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SVB was never "unsound." They had plenty of assets to cover all their deposits and plenty of cash to cover normal withdrawals. If not for people like Peter calling for a bank run, SVB would still be in business today.

Nope, someone else would have started a run.

By that logic, all banks are unsound. It's not turtles all the way down, and pretending the guilty party is blameless because "someone else would have done it" is nonsense.

> They had plenty of assets to cover all their deposits

No, they did not. If they did, then they could have immediately sold all their assets during this bank run, and there would have been no need for the FDIC to step in.

If they could not do that, then, by definition, they did not have enough assets to cover all deposits.

I mostly agree, but there are cases where someone can have enough assets but it's such a large amount of something that word gets out they have to offload it, and then good luck selling it all at anything but a big discount, then not too long after price does rebound.

That is obviously not a situation that one gets into without making some mistakes, but I think this is distinctly worse, though some are trying to act like it's the same. The actual fair market value of what they held, even removing SVB from the situation entirely, was down a lot. And it was down for very logical and predictable reasons, and will almost certainly never rebound.

They had the assets. Just that a good portion of them aren't available to be sold immediately

People need to stop repeating this, they had assets to cover most but not all deposits. They used accounting tricks to pretend they had more than they did.

This is False. They had the assets, but they declined in value until they were worth less than liabilities. Insolvency.

This is conflating liquidity with solvency, the parent appears to be arguing that SVB was solvent (which seems to be true) albeit not liquid.

If I owe you $10, and all I own is a house, and you ask for your $10 back, I may not be able to pay you even though the value of my assets way outweighs the debt owed. Selling a house isn’t instant.

Arguably the only purpose of a bank is that you have access to your money at any time you wish, if they can't honor that, they're not doing a good job to say the least.

That shows a lack of understanding of the true nature of banks because most banks can't withstand a barrage of everyone asking for their money at once. The underlying criticism of Thiel here is that he saw a liquidity problem and made it a solvency problem by encouraging everyone to pull their money immediately. If he didn't do that, there were potentially solutions that could have fixed the bank's liquidity problem without jeopardizing their solvency.

They were already insolvent, the bank run did not cause that. They used accounting tricks to pretend they had more assets than they really did.

I believe the point is the utter craven hypocrisy of ultrarich who savagely denounce government programs that help poor people and ordinary workers, who destroy and tear shit down for their own private profit, and then have the fucking audacity to scream and cry for other people to pay for their own investing mistakes. David O. Sacks I'm looking at you.

Banks are not investing. They are commodities. The share holders and bond holders who were investing were wiped out. Do you want to live in a world where only Bofa/WF/Citi/Chase exist? Because that is what you are advocating for.

> Banks are not investing.

Yes, they are. How do you think they make profits? How do you think this happened to SVB? Their investments were illiquid and they were not able to convert them into cash fast enough to return deposits to their customers.

This is literally the opposite of how banks work. If they keep everyone's money they would never be able to make loans, let alone fractional reserve leveraged loans. They need you to keep your money in an account and not need to access it that often, or at least keep most of the money there.

I guess what the bank needed and what the customers needed were fundamentally at odds then.

There was a run on USD coin due to this fiasco, it didn't have enough liquidity to pay all its customers, and yet people stopped their run on the asset because people figured that there was no way they weren't going to get something like 90+ cents on the dollar within 3 months so it was pointless to sell beyond that point, and because it became pointless to sell beyond that point it meant that the value was probably going to approach $1 so people pumped the price back up.

When I look at something like that, I really wonder if it's really so structurally impossible to make a bank where nobody has an incentive to do a run on you in anything but the most extreme of cases.

Maybe they should change their business model then if they need predatory loans to survive.

First of all, what about SVBs loan business do you consider "predatory"? The alternative business model would to charge customers to hold their deposits. I somehow doubt that would be very popular either.

Any usurious transaction is predatory by definition. Of course people don't want to talk about it. Someone submitted the wikipedia article about usury to HN about 12 hours ago but it got flagged apparently.

So you think banks should instead charge you to hold deposits? Would you use such a bank, if they promised to never engage in 'usury'?

Yes that's one possibility. Furthermore, there are ways to make money that are not usurious.

Why don't you go try to start something like that and tell us how your ideas work out in real life.

The FDIC cited liquidity _and_ solvency when they closed SVB.

I believe the two words have a bit of gray area in between them, but here's how I understand it:

If you issued a $100 invoice that is going through processing and will be paid to you in 30 days, but you owe someone $50 right now, you're illiquid.

If you have $100 long-dated bond that is currently worth $50 on the market, and you owe someone $60 right now, you are actually insolvent. Not just illiquid.

There is no gray area, just trickery. Your scenario is equivalent to saying if I have $70 in assets and $100 liabilities, then I am not insolvent if someone gifts me $30. People will not keep billions of dollars in your bank earning 0% while the rest of the world collects 4-5%.

Alternatively, if I am a bank in March 2023 and I have 70B in cash and 100B in liabilities, can I become solvent by buying these 1.5% yielding treasuries and MBS at market rate of 70 cents on the dollar and say, "don't worry, I'll have $100B in 10 years to pay everyone". Of course not.

These are both equivalent situations.

I wasn't arguing with you at all, you totally misinterpreted my comment. SVB was insolvent due to their long dated bonds.

Sorry.

SVB was insolvent

That's literally what they did that triggered the FDIC to take over. Assets are not always liquid though. It takes time to prematurely sell 46 billion of bonds, and it comes with a huge cost.

The value of their assets was enough to cover deposits. The liquidity of those assets was not.

False

Today maybe, but a year or two from now? They had 40% of deposits locked in for years at a low interest rate. They wouldn't have been able to offer depositors a competitive interest rate over the next couple years without bleeding money. So they'd have to hope that few would withdraw in spite of an objectively inferior service (which in itself would start raising alarm bells at some point).

Maybe a more gradual stream of withdrawals would've allowed them to make up money elsewhere to stay alive, but they demonstrated such horrible incompetence with this entire situation that I don't see that ending well.

Plus this kind of approach requires everyone to coordinate and not freak out, which is not gonna happen.

This tweet thread from January https://twitter.com/ragingventures/status/161582608803847373... has some details.

Then why didn't they borrow it?

People keep screaming "illiquidity not insolvency" as if bankers of all people didn't know what a loan is.

The answer, of course, is that no one was willing to loan them money due to solvency issues

Because that's not how banking works. They aren't allowed to get a loan to cover liquidity obligations. They have to sell assets which takes time. If Peter Thiel starts screaming for everyone to withdraw their money, the bank can't keep up, and the FDIC steps in.

Thiel did not call for a bank run. If he yelled fire, that's because there was fire. For some people, that could be seen as a public service. But of course, since Thiel is hated by the Blue Tribe, he must be painted as evil mastermind killing banks for fun.

That's the same thing.

There are steps between do nothing and tell everyone to pull out all their money. It doesn't seem like they spent much effort exploring that middle ground.

Wouldn't reporting this to the FDIC through a private channel probably be a very reasonable first step? At least to me that feels like a good initial reaction to having stability doubts about a bank and I assume someone like Thiel making a report would be treated quite seriously.

You're assuming the FDIC is a person who you can just ring up and have a talk with. This is a large bureaucratic organization that moves at a glacial pace.

Consider that the SEC mishandled five separate inquiries into Madoff as early at 1992.

https://www.theguardian.com/business/2009/sep/02/bernard-mad...

Yea - when doing stuff at the scale of billions of dollars I think a fair amount of caution and care is warranted.

As far as I'm aware these are the people best placed in the government to deal with this issue. The SEC might also be an option (if you were primarily concerned about poor investment choices by the bank) but considering it involves a bank I think alerting the FDIC first and then allowing them to pursue the SEC if they warrant it feels pretty reasonable.

Ok, what are those steps?

From a high level perspective, mitigate the short term risk, understand the problem, and work on a long term solution.

Short term risk can be mitigated by ensuring your companies have enough non-SVB cash on hand to make payroll.

The seriousness of the problem can be better understood by communicating with other involved parties including the bank, the government, investors, and clients.

A long term solution can include investing in the bank, buying assets from the bank, coordinating with other VCs to ensure no one panics and a bank run won't happen.

He made a bad situation worse by jumping straight to pulling all his companies' money and telling everyone else to do the same. He basically dumped water on a grease fire then ran out of the house screaming without ever bothering to look for a fire extinguisher.

> The seriousness of the problem can be better understood by communicating with other involved parties including the bank, the government, investors, and clients.

Doing that would just give everyone else the info they need to start a run on the bank. Then they get their money out and you are left holding the bag and everyone is mad at you for not warning them.

If you know a bank is busted, and you tell other major investors, what do you think they would do? It only takes one person to freak out and the plan is ruined, and then you have your CEOs coming to you asking why the heck a board member who knew their bank was failing didn't help them get their money out.

We know that is true because when the CEO of the bank told major investors about the problem, they started a run on the bank. Do you think they would have reacted differently to the bad news if Peter Thiel had told them about it rather than the CEO of the bank?

There needed to be an adult in the room to coordinate a response that wasn't just everyone panicking. Thiel didn't necessarily need to be that adult himself, but his panicking eliminated the opportunity for anyone else to be that adult. The problem was fundamentally that everyone acted in their own best interest instead of coordinating a response that would have been in everyone's best interest.

> The problem was fundamentally that everyone acted in their own best interest instead of coordinating a response that would have been in everyone's best interest.

Yes, this is a well-known and unsolvable problem of human societies.

We have solved it countless times in countless situations. What do you think the FDIC is for example?

"Short term risk can be mitigated by ensuring your companies have enough non-SVB cash on hand to make payroll."

How do you do that without causing a bank run? Tell all the CFOs "Don't be alarmed, but you need to initiate a small wire transfer from SVB to anywhere else that will cover things like payroll and your electric bill for the next couple months. No big rush, just try to do that in the next 45 minutes. But walk, certainly don't run.".

Effectively, yes. Tell them you are working on a solution to prevent this from growing into a bigger issue, but steps should be taken to mitigate risk if that attempt fails. I don't know why we expect everyone to behave like panicked children in this situation. The reason people panicked is because the messaging from Thiel told them to panic.

Elaborate

> What would you do if you were a board member of multiple companies and you found out their bank was financially unsound and couldn't do normal bank stuff?

Founders Fund has investments in some of the largest internet age companies that exist.

Airbnb, DeepMind, Lyft, Facebook, Flexport, Palantir Technologies, SpaceX, Spotify, Stripe, Wish, Neuralink, Nubank, Twilio.

A call for them to move their money out of SVB meant putting pressure out on a massive percentage of SVB's customers by value.

It's not clear at all from news reports why Founders Fund put the call out. Fast Comapny's article notes that SVB had north of 32B in net assets before the run that Thiel's fund started.

IF FF had the facts wrong, this collapse would demonstrate the effect of a few poeple's outside influence in SV, and should be a warning to the broader industry of the power that these investment vehicles are wielding.

> What would you do if you were a board member of multiple companies and you found out their bank was financially unsound and couldn't do normal bank stuff?

Was there any evidence that they couldn't do "normal bank stuff"? AFAIK SVB still had ample avenues to raise liquidity before the bank run Thiel orchestrated. SVB's stock would have suffered immensely, but their operations and deposits would have been fine as far as I can tell.

> Was there any evidence that they couldn't do "normal bank stuff"?

His fund had problems transferring money and that's why he noticed something was wrong.

Someone else would have had similar problems, and would have noticed, even if Thiel didn't act.

Do you have more information on this? From what I understand, SVB had more than enough cash (yes, cash) on hand to handle any money transfer Thiel's fund could have thrown at it.

Here is one of them from Friday: https://news.yahoo.com/thiel-founders-fund-withdrew-millions...

> On Thursday, as the bank was beginning to unravel, the firm started what’s known as a capital call. That’s a run-of-the-mill activity in the venture capital world, in which a VC firm asks its investors, or limited partners, to send it money in order to make investments in startups — the core function of most VC firms. It began by asking those backers to transfer the funds to accounts at SVB, as it has done for years, the person said.

> But the firm learned that its limited partners were encountering issues using SVB services as they tried to transfer the funds — they weren’t immediately going through as expected, the person said.

So they were having trouble getting money into the bank?

I'd like to understand how all these startups came to use SVB in the first place and what part the VCs played in that. I've seen people here say that they were required to bank exclusively with SVB, did the VCs encourage those terms? The story doesn't look that great if Thiel told them to put the money there before he told them to take it out all at once.

As long as Peter Thiel had nothing to gain by starting a bank run (which, by all logic, seems likely), then he cannot be blamed for talking about the bank's risk and position which ultimately caused a run.

A ton of capital at the ready to offer bridge loans at shark rates or for blood equity for companies panicking and impacted by the same act of gathering those funds out of SVB to crash it seems like motive -- only time will tell.

The apologists here are not surprising