https://www.fdic.gov/resources/deposit-insurance/faq/
"The liability issue: extreme reliance on institutional/VC funding rather than traditional retail deposits.
...While capital, wholesale funding and loan to deposit ratios improved for many US banks since 2008, there are exceptions. As shown in the first chart, SIVB was in a league of its own: a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of total deposits. Bottom line: SIVB carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls in case of rising interest rates, deposit outflows and forced asset sales. [Note: This chart appeared in our 2023 Outlook in a discussion on risks related to deposits, rising rates and quantitative tightening]..."
Maybe SVB themselves downplayed this?
Take https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/ins... as an example:
> The liabiity issue: extreme reliance on institutional/VC funding rather than traditional retail deposits
> While capital, wholesale funding and loan to deposit ratios improved for many US banks since 2008, there are exceptions. As shown in the first chart, SIVB was in a league of its own: a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of total deposits. Bottom line: SIVB carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls in case of rising interest rates, deposit outflows and forced asset sales.
For the shareholders of SVB, Patio11 of course says it best: https://twitter.com/patio11/status/1634925745515692034
> The sacred duty of equity is to take losses before depositors.