Now all those unprofitable startups will be falling like dominoes as now the money is tied up in the bank with withdrawals disabled.
edit: replace "bankruptcy" with "receivership" as the latter is usually a faster process than the former.
The fed's move in interests rates was bound to break something. This is the first big name and, while banks are taken over by the FDIC often and it never makes the news, this one will be especially interesting bc it is Silicon Valley Bank. Naturally, people and the media will associate with the rest of silicon valley, bringing extra scrutiny to every brand name tech company, especially the ones that are still barely profitable.
And any accounts over $250K, poof.
Edit - this has been the first fdic takeover since 2020, so no, it does not happen often.
What are the insurance limits for companies? Same as individuals? I get the sense that most of SVB's deposits were from startups and small companies. And I also get the sense that $250K is not much room for a startup trying to make payroll to employees with Silicon Valley wages.
> To protect insured depositors, the FDIC created a new entity called the Deposit Insurance National Bank of Santa Clara, or DINB. DINB will maintain Silicon Valley Bank’s normal business hours, with banking activities resuming no later than Monday, including online banking and other services, the FDIC said. Customers with accounts in excess of $250,000 are being told to contact FDIC direclty
> The company’s main office and all Silicon Valley Bank branches will reopen on Monday,
> Uninsured depositors will get a receivership certificate for the remaining amount of their uninsured funds, the FDIC said
Keep in mind 93% of SVB's assest were not FDIC insured.
> Silicon Valley Bank Had About $209.0B in Assets
> Svb Is First FDIC-Insured Institution to Fail This Year
Their recent attempt to raise money via shares and debt sales failed,
Some gallows humor from twitter: "Imagine raising $100m for your AI enabled dog washing app - and your bank sets it on fire before you can".
Original: https://twitter.com/88888sAccount/status/1634028258500169731...
I’m sorry to see this happen.
Hundreds of startups will become illiquid as a result of SVB's collapse, and there will be major layoffs here in the next 90 days as founders realize that they lost their funds and cannot raise in the current VC environment.
Ouch for startups that didn't pull.
Wow FDIC is fully calling it a failed bank. Just yesterday they were releasing statements saying they’re in a good position. Uncle Sam just fully opened Pandora’s box and made the judgement public!
It's straightforward to reckon their exposure to interest rates: they had $90B in 10-year fixed rate bonds, so they lose $9 billion per % of interest increase. They must have known that a 4% increase in interest rates would put them underwater, but they did it (and were allowed to do it) anyway. It'll be interesting to learn about the process behind that decision.
[1] https://www.svb.com/news/company-news/silicon-valley-bank-pa...
It's in The G Word, their episode on Money. https://www.netflix.com/ca/title/81037116
They have to pay backbas usual, right?
At least its toll free...
Their investment in SVB represented 0.6-0.7% of their total fund. I assume that the FDIC takeover means it's a total loss.
Was this a manufactured bank run?
https://www.bloomberg.com/news/articles/2023-03-10/why-svb-w...
SVB had $210b in assets yesterday.
I wonder what, if any, consequences fall their way other than the obvious professional embarrassment of a missed call.
Every bank borrows short term (you can walk up and withdraw your money at any time) but lends long (e.g. mortgages, though SVB writes few of those). The recent management grabbed some very long federal bonds; as rates have risen the resale value of those long term assets (paying a lower interest rate) fell. They can't unwind that position and cover all possible demands.
FDIC will transfer the accounts to another bank, guaranteeing the 250K at least (I believe SVBs own liquid assets could cover that) and may use its own asset base to cover the balance, siezing SVB's other assets and stuffing them into FDIC's piggy bank. It's not like those government bonds won't pay out...eventually.
(I think it helps to log out? If you're in read-only mode)
Imho, this is a great argument for the return of Free banking (including crypto) as we see time and again that regulations do not work. Fail early and fast, let the market innovate and pick its winners and losers.
London, 10 March, 2023: Silicon Valley Bank UK, the financial partner of the innovation economy, today moved to confirm to its UK clients, partners and external stakeholders its financial position as a standalone independent banking institution that is regulated and governed by the PRA in the UK.
Silicon Valley Bank UK has been an independent subsidiary since August 2022 with a separate balance sheet to the SVB Financial Group and an independent UK Board of directors. Silicon Valley Bank UK fully abides by the UK regulatory requirements as covered by the Financial Services Compensation Scheme and by the Financial Ombudsman Service. SVB UK, Ltd. is ring-fenced from the parent and its other subsidiaries.
Notes to editors
Funds from client deposits placed with SVB UK, Ltd. are managed in the UK for the benefit of our UK clients. None of our operations in the EU outside our UK Subsidiary are licensed to or take deposits.
https://www.svb.com/press/release?Channel=45991&Account=SVB_...
I have a friend that uses SVB for his startup and now all his funds are frozen. The big question is how long will the money be locked up for? Could it be 6+ months?
Someone holding a receivership certificate likely can sell it or borrow against it.
Does this settle the question of insolvency then? I didn't see that term in the other announcement.
Is Stripe adversely impacted by this given they recommended to merchants to use SVB and probably accounted for a large portion of deposits into SVB (from payment transactions)
https://www.youtube.com/watch?v=KIh6NEBL8BU
It's pretty interesting.
[0] https://www.fdic.gov/resources/resolutions/bank-failures/fai...
https://americandeposits.com/history-and-timeline-of-changes...
Plugging that into any online inflation calculator, $1 in 2010 is $1.33 in 2023. So FDIC insurance should really cover $333,000, and people could lose $83,000 or more due to coverage not being raised.
This is one of 1000 examples of how deregulation and defunding government programs often backfires on the people calling for it. It's almost like the people who casually deal in hundreds of thousands of dollars don't know the value of the dollar, because they got that money by skimming it from their employees.
>The FDIC prefers to close a bank over the weekend, shutting it down on Friday and reopening Monday, Steven Kelly, senior research associate at the Yale Program on Financial Stability, told me.
>“The midday takeover suggests the bank couldn’t responsibly operate until the end of the day,” Kelly said.
[0]https://www.bloomberg.com/news/live-blog/2023-03-10/the-fall...
If you need to talk to someone immediately: 800-273-8255
It will be annoying and stressful, but basically ok.
How humiliating. At least this isn't an epidemic.
Imagine you were designing the bank from scratch having no knowledge of the current banking system. How would you do it? The most obvious thing would be if a customer deposits money, you would hold 100% of the money 1 to 1 exactly how they deposited it. Then the bank could make money by providing services to their customers.
If I had to bet, most people who have money in a bank today think this is how banks work.
But in reality, when a bank receives money, a bank will take some percentage of their customers deposits (90% or so), and then invest that money trying to make a return on it. This works as long as all customers don't try to withdraw their money at once.
But when enough customers... say 10% of the customers try to withdraw money from the bank at once, since 90% of the money was in other investments, the money isn't really there, and you get a bank run.
Silicon Valley Bank is not new, the whole reason we have FDIC insurance is to protect against bank runs. As long as this is the system we follow, we will continue to get bank runs.
I feel like the entire banking system is broken because "The money isn't actually there". There needs to be a better way then relying to the government to bail out banks who make bad investments. Either a bank should be backed 1 to 1, or there should be some other way to keep hold of your money.
"- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021.
- As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!) in mortgage backed securities (MBS) with these deposits for their hold-to-maturity (HTM) portfolio.
- 97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%.
- The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield.
- This is not a liquidity issue as long as SVB maintains their deposits, since these securities will pay out more than they cost eventually.
- However, yesterday afternoon, SVB announced that they had sold $21bn of their Available For Sale (AFS) securities at a $1.8bn loss, and were raising another $2.25bn in equity and debt. This came as a surprise to investors, who were under the impression that SVB had enough liquidity to avoid selling their AFS portfolio."
[1] - https://twitter.com/jamiequint/status/1633956163565002752
I wonder how many businesses will be forced into a fire sale due to inability to raise cash to cover short-term liabilities. I'm sure some private equity firms' mouths are watering right now.
It isn't hard to dump those funds into a money market fund backed by short-term commercial paper or even short-term Treasury bills. Or to just buy the Treasury bills outright. Such holdings are quite liquid and can be absolutely secure.
Use the bank account for clearing, keep a couple million in it and sell assets as needed to top-up the account or to prepare for known cash outflows.
I'm sure there are cost and complexity trade-offs. But "don't lose the cash" would seem to be priority #1 and worth some trouble.
I suppose the idea was that SVB managed all that for you. But one look at its financials shows the asset/liability term mismatch, and interest rate risk, so the risk of loss of cash was nonzero. So they were NOT managing maturity risk for these large depositors, and, well, now look where they are.
Not crypto hype, not bad loans, but long term bonds... It's sounds very conservative and responsible.
"Through our relationships with more than 50% (approximate) of all venture backed companies in the US, and with funds and corporations across the globe, SVB Capital’s family of investment solutions give you unmatched access to this unique asset class."
Their online operations have to be drastically changed. Did their ATM cards stop working yet?
The FDIC usually takes over banks at the close of business on a Friday, using the weekend to audit and reorganize. That this happened at the end of Thursday hints that the situation was bad, so bad that another day of withdrawals would have been too much.
[1] https://twitter.com/parkerconrad/status/1634237386564730882
Looking at a graph of SIVB share price, this definitely seems like yet another blow to efficient market hypothesis. Many of SIVB's woes have been known for months. While it's obviously difficult to predict a bank run, to see a stock go from a share price of ~270 to 0 in 2 days, with many billions in equity value wiped out, is astounding.
WTF is Silicon Valley if they can't make a bank that is just supposed to sit there and not do much - not collapse.
I loathe to say this but maybe the CrytoBros need to come back?
Bank collapses should happen as often as regular buildings collapse for no apparent reason.
It's a bad look if there is less trust in regular banking.
Rates will eventually top out - they just had made a very bad bet at 1.5%/10 yr.
"The cheapness of capital gives facilities to speculation, just in the same way as the cheapness of beef and of beer gives facilities to gluttony and drunkenness"
MARX, Karl
Capital Vol. III Part V - Division of Profit into Interest and Profit of
Enterprise. Interest-Bearing Capital
Chapter 25. Credit and Fictitious Capital*The Demise of Silicon Valley Bank - https://news.ycombinator.com/item?id=35098607 - March 2023 (64 comments)
The previous major threads appear to be these (did I miss any?):
SVB in talks to sell itself after attempts to raise capital fail - https://news.ycombinator.com/item?id=35094466 - March 2023 (270 comments)
Ask HN: How is the SVB situation affecting your startup? - https://news.ycombinator.com/item?id=35094447 - March 2023 (130 comments)
Banks lose billions in value after tech lender SVB stumbles - https://news.ycombinator.com/item?id=35087666 - March 2023 (9 comments)
Bank run on Silicon Valley Bank? - https://news.ycombinator.com/item?id=35086836 - March 2023 (791 comments)
If it hasn’t, this would be a helpful way to provide liquidity to startups with SVB deposits.
https://www.investopedia.com/terms/s/solvencyratio.asp#toc-s...
Defn. (informal) A company is illiquid if they can not service short term liabilities/debt as it comes due. This includes the ability to quickly sell assets to raise cash.
According to what we hear Silicon Valley Bank is/was illiquid: They were struggling to _liquidate_ at well below the maturity value of the MBS to serve their liabilities -- withdrawals. They were not able to service the withdrawal rate (there were withdrawals/wires frozen for hours yesterday).
In essence, driving themselves towards the insolvent side (hopefully not, because if they are insolvent now (discounting the equity value) we are going to have contagion.
What I don't get is all this pro-SVB, anti-VC sentiment, how "some VC's yelled fire in a crowded theater" and caused the poor bank to collapse. Isn't it just common sense though, to protect your money? The bank fucked up by doing risky reckless things, it got exacerbated because the customer base is not as diverse as a big bank - it's all startups that are subject to the same patterns, and SVB is not as big for the govt to bail out, so the bank customers did the only logical thing which is to withdraw your money before it disappears, yet they get lectured for doing that.
https://twitter.com/msuster/status/1634203251758469120
https://www.linkedin.com/pulse/few-thoughts-svb-jeremy-solom...
FDIC insurance of 250k is a months salary for <25 engineers. Less than 3% of depositors hold less than 250k.
FDIC takeover does not necessarily mean that SVB will cease operations permanently. I haven't yet read of depositors not being able to withdraw vs when FTX was collapsing. With FDIC taking over, seems they're going to liquidate more assets to pay off creditors and depositors. Or sell the bank to another financial institution. SVB is Top 20.
Washington Mutual was also a top consumer bank that FDIC seized and was sold to JP Morgan. JP Morgan ended up assuming responsibility of the depositors.
https://www.wsj.com/articles/washington-is-the-systemic-risk...
Here's a good thread https://news.ycombinator.com/item?id=35094447. on affect to startups
What does this mean for the company I work for, are they screwed?
* With-in a week or so uninsured accounts will get 40-60 cents per dollar
* In years when the liquidation process is finished they will have gotten 5-20 cents more in addition per dollar
* Shareholders will get nothing in this scenario
Are there any better guesses or any flaws that makes this guess unresonable?
Bank going bust should mean stakeholders in the lending business losing their money. The whole federal reserve system can be preserved. Just raise capital to meet the minimum and don't use money from people who just want an account.
> Some banking experts on Friday pointed out that a bank as large as Silicon Valley Bank might have managed its interest rate risks better had parts of the Dodd-Frank financial-regulatory package, put in place after the 2008 crisis, not been rolled back under President Trump.
> In 2018, Mr. Trump signed a bill that lessened regulatory scrutiny for many regional banks. Silicon Valley Bank’s chief executive, Greg Becker, was a strong supporter of the change, which removed the requirement that banks with assets under $250 billion submit to stress testing by the Fed, and changed requirements for the amount of cash they had to keep on their balance sheets to protect against shocks.
https://www.nytimes.com/2023/03/10/business/silicon-valley-b...
"SVB Online Banking (US, UK, Canada Branch Accounts) will be unavailable throughout the weekend, but will resume next week in accordance with the guidance provided by the FDIC. Please check this page again next week for availability. Our apologies for any inconvenience this may cause."
That's the current login page for Silicon Valley Bank. The main page still doesn't show they're down.
We won’t stop you from doing X, but the fees are higher because you’re more likely to default.
As things are every time so thing like this happens either taxes go up, the national debt goes up, or we trigger inflation to solve it.
Even _if_ depositors are made whole those loans could still be called in and wreck a lot of startups.
> Liquidity Requirements. Category IV organizations with greater than $50 billion in WSTWF, as well as Category I-III organizations, are subject to LCR and net stable funding ratio (“NSFR”) requirements and must maintain high-quality liquid assets in accordance with specific quantitative requirements. However, the above-mentioned Category IV organizations, as well as Category III organizations with less than $75 billion in WSTWF, are subject to reduced LCR and NSFR requirements. Category III organizations with greater than $75 billion in WSTWF and all Category I-II organizations are subject to the full LCR and NSFR requirements. As of December 31, 2022, we have less than $50 billion in WSTWF, therefore, we are currently not subject to LCR and NSFR requirements.
Any other financial institutions that was exempted under same conditions as SVB should also be looking at the quality of their liquid assets.
20/20 hindsight: they were too niche and not diversified. It would've been a slam-dunk to send out flyers to local property owners in the South Bay Area and Santa Cruz Mountains.
For my consulting LLC, I went with Comerica because I figured SVB had the issues of being like a credit union but without CU behind it.
If I were in a founder's shoes today, I would stick to a credit union because they're potentially more flexible and it promotes a local co-op rather than a corporation out to monetize customers with an unknown risk profile.
set up your stock sales.
hire a risk officer.
what else?
9 am We’re currently experiencing a liquidity issue with our SVB partner and are investigating
11 am Access to 23% of accounts is now restored
12 noon The issue is worse than we first thought. We are taking remediary steps to prevent contagion of the issue
1 pm We aim to have access to under-250k accounts back up by Monday Eastern 9am. Status of larger accounts is unclear as we assess the scope of the damage
Etc…
It’ll be cool if FDIC was posting this kind of info over the weekend…but they probably want to avoid that because it just be fueling the social media speculation mill but it would be good I think.
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