SVB might have lasted longer if their depositors had not been running for the exits. But why assume that lasting longer is a good thing? They might have got themselves into even more difficulty. In that case the VCs did SVB a favor.
How is this different from, you know, most banks as they stand today?
In other words, those "safe investments" weren't so safe?
This isn't true. Runs can only happen when a bank has insufficient liquidity. Such as when it holds long-dated bonds that it purchased at historical rock-bottom low interest rates.
> If the bonds didn't need to be sold, they would have paid out.
This is the "you don't lose money unless you sell" fallacy. Which yes, is actually a fallacy. (Note the fallacy is useful to use, psychologically speaking, to try to manipulate panic-susceptible individuals into doing the sane thing and not panic selling every dip; that doesn't make it less of a fallacy though)
Yeah, but only several years later, and all the while earning a low interest rate. In other words, the net present value of the security still dropped. Sure, if the bank holds to maturity it'll get its principal back, but it would have lost out on a lot of interest. Why would you want to hold your money at a bank that's lending out at 2% (made up number) when the fed is paying 4.5%? The bank will either have to offer lower interest on deposit to compensate, or take a loss. The former case basically creates a bank run dynamic. You want to get your cash out while you still can, otherwise your money will be stuck earning low interest rates for the next half decade. In the latter case, it leads to bankruptcy of the bank as the loss eats into capital reserves.
SVB should have purchased more swaps or swaptions, but this is me Monday morning quarterbacking. If depositors had left their money like It's a Wonderful Life things would have been fine.
Meh. Fractional reserve banking is not without risks, but I don't see any mention from you of the fact that SVB was holding bad assets.
What's unique about SVB though, is that despite it being a relatively large regional bank, a handful of its customers - tier 1 VCs have enough clout to force a bank run. These VCs have created a situation where their entire portfolio of companies depend on SVB, and as a result if they say "Get out of SVB" they can cause massive disruption. What's really funny about this though, is that these VCs -aware that this is the case - don't decide "Better be super careful about dealing with SVB and slowly diversify to de-risk this massive systemic risk to their industry. No, instead what they do is they execute the exact bank run they know will massively damage their industry.
To put it in historical context, this is like if JP Morgan, instead of gathering institutional leaders and co-ordinating a calm and orderly response to a crisis had run on to twitter and screamed "IT'S ALL GOING TO ZERO GRAB YOUR CASH NOW".
> What's really funny about this though, is that these VCs -aware that this is the case - don't decide "Better be super careful about dealing with SVB and slowly diversify to de-risk this massive systemic risk to their industry. No, instead what they do is they execute the exact bank run they know will massively damage their industry.
They can't even say that without causing a bank run because everyone with a brain in their heads would ask themselves "I wonder why they are saying that, something must be wrong" and that alone causes the bank run. Even a bank saying "everything is fine" can cause a bank run because people would wonder why they feel a need to say that.
Plus, even if they could try to quietly de-risk SVB, everyone knew that if even one person spills the beans, the whole plan is spoiled. And what are the odds that nobody would spill the beans? Plus, what if you are a VC and that happened and then all the companies whose board you serve on find out that you didn't warn them in advance even though you knew they could have spared themselves by getting out early? It would not be good for you.
Bottom line -- the incentives to quietly hide a potential bank failure and coordinate a massive (yet somehow stealthy and not scary to depositors) response just aren't there.
They do but fortunately people don’t listen because they have better things to do. We also have sitting members of Congress trying to cause a panic. [1]
[1] https://twitter.com/repthomasmassie/status/16350743784541470...
You say the incentive for co-ordination isn't there, but quite clearly this demonstrates a massive incentive for VCs to be looking at the common dependencies of their companies and mitigating them. They actually do this really frequently with start ups and cloud providers - it's a very strategic decision whether as a small company you go with Amazon vs Google vs Microsoft for your cloud, why? Because you're handing over bargaining power in what is likely to be a potential acquisition. I agree that VCs haven't been thinking about things like that, but they absolutely should. It was always crazy that founders were getting mortgages from the same guys that were doing their business banking.
Who has both 1) an interest in bank balance sheets, and 2) enough clout with Wells Fargo's depositors to cause a SVB-style collapse?
Given how large and diversified Wells Fargo is, I think the only people with the reach to get a message like that out on social media (celebrities) probably don't have the interest or credibility to send such a message and have it listened to.