Ask HN: What should SVB customers have done? | Hacker News Reader

Ask HN: What should SVB customers have done?

6 pointsjasonlfunk9 comments

Some of the stories coming out about SVB customers are tragic. But did they do anything wrong? Could or should they have known this was coming? I don’t want to blame the victims, but might some of us be in the same place as they were a few months ago - blissfully unaware of how much our money is at risk? What could they have done? What can we do now?

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Customers have not lost any money in SVB yet, just access to money. It's more likely than not that SVB is bought tomorrow, starts running again and even uninsured deposits are covered. SVB ran out of liquidity, the assets did not vanish.

As a general rule, divide some money between multiple banks to avoid counterparty risk.

Same applies to funds, brokers, etc. When Warren Buffet's Berkshire Hathaway bought little bit of SP500 funds for a period, they dividied them equally between VOO and SPY for no other reason.

People should be aware of the $250,000 FDIC insurance limit and take appropriate action. Add a joint account holder, split among different account types, split among different banks, etc. When I sold the $1M house in NYC I inherited from my parents, I immediately split the proceeds among different bank accounts. And frankly, I am not that smart, nor that rich, but I do have a high respect for money.

For $1mil that's fine but for say $10mil? This doesn't seem like a practical solution

Not falling for promotion and groupthink.

Banking should be an 'alpha safe-haven' . Meaning you should not be looking for alpha in banking. Like gasoline, coal and bricks. They are all the same everywhere.

People went looking for alpha in banking with SVB, because of the illusion that having Silicon Valley in the name would make them somehow better than all the other banks which (very much like SVB) are also operating in a business which is 500 years old.

If you equate Silicon Valley (the place) with innovation then Silicon Valley (the name) has no business being written in front of the word 'bank'. Because you cannot re-invent the wheel in a 500 year old business, no matter how shiny is your AI or however fast is your blockchain or whatever other buzzword you are using to promote yourself to customers and investors alike.

Not keep the eggs in one basket. Have accounts for running costs in multiple different institutions. Basic prudency. Would also help with other issues, like a bank's mainframe catching fire and being unable to transact for period.

Is that practical though? Is that standard practice?

It’s not just that a firm could diversity but the network of firms around your firm…. E.g. if you weren’t think “I am in Silicon Valley I have to bank at SVB” and you didn’t think “I am a startup so I need to have my payroll processed by a startup… that also banks as SVB” your exposure is reduced.

One option, is to simply take the risk. You're going to get back 250K immediately, and not having the rest means either some scrambling and negotiating with your investors and creditors, or maybe worst case going out of business. There are other events that could lead to this too, and hedging against them all is impossible. So one could just accept that shit happens.

Getting a credit facility at another bank, during good times, is the other obviously one that I didn't see mentioned. Most of the money is still there in this case, it's a question of short term cash requirements.

The problem was SVB was a "specialized regional institution." The Washington Post points out depositors would've been fine in a normal bank (citing a Washington financing consultant):

"Where SVB relied upon tech-focused venture capitalists for much of their funding, larger banks have millions of depositors, access to wholesale funding markets and interbank channels... Regulations that were tightened in the wake of the 2008 financial crisis also have left the banks better armored against potential dangers. The Dodd-Frank Act required banks to hold more capital in reserve, as a buffer against unanticipated losses. At the end of September, JPMorgan Chase reported holding $236 billion in Tier 1 capital reserves."

I'd also like to second the commenter above who said SVB may be bought by tomorrow -- with all its deposits being honored, and no one losing anything.

In fact when I first read this thread's headline, I thought you were asking the "prisoner's dilemma" question. Because if all of the depositors had left their money in SVB, the run wouldn't have happened. SVB actually had lined up stop-gap funding, Reuters reported. But then "Some SVB clients pulled their money from the bank on the advice of venture capital firms such as Peter Thiel's Future Fund... This spooked investors such as General Atlantic that SVB had lined up for the stock sale, and the capital raising effort collapsed late on Thursday."

https://www.reuters.com/business/finance/what-caused-silicon...

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