SVB Hall of Shame

416 points by bsamuels 2 years ago | 288 comments
  • naet 2 years ago
    I don't think I agree with this as a mark of "shame". Were these companies wrong to pull money out of SVB when they (correctly) thought the bank might be insolvent or headed for trouble?

    Are we celebrating those who left their money in, despite the warnings, when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits? Would that have been "heroic" in some way? I personally don't think so, that seems more like stupidity if the potential consequence is your company losing all it's money and going bankrupt for outside reasons.

    SVB as an institution sponsored lobbyists to lobby against regulations meant to keep banks stable, then without those regulations they failed to self-regulate properly and failed massively. That is IMO pretty shameful. But I don't blame any clients of theirs for taking money out when they saw a potential instability. They did not create that instability; that instability created the bank run.

    • dahdum 2 years ago
      In a slightly different reality…

      “Sorry team, our main VC advised us to keep our money in SVB because it’s the right thing to do. We can’t make payroll. Our VC, true to their ideals, kept their cash in SVB too. They can’t help us. Kindly cast your blame on the thousands of startup peers that withdrew and remain unscathed. Their blatant self-interest may have killed us, but we are the true moral victors.”

      • gmd63 2 years ago
        Or in another

        "How was your weekend?"

        "Oh nice had a walk with the boys, saw a bald eagle"

        We don't know that this would have been a crisis without a sudden 42 billion dollar withdrawal over 24 hours

        • 2-718-281-828 2 years ago
          I don't get that joke. Please, elaborate.
        • 2 years ago
        • dehrmann 2 years ago
          VC and startups were facing a prisoner's dilemma, and they picked a viable strategy.
          • leereeves 2 years ago
            Defecting is only a good strategy in a prisoner's dilemma when you don't need to cooperate in the future and can't be punished outside the scenario of the prisoner's dilemma.

            If this, say, destroys public trust in Silicon Valley startups, or leads to restrictive government regulation, then it might cost more than it saved in the long run.

          • pas 2 years ago
            no need for heroics, just don't "lie" about it by signing statements
            • dev_tty01 2 years ago
              > no need for heroics, just don't "lie" about it by signing statements

              Have you read the statement? There is no "lie" in pulling money and signing the statement. Here is the text:

              "The events that unfolded over the past 48 hours have been deeply disappointing and concerning. In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them."

              The statement clearly communicates that they have ended their banking relationship (pulled their money). They are simply stating that if the finances of the bank are straightened out they will start banking there again. I don't see any disconnect or deceit between pulling their money and signing the statement. When the Moody's data came out and it was clear things were headed south, of course they transferred or at least tried to transfer their money out.

              The failure of all of these financially savvy VCs was not pulling their money weeks or months ago. The data was all there as others have pointed out. They have all been whistling past the graveyard hoping the problem would go away. If there is any shame, it is in that failure to act earlier.

            • eric_cc 2 years ago
              Agree completely with your point. Moving their funds from the train wreck was smart.

              Shaming those that withdrew their funds reminds me of meme stock culture where participants shame sellers and make holding “no matter what” the highest virtue. The suckers that listen to that bullshit are the bag holding losers.

              • slenk 2 years ago
                Well if everyone didn't just follow everyone else blindly, there wouldn't have been a run
                • HDThoreaun 2 years ago
                  How is pulling money out of an insolvent bank "blindly following?" Everyone could see their deposits were decreasing for over a year and they didn't have the cash to continue to support it, there's nothing blind about following the incentives and making a good decision.
                  • slenk 2 years ago
                    Weren't they technically ok before the run as long as there wasn't a run?
                • threatofrain 2 years ago
                  > when they could have potentially lost it all if the government didn't step in and make an unprecedented promise to honor the deposits

                  Was this unprecedented? I thought the US government has always covered depositors in full beyond the $250k.

                  • rrrrrrrrrrrryan 2 years ago
                    Sometimes they've been able to make all the depositors while by wiping out all the investors and selling all the assets (buildings, office chairs, etc.)

                    What was unprecedented this time was the promise that they'd do it regardless of whether or not they could recover enough assets.

                    When Washington Mutual and IndyMac collapsed in 2008, some depositors indeed never got all their money back from their uninsured accounts.

                    One big difference was that those banks were knowingly engaging in hugely risky schemes, while SVB was ultimately burned by making overly conservative investments.

                    • fmajid 2 years ago
                      The government could make that promise because they have the power to tax, i.e. they have the guns.

                      https://www.federalreserve.gov/newsevents/pressreleases/mone...

                      "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law."

                      Now you may argue it is unfair to other banks to penalize them for the failings of a few. What the SVB fiasco showed is that systemic risk is not just in the too big to fail institutions, but also ones like SVB that are important to specific sectors of the economy, like SVB for Tech or GMAC for cars. As it turns out, SVB had recently gotten TBTF and started the risk management compliance process, including the so-called "living will" to give the Feds a roadmap for an orderly wind-down of the bank, which must have been well-thumbed over the weekend. I expect one of the consequences of this is that more banks will be subject to oversight.

                      • hnfong 2 years ago
                        > while SVB was ultimately burned by making overly conservative investments.

                        This isn't true, interest rates risk of securities of long duration (especially when current fed interest rate is zero) is well known to be risky by anyone who has a cursory understanding of the matter.

                  • dahdum 2 years ago
                    Put another way, this is a list of VCs that prioritize their portfolio companies health and success more than their personal banking relationships or public perception.

                    That’s a pretty strong signal to future startups they’ve got your back when the shit hits the fan.

                    I’m not saying it’s good, but I’m betting a lot of founders are feeling pretty thankful. The bailout was never guaranteed.

                    • tsunamifury 2 years ago
                      No. There was only a 1.8 billion dollar temporary hole in the books. If they wanted to they could have plugged this in minutes and ensured their partner in banking survived. Then cashed out with 1:1.01 tbills or whatever in its stead. Follow on benefits would have been a statement of strength and cooperative SV culture.

                      Instead they panicked like children and told everyone else to panic too

                      It’s not a good look and it broke trust in SV.

                      • danielmarkbruce 2 years ago
                        If you read the SEC filings, there was a 12-13 billion hole in their balance sheet. The 1.8 was simply accounting rules which say they only have to recognize the giant hole when they sell and they sold some of the assets in question. Marked to market, ie assets marked to real prices instead of fantasy prices, they were toast.

                        People who looked at SVB financials knew it was a train wreck. They behaved like serious investment professionals and pulled their money.

                        • pas 2 years ago
                          yep, even though it seems "can't find their own mouth" level incompetence to try to raise cash through equity sale (which prompts everyone to think about their situation) instead of getting a loan, but they may have already exhausted that option.

                          ... though finance is very much about connections, charisma and acting tough, and backchannels. aaand sometimes fundamentals. it's very hard to know if they could have organized/coordinated/managed to put together a rescue package.

                          there was a 15B liquidity hole after all.

                          https://blogs.cfainstitute.org/marketintegrity/2023/03/13/th...

                          by forcing a bank run and crying about payroll they managed to get the government to step in and basically undo SVB's bad deals, at the cost of sacrificing SVB itself. but VCs are happy now, they had the opportunity to both enjoy SVB up to now and have a financially zero-cost exit.

                          if the fallen SVB management gets the same treatment as the fallen WeWork management their egos will be fine at the golf courses.

                          • fmajid 2 years ago
                            As a former SVB customer, they understood the needs of startups like no other bank, and this will have adverse implications for the startup ecosystem, innovation and future economic growth not just in the US but also China and Europe. The incompetent top management who invested deposits in long-maturity T-bills with mediocre rates are not the same as the front-line personnel who had the relationships with the startups.

                            As for moral hazard, past bonuses for executives including the past Chief Risk Officer who left a year ago and cashed in her chips can and should be clawed back.

                        • 2 years ago
                          • notacoward 2 years ago
                            No, a strong signal would have been providing material support to portfolio companies harmed by the collapse, instead of just signing an empty statement.
                          • 462436347 2 years ago
                            These people absolutely deserve to be named and shamed. If the big, "evil" banks can cooperate for the collective good of their industry and the wider economy as they did today by injecting $30 billion of deposits into First Republic to forestall its collapse, there's no reason why these supposedly enlightened, rational VCs couldn't at a minimum collectively agree to just not completely withdraw their deposits from SVB in a stampede, or perhaps go a bit further and actually help them raise additional capital.

                            Instead they gutted the bank that provided them with banking services for 40 years, often when other banks would not. Some of them even did so two-facedly, publicly claiming to support SVB while pulling their and their companies' money out of it:

                            > Y Combinator advised its portfolios to collapse SVB, while Garry Tan petitioned the government for a bailout

                            Union Square:

                            > Signed the statement [of support of SVB] after contributing to the run.

                            Fred Wilson seems like a great example of PG's "Mean People Fail" delusion.

                            • 462436347 2 years ago
                              And before any more midwits play the "Prisoner's Dilemma" card to defend this:

                              https://en.wikipedia.org/wiki/Prisoner%27s_dilemma

                              > Two members of a criminal gang, A and B, are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communication with their partner.

                              The guilty parties here could communicate with each other, and could cooperate, just like the banks did today by aiding First Republic. Instead, it appears that while they did communicate and cooperate, it was only towards the end of running on SVB. And as others have pointed out, even if the framing of it as a Prisoner's Dilemma is correct, it's not a single iteration variant: if the VC community could have come to some sort of an agreement, any party that refused to cooperate, or worse, that pledged to and then betrayed the others, would suffer a substantial loss of trust from other VCs and startups going forward.

                              • hnfong 2 years ago
                                In a textbook prisoner's dilemma, the prisoners both get a hefty sentence if they failed to cooperate and both defected. They had a lot to gain from cooperating.

                                In the SVB situation, most of the losses are borne by the bank, investors of the bank, and the general public (in the sense that it caused financial instability across the nation). It's not a prisoner's dilemma because the downside to not cooperating is mainly borne by other people. The VCs and the startups who decided to "defect" are fine.

                                I'm personally unable to understand the anger here and finger pointing here, the bank was obviously in a bad shape due to their assets being underwater, why would bank clients have a moral responsibility to continue depositing in a bad and failing bank?

                                ----

                                And btw, the fact that parties could communicate with each other doesn't really change the game much. And nobody in their right mind would sign an agreement to keep assets in a bank or face penalties just because of some moral obligation to protect shareholders of a bank that made risky bets. That's just nuts IMHO. Anyone is free to create a time deposit if that's what they want to do.

                                • 462436347 2 years ago
                                  The VCs started the bank run. They were the primary depositor base of SVB. It wasn't a question of whether it was rational or ethical to join a bank run already in progress. Instead it was they, the rational, enlightened VCs, who started the bank run in the first place, becoming prisoners of a dilemma of their own making.

                                  It was in their best interest to cooperate to not run on their bank, and they failed to do so, which in turn brought down SVB, risks bringing down other regional banks in a domino-like fashion, and has already resulted in government bailouts that have made people outside of the SV bubble hate them even more than they already did.

                                  Furthermore, the supposedly "evil" big banks, as I've repeatedly noted, have shown a comparatively greater ability to cooperate for the greater good of their industry and the wider economy, which is embarrassing given how these VCs posture.

                            • fwlr 2 years ago
                              I’m not going to be using this site to guide my opinions of VCs, I don’t generally outsource that much of my opinion-making to 3rd parties. But it does broadly reflect my opinions, you could get a very rough “general direction” picture of how I think from reading it.

                              “It’s rational to join a bank run, VCs would have been negligent to their companies if they advised to stay”

                              I know! Believe it or not I have studied a fair bit of game theory, enough to go beyond “it was a prisoners dilemma” and analyze the SVB collapse as an iterated prisoners dilemma with variable information/reputation and a small number of rounds (in this case the amount of information/reputation broadcasting very quickly drove the whole population to “defect always” and the ecosystem rapidly collapsed).

                              I trust myself to be capable of assigning blame for the bank run correctly (broadly speaking: I. nobody started the run, everyone joined it; II. joining the run earlier is very slightly more blameful than joining the run later; III. being part of the run “loudly” is very significantly more blameful than being part of the run “quietly”).

                              That is maybe 20%, while the other 80% and thus the real albatross here is the demand to be made whole afterwards.

                              Roughly speaking the least blameful is “you’ll get 250k immediately, a substantial fraction soon, and almost all eventually; if this still kills your business let us know and we’ll try to arrange bridging finance”, while the most blameful is “the government must promise to make us whole on Monday morning or the contagion will spread; use taxpayer money if you have to, this is that important”.

                              • MacroChip 2 years ago
                                It wasn't a prisoner's dilemma. Cooperating gets you almost nothing while defecting gives you benefit. It was nearly the opposite of the prisoner's dilemma. Couldn't another school of thought "blame" those who didn't participate loudly?
                                • fwlr 2 years ago
                                  “Cooperating gets you almost nothing while defecting gives you benefit”

                                  That is the prisoners dilemma. What you have offered here is in fact an accurate statement of the payoff matrix for the prisoners dilemma in the case where the other prisoner cooperates.

                                  • hnfong 2 years ago
                                    In prisoner's dilemma cooperating gives both parties the most benefit in aggregate, while defecting gives on party additional benefit at the expense of a steep disadvantage for the other party. Also note that if all parties defect they all end up in a rather undesirable state.

                                    For the SVB bank run, the main loser is the bank, who isn't party to this game (of whether to keep deposits or not). Even if everyone defected, the early defectors don't lose anything. And arguably, it can be foreseen that even late defectors don't lose anything either due to SVB marginally in the "too big to fail" category, or at least, the startup ecosystem being "too important to fail".

                                • shubb 2 years ago
                                  I worry that... given how much high risk free rates must be hurting VCs, it was rational for them to crash a bank to force the fed to ease policy.

                                  I'm not saying they deliberately did that. I'm just saying it would have been a smart reason to do the thing that they did.

                                  The VCs will benefit hugely from the consequences of these events, forget the compensation.

                                  This is what they call moral hazard.

                                  • yafbum 2 years ago
                                    You forget to consider, in your blame list, the people who created the unstable situation in the first place. If I put a pencil on a table, balanced on its tip, can we find which puff of wind to blame when it falls?

                                    The bank's leadership, for example, by choosing to focus heavily on one industry known for rash herd behaviors, both benefited from it some (lots of VCs recommending them) and now seems to have been undone by it.

                                    The bank's regulators might have also looked the other way, we'll find out more.

                                    • lynx23 2 years ago
                                      You're using the word "defect" to describe someone pulling their money from a bank? Seriously? It is so easy to assign blame apparently...
                                      • fwlr 2 years ago
                                        “Cooperate” and “defect” are technical terms in game theory, they don’t carry their usual connotations here.
                                        • flandish 2 years ago
                                          I agree. This all reads like a solid reminder that two things happen in that realm of highly VC funded systems:

                                          - Investment/money management often happens by people who are very new to this process and make swift sometimes stupid decisions.

                                          - Everyone else is clearly in the “protect profit” game, even if that means ignoring the clearly stupid things svb (and really the entire system) did/does. Mort backed securities, crap from the 08 markets, deregulation.. etc.

                                          A failing bank should not crash the economy nor should a bunch of startups failing as a result crash too. Poor startup decisions are one thing. But “too big to fail” things maybe need to be smaller or nationalized?

                                          I realize the site I’m on, and know I am still learning about this.

                                          I have just, in all my (short 43) years, felt the “too big to fail” reason pop up more than it seems it should because, to me, it means “gov must protect my profit, or I’ll deadman switch the economy.”

                                      • aristophenes 2 years ago
                                        I’m sorry, this was an utter mess, shouldn’t have happened and lots of people share blame. But I don’t think it was wrong for depositors to pull deposits from an insolvent (or nearly insolvent) bank. Neither is it wrong to encourage companies you’ve invested in to move money. The only thing I have a problem with is when some of the VCs, like Jason Calacanis, deliberately tried to spread panic to other banks to make SVB more important to the government so they’d backstop his deposits. That was pretty bad.

                                        But realizing your badly run bank is badly run and pulling your funds and encouraging others to do the same is a very reasonable thing to do. Certainly not worthy of this virtual tar and feathering. They are, or would have been, the innocent victims of this banks poor risk management.

                                        Edit: Link to tweet of screenshot of Jason trying to get everyone to panic about the entire banking system, with the only fix is the government to backstop large SVB deposits. https://mobile.twitter.com/nuancerocket/status/1634922146555...

                                      • antics 2 years ago
                                        I am a founder who had assets tied up in SVB. As someone with something to lose, I'm going to be honest that I think the people on this list mostly look incredibly stupid—both at the time and in retrospect. And I think it's worth dwelling on why.

                                        * In a catastrophic (_i.e._, non-backstopped) bank run, _most_ deposits are not getting out of the bank. Especially when the deposit sizes are very large, as they are with corporate treasuries.

                                        * Thus, if a catastrophic bank run is already in progress you are unlikely to succeed at saving any of your portfolio treasuries.

                                        * BUT, if a catastrophic bank run is not in progress, the downside is that you lose 100% of portfolio treasuries because you started one.

                                        I am seeing a lot of people like Elizabeth Yin say that they are proud for telling everyone to pull the plug. I get it. They are on the side of their founders and they want to be helpful, and they believe decisive action helps.

                                        My message to all of those investors is that "makes swift but extremely stupid decisions" is not a quality that is admirable in a capital allocator. I don't think this rises to a moral failing but pretty much everyone on this list is going on my personal docket of people who are too stupid and impulsive to trust in emergency business contexts.

                                        • notch898a 2 years ago
                                          I had to parse this a few times to understand. I think your thesis is that an investor has multiple ventures in their portfolio. And many of those ventures park their treasuries at the same bank. And by telling them a run is happening, your thesis is some or none of those ventures pull their money out faster than others, and the stragglers of the portfolio can't due to the bank run started by the investor and/or other companies in the investor's portfolio?
                                          • antics 2 years ago
                                            During a bank run, 0 withdrawals will complete. So if you warn portcos to withdraw _during_ the run, you save 0 treasuries. If you warn portcos to withdraw _before_ the run, you might trigger the run in which case you'd almost certainly lose 70% of portco treasuries.

                                            I'm proposing in neither case it makes sense to encourage portcos to move their money.

                                            • notch898a 2 years ago
                                              I think there are a lot of details missing and presumptions from this model that could change the calculus, and it would be swift and stupid decision to bet that 0 withdrawals in a bank run are going to complete, or that the first actors are expected to lose a significant share of their money if a run is triggered.
                                            • 2 years ago
                                          • twelve40 2 years ago
                                            If Bloomberg is to be believed, the run started after the funds started experiencing real problems with regular money movement. In which case, it is kind of an emergency?

                                            > 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.

                                            https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-f...

                                            But the funny part is that this story is still unfolding. The bank's new management is soliciting new business under the same "startup-friendly" pitch (and presumably a large number of the same assets and liabilities), and again vulnerable to _the same exact run on a small-ish number of uninsured deposits_ (as opposed to diversified banks with lots of insured accounts across many industries). Except, now they also pitch it as fully insured! So how does this even end? Is it a temporary thing until the bridge bank gets acquired by somebody, or do they have now perpetual 100% protection from the FDIC? Really trying to understand. What good is a friendly bank that collapses from mismanagement and is propped up to serve the same small segment, vulnerable to the same run again?

                                            • lmm 2 years ago
                                              > So how does this even end? Is it a temporary thing until the bridge bank gets acquired by somebody, or do they have now perpetual 100% protection from the FDIC? Really trying to understand.

                                              That will depend on what the FDIC does, and I don't think even they know what the end result will be. They'd like to get it back into private hands (and to that end they want to keep it operating normally, to make it as attractive as possible to buy, at least for the time being), but that depends on finding someone willing to take it. If they can't, they might start gradually winding it down in orderly fashion (e.g. close to new accounts, start giving people a while to transition), or they might keep running it in the current limbo forever (just look at Freddy and Fannie).

                                            • nl 2 years ago
                                              Hmm

                                              It was 100% possible to genuinely hold the belief that "Silicon Valley Bank is safe" and to advise portfolio companies to remove money to reduce risk.

                                              In-fact, that looks like it was the prudent way to behave: depositors probably haven't lost their money but it sure is a lot less liquid.

                                              And this is exactly why bank runs are dangerous - once there is risk of one the safe thing to do is to remove your money as well. The only way to stop one is for an institution with a LOT of money to step in an guarantee it.

                                              • TheJoeMan 2 years ago
                                                If you’re interested in maintaining the partnership, why not leave the FDIC insured amount?
                                                • rexreed 2 years ago
                                                  The best way to prevent a bank run is not to run. A stampede isn't caused by the movement of a lone animal, but by the herd. It's a classic feedback loop.
                                                  • quesera 2 years ago
                                                    > The best way to prevent a bank run is not to run

                                                    No, the only way to prevent a bank run is to get everyone else not to run.

                                                    And since that's impossible, there's only one rational choice to make, which is to be first out the door.

                                                    This is bad! But it's true.

                                                    • NineStarPoint 2 years ago
                                                      Metaphorically you should aim to be the second out the door really. It’s the first person out the door who starts the run, and starting the run is rarely rational. Once the run has begun, yeah you should aim to be out the door fast.

                                                      Unfortunately it’s very rare to have the knowledge and/or connections necessary to guarantee that you can not instigate a run, but still withdraw before the collapse.

                                                      • 2 years ago
                                                      • viraptor 2 years ago
                                                        That's not a way to prevent the bank run. That's just choosing to not be a part of it. Unless you can both coordinate with and convince others to do the same, you're not preventing anything.
                                                        • rexreed 2 years ago
                                                          It sure seems that of all the people who could coordinate and convince others not to run, this list of investors with several thousand overall portcos would be just the right people. A moment of stability at a time of crisis would sure be better than a run for the doors NOW approach that set off the stampede.

                                                          Imagine the ALL-CAPS tweets and backdoor phone calls that could have been possible if these very same investors (who now rally behind the shuttered and reopened bank) could have called for calmness instead of panic. But that's not what happened. Once the run starts, you can't stop it.

                                                        • nl 2 years ago
                                                          There was a balance sheet crisis at the bank. It's pretty easy to see how that could quickly develop into a situation where withdrawls were limited.

                                                          > The best way to prevent a bank run is not to run.

                                                          That is irrational for every individual actor. There is very little downside in withdrawing the money and huge downside in not doing so.

                                                          The best (and only?) way to really prevent a bank run is for an actor that everyone trusts to aggressively step in and provide guarantees.

                                                          See for example the situation at Credit Swisse where the Swiss National Bank had to step in on March 16 to provide $54B in loans: https://www.aljazeera.com/economy/2023/3/15/credit-suisse-sl...

                                                          • peeters 2 years ago
                                                            Curious analogy, given what would happen to someone caught in a stampede who tries to stop it by standing their ground.
                                                        • indigodaddy 2 years ago
                                                          OP website is complete hogwash. Blaming VCs for deposit drawdowns fully within their right is shortsighted. Now the entire banking industry will need to reassess their treasury bond investment risk. Of course mass actions related to derisking those exposures could also spiral out of control within the ecosystem, with further weak banks with way too much risk exposed and failing, but it’s likely necessary.
                                                          • kevinwang 2 years ago
                                                            Here's a defense of those critiqued here (I am uninformed, so please correct me with more nuance):

                                                            Bank runs are similar to prisoners' dilemmas. If all depositors could agree to not bank run, then they would have. Without this agreement, it does make sense to participate in the bank run (earlier is better), since if the bank run happens and you tried to be "good" by not running, you could be the one holding the bag at the end. And if the bank run doesn't happen, then no cost is incurred.

                                                            So unfortunately, a bank run is one of those situations where everyone makes really rational decisions in the absence of coordination, but the outcome is bad.

                                                            Is this a valid defense?

                                                            • 7e 2 years ago
                                                              VCs are lemmings. This run is yet another example. Very few think for themselves.
                                                              • davtbaum 2 years ago
                                                                Perhaps I’m an outlier here, but doesn’t this feel a bit exaggerated? I’m not sure why the author (or, for that matter HN in general) feels so strongly about this. In the end, everyone was made whole. VCs acted in the best interest of the companies they back, and SVB made some really poor decisions which caused them to implode. What exactly is the story here?
                                                                • hnfong 2 years ago
                                                                  Some misguided people thinking tech startups are supposed to care more about maintaining the stability of the banking sector over whether they can pay their employees next week.

                                                                  Interestingly enough nobody is blaming politicians and/or the Fed for causing all this in the first place. I mean, I get that tech and VC money in particular benefitted hugely from the zero interest rate environment in 2011~2021, but still, I fail to see where the moral obligations come from.

                                                                • jsemrau 2 years ago
                                                                  Auditors signed-off their audits : https://www.businesstoday.in/silicon-valley-bank/story/silic...

                                                                  with a clean bill of health nonetheless.

                                                                  • hn_throwaway_99 2 years ago
                                                                    This was commented elsewhere, but the auditors were correct in that situation. This was not a case of fraud, where the bank had less money than they said they did. KPMG's job was to verify that SVB's public statements were accurate, and they were.

                                                                    SVB's precarious position was not a secret - saw a good post from mid-Feb that predicted exactly how this eventually played out. The only other thing KPMG could have done is give a "going concern" warning, and that would have been incredibly reckless because it would itself have caused a run on the bank.

                                                                    • IG_Semmelweiss 2 years ago
                                                                      >>>This was commented elsewhere, but the auditors were correct in that situation

                                                                      Sorry, no. Auditors are supposed to effectively run going concern tests as part of their process. Its not only fraud they are looking for. If a company fails 2 weeks after the opinion because of an act of God, thats different. In this case, it was a literal duration mismatch (interest rate risk) that was predicted by blogs elsewhere.

                                                                      I maybe concede that im not sure it would be reckless to issue FS with a going concern, even if the going concern is true. A more likely scenario would be...no signed opinion. Financial filing would have been delayed. Which itself would have caused the run.

                                                                      If I was KPMG, I know what scenario I would like to be in, and its certainly NOT the current one, with a signed an opinion -with a wet siganture still- for a company that melted away within 2 weeks.

                                                                      • jsemrau 2 years ago
                                                                        Well, when I was working with auditors (internal AND external) in previous roles in major financial institutions, we always performed tests if risk management tools are sufficient and reserves are proper. In the case of SVB it would have been possible to point out the concentration risk before bringing this into the public domain. But then, I do agree with you that the situation evolved as a sum of many parts, which included the, at the time, highly unlikely result of a bank run by the VC community. Looking back, I still shake my head how this came to be.
                                                                    • Areibman 2 years ago
                                                                      Wouldn’t it make more sense to shame people who pulled out of SVB while simultaneously advocating for a bailout?

                                                                      Only a couple of prominent investors on that list fit the bill

                                                                      • walterbell 2 years ago
                                                                        Why didn't more SVB depositors take advantage of the SVB offering for sweeping cash funds into insured accounts?

                                                                        https://prospect.org/economy/2023-03-13-silicon-valley-bank-...

                                                                        > Importantly, SVB was part of the network of cash sweep banks; it had an offer on its website about it. But according to Adam Levitin, there were only $469 million in reciprocal deposits, which is where cash sweep would show up. In other words, almost nobody banking at SVB used them.

                                                                        • evancox100 2 years ago
                                                                          Roku had nearly half a _billion_ uninsured at SVB! I get how a small startup maybe overlooks their cash management, but how do you get to the size of Roku and have that? Treasurer/CFO should be fired.
                                                                          • jessaustin 2 years ago
                                                                            Roku should have been nationalized.
                                                                        • fastball 2 years ago
                                                                          Seems like a lot of people are missing the point of this website.

                                                                          90% of the criticism seems to be "depositors are never morally wrong for withdrawing money from a bank, so this website is bad".

                                                                          But mostly this website's focus seems to be on the hypocrisy, e.g. the VCs who said "don't run on the bank" while telling their portfolio companies to run ASAP. That is much more obviously a moral wrong (to me at least).

                                                                          I'm mostly basing this on the fact that the website explicitly said "You will be remembered for your hypocrisy." rather than "You will be remembered for running."

                                                                          • wnevets 2 years ago
                                                                            Watching Calacanis claiming he was responsible for the federal government's aid was quite shameful
                                                                            • chernevik 2 years ago
                                                                              The question for the VCs is not, "why did you advise your portfolio companies to leave SVB?" It is, "why did you not advise your portfolio companies to hold their capital in a t-bill money market?"

                                                                              This obvious step for capital protection was somehow neglected by venture capital firms who pride themselves on advising their portfolio on a host of mundane business issues. A VC would be considered mad if one of its companies didn't run financing docs through a lawyer, or handled payroll on its own. This should have been one of the most obvious and simple items on the checklist. Yet somehow it was not.

                                                                              Why not?

                                                                              The failure of any bank should have been a shruggable matter for every startup funded with capital. Instead it was portrayed as an existential issue for all. (This was entirely and obviously false, but let that pass.) If it were an existential threat that was a lapse of the VCs supposedly guiding these business novices.

                                                                              I very much suspect that the hue and cry for a bailout was driven in part by VCs eager to cover this lapse. And to suppress attention on the relationships with SVB that lead them to recommend their companies provide SVB with cheap deposits rather than prudently protect their capital.

                                                                              The answer to a bank run is not "stand by your bank". It is "be indifferent to what happens to your bank in the first place".

                                                                              • sacnoradhq 2 years ago
                                                                                This comes off as a strawman job.

                                                                                There was no grand conspiracy ahead-of-time to cause a run.

                                                                                It would be dumb on the part of investors and VCs to not facilitate moving vast sums of their money to safer places in an orderly fashion.

                                                                                OTOH, there existed an opportunity to steer cash in directions favorable to the influencers after SVB was already sinking.

                                                                                So I don't see any evidence it was anything other than mismanagement by growing too big too quickly and betting on riskier financial instruments than should've been allowed.

                                                                                • soumyadeb 2 years ago
                                                                                  Scenario planning on two VC reactions on Thus (3/9)

                                                                                  1) VC1 - SVB is perfectly safe . Don't worry and keep the money there.

                                                                                  2) VC2 - We are hearing rumors about SVB. You should play safe and move it to another bank. Here is a guy who can help with opening accounts etc.

                                                                                  And SVB shuts down on Friday (3/10).

                                                                                  Guess, which VC would I recommend to a new founder?

                                                                                  Yes. Feds saved SVB but there is a world where it might not have and my money could have been locked for days forcing me to miss payroll. In any case, I would have had a sleepless weekend.

                                                                                  Founder here.

                                                                                  • BoiledCabbage 2 years ago
                                                                                    The single largest learning point from this experience was how entirely hollow the whole Silicon Valley libertarian ethos really was.

                                                                                    And yet again, another group that claims to say "leave us be, take away restrictions and oversight we'll take care of ourselves, be more efficient an ask nothing of you", turnouts to be just another form of "leave us along so we can benefit, and then come save us when we need help".

                                                                                    And to be very clear, the lesson to take away from this isn't: don't save a group when it needs help - because in the end the Yellen and FDIC did the right thing. To do any differently would have been to cut off our nose to spite our face. The lesson is stop letting groups be allowed to be build these fake worlds. Every single time it works out to be "libertarian when convenient and socialist when suffering".

                                                                                    As we saw with the "code is law", and other cases - as much as people like the concepts it never holds up when people's assets/health are actually at stake. It is human nature they will always turn back to society for help after having refused to pay into it to get there (or directly taking advantage of it to profit).

                                                                                    If you want to profit off of the hard work of an existing society, you must also pay the costs of maintaining society. Anything otherwise is just a "free rider" problem waiting to explode. We're simply lucky we could contain it this time (so far).

                                                                                    There is a reason why every long-run solution to the prisoners dilemma is to cooperate. There is a reason why every society since antiquity has been based on society cooperation. The only long term stable solution is cooperation and eliminating free-riders who claim to be exempt from rules.

                                                                                    SV's VC ethos was completely hollow.

                                                                                    • hindsightbias 2 years ago
                                                                                      You mean Welfaretarians.
                                                                                      • jmyeet 2 years ago
                                                                                        It's so much worse than that.

                                                                                        The same people who cry to be bailed out of a bank run are the same people who wring their hands about the moral hazard of student debt relief. You will find that theme repeated. Any government money spent on poor people we simply cannot afford.

                                                                                        The rich never stop asking the government for money. They expect it. They certainly never refuse it. Never forget that.

                                                                                        "Libertarians" are pretty much just Reagan-era deregulation conservatives. It is utterly self-serving.

                                                                                        • notch898a 2 years ago
                                                                                          [flagged]
                                                                                        • taxman22 2 years ago
                                                                                          I can’t believe this narrative is at the top of HN. It’s disappointing.
                                                                                          • labster 2 years ago
                                                                                            I admire that it can get to the top of HN, though, in that there is no heavy-handed moderation coming from the top. It shows a good working knowledge of the Streisand effect.
                                                                                            • pizlonator 2 years ago
                                                                                              Yeah.
                                                                                            • chad_strategic 2 years ago
                                                                                              Hmm...

                                                                                              If I was a powerful VC I would have shorted the stock and then went to the latest Silicon Valley venture capital social hour event and made a point of mentioning I had with drawn my billions.

                                                                                              This plot right out of Billions.

                                                                                              Since I'm not material investor in SVB, I can't see that this would be a red flag for the SEC?

                                                                                              • davesque 2 years ago
                                                                                                Wait, they're trying to say that this was all the fault of the depositors? No, sorry. While I often find it hard to empathize with wealthy tech bros, I don't have much trouble at all imagining myself doing the same thing.
                                                                                                • asdfaoeu 2 years ago
                                                                                                  SVB didn't fail because people pulled money, it failed because of a lack of risk management. Complaining about those pulling money out is silly. If anything they should have pulled it out much earlier.
                                                                                                  • 2 years ago
                                                                                                    • vishnugupta 2 years ago
                                                                                                      Sequoia is conspicuously absent in that list. Knowing how dump their recent moves/investments have been I'm very surprised. Anyone knows how did they manage to dodge this, if at all?
                                                                                                      • 2 years ago
                                                                                                        • yafbum 2 years ago
                                                                                                          It's weird that SVB, or any one particular bank, would be "playing a pivotal role in serving the startup community". Loans are loans. The stories coming out about SVB "sticking with the founders through tough times" when none of the other banks would, well, they sound a bit like what you'd hear about a bank taking reckless risks with its lending practice.
                                                                                                          • dluan 2 years ago
                                                                                                            A list of VCs who did not learn game theory correctly
                                                                                                            • krick 2 years ago
                                                                                                              This is laughable. I won't start on how it's my money and all that jazz, so just one thing: keeping your money and your clients' money in a bank that is on the verge of a bank run is not a sign of valor, it's either a sign of being stupid and irresponsible, or a sign that you know something that others don't.
                                                                                                              • benatkin 2 years ago
                                                                                                                Contagions gonn contage.

                                                                                                                If it was in a vacuum maybe they could have kept a lid on it. But I disagree that they should have stayed calm about it with what happened prior with TerraUSD, Luna, Celsius, and FTX. The length of the list shows that it would have been infeasible to collude to stay quiet.

                                                                                                                This hall of shame feels like an ego trip.

                                                                                                                • petesergeant 2 years ago
                                                                                                                  > But those players within the venture capital community who were singularly responsible for triggering and then exacerbating this run will not escape accountability. Future founders will know your worth.

                                                                                                                  Future founders will know that the VCs helped them protect their cash?

                                                                                                                  • kondro 2 years ago
                                                                                                                    Call me naïve, but if I put money in a bank I should be able to get it back whenever I want. If I didn't want it to be liquid, I'd buy something less liquid. The very concept of a bank run is ridiculous. If all a bank's customers want their cash back, they should be able to get it back without affecting the liquidity of the bank.

                                                                                                                    Transaction accounts don't earn me anything and have fees of their own. There's little incentive to stay at one bank over another. If they want equity, they should sell long-term secured loans with LVRs under 100% or lock in my cash with term deposits or any number of other less liquid asset classes. But why should I feel guilt over moving my cash from one bank to another?

                                                                                                                    Maybe it's because I'm Australian but I feel our banking industry is significantly more stable. The last time a bank had any serious issue was 1990 and it was a (single bank that itself was bailed out by the government). Australian banks make their money through mortgages (averaging less than 80% LVR or insurance-backed if higher and with fixed terms of generally no longer than 5 years), credit cards and management fees on long-term investment products -- they don't rely on investing cash deposits on long-term illiquid instruments.

                                                                                                                    The fact this doesn't seem to be the case should raise questions over the entire US banking industry. Cash should be liquid.

                                                                                                                    Edit: For reference, APRA (bank regulator in Australia) has some very strict liquidity risk management requirements and most banks own liquidity requirements are significantly higher than this: https://www.apra.gov.au/apra-explains-liquidity-banking -- an Australian bank would never be allowed to purchase a 10-30 year bond to match against cash assets.

                                                                                                                    • syllablehq 2 years ago
                                                                                                                      Yes, this is naïve, but it's a typical assumption. Cash _should_ be liquid, and almost everyone operates with the assumption that it always _will_ be liquid. but fiat cash is not what people think it is. A dollar in your bank account is not real. It's more like a share in the bank corporation which may or may not be perfectly pegged to the approximate value of the non-elected Fed's manipulated US dollar.

                                                                                                                      Fiat is a theoretical ideal "decreed by the government" which is imposed onto a system with leaky constraints. The system is... super complicated. And super problematic. Macroeconomics is... fuzzy.

                                                                                                                      This is the whole reason why Bitcoin was created in the first place. Bitcoin is fiat created by the masses which has hard constraints. Its economics are a hard science. Bitcoin is as liquid as the system that trades it. Does a Bitcoin have value? Well, universal value, no. But the Bitcoin network has value because it facilitates value transfers (even if you convert to fiat on both sides - look up international remittance fees). And the network is mitigated by the token. So if the system has value, and the token is intrinsic to the network, does a Bitcoin have value?

                                                                                                                      Yeah Bitcoin is complicated, and far from perfect. But when you start to understand how complicated and problematic government fiat is... maybe folks who still think Bitcoin is worthless may want to take another look. We need stronger money networks. #theNetworkIsTheValue.

                                                                                                                      • hnfong 2 years ago
                                                                                                                        > It's more like a share in the bank corporation

                                                                                                                        What the heck? No that's just outright wrong. SVB shares are basically worth nothing these days. Depositors are getting something back. If you're not familiar with the relative priority of bailors, secured creditors, depositors, debtors and shareholders during a bankruptcy proceeding, I suggest you read up more before making confident and borderline condescending statements about the common person's naïvety.

                                                                                                                      • tablespoon 2 years ago
                                                                                                                        > Call me naïve, but if I put money in a bank I should be able to get it back whenever I want. If I didn't want it to be liquid, I'd buy something less liquid. The very concept of a bank run is ridiculous. If all a bank's customers want their cash back, they should be able to get it back without affecting the liquidity of the bank.

                                                                                                                        Then the product you really want is a safe deposit box to put your literal cash in. They bank will make its money from the rental fee you pay. It doesn't sound like you're actually looking for a bank account that pays interest.

                                                                                                                        • kondro 2 years ago
                                                                                                                          Cash is basically illegal for many transactions related to financial services and is likely to become illegal for everything greater than $10k in Australia very soon:

                                                                                                                          https://treasury.gov.au/policy-topics/economy/black-economy/...

                                                                                                                          • sacnoradhq 2 years ago
                                                                                                                            Australia and India are among those who bought (no pun intended) into the fallacy that cash is for criminals, and you're only a good consumer if you use traceable electronic funds from megacorp SIBs.

                                                                                                                            There are millions, if not billions, of unbanked people whose survival depends on cash.

                                                                                                                            And the US has civil asset forfeiture, were cops call "dibs" on cash and the owner has to essentially disprove a negative they're using it for a legal purpose in order to recover it.

                                                                                                                            • tablespoon 2 years ago
                                                                                                                              > Cash is basically illegal for many transactions related to financial services and is likely to become illegal for everything greater than $10k in Australia very soon:

                                                                                                                              That's irrelevant. My main point is you appear to not want the traditional "bank account" product, but rather a "secure storage" project. I provided an example of the latter from my jurisdiction, but that was only an example.

                                                                                                                            • notch898a 2 years ago
                                                                                                                              It would be a lot cheaper and probably less risky for the safe deposit box to be numbers in an account like it is with fractional reserves, except the part where they lend it out privately. Even better if those reserves can be kept at the central bank overnight to earn a bit of interest.

                                                                                                                              I also can't do an ACH or wire transfer from a safe deposit box.

                                                                                                                              • erik_seaberg 2 years ago
                                                                                                                                Please do not store valuables in a bank safe deposit box. Customers have come back and found strangers’ stuff, or nothing, and courts have upheld banks’ almost complete disclaimers of liability in rental contracts.

                                                                                                                                (This is in the US, I wouldn’t know whether other countries also have this problem.)

                                                                                                                              • borski 2 years ago
                                                                                                                                > Australian banks make their money through mortgages

                                                                                                                                Where do you think your banks get the money to loan out for mortgages? I’ll give you a hint: your deposits. This is how banks work.

                                                                                                                                • Aeolun 2 years ago
                                                                                                                                  Since they can loan out much more than they get in deposits that’s not strictly true right? You can have 10 house loans for every house sized deposit (or something similar).
                                                                                                                                  • Danieru 2 years ago
                                                                                                                                    You are confused about how fractional reserve works.

                                                                                                                                    The 10x multiplier is on the bank's equity. For every dollar of home loan there is a dollar or more of deposits.

                                                                                                                                    The multiplier effect of fraction reserve occurs over iterated loans and depositing. The fraction term comes in because the bank can lend out a fraction, less than 1, of deposits.

                                                                                                                                    • mikeryan 2 years ago
                                                                                                                                      I don't know where that 10x number is from but they can loan more then they take in by taking out lower interest rate loans from central banks. Thats what "The Fed" is.

                                                                                                                                      But they're going to use depositor funds first because these days those funds are available at a virtually 0% rate.

                                                                                                                                    • klooney 2 years ago
                                                                                                                                      But there's this endless array of explainers saying they don't- https://www.google.com/search?q=banks%20don%27t%20lend%20dep...
                                                                                                                                      • borski 2 years ago
                                                                                                                                        Ugh. Okay, banks don’t take the money that you deposit, turn around and loan it at a higher interest rate directly. But they do use the money you deposit to balance their books and meet the necessary cash reserves that make those loans possible, which is, in effect, lending out your money.

                                                                                                                                        When people request their money back en masse, banks face a liquidity issue because of the required fraction reserves they must keep. Directly or indirectly, without your deposits banks cannot lend out money.

                                                                                                                                        • mikeryan 2 years ago
                                                                                                                                          You need to re-read those articles. They don't say banks "don't lend depositor funds" At least the first couple on that page explain that banks don't "need" depositor money to lend and in fact they generally lend out money they borrow from a central bank since their loan outlay tends to outpace their deposits.

                                                                                                                                          But outside of the central bank reserve requirements the banks are free to loan our or otherwise invest their depositors cash, which is in fact prudent since cash "loses" value from inflation. Putting that excess funds into loans or other investments can all lead to what happened to SVB if a run on the bank over runs the reserves.

                                                                                                                                        • sacnoradhq 2 years ago
                                                                                                                                          Please do us a favor: don't assume the other party is ignorant of fundamentals because such a comment doesn't serve a purpose.
                                                                                                                                          • borski 2 years ago
                                                                                                                                            I made no such assumption. GP implied that bank runs wouldn’t hurt Australian banks. They would. That’s all.
                                                                                                                                          • 2 years ago
                                                                                                                                          • photochemsyn 2 years ago
                                                                                                                                            What you're describing is a service provided by a bank called a safe deposit box, which banks provide as a fee service. This is quite an archaic view of banking services.

                                                                                                                                            The most basic commercial bank today makes car and home and small business loans using the funds deposited by its clients, and it holds those funds 'for free' (in the 1980s in the USA, one could make 5% interest by depositing one's cash in a bank savings account, with perhaps some penalties for withdrawal, IIRC). The bank charges a greater interest rate to those who take loans from the bank and pays out a lower interest rate to those who deposit funds with the bank, and that difference is where it earns its profit margin.

                                                                                                                                            People tell me this little fairy tale has very little to do with the majority of the profits 'earned' in the modern banking system, however. It seems to have something to do with the merger of investment and commercial banking post repeal of Glass-Steagall laws separating those two sectors.

                                                                                                                                            Curiously, nobody seems to want to talk about the strength of the dollar being backed up by petrodollar recycling since it went off the gold standard... but hey, who cares, we're fighting a war with Russia in Ukraine over access to the European gas market for just that reason, and the expenditures in Ukraine ($100 billion) seem comparable to the expenditures looming to make good the depositors in SVB and co. ($100 billion?) and these two things must be completely unrelated... I guess.

                                                                                                                                            • YeBanKo 2 years ago
                                                                                                                                              Safe deposit boxes are very hard to come by these days. Banks are moving away from them. Last year JPM started phasing them out [1]. The trade is likely to continue.

                                                                                                                                              [1] https://www.bloomberg.com/news/articles/2022-09-30/jpmorgan-...

                                                                                                                                              • ashwagary 2 years ago
                                                                                                                                                >Safe deposit boxes are very hard to come by these days.

                                                                                                                                                Safe deposit boxes are also not insured.

                                                                                                                                                If you put $250k of cash in a box and the bank catches on fire or gets robbed, you will most like get $0 back, while people with accounts will atleast get the FDIC insured portion of funds back.

                                                                                                                                              • 2 years ago
                                                                                                                                              • aristophenes 2 years ago
                                                                                                                                                What took down SVB was mortgage securities. In the USA mortgages are typically 30 years long, with a fixed rate the entire time. Actual average duration is only a few years in a declining rate environment and 5-6 years in flat rate environment. In a raising rate environment, which we haven’t really seen for any length of time in most people adult lifetimes, it’s probably 10-15 years. This transition is what harmed SVB and it’s hurt all the banks but most didn’t leverage up so much on them and didn’t have only large, flighty customers. Very unique situation. There are also lots of ways big banks can protect themselves from this duration risk, if they actually care.

                                                                                                                                                It sounds like in Australia (and Canada and the UK) the risk has just been shifted from the professionals to the consumers, with only five year mortgages. You can’t pay off your entire house in five years, so many people are dependent on being able to refinance, and are going to be in a lot of hurt over the next few years as the mortgages come due. This does not sound like a better solution.

                                                                                                                                                • kondro 2 years ago
                                                                                                                                                  Fixed terms above 5 years are basically non-existent, most people tend to fix a portion (not always 100%) of their loans for 2-3 years if they fix at all.

                                                                                                                                                  30 year mortgages here aren't uncommon, but the rates are variable and are basically whatever their bank wants to charge (with competition from other banks preventing them from increasing ridiculously).

                                                                                                                                                  Loan affordability is a big thing here too with banks being mandated to ensure that borrowers can afford the mortgages they're receiving and even shading interest rates at 3 points above their current levels when assessing this.

                                                                                                                                                  Sub-prime mortgages are effectively non-existent here as are long-term interest rate risks for banks as their borrowing costs are always pretty closely aligned with their lending revenues.

                                                                                                                                                • mikeryan 2 years ago
                                                                                                                                                  they don't rely on investing cash deposits on long-term illiquid instruments

                                                                                                                                                  Where do the banks get the money for the mortgages from those from? Is a central bank giving them loans for to cover the mortgage outlay? Because if they're financing them with customer deposits (which is the way every bank I know in the US works) those mortgages are long-term illiquid instruments.

                                                                                                                                                  • NovaDudely 2 years ago
                                                                                                                                                    I will preface this with - arm chair analysis. I don't know a huge amount about the banking system but I do have one point to make...

                                                                                                                                                    It is hard to tell is the aussie banks are in any better position. The debt leverage ratio of the big four are incredibly difficult to track down. The last figures I saw are from about 2015 and even then banks like Commonwealth bank were leverage at something like 60:1 however looking at the wikipedia I would put it at something closer to 20:1.

                                                                                                                                                    If that is true, between 1.7% - 5% of deposits being pulled out would mean they would have to start getting the cash from elsewhere - ie. Sell assets/bonds. That is just based on $72 billion cash to $1.2 Trillion assets.

                                                                                                                                                    However if this is the case, they have been in this position for a very long time and they seem to be very stable. It feels like there is some big piece of this I am possibly missing.

                                                                                                                                                    I look forward to others pointing out the weakness of this point of view and correct my grammar in a witty fashion. ;)

                                                                                                                                                    • rswail 2 years ago
                                                                                                                                                      Australia has the equivalent of FDIC insurance (called FCS) that covers up to AUD250K per account holder at all ADIs.

                                                                                                                                                      The 4 "major" banks in Australia (Commonwealth, Westpac, NAB, ANZ) all maintain ratios above the minimum requirements and above the international requirements for "unquestionably strong". They're also (implied) "too big to fail".

                                                                                                                                                      APRA (our banking regulator) publishes plenty of stats.

                                                                                                                                                      I found this presentation https://www.commbank.com.au/content/dam/commbank-assets/inve... for the Commonwealth for FY21, which shows that their loan book is funded 73% by deposits, and the remainder is 74% long term, with a 5 year average maturity and they have 13.1% of their capital retained.

                                                                                                                                                      So if they have they have 13% capital, as well as AUD175B in liquid assets, with $610B in deposits, then they'd start to be in real trouble if more than 25% of their account holders started pulling out cash.

                                                                                                                                                      Of that $610B, $310B is households, so the split between standard savings accounts and business/investment/term deposits etc is roughly 50/50.

                                                                                                                                                    • klabb3 2 years ago
                                                                                                                                                      > If they want equity, they should sell long-term secured loans with LVRs under 100% or lock in my cash with term deposits or any number of other less liquid asset classes.

                                                                                                                                                      Exactly. Banks get special sweet deal privileges for their “superior” ability to manage risk and they still haven’t come up with a way to protect against a few days of rumors? I don’t buy it. Either it’s extreme incompetence, world record complacency or there’s some meta play where someone makes money off it.

                                                                                                                                                      And yeah, I’d be super happy to lock in deposits in exchange for a higher interest rate, it’s a dead simple financial product that nobody offers. Failing at running a bank seems to me like losing in tic tac toe as a first mover. This is why people turned to crypto. Not saying it’s good yet, but doing better than the current financial system is a low bar.

                                                                                                                                                      • rswail 2 years ago
                                                                                                                                                        Isn't a term deposit exactly what you are looking for? Lock in for 3/6/12 months or more and get a higher rate.

                                                                                                                                                        Aussie banks offer it.

                                                                                                                                                      • jrockway 2 years ago
                                                                                                                                                        I guess they do this because someone figured out they could. I'm sure once upon a time there was a bank that only took deposits and just stored your cash in a big vault. They went out of business when they realized they had to pay for the vault but couldn't use any of the money in it.

                                                                                                                                                        This is like showing ads on something you already pay a monthly subscription for. Remember when cable TV was supposed to be ad-free? That died when people realized they could make more money by double-dipping. And everyone was apparently fine with it.

                                                                                                                                                        • fwlr 2 years ago
                                                                                                                                                          One thing we want from banks is to store our money and provide it to us on demand. Another thing we want from banks is provide lending to the average consumer (mortgages in the large and credit cards in the small). A bank can do both of these well, in most economic situations, if it is run well. Those two services synergize most of the time so it’s useful to combine both under one entity, but in some scenarios the sign can flip and they antagonize each other instead.
                                                                                                                                                          • rswail 2 years ago
                                                                                                                                                            Aussie banks have both fixed and variable rate mortgages.

                                                                                                                                                            Most mortgages are either:

                                                                                                                                                            * Fixed: 1-5 year terms with exit fees if changed earlier

                                                                                                                                                            * Variable: 25 year terms, with variable rates, "offset accounts" (an associated account where you can deposit that offsets the outstanding principal of the mortgage), reduced or zero entry/exit fees, ability to "redraw" (effectively treating the mortgage as a line of credit) etc.

                                                                                                                                                            • whateveracct 2 years ago
                                                                                                                                                              To be pedantic, I'm pretty sure a big enough bank run could topple your banks too. Where do you think they get the cash to lend out from?
                                                                                                                                                              • kondro 2 years ago
                                                                                                                                                                Australian banks have a mandated 100% LCR and most banks hold 130%+ LCR (remember LCR is calculated based on a 30 day stress outflow).

                                                                                                                                                                Even if a run lasts longer than the period above they're backed mostly by mortgages that are priced significantly higher than their borrowing costs and LVRs that average lower than 80% and the way AU banks price interest rates will always cost significantly less than their borrowing costs. They're never going to have trouble raising money on prime, variable interest (average fixed terms are always less than 5 years here) debt.

                                                                                                                                                                APRA standards all but eliminate a sub-prime problem here. Loan affordability has been a very hot topic here over the last decade.

                                                                                                                                                              • throw123123123 2 years ago
                                                                                                                                                                That is not what banks do, its the modern banking system.

                                                                                                                                                                That's what bitcoin was all about..

                                                                                                                                                                • Jensson 2 years ago
                                                                                                                                                                  Bitcoin isn't solvent either, good luck getting your money out in case there is a bank run there.
                                                                                                                                                                  • ofchnofc 2 years ago
                                                                                                                                                                    > Bitcoin isn't solvent

                                                                                                                                                                    So, I'm curious - what do you think this means, when you say it?

                                                                                                                                                                  • throwawaylinux 2 years ago
                                                                                                                                                                    That's what banks choose to do. People depositing their money with a bank don't have a responsibility to ensure it remains solvent though.

                                                                                                                                                                    If you think there is a significant risk your bank is going to go under, you get your money out. If you think that risk is due to panic about a bank run kicked off by an unfounded rumor, you get your money out. You take care of your affairs, and the bank can take care of its operations and public relations.

                                                                                                                                                                  • jrumbut 2 years ago
                                                                                                                                                                    Fixed terms of 5 years would be a very hard change to swallow in the US.
                                                                                                                                                                    • TylerE 2 years ago
                                                                                                                                                                      Might fix the Airbnb problem though.
                                                                                                                                                                      • kondro 2 years ago
                                                                                                                                                                        Negative gearing (a way to merge unlimited losses from investment property into your personal tax return) and the core, multi-generational opinion that investment property is the best way to build wealth in Australia and no property tax (equivalent is rates which are significantly lower on average than the US and stamp duty which is only payable on the sale of a property) has causes massive investment in non-PPOR properties as well as massive property inflation costs in general.
                                                                                                                                                                        • jrumbut 2 years ago
                                                                                                                                                                          Oddly enough, a very similar percentage of homes are owner occupied between the two countries despite the apparently dramatic differences in mortgage availability.

                                                                                                                                                                          Edit: this is based off a two minute Google I could be wrong.

                                                                                                                                                                      • iab 2 years ago
                                                                                                                                                                        Yes, this is quite naive
                                                                                                                                                                        • cde-v 2 years ago
                                                                                                                                                                          Ok, I'm starting a new bank and everyone will be able to withdraw all at once, bank runs will be a thing of the past, your interest rate will be 0.00000000000000000000000000000000000000000000000125%
                                                                                                                                                                          • jabbany 2 years ago
                                                                                                                                                                            A positive interest rate? That's a no brainer steal.

                                                                                                                                                                            Basically you're saying you'd pay the customer for the privilege of not being able to use their money...

                                                                                                                                                                            A bank that keeps 100% funds as reserve to accommodate any withdrawal pattern not only cannot give any interest, it would need to _charge you_ a maintenance fee to cover the costs of holding your money as well as charge you a per-transaction fee to cover the cost of moving it.

                                                                                                                                                                            And it wouldn't be some symbolic amount like $30/mo. After all, the maintenance fees across all the accounts would need to cover all operating expenses (wages, facilities, utilities, consumables etc.) otherwise the bank would literally lose money to run the transactional account program.

                                                                                                                                                                            • starkparker 2 years ago
                                                                                                                                                                              Sounds like a postal banking system proposal to me. Can you rewrite this in the form of legislation, please?
                                                                                                                                                                            • p1necone 2 years ago
                                                                                                                                                                              Sounds fine by me. I get better returns investing in index funds anyway, my bank account is literally just somewhere to park my liquid money and direct my paycheck to because stuffing it under my mattress would be too unsafe.

                                                                                                                                                                              Banks should differentiate between accounts where you're safely parking your money, and accounts that are actually low risk investments. And they ideally would offer both of those things. I see no downsides here.

                                                                                                                                                                              • rswail 2 years ago
                                                                                                                                                                                Banks do differentiate. If you have an account that is <$250K, you're covered by the FDIC, which essentially makes it zero risk, irrespective of the account's associated interest payments.
                                                                                                                                                                              • manquer 2 years ago
                                                                                                                                                                                If you are a privately owned bank with a small group of similar minded shareholders who are not looking for a lot of ROI and also the bank should not issue any bonds and raise debt then it may work.

                                                                                                                                                                                Given that you can only accept maybe 20x[1] of the equity investment. Is it possible to raise $15B in equity financing with this model ? Otherwise this bank cannot service the volume deposits of SVB and it would be a just small novelty bank.

                                                                                                                                                                                Banks have significant costs and expectations of growth, shareholders to satisfy, which is why they take risks. Risks that are regulated - which perhaps not strong enough (Basel III) are still pretty strict

                                                                                                                                                                                ---

                                                                                                                                                                                [1] Ignoring risk weights etc, you would need at least 5% of the deposits in equity to be "Well Capitalized". The number goes higher depending on risk factors.

                                                                                                                                                                                • Aeolun 2 years ago
                                                                                                                                                                                  Where do you get the money to pay your employees? How about -5% interest.
                                                                                                                                                                                  • ptmcc 2 years ago
                                                                                                                                                                                    More realistically, you'd have to pay fees and gain no interest.
                                                                                                                                                                                    • kondro 2 years ago
                                                                                                                                                                                      Your bank pays you interest on a transaction account?
                                                                                                                                                                                      • ac29 2 years ago
                                                                                                                                                                                        Mine does. Usually the highest interest rate checking accounts have requirements such as direct deposits and/or linked credit/debit card transactions. But, even the big banks in the US pay more than zero (very slightly more like 0.01-0.05%).
                                                                                                                                                                                      • ofchnofc 2 years ago
                                                                                                                                                                                        [dead]
                                                                                                                                                                                      • djaouen 2 years ago
                                                                                                                                                                                        Unfortunately, that’s not how the system currently works. Literally any bank (in our currently capitalist system) would collapse from undue pressure from depositors. This is because banks are under pressure to make a profit, and the only way to do that is through lending out deposits. If you want to fix the system, petition the government to nationalize the banks.
                                                                                                                                                                                      • sky_rw 2 years ago
                                                                                                                                                                                        It's not immoral to yell fire in a crowded theater if the theater is in fact on fire.
                                                                                                                                                                                        • periram 2 years ago
                                                                                                                                                                                          Isn't this one of the stable Nash equilibriums in game theory. You keep X of your X money if you withdraw, with a chance that someone else will lose their money OR you keep your faith in the system with a chance that you lose 100% of X.
                                                                                                                                                                                          • mathattack 2 years ago
                                                                                                                                                                                            The VCs did what they had to do. It’s poor financial management to not run for the door when the last one standing may be holding the bag.

                                                                                                                                                                                            I just find it strange that after all that SVB is using the bailout as marketing. “All your new dollars are safe too!”

                                                                                                                                                                                            • adityaathalye 2 years ago
                                                                                                                                                                                              Siren call for a VC Union? I'm only half-serious :)

                                                                                                                                                                                              Under the circumstances, I'd have pulled out money while I could. Money in hand is better than a hope in hell.

                                                                                                                                                                                              But seriously, I wonder if it makes sense to have some common ground to greatly reduce odds of SVB-likes happening?

                                                                                                                                                                                              Dealing with this kind of emergency is all about communication. The final collapse happened frightfully quickly. There is no time to organise when the car pile-up has begun. You got to have groundwork in advance, and comms open too.

                                                                                                                                                                                              Maybe its too black of a black swan that you can't ever prevent. Maybe the competitive dynamics of the startup world do not lend support for a commons. Yet, maaaybe if you can see that your number one business partner's books have become crazy, someone should be able to say something, at the very least?

                                                                                                                                                                                              • vivegi 2 years ago
                                                                                                                                                                                                You can't blame the depositors or the VCs in this case for SVB's failure. Only SVB was responsible for taking on naked long-term risk and being unable to meet current obligations.

                                                                                                                                                                                                At the time the VCs advised their portfolio cos to pull funds out of SVB, it was a perfectly rational reason because only 2.7% of SVB's deposits were FDIC insured. That means, there was no guarantee of the Fed, treasury and FDIC would take the action to make good all depositors.

                                                                                                                                                                                                The entire site appears like something from an affected party (shareholder/investor/exec/boardmember of SVB) who lost their shirt in this fiasco and has an axe to grind. Just saying. Not sure why the are not naming and shaming the former SVB execs and boardmembers who missed to identify these risks early on and mitigate them.

                                                                                                                                                                                                The failure of SVB is just capitalism, isn't it? They risked their capital on a business that took bad decisions, so it is only fair that the specific company (SVB) ceases to exist and something else comes up to take its place.

                                                                                                                                                                                                • dzhar11 2 years ago
                                                                                                                                                                                                  2020 Panic buying === 2023 Panic withdrawing https://en.wikipedia.org/wiki/Panic_buying
                                                                                                                                                                                                  • Mizoguchi 2 years ago
                                                                                                                                                                                                    Every reasonable human being with money in SVB should be in this list.
                                                                                                                                                                                                    • gmd63 2 years ago
                                                                                                                                                                                                      As I post this, the original post has 360 points posted 3 hours ago and is ranked lower than a post with 260 posted 14 hours ago.

                                                                                                                                                                                                      Interesting.

                                                                                                                                                                                                    • pizlonator 2 years ago
                                                                                                                                                                                                      I don’t see the point of shaming these folks.
                                                                                                                                                                                                      • op00to 2 years ago
                                                                                                                                                                                                        I don’t understand the vitriol. It’s shitty, yes, but I honestly doubt the players are somehow blacklisted.
                                                                                                                                                                                                        • zemo 2 years ago
                                                                                                                                                                                                          seeing this here is funny because there are a lot of HN users that are VCs that don't know how to code :)
                                                                                                                                                                                                          • ivraatiems 2 years ago
                                                                                                                                                                                                            All of this honor-amongst-thieves bellyaching is bullshit. I'm sorry. These are venture capitalists, emphasis on capitalist. The only thing they have ever or will ever care about is the amount of money a given action makes or loses them. That's it, full stop. SVB lent to these people knowing that full well, and knowing the risks of relying on VCs for their long bets. They are to blame for their choices.

                                                                                                                                                                                                            I have sympathy for nobody in this debacle, except maybe the federal government for having to clean up the mess.

                                                                                                                                                                                                            • aj7 2 years ago
                                                                                                                                                                                                              The board was asleep at the switch. They are now unemployable.

                                                                                                                                                                                                              You’re dreaming.

                                                                                                                                                                                                              Boards are mainly hired to do nothing in established companies.

                                                                                                                                                                                                              • mrinfinite 2 years ago
                                                                                                                                                                                                                Wow, sad. The only thing a bank run can be on is on "DEMAND" deposits. If you have a savings account or negotiate a similar thing then no bank run possible. A bank checking (called Demand Deposits) are to be fulfilled on DEMAND.

                                                                                                                                                                                                                How dare customers demand their demand deposits. how rude, right?

                                                                                                                                                                                                                All the bank had to do was upsell their customers into savings accounts and then no bank run is possible.

                                                                                                                                                                                                                • drc500free 2 years ago
                                                                                                                                                                                                                  The amount of victim-blaming astroturfing I've seen on hn this week has been quite surprising. Depositors are never, ever to blame for bank runs.

                                                                                                                                                                                                                  Edit: From the about page:

                                                                                                                                                                                                                  > Who I am is not important. Holding accountable the hypocrites responsible for Silicon Valley Bank’s collapse is. I can be reached at svbhallofshame@protonmail.com. All correspondence will be kept anonymous.

                                                                                                                                                                                                                  It's just missing a PAC called something like "Citizens for Depositor Accountability."

                                                                                                                                                                                                                  • croes 2 years ago
                                                                                                                                                                                                                    Can't you kill any bank with a bank run?
                                                                                                                                                                                                                    • throw123123123 2 years ago
                                                                                                                                                                                                                      If you are solvent, in principle, you can get a loan from another bank to cover illiquidity.

                                                                                                                                                                                                                      Yes, runs can kill any bank, but insolvency killed SVB first.

                                                                                                                                                                                                                      • fastball 2 years ago
                                                                                                                                                                                                                        I don't think that's true? SVB was insolvent because they had to sell bonds at a massive loss in order to cover illiquidity that was a problem due to the bank run.
                                                                                                                                                                                                                      • borski 2 years ago
                                                                                                                                                                                                                        Yes.
                                                                                                                                                                                                                      • dang 2 years ago
                                                                                                                                                                                                                        Please make your substantive points without resorting to the "astroturfing" canard. This is in the site guidelines: https://news.ycombinator.com/newsguidelines.html.

                                                                                                                                                                                                                        I don't disagree with you on the topic, but I promise you that the volcano of anger and indignation that spewed forth about this is basically all from entirely legitimate users.

                                                                                                                                                                                                                        • drc500free 2 years ago
                                                                                                                                                                                                                          Fair point, you're right. I appreciate how you cultivate things around here, thanks for keeping us centered.
                                                                                                                                                                                                                        • 2 years ago
                                                                                                                                                                                                                        • w10-1 2 years ago
                                                                                                                                                                                                                          Shame is toxic, but the issue is critical for startup's and worth discussing.

                                                                                                                                                                                                                          Depositors making individual decisions? Ok.

                                                                                                                                                                                                                          Funds advising their companies? Ok, but it really hides the agency: deciders are in the funds (what CEO would refuse that advice?), but the companies are the responsible actors.

                                                                                                                                                                                                                          Now, would it matter if most of those funds were responding to their investors, say, Saudi's or Russians or the Chinese Communist Party, or to a consortium of friends who had shorted the bank? Most would say it does matter, but AFAICT it's perfectly legal, and no outsider would ever know the difference.

                                                                                                                                                                                                                          Market self-regulation, insurance, and investment diversification all depend on agents acting independently in their own interests, say, of making money.

                                                                                                                                                                                                                          Once agents are coordinating, or colluding, or have other dominant strategic interests, market self-regulation fails. And everyone else, who reasonably relied on the market behaving stochastically or in response to economic forces, loses.

                                                                                                                                                                                                                          One might hope that if this were all good, the response to a wall of shame would be a wall of honor, with transparency around decisions. But confidentiality is a key feature for any investment firms, so the best we'll get are retrospective letters of intent.

                                                                                                                                                                                                                          Aside from bad actors, the irony is that high federal rates means more risk-taking from banks, not less. SVB assets were good and safe, albeit not worth much (as the auction is showing).

                                                                                                                                                                                                                          I would have no problem with new rules saying that firms with assets big enough relative to the bank needed to schedule major withdrawals in advance. There's really no other reason than a bank run to move $100M emergently. (There'll be a secondary market for large urgent transfers, but it won't cost much, securitized with a pending transfer.)

                                                                                                                                                                                                                          So: yes the system is susceptible to bad actors, and there's no good way to respond without throwing out the baby with the bathwater. Really society's only defense is that the wealthy are getting wealthy enough legally that there's no real need to go all-out.

                                                                                                                                                                                                                          Aside from the moral hazard of covering bank risks, there's another moral hazard in creating opportunity and incentive for an already-confidential and largely unregulated industry to collude. It might push good investors into combines with bad actors, amplifying ill effects.

                                                                                                                                                                                                                          What's shameful really is that these systemic gaps are relatively obvious to thousands of the involved engineer/MBA/JD's, but everyone greedily grabs their local maxima, instead of insisting the system work right. That's where I'd welcome leadership, some way to reduce coordination costs.

                                                                                                                                                                                                                          • idopmstuff 2 years ago
                                                                                                                                                                                                                            > The board was asleep at the switch. They are now unemployable.

                                                                                                                                                                                                                            That's not really how this works. The CAO of the bank was CFO of Lehman. People in these positions just get credit for the fact that they had a front row seat for this sort of financial implosion, so they can (theoretically) help whoever else's board they join avoid that sort of thing.

                                                                                                                                                                                                                            > But those players within the venture capital community who were singularly responsible for triggering and then exacerbating this run will not escape accountability.

                                                                                                                                                                                                                            The people in the VC community who triggered the bank run did the right thing by their startups. They don't have a responsibility to SVB. If they saw a run on the bank starting, it was in their best interests and the best interests of the startups in which they invested for those startups to get their money out as quickly as possible.

                                                                                                                                                                                                                            • tptacek 2 years ago
                                                                                                                                                                                                                              Isn't this misinformation? The Chief Admin Officer of SVB Securities was an exec at Lehman, but SVB Securities is independent of SVB. If you Google [svb lehman], you get pages and pages debunking this.
                                                                                                                                                                                                                              • idopmstuff 2 years ago
                                                                                                                                                                                                                                The fact that SVB securities is independent is irrelevant to the point, which is that people who play roles in financial catastrophes do not become unemployable as a result.
                                                                                                                                                                                                                                • tptacek 2 years ago
                                                                                                                                                                                                                                  You didn't say that. You said "the CAO of the bank" was a Lehman person. That's not true.
                                                                                                                                                                                                                              • davidw 2 years ago
                                                                                                                                                                                                                                > The people in the VC community who triggered the bank run did the right thing by their startups.

                                                                                                                                                                                                                                I don't really have a horse in this race, but: while the above argument makes sense, what about all their future startups? Everyone says nice things about how it was good to have this bank that understood startups and treated them well, and now that is all gone. And no one who had deposits lost their money anyway.

                                                                                                                                                                                                                                It seems to me that everyone is worse off. It was a lose/lose move.

                                                                                                                                                                                                                                • kamikaz1k 2 years ago
                                                                                                                                                                                                                                  You're right, but it is entirely prisoner's dilemma.

                                                                                                                                                                                                                                  The rational decision, when you know you cannot control how others will act, is to minimize the pain. If you saw the HN thread on Thursday, there were founders posting that they were told it will be fine. How do you think they were feeling on Friday?

                                                                                                                                                                                                                                  And it is not a personal decision, continuity of business is a pretty big deal. Nobody in the company would forgive you for missing their payroll, because you thought it was the ethical thing to do.

                                                                                                                                                                                                                                  • xoa 2 years ago
                                                                                                                                                                                                                                    >You're right, but it is entirely prisoner's dilemma.

                                                                                                                                                                                                                                    But part of what makes that whole bit of game theory interesting is that it has a lot more complexity then just the simple version. Yes in a plain prisoner's dilemma betray can make sense, but in an iterated prisoner's dilemma that's no longer true. That's been part of the debate around the whole debacle, for much of SV's history it was very much iterated, it wasn't just about any one company for VCs or even founders, there was some interest in the overall ecosystem. Some very successful people only found success after multiple failures, but success could pay for it all in the end. VCs too, maintaining the ecosystem mattered. In that sense, killing the goose laying the golden eggs, even if there is some short term payoff, is still clearly a poor idea.

                                                                                                                                                                                                                                    There was an HN piece sometime in the last few days I think talking about this and speculating/arguing that the rise of unicorns changed the community from iterated towards the more singular game. If it only took a single megahit to cash out forever, then incentives might be more towards selfishness vs thinking about the next company and the next after that.

                                                                                                                                                                                                                                    >If you saw the HN thread on Thursday, there were founders posting that they were told it will be fine. How do you think they were feeling on Friday?

                                                                                                                                                                                                                                    Sure, but how do you think they were feeling Monday? Or now? Zero threat to deposits after all for anyone including those who sat tight, but they lost a valuable service and icon, invited other problems and scrutiny, etc. While I'm sure lots will confidently say they did the right thing and that purely looking out for #1 was "responsible" I suspect there are at least a few who have some real regrets, even if SVB absolutely made very stupid choices as well.

                                                                                                                                                                                                                                    • viraptor 2 years ago
                                                                                                                                                                                                                                      > it is entirely prisoner's dilemma.

                                                                                                                                                                                                                                      It is, but also it's even worse. The usual prisoner's dilemma is explained with 2 parties. In this case, it was thousands of parties with a choice of: a) do what's best for your business, b) bet that almost all the other parties with also choose b.

                                                                                                                                                                                                                                      2-person prisoner's dilemma is a fun game theory exercise. "All the customers" prisoner's dilemma is a social "have you met other business people" exercise.

                                                                                                                                                                                                                                      • acomjean 2 years ago
                                                                                                                                                                                                                                        FYI: prisoners dilemma is an interesting game theory experiment where you do better if everyone cooperates. You do better than your "opponent" if you don't. The wikipedia explains it well.

                                                                                                                                                                                                                                        https://en.wikipedia.org/wiki/Prisoner%27s_dilemma

                                                                                                                                                                                                                                        • benatkin 2 years ago
                                                                                                                                                                                                                                          On Friday I was feeling that Circle/USDC was wrong that those who initiated transfers on Thursday should have them completed even if others with uninsured (above $250K) lost theirs.

                                                                                                                                                                                                                                          From their article:

                                                                                                                                                                                                                                          https://www.google.com/amp/s/www.circle.com/blog/an-update-o...

                                                                                                                                                                                                                                          > We have reason to believe that under applicable FDIC policy, transfers initiated prior to a bank entering receivership would have otherwise been processed normally.

                                                                                                                                                                                                                                          In other words it shouldn't be entirely dependent on whether they were in the bank run. Earlier transfers, yeah.

                                                                                                                                                                                                                                          In a bank run situation people were rushing to the bank and tying up the phone lines. Panicking shouldn't be encouraged to such a degree as to make millions of dollars depend on it.

                                                                                                                                                                                                                                          The amount recoverable ended up not depending on whether an SVB customer attempted a late withdrawal. And that's good. I would have expected it even if depositors had to settle for a portion of their funds.

                                                                                                                                                                                                                                          • wahern 2 years ago
                                                                                                                                                                                                                                            > How do you think they were feeling on Friday?

                                                                                                                                                                                                                                            What does Friday matter? Friday was when the cynics would rejoice in righteous indignation. Monday was when responsible people were redeemed; when society through its government recognized that the real moral dilemma here was whether or not to vindicate the cynics.

                                                                                                                                                                                                                                            There is a solution to the Prisoner's Dilemma, and it's called civilization, known in the modern era as institutional government. Like their communist cousins, die-hard libertarians should be forced to live in truly libertarian countries (i.e. those with extremely weak governmental institutions where wealth is safeguarded primarily through a web of private arrangements) and only then be allowed to opine on what's rational. For some reason libertarians can't often be found in those countries; not by choice, at least; and certainly they don't park their wealth there.

                                                                                                                                                                                                                                            • jrmg 2 years ago
                                                                                                                                                                                                                                              If you saw the HN thread on Thursday, there were founders posting that they were told it will be fine. How do you think they were feeling on Friday?

                                                                                                                                                                                                                                              I mean, it was fine for them by Monday.

                                                                                                                                                                                                                                            • simonh 2 years ago
                                                                                                                                                                                                                                              As individuals they couldn’t stop the bank run happening, so pulling out their money was the rational thing to do.

                                                                                                                                                                                                                                              If all the depositors could have got together in a room, they could all have agreed to keep their money in. That coordination wasn’t possible though.

                                                                                                                                                                                                                                              • ineedasername 2 years ago
                                                                                                                                                                                                                                                This is incorrect. such coordination was possible and did happen, only in the opposite direction.

                                                                                                                                                                                                                                                A relatively small group of VC firms effectively did coordinate the depositors very effectively to organize except it was to take money out

                                                                                                                                                                                                                                                Saying coordination wasn’t possible is therefore incorrect. And had it not occurred, getting people to keep their money in would have been a moot point, the whole thing a non issue.

                                                                                                                                                                                                                                                • lmm 2 years ago
                                                                                                                                                                                                                                                  And yet they were coordinated enough to tip off their mates to pull out.

                                                                                                                                                                                                                                                  In previous generations the industrial titans had a sense of nobless oblige, or at least pretended to; they knew their lucrative position came with responsibilities, and in times of crisis they would step up to do their share. Whereas when a crisis hits Silicon Valley, apparently you look after number 1 and when you reach out to the government it's not to ask how you can help but to ask them to bail you out.

                                                                                                                                                                                                                                                • zaptheimpaler 2 years ago
                                                                                                                                                                                                                                                  The founders represented by the VCs were looking at a company they spent years building and all its money potentially disappearing overnight. They had to act quickly under a lot of uncertainty and took the decision that minimized risk. I guarantee if SVB hadn't been bailed out people here would be questioning the VCs who didn't pull out instead.

                                                                                                                                                                                                                                                  I don't blame them. It was irrational if they were omniscient beings with knowledge of what would happen.. they aren't.

                                                                                                                                                                                                                                                  • dforrestwilson 2 years ago
                                                                                                                                                                                                                                                    That first part is fine. Killing risk is key.

                                                                                                                                                                                                                                                    But within 24 hours we had VCs from Founder’s Fund and the All In podcast personas who intentionally and knowingly fueled a panic on social media.

                                                                                                                                                                                                                                                    That panic was designed to benefit them and it worked, to the detriment of everyone reading this who has a deposit at a US bank, and who will now be assessed a fee to cover the cost.

                                                                                                                                                                                                                                                  • 2 years ago
                                                                                                                                                                                                                                                    • jliptzin 2 years ago
                                                                                                                                                                                                                                                      What exactly did SVB do for startups that other banks could not?
                                                                                                                                                                                                                                                      • iscrewyou 2 years ago
                                                                                                                                                                                                                                                        • Eisenstein 2 years ago
                                                                                                                                                                                                                                                          The way I understand it, young people heading startups are often financially and businesswise naive, and SVB would hand-hold them through a lot of things they had to do regarding banking. You could walk in with your documents and they would set everything up for you with enthusiasm. This is difficult to find in classical banking.
                                                                                                                                                                                                                                                        • flybrand 2 years ago
                                                                                                                                                                                                                                                          Harder to have future startups if your current portfolio dies.
                                                                                                                                                                                                                                                          • davidw 2 years ago
                                                                                                                                                                                                                                                            Aren't they sophisticated enough to know that this was unlikely?
                                                                                                                                                                                                                                                          • Aeolun 2 years ago
                                                                                                                                                                                                                                                            It is. But if life has taught me anything it is that there’s enough irrational actors that the sane ones have to act exactly the same to get their own.
                                                                                                                                                                                                                                                            • nkrisc 2 years ago
                                                                                                                                                                                                                                                              A startup in the hand is worth two in the bush.
                                                                                                                                                                                                                                                              • 2 years ago
                                                                                                                                                                                                                                                              • cowpig 2 years ago
                                                                                                                                                                                                                                                                > The people in the VC community who triggered the bank run did the right thing by their startups.

                                                                                                                                                                                                                                                                How do you arrive at this conclusion? Without a run on the bank none of this would have happened.

                                                                                                                                                                                                                                                                • nickff 2 years ago
                                                                                                                                                                                                                                                                  The bank run seems to have occurred after the insolvency.

                                                                                                                                                                                                                                                                  The bank was appears to have been insolvent (from the currently available information), though they avoided their books showing the fact by having bonds marked as “HTM”.

                                                                                                                                                                                                                                                                  When a bank is insolvent, it’s best to shut it down as soon as possible, to avoid the bank engaging in risky behavior to ‘make back’ the missing money.

                                                                                                                                                                                                                                                                  • mbreese 2 years ago
                                                                                                                                                                                                                                                                    Bonds that are HTM would have been profitable. They just weren't sellable for a profit on the open market (at the time they needed to sell them), because their yield was too low. So, as far as I have read, it wasn't until there was a run that they needed to dramatically increase liquidity. With so much of their holding being HTM, they were stuck. The issue was a mismatch in the timeframes (which was the fatal problem, and should not have happened).

                                                                                                                                                                                                                                                                    But without that pressure, there probably would have been enough time for this to have been a much more orderly transition. The panic didn't help anyone, it just made SVB's existing problems more difficult to manage.

                                                                                                                                                                                                                                                                    To put it another way -- SVB went bankrupt the old fashioned way... slowly and then all at once. The bank run was the inflection point.

                                                                                                                                                                                                                                                                    • bandrami 2 years ago
                                                                                                                                                                                                                                                                      Not insolvent, illiquid. Calling SVB insolvent is like calling Elon Musk "poor" because his income this year was $0.
                                                                                                                                                                                                                                                                    • nl 2 years ago
                                                                                                                                                                                                                                                                      > Without a run on the bank none of this would have happened.

                                                                                                                                                                                                                                                                      A bank run is an almost inevitable consequence of a loss of confidence in a bank.

                                                                                                                                                                                                                                                                      The loss of confidence was caused by their $1.8B loss on securities sales and plan to go to the market for $2B in funding.

                                                                                                                                                                                                                                                                      The next day shares plummeted, and people began to remove their money (including those advised by VCs)[1]

                                                                                                                                                                                                                                                                      Given the fact that only $250K of funds is FDIC guaranteed, in the face of a balance sheet crisis at the bank the withdrawal of funds was entirely rational. Arguably not doing it would have been irresponsible.

                                                                                                                                                                                                                                                                      Even if there hadn't been a bank run it's pretty easy to see cases where the bank would have "temporarily restricted the amount of money an entity can withdraw in a day" or something. That potential restriction on liquidity is something any responsible business owner would want to avoid.

                                                                                                                                                                                                                                                                      [1] https://abcnews.go.com/Business/timeline-silicon-valley-bank...

                                                                                                                                                                                                                                                                      • 23B1 2 years ago
                                                                                                                                                                                                                                                                        Rumor is uncontrollable and often unattributable – and each organization acted in the best interests of its employees and shareholders, as is their duty.

                                                                                                                                                                                                                                                                        Ugly, but rational.

                                                                                                                                                                                                                                                                        • simonh 2 years ago
                                                                                                                                                                                                                                                                          You are in charge of a startup and are responsible for its finances and the jobs of the people who work there. You can see that a bank run is starting. If you don’t pull out your money, what are the chances this will prevent the bank run happening?
                                                                                                                                                                                                                                                                          • manquer 2 years ago
                                                                                                                                                                                                                                                                            Nobody is blaming any startup who took that decision, the rational decision is to take out the money.

                                                                                                                                                                                                                                                                            However it was not the rational decision for a fund to do so. You have a) substantially larger voice and also ability to coordinate for better outcomes, for a fund it is no longer a gamer theory 101 standard prisoner's dilemma.

                                                                                                                                                                                                                                                                            The larger funds could have

                                                                                                                                                                                                                                                                            - Banded together and made a joint statement ( like they were able to organize and do after the run) reassuring every startup of their confidence in the bank

                                                                                                                                                                                                                                                                            - Participated in the equity infusion into the bank

                                                                                                                                                                                                                                                                            - Organized and bought debt in the bank to give it liquidity

                                                                                                                                                                                                                                                                            - Simply moved their own money as new deposits into the bank.

                                                                                                                                                                                                                                                                            Just doing a joint statement - which wouldn't have costed them a single penny would have gone long way to reassure the markets and also gained the key guys a lot of clout and established their influence J P Morgan style.

                                                                                                                                                                                                                                                                          • 2 years ago
                                                                                                                                                                                                                                                                            • RA_Fisher 2 years ago
                                                                                                                                                                                                                                                                              They ostensibly noticed the bank was insolvent and shared that important information with their startups. The bank should never have been anywhere near insolvent.
                                                                                                                                                                                                                                                                              • ineedasername 2 years ago
                                                                                                                                                                                                                                                                                Once the run started then VCs who had not previously had a negative stance on SVB may have done right by their startups, but yeah not the ones who actually started it in the first place.
                                                                                                                                                                                                                                                                                • peeters 2 years ago
                                                                                                                                                                                                                                                                                  This seems like distinguishing between the snowflake that falls on a sheet of snow and starts an avalanche, and the snow that collects along the way. Both were necessary conditions for the avalanche, but is either more to blame? It's an imperfect analogy but my point is this: the problem is all the loose snow sitting on a slope in the first place.

                                                                                                                                                                                                                                                                                  Unless those first people were actively trying to create an insolvency crisis, it seems to me they were either being prudent or prescient. There's a reason it's called the "tragedy" of the commons, and not the "tyranny" of the commons.

                                                                                                                                                                                                                                                                                  • twelve40 2 years ago
                                                                                                                                                                                                                                                                                    I have no idea if this is correct or not, but by some accounts, there were noticeable issues with regular transfers which caused the initial concern about the bank. It's not like someone started this out of boredom.

                                                                                                                                                                                                                                                                                    https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-f...

                                                                                                                                                                                                                                                                                • lotsofpulp 2 years ago
                                                                                                                                                                                                                                                                                  https://www.verifythis.com/article/news/verify/business-veri...

                                                                                                                                                                                                                                                                                  >Joseph Gentile, the subject of the viral tweets, is currently the Chief Administrative Officer at SVB Securities, which is an investment firm. SVB Securities is a subsidiary of Silicon Valley Bank’s former parent company that is financially independent from the collapsed bank. He had previously been the CFO of a division within the greater Lehman Brothers’ bank and left about a year and a half before the bank filed for bankruptcy.

                                                                                                                                                                                                                                                                                  • 2 years ago
                                                                                                                                                                                                                                                                                    • cmurf 2 years ago
                                                                                                                                                                                                                                                                                      Wasn't it in the best interest of everyone's best interest to avoid having such high amounts of uninsured deposits?

                                                                                                                                                                                                                                                                                      Was it a requirement or recommendation to concentrate cash in SVB, and why?

                                                                                                                                                                                                                                                                                      • gmd63 2 years ago
                                                                                                                                                                                                                                                                                        It's unknown whether it was in their best interest, because we can't observe the alternate reality where 42 billion dollars wasn't withdrawn in one day.

                                                                                                                                                                                                                                                                                        The raindrop never feels responsible for the flood, but it is.

                                                                                                                                                                                                                                                                                        • 2 years ago
                                                                                                                                                                                                                                                                                          • mikesena 2 years ago
                                                                                                                                                                                                                                                                                            +1 this
                                                                                                                                                                                                                                                                                          • ar9av 2 years ago
                                                                                                                                                                                                                                                                                            These people acted rationally. As soon as there was even a hint of "this bank could fail" it's a no brainer to press a couple buttons on your app and transfer your money even if there is only a 0.1% chance of failure.

                                                                                                                                                                                                                                                                                            It's just game theory.

                                                                                                                                                                                                                                                                                            The problem is when everyone acts to protect themselves from the 0.1% chance event it actually becomes a 100% likely event.

                                                                                                                                                                                                                                                                                            That's why FDIC Insurance was invented in order to prevent bank runs and is why we have had so few in the hundreds years since it was invented.

                                                                                                                                                                                                                                                                                            The obvious solution is to waive the FDIC insurance caps and probably increase the cost of the insurance to make up for the increased risk of failure.

                                                                                                                                                                                                                                                                                            • notacoward 2 years ago
                                                                                                                                                                                                                                                                                              > These people acted rationally. > It's just game theory.

                                                                                                                                                                                                                                                                                              The conclusion from game theory (specifically Prisoner's Dilemma) is not that only one action is rational. Both cooperation and defection are rational; that's what "dilemma" means. The difference lies in the scope or horizon to which reason is applied. Every time I see someone invoke "rationality" or game theory to justify what is really selfishness, it makes me want to throw up.

                                                                                                                                                                                                                                                                                              • IG_Semmelweiss 2 years ago
                                                                                                                                                                                                                                                                                                Failure was a foregone conclusion non matter what time horizon you wanted to apply.

                                                                                                                                                                                                                                                                                                The bank had wiped its equity before depositors drew on it. It was a matter of time it failed. Its loan portfolio is impaired. Its startups are burning DDA cash without vc funding. The majority of its capital is locked up on long duration bonds.

                                                                                                                                                                                                                                                                                                The bank was bleeding from a thousand cuts. It was put out of misery by a good old run to the head. Eventually some startup was going to try drawing on their checking and it was going to fail.

                                                                                                                                                                                                                                                                                                A bank run is just a symptom of the disease (mismanaged bank risk).

                                                                                                                                                                                                                                                                                            • cecida 2 years ago
                                                                                                                                                                                                                                                                                              [flagged]
                                                                                                                                                                                                                                                                                              • lokar 2 years ago
                                                                                                                                                                                                                                                                                                They are merely following the example of their leader, Rand.
                                                                                                                                                                                                                                                                                                • throw123123123 2 years ago
                                                                                                                                                                                                                                                                                                  Why are you on this website. Honestly. This is literally a website by the people you are criticizing, for the people you are criticizing.
                                                                                                                                                                                                                                                                                                  • gmd63 2 years ago
                                                                                                                                                                                                                                                                                                    I thought this website was for hackers, not dudes who beg for bailouts from the government and turn around and spend them on bitcoin
                                                                                                                                                                                                                                                                                                    • throw123123123 2 years ago
                                                                                                                                                                                                                                                                                                      You would be wrong. This is the social media channel of a VC, specifically one that was impacted and lobbied for depositor safety on this very topic.
                                                                                                                                                                                                                                                                                                    • davidw 2 years ago
                                                                                                                                                                                                                                                                                                      I really wish I could cash in my HN points for real money, but alas...
                                                                                                                                                                                                                                                                                                  • tree24005 2 years ago
                                                                                                                                                                                                                                                                                                    Bank runs are when depositors rush to withdraw their money from the bank en masse.
                                                                                                                                                                                                                                                                                                    • mrinfinite 2 years ago
                                                                                                                                                                                                                                                                                                      Banks don't have to issue demand deposit accounts if they want to invest your money while you "loan it to them".

                                                                                                                                                                                                                                                                                                      How rude for the contractual obligation of a bank be asked to uphold their end of the deal. thats rude and racist. customers at that bank were real jerks.