What bank do you use?

When was the last time you went over their deposit base and asset allocation?

> When was the last time you went over their deposit base and asset allocation?

A few times but only for a short time and a small percentage of the capital. Was already a full grown adult in 2008, have good memory, and are still licking many old lion financial battle scars...

> When was the last time you went over their deposit base and asset allocation

Sweep account and credit rating. First is a one-time option. Second, an occasional check.

Sweep accounts are fine, but I’m not sure I’d bother with credit ratings. SVB’s was basically as high as possible even for a few hours after the run started and before they closed:

https://ir.svb.com/shareholder-and-bondholder-information/cr...

> SVB’s was basically as high as possible

Borderline investment grade isn’t “high as possible.”

I misread the table. Thanks.

I use an FDIC-insured bank. My deposits are under the limit for insurance. I don’t care about its deposit base or asset allocation because that’s the point of deposit insurance: to make retail depositors feel secure.

On the other hand, a CFO with millions in cash is a professional whose job is to manage corporate risk. A competent CFO needs to account for things like bank failures, which do happen.

Great now every startup and every business needs to hire a CFO because a bank can't be trusted to store any number higher than $250k?

So if my nascent 5-person startup raises 1.2M your suggestion is I need to hire a CFO? That's going to help innovation?

There should be a checkbox somewhere in your bank to put your money in multiple CDs in multiple banks transparently for you.

Interactive brokers does this, you can configure it with which of their fleet of banks you already have accounts at so you don't undermine its logic.

... that's what banks do, they just do it at scale. So you want every person to be their own bank?

Why not just let the FDIC do their job, trust in the banking system and save yourself the trouble of worrying about a bank run.

If you’re small enough to get fully covered by all means please do, I agree 100%.

If you raise $1.2M… you're going to tell me it's not worth your time to frigging walk to 5 banks and open accounts to make sure that money is safely stored?

For something you can't afford to lose, you sure fon't seem to be treating it that way.

Yes. If you manage $1.2M you need to be smart enough about managing it, or have some smart people advising you. I don't manage $1.2M yet I know there's a limit on FDIC insurance. If you manage $1.2M and you don't know that, maybe the people who gave you $1.2M made a mistake.

It wasn't risky as long as prime rate stayed super low.

But that rate has been creeping up for months now.

SVB was too small to qualify for risk assessment under the revised banking rules. So they could get away with money in volatile securities that were very interest rate sensitive.

That said, SVB seemed very solid until Thursday morning.

Would it have been better if the rate increases were further apart and there were strong declarations of intent?

To clarify, SVB's problems are the result of The Fed's change in direction. It just takes a while to see the affects of those decisions.

SVB's problems were the result of glutting on long maturation bonds instead of bills.

As it was explained to me, the Fed increasing interest rates impacted the value of the bonds held by SVB. As that value contracted SVBs was eventually in trouble.

> It wasn't risky as long as prime rate stayed super low.

That sounds a bit like "it's not risky to driver a motor vehicle as long as you don't get into an accident".

That's true. The real risk was in imagining that the interest rates would stay super-low forever.

Only because people weren't asking the right questions.

It's like driving into a parking structure and seeing exposed rebar. It might still be standing now; but if you're smart, you need to find somewhere else to park.

Many were restricted by covenant with their investors to only use SVB.

Id like to hear more about that.

I've heard it was mostly they had credit agreements with svb that required them to bank exclusively with svb

Is this correct then? : SVP gives easy credit to VC friends. VC friends use that credit as investment in startups who are told they must use SVP. So money moves from magic-money-printer -> SVP -> VC -> Startup -> SVP. Then SVP takes those deposits and invests it elsewhere. Now they are making money from loan to VC and reinvestment of those same monies that are deposited back.

So a bank like SVP seems designed to enable VCs with easy credit to de-facto control an important (and balooning) niche of the economy and by their control over the beauty pageant of which startup idea gets money (and PR) they also control what kind of technology becomes dominant. (For example, these VCs share significant credit/blame for creating the surveillance tech. They share blame for creating an engineering culture that must serve full throttle growth business models. etc.)

Is there a social graph of SVP and VCs involved? Are these people pals, friends, "effective" ideologues, etc.?

That social graph is the definition of the VC ecosystem.

> VC friends use that credit as investment in startups who are told they must use SVP.

Maybe, but I was talking specifically about startups themselves being given loans by SVB then requiring the startup to bank there. But I am sure investors also pushed startups to SVB... if your investor (who maybe is highly invested in SVB ... ) says "you should use this bank" are you going to say no? The pressure is immense.

> Is there a social graph of SVP and VCs involved? Are these people pals, friends, "effective" ideologues, etc.?

I'd be more surprised if they weren't.

Because it was providing loans to the VCs and they saw it convenient, to force their startups there. High risk for High reward...

"The rise and stunning fall of Silicon Valley Bank" - https://www.axios.com/2023/03/11/silicon-valley-bank-rip

You think consumer banking is lightly regulated?

Or that VC should have their risk controls? Only conservative old school bankers should invest in startups? Or what exactly?

No. Due to the previous crisis, is one part very well regulated. Here is what should happen...The emphasis below on unlikely is mine...

"A: In the unlikely event of a bank failure, the FDIC responds in two capacities."

"First, as the insurer of the bank's deposits, the FDIC pays insurance to depositors up to the insurance limit. Historically, the FDIC pays insurance within a few days after a bank closing, usually the next business day, by either 1) providing each depositor with a new account at another insured bank in an amount equal to the insured balance of their account at the failed bank, or 2) issuing a check to each depositor for the insured balance of their account at the failed bank....

...In some cases—for example, deposits that exceed $250,000 and are linked to trust documents or deposits established by a third-party broker—the FDIC may need additional time to determine the amount of deposit insurance coverage and may request supplemental information from the depositor in order to complete the insurance determination..."

"Second, as the receiver of the failed bank, the FDIC assumes the task of selling/collecting the assets of the failed bank and settling its debts, including claims for deposits in excess of the insured limit. If a depositor has uninsured funds (i.e., funds above the insured limit), they may recover some portion of their uninsured funds from the proceeds from the sale of failed bank assets. However, it can take several years to sell off the assets of a failed bank. As assets are sold, depositors who had uninsured funds usually receive periodic payments (on a pro-rata "cents on the dollar" basis) on their remaining claim."

"Deposit Insurance FAQs" - https://www.fdic.gov/resources/deposit-insurance/faq/

It wasn’t a “risky bank”.

Everything is pointing towards that it was a risky bank, with a "unusually high reliance on corporate/VC funding".

Maybe SVB themselves downplayed this?

Take https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/ins... as an example:

> The liabiity issue: extreme reliance on institutional/VC funding rather than traditional retail deposits

> While capital, wholesale funding and loan to deposit ratios improved for many US banks since 2008, there are exceptions. As shown in the first chart, SIVB was in a league of its own: a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of total deposits. Bottom line: SIVB carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls in case of rising interest rates, deposit outflows and forced asset sales.

Their SVB Private subsidiary, which is an ordinary consumer bank (people deposit money, bank buys bonds and writes mortgages) is still in good shape and will probably be snapped up by a bigger bank in the next few dya.

For the shareholders of SVB, Patio11 of course says it best: https://twitter.com/patio11/status/1634925745515692034

> The sacred duty of equity is to take losses before depositors.

Not according to JP Morgan... - https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/ins...

"The liability issue: extreme reliance on institutional/VC funding rather than traditional retail deposits.

...While capital, wholesale funding and loan to deposit ratios improved for many US banks since 2008, there are exceptions. As shown in the first chart, SIVB was in a league of its own: a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of total deposits. Bottom line: SIVB carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls in case of rising interest rates, deposit outflows and forced asset sales. [Note: This chart appeared in our 2023 Outlook in a discussion on risks related to deposits, rising rates and quantitative tightening]..."

We have an existence proof to the contrary

Oh but it was. It’s been talked about at least since December.