Silicon Valley Bank collapses after 40 years

March 10, 2023 3:05 PM

Silicon Valley Bank was closed today by the state of California and taken over by the FDIC in receivership to secure deposits. This is the largest bank collapse since 2008 and the second-largest failure of a financial institution in US history. This follows 2 days of bank runs related to interest rate exposure and liquidity.

It is not clear yet how this will affect the overall economy, but the US stock market did not have a good day. Customers with assets below the FDIC limit ($250,000 for individuals) will be able to withdraw their money normally on Monday, but Silicon Valley Bank has long been the primary bank for many startup companies who may have financial problems next week. This twitter thread from Morning Brew Daily does a good job of explaining how the bank went from fine to closed in 2 days.

posted by JZig (172 comments total)

I wish this was gonna hurt the VC vultures.
posted by humbug at 3:08 PM on March 10, 2023 [23 favorites]

This is definitely going to hurt some VC vultures, but how much depends on what the government does about the deposits that were over the FDIC limit. Apparently 97% of deposits in the bank were not FDIC insured, but many of those companies probably withdrew their assets in the last few days as part of the bank run. I follow some smaller tech companies on social media and most of them were worried if their payroll processing will work next week with the bank officially shut down.
posted by JZig at 3:11 PM on March 10, 2023 [6 favorites]

How much does a normal person with like, a 403b retirement account but no like "investments" need to worry about this? is this a "rich people's yacht money" type thing? i am not trying to trivialize i just kind of don't understand how this stuff works.
posted by capnsue at 3:19 PM on March 10, 2023 [4 favorites]

In order to avoid runs on other banks it is likely in regulators’ interest to make sure depositors are whole here, even if some of the deposits were uninsured.
posted by dismas at 3:20 PM on March 10, 2023 [2 favorites]

I read that Peter Thiel was responsible for calling for the run on the bank several days ago. I'd like to believe he was right and SVB did something stupid to earn this fate, but I can also believe that somebody at the bank looked at him funny one day and That Cannot Be Permitted To Stand as far as he's concerned.
posted by zaixfeep at 3:20 PM on March 10, 2023 [37 favorites]

It's never/always a good day when Matt Levine has to issue an emergency newsletter to address the financial news.
posted by Carillon at 3:21 PM on March 10, 2023 [15 favorites]

'spretty bad. According to this, they had 37,466 deposits customers with over $250,000 per account, adding up to $157 billion, or $4.2 million per account on average. The other 106,420 customers, who had less than $250,000, accounted only for only $4.8 billion of deposits.
posted by Monday, stony Monday at 3:22 PM on March 10, 2023 [3 favorites]

(money under $250,000 per customer is insured by the FDIC. Money above isn't)
posted by Monday, stony Monday at 3:23 PM on March 10, 2023 [2 favorites]

This'll be interesting, given the prevalence of companies using payroll/HR companies to handle things (I've seen at least two such companies mention being affected). That'll cause things to ripple out a bit further than you might otherwise think.
Also it's bonus season for a lot of companies working on an annual review cadence, so those would be expected to go out.

Monday's going to really be the question here on "is this an isolated issue, or will it ripple out?", since that's when any company that relies on them would be cutting over to a new processor if they're able to. And from there, will payroll issues prompt layoffs, will B2B vendors run into cashflow issues, etc.
posted by CrystalDave at 3:33 PM on March 10, 2023 [1 favorite]

The worst proximate effect of this is that many companies (startups primarily) used SVB for payroll. Now it's payday and a lot of people aren't going to get their checks in a timely manner.

Something else to note, is that SVB was considered "the cool bank" (lol I know) so many VCs not only did their funding through SVB, but also used it for their own personal finance and wealth management. Those guys are probably shitting bricks this weekend, but as dismas mentions above, its in the Federal governments best interest to make all depositors whole, so they'll probably be getting their money back eventually.
posted by riotnrrd at 3:34 PM on March 10, 2023 [3 favorites]

A friend works for a small business that banks there. Payroll was supposed to go out this morning; it did not go out.
posted by gingerbeer at 3:34 PM on March 10, 2023 [17 favorites]

The problem with thinking of this as “rich peoples’ yacht money” is that rich people will never give up the yacht—when their cashflow decreases, they take the money they were supposed to use for paying wages and complying with safety regulations and use it to keep up their yacht fleets (because that’s a status signifier that lets other rich people know they’re successful and to cut them in on more deals to get more yachts).
posted by Jon_Evil at 3:42 PM on March 10, 2023 [18 favorites]

I read that Peter Thiel was responsible for calling for the run on the bank several days ago. I'd like to believe he was right and SVB did something stupid to earn this fate, but I can also believe that somebody at the bank looked at him funny one day and That Cannot Be Permitted To Stand as far as he's concerned.

Is this a scam to loot the FDIC? Fuck Peter Thiel.
posted by qxntpqbbbqxl at 3:43 PM on March 10, 2023 [9 favorites]

As usual Matt Levine has excellent color commentary

Also, I am sorry to be rude (*), but there is another reason that it is maybe not great to be the Bank of Startups, which is that nobody on Earth is more of a herd animal than Silicon Valley venture capitalists. What you want, as a bank, is a certain amount of diversity among your depositors. If some depositors get spooked and take their money out, and other depositors evaluate your balance sheet and decide things are fine and keep their money in, and lots more depositors keep their money in because they simply don’t pay attention to banking news, then you have a shot at muddling through your problems.

But if all of your depositors are startups with the same handful of venture capitalists on their boards, and all those venture capitalists are competing with each other to Add Value and Be Influencers and Do The Current Thing by calling all their portfolio companies to say “hey, did you hear, everyone’s taking money out of Silicon Valley Bank, you should too,” then all of your depositors will take their money out at the same time.

(*) Matt Levine is not sorry to be rude.

My guess from what I've read is they'll have little trouble making all the depositors whole but it may take some time. All those five year government bonds the SVB geniuses locked their money up in are still good, it's just going to take awhile to turn them into cash. Maybe some bigger investment bank will step forward to buy it. SVB is a pretty good and unique business, the massive failure of their liquidity department not withstanding.

It's still a terrible short term situation for the companies who trusted SVB with their deposits. I've heard from friends at several smaller companies affected; late payroll, assets inaccessible, etc. Also SVB is often a bridge or loan financier for companies in the middle of larger funding rounds and that's all disrupted.

Also relevant: Unbreaking the Bank, a 2009 Planet Money bit about the FDIC dealing with another failed bank.
posted by Nelson at 3:44 PM on March 10, 2023 [21 favorites]

Somewhere, probably on the blue, there was a link to something talking about how venture capital is inherently a political project for keeping wealth in the hands of the kinds of people who can afford to drop out of Ivy League institutions comfortably.
posted by Jon_Evil at 3:50 PM on March 10, 2023 [14 favorites]

A lot of tech startups have their money there. I know a few founders who just lost their funding. It's pretty bad.
posted by phooky at 3:51 PM on March 10, 2023 [2 favorites]

nelsonlaughing.wav
posted by egypturnash at 3:52 PM on March 10, 2023 [3 favorites]

Nelson can laugh heartily at the investors wandering Wall Street aimlessly, eyes glassy with shock, in 1929. But the decade of poverty and collapse that followed was not particularly funny.
posted by rum-soaked space hobo at 3:54 PM on March 10, 2023 [14 favorites]

I'm just boggling that there are people who are smart/lucky/financially savvy enough to have >250K on hand but not savvy enough to divide that up between multiple banks, each of which is covered up to 250K by the FDIC.
posted by Larry David Syndrome at 4:02 PM on March 10, 2023 [13 favorites]

> nelsonlaughing.wav

WTF? VC aren't the ones getting hurt when companies miss payroll.
posted by ryanrs at 4:06 PM on March 10, 2023 [20 favorites]

I think folks don't understand what SVB was. It's an investment bank mostly with company clients, not a retail bank with mom & pop personal accounts. Only some small fraction of their deposits were fully FDIC insured. At the under $250,000 amount. More typica is Roku's, which has $487M on deposit at SVB. They'll probably still get that money back and thankfully it's only a quarter of their cash reserves. But for a smaller company that relied on SVB for all their banking, there's a very big short term problem.
posted by Nelson at 4:06 PM on March 10, 2023 [12 favorites]

How much does a normal person with like, a 403b retirement account but no like "investments" need to worry about this? is this a "rich people's yacht money" type thing? i am not trying to trivialize i just kind of don't understand how this stuff works.

Over the weekend, your worst impact will be the that SVB is (was) in the S&P 500, and is possibly insolvent. It's being removed from the index but the shareholders are not just rich people. Fortunately in that scenario you have 499 stocks that didn't self immolate today.

Over the longer term, there may be some slow panic as companies with cash above FDIC limits move out of weak banks exposed to the same risks as SVB, towards assumed safe "moneycenter" banks. SVB was uniquely catering to startups, so maybe thats not a contagion risk. Or maybe we learn how all those fintech startups were abusing "small community bank" rules and start blowing those up too? Seems unlikely.

For other people, if their employer had millions in the bank on the theory that gave them "eighteen months of runway" before needing another funding round, well, maybe that just became eighteen days. Even if you dont bank with SVB, your payroll may have have been.

I'm just boggling that there are people who are smart/lucky/financially savvy enough to have >250K on hand but not savvy enough to divide that up between multiple banks, each of which is covered up to 250K by the FDIC.

I assume most of these accounts are corporate, not personal.
posted by pwnguin at 4:07 PM on March 10, 2023 [7 favorites]

It’s the people pushing the brooms at startups that can’t make payroll that you’re laughing at. They’re the ones hit first.
posted by Abehammerb Lincoln at 4:07 PM on March 10, 2023 [3 favorites]

Lulu Cheng Meservey has a thread listing all the communication failures which hastened the collapse of SVB.
posted by Lanark at 4:13 PM on March 10, 2023 [3 favorites]

But for a smaller company that relied on SVB for all their banking, there's a very big short term problem.

This a very important point. The vast majority of SVB's deposits were uninsured. Only "something like $8 billion worth out of $173 billion of total deposits" (less than 3%) were insured. But, as Levine points out, it's very likely FDIC will try to find a buyer who makes depositors whole, even for the uninsured portion:

If it turns out to be true that they lose their deposits, there could be more bank runs: Lots of businesses keep uninsured deposits at lots of banks, and if the moral of SVB is “your uninsured transaction-banking deposits can vanish overnight” then those businesses will do a lot more credit analysis, move their money out of weaker banks, and put it at, like, JPMorgan. This could be self-fulfillingly bad for a lot of weaker banks. My assumption is that the FDIC, the Federal Reserve, and the banks who are looking at buying SVB all really don’t want that. If you are a bank looking at buying SVB, and you do a detailed analysis of its assets and conclude that they are worth $180 billion, and you come to the FDIC and say “I will take over this bank and pay the uninsured depositors 95 cents on the dollar,” the FDIC is going to look at you and say “don’t you mean 100 cents on the dollar,” and you are going to say “oh right yes of course, silly me, 100 cents on the dollar.”

But that's just deposits. People who own the stock may be in much worse shape (hard to say right now) and there may be serious follow-on effects from the "banking" part, as this thread makes clear. These companies and their execs used SVB for personal banking and wealth management and even very basic things like payroll. Not good, even for normal folks just trying to make a living and get their paychecks. It's easy to be smug, but this hurts real people.
posted by The Bellman at 4:16 PM on March 10, 2023 [8 favorites]

Interesting that one of the articles says that it was their investment in US Treasuries, safest of all investments, that was a big part of their undoing. Funny how the economy works.
posted by clawsoon at 4:36 PM on March 10, 2023 [2 favorites]

Mr Epigrams works for a software company and apparently all day it's been announcements about what is NOT run through SVB (which, fortunately for us, they don't seem to have had any direct exposure to). Next week we find out which of Mr Epigrams' employer's clients were banking at SVB, I guess.
posted by gentlyepigrams at 4:39 PM on March 10, 2023 [2 favorites]

My guess from what I've read is they'll have little trouble making all the depositors whole but it may take some time. All those five year government bonds the SVB geniuses locked their money up in are still good, it's just going to take awhile to turn them into cash.

This is technically true, in that you can recover any loss by waiting long enough. But if you bought intermediate-term treasuries in 2020 you've lost 15% or so due to interest rate risk going historically bad since then. You can pretend it's not a real loss since it's "locked up" but in reality there's no lack of liquidity in treasuries with $650B in daily trading.

Assuming they are indeed underwater, whether the money gets locked up or takes a haircut is financially equivalent (you could always take your haircutted distribution of funds and buy those bonds back on secondary and wait it out and nothing will have changed for you) although obviously not functionally equivalent especially for depositors who need that money urgently.

To me the more interesting question from a broader perspective is whether they get bailed out and how. If so, why does this group deserve it but not others who have lost money in bonds lately? Perhaps in that case a bank run is a useful emergency for socializing losses. If not, does fear cause runs at banks elsewhere? Hopefully they aren't underwater after all, but it doesn't smell good from here.

Rates dropped through the floor today, presumably out of flight to safety but also due to the expectation that the Fed will react with less rate hikes. Interestingly this should help SVB's balance sheet a little.
posted by ilikemefi at 4:53 PM on March 10, 2023 [5 favorites]

Interesting that one of the articles says that it was their investment in US Treasuries, safest of all investments, that was a big part of their undoing

It’s going to be a lot easier to explain interest rate risk to my students now, that’s for sure.
posted by dismas at 4:54 PM on March 10, 2023 [9 favorites]

On the other hand, my podcast queue is now bound to be full of "bond pricing 101" segments for the next week.
posted by pwnguin at 4:57 PM on March 10, 2023 [2 favorites]

the company i work for had their payroll money deposited there. payroll is next friday, and I guess we'll see???? capitalism is so fucking dumb
posted by dis_integration at 4:58 PM on March 10, 2023 [4 favorites]

Any idea whether this will have an effect on gig workers spread throughout the world?
posted by clawsoon at 5:05 PM on March 10, 2023 [1 favorite]

Seems to me that if the government is going to bail out any failed bank anyway, why are banks private institutions and not nationalized?
posted by eviemath at 5:05 PM on March 10, 2023 [17 favorites]

The government isn’t bailing out the bank. The question is basically what happens to the deposits, and whether the (and under what timeframe) FDIC is able to negotiate the sale of the remaining assets to someone else so that depositors don’t lose the money they lent to the bank by putting their money in it.
posted by dismas at 5:18 PM on March 10, 2023 [3 favorites]

The thing that blows my mind about this—I was a financial reporter covering banks during the Great Recession—is that generally the FDIC swoops in softly. They wait for the bank to close on Friday, generally around 4pm local time, then come in and start reorganizing so the new bank / owner is ready to operate everything Monday morning.

If the FDIC did this in the open while markets were open today, there was a huge risk of contagion that the regulator was not willing to allow. Combined with the crypto crash, it seems like this is going to be a rough few months.
posted by thecaddy at 5:22 PM on March 10, 2023 [31 favorites]

And our collective annoyance and distance for the firms who deposited their funds in this bank aside, it’s not obvious to me that it’s their fault that SVB was apparently underwater, except to the extent that you probably want to figure out a better way of managing your cash than putting it in the same bank as everyone else whose business model is the same as your own.
posted by dismas at 5:24 PM on March 10, 2023 [3 favorites]

Compared with more consumer-oriented banks, Silicon Valley’s deposit base skews very heavily towards uninsured deposits. Out of its total $173 billion deposits at end 2022, $152 billion are uninsured.
posted by spamandkimchi at 5:30 PM on March 10, 2023

I’ve complained a lot about Silicon Valley monoculture but I wouldn’t have predicted a bank run because of it.
posted by fedward at 5:39 PM on March 10, 2023 [15 favorites]

The 8-k form from March 8 that started the whole thing. They were out of available for sale portfolio, so to avoid selling their hold-to-maturity securities, they were looking to raise money by selling shares. Their clients were burning cash *twice* as fast as they had pre-2021.

Despite being the 16th largest bank in the US, they were not subject to the Liquidity Coverage Ratio portions of Basel III. Most of their deposits being held by large-ish businesses (> $1 million in deposits), if they had been, they should have prepared for 40% of their deposits to be taken out in a month, or $63 billion, by holding high-quality liquid assets (e.g. cash and short-term treasury bills). Instead they had $15 billion in cash and a lot of securities they were meant to keep to maturity.
posted by Monday, stony Monday at 5:41 PM on March 10, 2023 [10 favorites]

A responsible business doesn't go "from fine to closed in two days". That's not a thing that happens. We're meant to accept that this is how things are, but the truth is something is deeply wrong in an economy where something like this can occur so rapidly.

Hold onto your butts.
posted by abucci at 5:52 PM on March 10, 2023 [11 favorites]

This is just the most wildly unpleasant time to be a tech worker bee
posted by potrzebie at 5:56 PM on March 10, 2023 [16 favorites]

Rippling, an HR software service that enables payroll, historically routed pay disbursements through SVB. Funds that were supposed to have posted as paychecks today were then caught in this. The Unusual family is fortunate to not be dependent on this paycheck for any specific bills, but I know this caused hardship for some of my coworkers. The good news is that Rippling is reporting on twitter that have accelerated plans to switch to routing through JP Morgan Chase and that they resent paychecks for clients impacted.

Also, while this pay delay was caused by Rippling, I also don't have any personal knowledge of where my company houses their accounts. I suspect that many tech-related companies are going to be urgently reassuring investors and employees in the coming days.
posted by past unusual at 6:03 PM on March 10, 2023 [2 favorites]

Yeah it’s “funny not funny”, I’ve never given this much thought but it makes sense that businesses will have deposits way above the FDIC limit, this has to go somewhere.

In hindsight it figures you’d pick a bank ready to handle large withdrawals, but I don’t run finance for a business you’d have asked me yesterday and I wouldn’t have had a clue about this, they probably offered something to entice businesses to bank with them.

Also if the money is there “but not available till n years” that’s a very very different situation than the crypto scammers where the money only existed in the form of worthless tokens.
posted by WaterAndPixels at 6:13 PM on March 10, 2023 [2 favorites]

Old man Potter is offering fifty cents for every share you’ve got!
posted by dr_dank at 6:18 PM on March 10, 2023 [5 favorites]

I had been reading earlier about how all the FAANG layoffs were spreading the talent 'wealth' by joining lower-tier companies, so the unemployment rate remains absurdly low and we might be heading for a soft landing.

And then this happens. All that had to happen was for all the moneyed folks to be patient and have a little faith, but no, they prefer to eat each other. The old adage 'it's not enough for me to win, everyone else has to lose' is still a thing. Mortimer, pay Randall that dollar.

I'm worried that our ruling elite seem bound and determined to ensure a painful recession occurs and a proper level of fear and hopelessness is restored across the worker class no matter what.
posted by zaixfeep at 6:18 PM on March 10, 2023 [14 favorites]

Right, you're not expected to have a clue. That's why FDIC is for you, you're not a big fancy business that can hire fancy people to think about these kinds of things. If you're a serious business you should be doing risk assessments and placing controls to mitigate risks. That includes things like considering the balance sheet of the financial institutions you use.

If you fuck that up, well shucks, capitalism is a brutal mistress but at least your failure will make way for a business that's better at mitigating those risks.
posted by VTX at 6:31 PM on March 10, 2023 [1 favorite]

For startup competition, SVB’s nightmare is a win and a dare: "If [you’re a] YC-backed neobank and you wanted to acquire all of the startup customers, today’s the day to do it"
posted by credulous at 6:36 PM on March 10, 2023

That's not a thing that happens.

It definitely is a thing that happens when the FDIC shock troopers get involved; they have historically swept in on Friday, and then by Monday all the accounts are at a different bank -- either a new one created over the weekend by the FDIC, or another existing bank that "chose" (was forced) to acquire the accounts.
posted by aramaic at 6:38 PM on March 10, 2023 [3 favorites]

You come to the FDIC and say “I will take over this bank and pay the
uninsured depositors 95 cents on the dollar,” the FDIC is going to look
at you and say “don’t you mean 100 cents on the dollar,” and you are
going to say “oh right yes of course, silly me, 100 cents on the
dollar.”
posted by Carillon at 6:46 PM on March 10, 2023 [5 favorites]

the government's going to have to back all the depositors - the thing is, you don't really know who you're going to bankrupt and who's going to fall because of that until you do it - it could be just like a big line of dominoes

especially when you consider that many people will conclude the government can't be trusted to save them and then they start saving themselves with unpleasant consequences

especially when you consider that our government may be in the process of defaulting on its debt which makes its ability to underwrite other people's problems somewhat questionable
posted by pyramid termite at 6:46 PM on March 10, 2023 [1 favorite]

Looking forwards to fining out how Thiel made money off of this and to what extent its legal/unprosecutable and everyone else just has to put up with it.
posted by Artw at 6:49 PM on March 10, 2023 [14 favorites]

zaixfeep, exactly, yes. It feels like the tech ruling class is just trying to make it damn clear to us uppity workers that we need them more than they need us.

That said, I think the narrative about the big tech layoffs spreading talent elsewhere in the economy actually still stands. The startup job market was already not that hot for the past 6mo or so because lending is tight due to high interest rates - VCs are all chasing a small handful of companies doing stupid LLM plays and nobody else is getting their calls returned. Where people are going from tech is to non-big-tech companies that need software engineers. Those employers just couldn't afford to hire software engineers at all before, and now they can. The rest of the economy is actually still pretty healthy. My ex-Twitter buddy got a federal government job as a frontend programmer and he's pretty thrilled with it so far.
posted by potrzebie at 6:51 PM on March 10, 2023 [6 favorites]

I have my current bank job because two of my former colleagues left to go to SVB. Do they still have jobs? I've heard that quite a few people left to go there. They have a reputation for doling out lots of work but paying quite well.
posted by shoesietart at 6:52 PM on March 10, 2023

Also, what's with the news that the CEO sold stock in the days before this debacle?
posted by shoesietart at 6:59 PM on March 10, 2023 [2 favorites]

A responsible business doesn't go "from fine to closed in two days". That's not a thing that happens.

This is a perpetual risk of all banks through most of modern history. It's inherent in the model. Depositors deposit money, and banks don't keep 100% of that money on hand. Thus, just about any bank is by its nature susceptible to a run, and over a very short period. FDIC insurance (which means that ordinary consumers should not feel the need to participate in a run) exists to make consumer banking feasible at all.

I do feel sorry for the little people caught up in this (though please note that "normal people" do not have a need for wealth management services), but I also see very little need to bail out businesses being irresponsible with their deposits. Admittedly, I don't have a crystal ball, but I don't see a huge risk of contagion here, particularly because the reasons for the run are so sector-dependent. At worst, I think we're looking at a little more downward pressure on MBS prices. But...we'll see. This is such a complex mechanism I'm not sure that any one person can fully understand it.
posted by praemunire at 7:02 PM on March 10, 2023 [6 favorites]

Also, what's with the news that the CEO sold stock in the days before this debacle?

"These transactions reported were effected pursuant to a Rule 10b5-1 trading plan entered into by the reporting person effective January 26, 2023."
posted by praemunire at 7:04 PM on March 10, 2023 [1 favorite]

Seems to me that if the government is going to bail out any failed bank anyway, why are banks private institutions and not nationalized?

Socialize risk, privatize profit.
posted by They sucked his brains out! at 7:32 PM on March 10, 2023 [13 favorites]

"These transactions reported were effected pursuant to a Rule 10b5-1 trading plan entered into by the reporting person effective January 26, 2023."

There are ways to abuse this. A simple way is: On Monday, you learn some really bad news that isn’t yet public; on Tuesday, you sign a 10b5-1 plan saying “sell everything tomorrow”; on Wednesday, the plan sells all your stock; and on Thursday you announce the bad news and the stock tanks. This one is boring. It is not even really an abuse of Rule 10b5-1: This is just insider trading, and Rule 10b5-1 explicitly says that you have to enter the plan “before becoming aware of the information” for it to work. Still, lots of information is kind of ambiguous, and people do worry about this sort of abuse

. . .

A more interesting sort of abuse is: On Jan. 1, you have no material nonpublic information. But you know that on Feb. 15, your company will report earnings; you don’t know what they will be, but you know that the results are hotly anticipated and will be very important to the market. Also you will know the earnings by Feb. 5, because you are a senior executive and will be involved in preparing the earnings release. So what you do is, you adopt a 10b5-1 plan, on Jan. 1, telling your broker “sell all of my stock over a five-day period starting on Feb. 6.” You have no material nonpublic information and the plan doesn’t start for a month, so you look good. Then on Feb. 5, you find out the earnings. If they are good, you call your broker and cancel the plan: You have material nonpublic information, but you are not insider trading, because all you are doing is deciding not to trade. If the earnings are bad, you do nothing, and your broker dumps all your stock before the earnings are announced: This is not insider trading, because the sales are all made under an automated 10b5-1 plan.
posted by Carillon at 7:44 PM on March 10, 2023 [50 favorites]

The startup I work at was banked there and we are gonna miss payroll. We’re all wondering if we’ll lose our jobs. Feeling sad as we’re a BIPOC led and run startup and just a small team with a dream, and I’m just scared to not be able to pay bills :(
posted by buttonedup at 7:55 PM on March 10, 2023 [30 favorites]

There are ways to abuse this

On the other hand, some people were speculating about them for months, and if I held shares in a bank like that I would definitely sell them ASAP.
posted by pwnguin at 8:39 PM on March 10, 2023

I’m terrified that this is a Lehman Brothers like situation where the Fed and others have underestimated just how critical this bank is to the technology industry.
posted by interogative mood at 8:41 PM on March 10, 2023 [1 favorite]

I’m terrified that this is a Lehman Brothers like situation where the Fed and others have underestimated just how critical this bank is to the technology industry.

I get the impression that more people are concerned that its more like Bear Stern in the "canary in the coal mine" sense. Not systemically important, and at this point in the crisis epicycle, bailed out to inspire confidence in what turned out to be a quite rickety system.

SVB deposits were heavily uninsured and thus its depositors more prone to bank runs. There are other banks that look like this that don't serve tech. First Republic just published a form 8-K that states that "Technology-related deposits represent only 4% of total deposits" but they also have lot of uninsured deposits:

Total deposits at First Republic were $176.4 billion, or 90% of its total liabilities, as of Dec. 31. About 35% of its deposits were noninterest-bearing. And $119.5 billion, or 68%, of its deposits were uninsured, meaning they exceeded Federal Deposit Insurance Corp. limits.

posted by pwnguin at 9:19 PM on March 10, 2023 [2 favorites]

Aren't basically all medium-sized-and-up businesses banking with FDIC uninsured money? If your employees' total yearly salary totals more than 6M, you need to have >250K in your bank account twice a month. And even completely ignoring all overhead (like payroll taxes and insurance and 401k matching and IDEK but I bet there's other stuff) it only takes 40 $150K/yr employees to get there.
posted by aubilenon at 9:30 PM on March 10, 2023 [4 favorites]

This is not insider trading, because the sales are all made under an automated 10b5-1 plan.

What’s not insider trading? The part with this hypothetical person calls up their broker and makes a trading decision based on information from the inside?

I hope you have a good lawyer if your plan is to set aside your affirmative defense and then convince the SEC you didn’t know any MNPI when you called your broker immediately after learning a whole bunch of MNPI.
posted by Back At It Again At Krispy Kreme at 10:24 PM on March 10, 2023 [4 favorites]

There are ways to abuse this.

Yep, true, and we'll have to (and presumably will) see what facts come out on that, but people seem to be framing this (presumably out of not understanding the mechanism) as simple "sold stock in advance of bad news!!!", and it's a little more complicated than that. The 8-K was filed on January 19th, so was there MNPI learned between then and the 23rd? (Or, another possibility, did the 8-K itself contain material misreps that he knew about?)

SVB deposits were heavily uninsured and thus its depositors more prone to bank runs.

Well...yes and no. In the edge case, like here, yes; but in commercial banking generally, some of that risk is taken for granted. (Which does not mean you should arrange your company's financial affairs in such a way that any single bank going under will take you down, too!) Until chaos breaks out, the interesting banks right now are more the ones who didn't adequately hedge their longer-term fixed-income bond holdings and the ones whose customers are heavily concentrated in a vulnerable sector. SVB got it going and coming: the rise in interest rates pushed down the market value of their longer-term bonds and cut into the cash flow of a lot of their depositors. I think this is not a common scenario among U.S. banks right now, which is why I'm less freaked out, but I'm kind of just waiting for the news to make a fool of me.
posted by praemunire at 10:47 PM on March 10, 2023 [3 favorites]

> People who own the stock may be in much worse shape (hard to say right now) and there may be serious follow-on effects from the "banking" part, as this thread makes clear.

> The 8-k form from March 8 that started the whole thing.

2/23 @ByrneHobart: "Also in today's newsletter: Silicon Valley Bank was, based on the market value of their assets, technically insolvent last quarter and is now levered 185:1."

also btw...
-The Demise of Silicon Valley Bank
-Why was there a run on Silicon Valley Bank?
posted by kliuless at 11:37 PM on March 10, 2023 [2 favorites]

Who will Christian Bale play in the movie?
posted by oldnumberseven at 1:03 AM on March 11, 2023 [3 favorites]

New Dodd-Frank treatment: Section 401 of S. 2155 increases to $50 billion the Section 165 threshold for the risk committee requirement and to $250 billion the threshold for the annual stress test requirement.

https://www.chapman.com/publication-House-Passes-Bank-Deregulation-Bill

Crapo (R-ID) was the Senate sponsor of that bill, got a smattering of Dem votes on the way to Trump's desk.

SIVB's balance sheet was $70B in 2019 but edged up to just over $200B in 2021-22.

https://fred.stlouisfed.org/series/DGS7

park your deposits in a "safe" ~1% yielding security, but have to sell when it's at 4% . . . money is hard.

Bay Area real estate is holding up but the value of 2.5 - 3.5% mortgage bonds has also taken a haircut in our current 6% rate environment
posted by Heywood Mogroot III at 2:36 AM on March 11, 2023 [4 favorites]

Aren't basically all medium-sized-and-up businesses banking with FDIC uninsured money?

Nope. They have services like ADM which open accounts in their names and spread money around to different banks all insured up to the FDIC limit. They do all the balancing and reconciling and it looks like one big giant pile of money to the company but ADM is behind the scenes opening new accounts to handle the cash pile. The big problem is that SVB was providing venture debt to a LOT startups and requiring them to keep them money in SVB so a lot of these startups had to keep piles of cash in one place.

The other thing they do is put a lot of their cash piles into T-Bills and T-Notes. These are owned directly by the company unlike cash deposited at a bank. They will often use commercial paper to grab cash for things like payroll against those longer term T-Notes but they'll usually have T-Bills maturing almost continually as well. Not to mention if you need a huge injection of liquidity (i.e. for an acquisition) you can basically offload them at any time.
posted by Your Childhood Pet Rock at 6:39 AM on March 11, 2023 [9 favorites]

I'm worried that our ruling elite seem bound and determined to ensure a painful recession occurs and a proper level of fear and hopelessness is restored across the worker class no matter what.

I don't think you need to worry about it, that's definitely what's happening here. You have so-called activist investors demanding that, say, Google do a huge layoff because it's not right that so many people are making $300K. (PDF)

Peter Thiel's fund yanked a bunch of money out of SVB, and I have little doubt that Thiel both knew the likely outcome and wanted it to happen. Thiel wants to "erode" the money system and what better way to help that along than by trying to spark a huge financial crisis?

As an added bonus there's likely a bunch of assets that are about to go on fire sale that billionaires can snap up.

As an added added bonus (for the wrong people), this is going to hand the Biden administration another enormous mess to clean up - and no matter how well or poorly they do, no matter what mechanism they use, FOX and the GOP will scream to high heaven about it. The House will obstruct anything that has to go through Congress to help clean up the mess and FOX will have a grand old time vilifying big tech and claiming that this is all DEM's fault.
posted by jzb at 8:57 AM on March 11, 2023 [14 favorites]

Yup the GOP is absolutely trying to drive the economy off a cliff so they get their guy in the Oval Office next year.
posted by potrzebie at 9:06 AM on March 11, 2023 [12 favorites]

Bank of England puts UK arm of Silicon Valley Bank into resolution
posted by chavenet at 9:54 AM on March 11, 2023

My guess now is SVB gets bought by another investment bank and at a more-than-zero price. Assuming the problem is basically just liquidity and the assets are more or less intact, a bigger bank can manage the liquidity issue. And SVB is a uniquely valuable institution, with a particular role in the tech industry that no one else comes near. Buying all those customers could end up being a really good bet.

Just my guess, we'll probably know what happens in a couple of days.
posted by Nelson at 11:13 AM on March 11, 2023

Yup the GOP is absolutely trying to drive the economy off a cliff

TBH this seems to extend beyond the GOP quite significantly.
posted by Artw at 11:26 AM on March 11, 2023 [1 favorite]

My feeling is that what we are seeing is a massive loosely coordinated capital strikein response to some of the very small social gains that happened in response to the pandemic, in order to roll back those gains and make it clear that such gains must never happen again.
posted by Artw at 11:30 AM on March 11, 2023 [24 favorites]

My feeling is that what we are seeing is a massive loosely coordinated capital strike in response to some of the very small social gains that happened in response to the pandemic, in order to roll back those gains and make it clear that such gains must never happen again.

They often express it straightforwardly, as in this quickly-Googled headline from the other day: Fed under less pressure to speed rate hikes as wage gains cool
posted by clawsoon at 11:44 AM on March 11, 2023 [3 favorites]

Excuseflation
posted by Artw at 12:04 PM on March 11, 2023 [3 favorites]

I've been seeing rumors that SVB might be the last/only domestic tradfi US bank that was willing to deal with cryptocurrency exchanges, and that some of what is going on with SVBs insolvency and a theoretical bank run is related to crypto and the feds stepping in. (IE, the feds stepping in due to insolvency fueled by crypto, not specifically because of crypto processing.)

Anyone have any concrete info about this?

At this point in the timeline I would not be at all surprised if SVB was messing around with defi/crypto assets and things got out of hand and went pear shaped.
posted by loquacious at 12:19 PM on March 11, 2023

I think these rumors are confusing Silvergate and SVB. I don't see much evidence that SVB was making extensive loans against crypto, and the other explanations do adequate work.
posted by praemunire at 12:31 PM on March 11, 2023 [3 favorites]

The SVB shutdown has hurt so-called stablecoin USDC. USDC is backed by money held by the company Circle, and that money is held at SVB. Which is now frozen. Coinbase, the main proponent of USDC, paused USDC to dollar redemptions over the weekend. The price immediately dove as low as $0.89 (off from $1.00). USDC is a more legitimate financial instrument than other so-called stablecins like Tether; they have verifiable assets. Just awkwardly those assets are locked up in a closed bank right now.
posted by Nelson at 12:39 PM on March 11, 2023

Having a massive sulk because nobody liked crypto and it was a stupid idea anyway does seem to be another aspect of the capital strike. These people are *pissed* that it didn’t take on, at least those that didn’t switch immediately to AI garbage.
posted by Artw at 12:43 PM on March 11, 2023 [3 favorites]

I think praemunire is right, loquacious: Silvergate was the 'crypto' bank, SVD was basically taking commercial deposits from startups (often because VC was telling them they had to use that bank).

it can't be emphasized enough that this really looks like your classic maturity mismatch and depositors getting spooked (thiel et al pouring fuel on that particular fire) kind of run. like, SVD was doing dumb stuff to not manage their interest rate risk, to all appearances, but honestly this is the kind of thing that Diamond and Dybvig won the Econ nobel for modelling last year.
posted by dismas at 12:49 PM on March 11, 2023 [2 favorites]

Paul Goldsmith-Pinkham posted an interesting set of charts about other banks that markets seem to be worried about on Twitter
posted by dismas at 12:52 PM on March 11, 2023

so-called stablecins

stablecons
posted by away for regrooving at 12:55 PM on March 11, 2023 [6 favorites]

USDC is a more legitimate financial instrument than other so-called stablecins like Tether; they have verifiable assets.

Apparently still run by freaking morons if they kept one-third of their reserves (essential to their credibility in a way that is not the case for most businesses) in one bank! Did they think fairies kept watch over it??? Jeepers creepers.
posted by praemunire at 1:21 PM on March 11, 2023 [1 favorite]

a year-plus ago the Fed figured it didn't need to track the financial system's unrecognized losses of assets available-for-sale ("AFS"):

https://fred.stlouisfed.org/series/NUGACBW027SBOG

"AFS" was an alien term of art to me until yesterday so I don't know anything on this really, but it is curious.

"Proposed Elimination of Two Data Items"

https://www.federalregister.gov/documents/2021/10/05/2021-21595/proposed-agency-information-collection-activities-comment-request

The timing of this reporting change is curious since inflation was taking off in mid-2021:

https://fred.stlouisfed.org/graph/?g=1130X

and ZIRP was to be ended right when this mark-to-market series was to be ended.

Maybe the Fed has this reporting elsewhere, again, not an expert here, just someone who likes FRED.
posted by Heywood Mogroot III at 1:33 PM on March 11, 2023

ah, we do still have the quarterly series:

https://fred.stlouisfed.org/series/QBPBSTASSCSAL

let's see on the left axis we have: 4,000,000 - 3,000,000, times one million . . . just a trillion-dollar 25% haircut on AFS assets when marked to market.
posted by Heywood Mogroot III at 1:45 PM on March 11, 2023

Just got an email this afternoon from the (relatively) small clothing company that supplies most of my wardrobe (Universal Standard). They banked at SVB and are asking customers to purchase this weekend, with a pot-sweetener for an upcoming event, to help them stay in solid financial shape while their money situation sorts out.

I love their clothes and they're one of the few companies that runs a really good size range (00-40) in everything they make. If SVB takes them down, I'm going to be running around butt nekkid when my current closet full of stuff wears out.
posted by gentlyepigrams at 1:45 PM on March 11, 2023 [5 favorites]

Silicon Valley Bank paid out bonuses hours before seizure (Axios)
Is there any aspect of the economy that's not a grift at this point?
posted by thatwhichfalls at 2:02 PM on March 11, 2023 [2 favorites]

any bank will go under when depositors make a run on it, unless you've got Jimmy Stewart talking them down in a Frank Capra-directed scene.
posted by Heywood Mogroot III at 2:25 PM on March 11, 2023 [2 favorites]

Hedge funds are offering to buy startups’ deposits stranded at Silicon Valley Bank for as little as 60 cents on the dollar
posted by credulous at 2:47 PM on March 11, 2023

On the other hand, my podcast queue is now bound to be full of "bond pricing 101" segments for the next week.

But I did not anticipate that it would be full of ads for Mercury shouting how they are FDIC insured (as if SVB wasn't):

Mercury: Banking for Startups*

*Mercury is a financial technology company, not a bank.

posted by pwnguin at 2:48 PM on March 11, 2023

Well, shit. Half the startups in the climate tech space are affected by this.
posted by ocschwar at 3:31 PM on March 11, 2023 [4 favorites]

Ooof, that hedge fund offer to buy out deposits is grim. It's been, what, 36 hours? There's a good chance things are going to be mostly unfucked in about 36 more hours, hopefully most companies can wait rather than take that awful deal.

Meanwhile... Silicon Valley Bank Collapse Puts San Francisco’s Affordable Housing Projects in Limbo.
posted by Nelson at 4:15 PM on March 11, 2023 [2 favorites]

Musk putting $1B of TSLA's cash into BTC a couple of years ago is looking a little less idiotic now

prolly should just remove FDIC account limits altogether; 100 accounts of $250k or 1 account of $25M, what's the difference to the bank, money is money.
posted by Heywood Mogroot III at 5:01 PM on March 11, 2023

When do we find out that Thiel shorted SVB ahead of stoking the bank run?
posted by Mister Fabulous at 5:40 PM on March 11, 2023 [4 favorites]

@[e-mail]: "i hope the silicon valley community considers that if we had postal banks offering business deposit and payment services, they’d never have to worry about this kind of thing."[1,2,3]
posted by kliuless at 11:57 PM on March 11, 2023 [5 favorites]

Silicon Valley Bank paid out bonuses hours before seizure (Axios)
Is there any aspect of the economy that's not a grift at this point?

It's just a coincidence, as noted in the article.
posted by Candleman at 11:59 PM on March 11, 2023

Hedge funds are offering to buy startups’ deposits stranded at Silicon Valley Bank for as little as 60 cents on the dollar

I wonder if these are the same outfits that caused the run on SVB in the first place. Smart play, if so. I mean, who or what would stop them?
posted by They sucked his brains out! at 12:53 AM on March 12, 2023 [3 favorites]

any bank will go under when depositors make a run on it, unless you've got Jimmy Stewart talking them down in a Frank Capra-directed scene.

Start-up idea: Cutting edge biotech operation producing clones of Jimmy Stewart to protect our financial institutions from collapse.
posted by Grangousier at 5:30 AM on March 12, 2023 [1 favorite]

Can't find it now, but I read one person noting that startup founders from other countries (not sure whether she was discussing immigrants/expats or people living in non-US countries) have been particularly affected by this, as Silicon Valley Bank was fairly unique in its openness to business accounts where the accountholder does not have a Social Security Number. I did read Nadia Eghbal (who I have often disagreed with), who notes that SVB was more willing than other banks to, for instance, lend startup employees and founders the money to use their stock options, or to approve their mortgages:

I've seen a number of people ask why so many startups banked with SVB, as if this should have been a red flag somehow. The answer is not that tech doesn't want to work with traditional banks, or because they were greedy and looking for better rates. They banked with SVB because it's one of only a handful of banks that was willing to align its financial products with the holistic levels of risk that are required to work in startups. And the types of people who need access to these services aren't necessarily the rich kids with wealthy parents; they're precisely the people who don't have access to capital anywhere else. The real world is not kind towards people who don't have money or pedigrees that want to start, fund, or work at early stage companies. The real world wants those people to work a steady desk job and not ask too many questions. That's why tech needs a bank of its own.

I am not, by the way, a customer of Silicon Valley Bank, nor have I ever been. I also have no interest in defending SVB as a firm; from public information so far, it seems they made a series of poor judgment calls that could have prevented the events that unfolded, which makes their demise all the more tragic. But I am still deeply saddened by the news this week, because I know SVB as a bank that helped remove the friction that entrepreneurial people feel in every other part of their lives whenever they try to interact with the "default world."....
I don't want to live in a world where people can't do interesting things because they're told they're not rich enough to qualify for those dreams, or that their financial situations are too weird to fit the traditional banking system.

Also: I read dr_dank's "Old man Potter is offering fifty cents for every share you’ve got!" aloud to my spouse, who instantly went into a [pretty good] Jimmy Stewart impression and said: "The money's not here! It's in Joe's startup, and Fred's NFT, and Sarah's Series A!"
posted by brainwane at 5:37 AM on March 12, 2023 [10 favorites]

Previously on MeFi: How deposit insurance works:

So eventually, on a Friday, the supervisor (which is not the FDIC) tells the bank that it has failed. Concurrently with this, the FDIC swings into action. The micro-mechanics of this are fascinating; they resemble a police raid on the bank headquarters except mostly conducted by people who look like accountants (and in some cases, are).

That action is, in almost all cases, selling the deposits and assets of the bank to another financial institution. Banks benefit from scale. This is a core reason that they open new branches at the margin. The FDIC’s proposal is “Hey, a bunch of perfectly good branches with perfectly good bankers just came on the market. They’ve also got some assets and… well… nobody gets here if the assets are also perfectly good. But almost any pile of assets is good at the right price. Let’s make a deal.”

In cases where the bank is not actually insolvent—where they truly are just having liquidity problems—subsuming them into a larger, healthier bank solves the problem outright. The acquiring bank gets their assets at an attractive price, and the losses (the difference between the value of the assets and that attractive price) are borne by equity holders in the original bank, who will often be zeroed out or close to it.

posted by brainwane at 6:19 AM on March 12, 2023 [1 favorite]

Yellen: No federal bailout for collapsed Silicon Valley Bank.

Yellen said she expected regulators to consider “a wide range of available options,” including the acquisition of Silicon Valley Bank by another institution. So far, however, no buyer has stepped forward.

Genuinely surprised she's talking in public about this. Maybe I was too optimistic about an acquisition being arranged over the weekend.
posted by Nelson at 8:09 AM on March 12, 2023 [4 favorites]

The rumors I've seen are that they've found buyers for 50% of the assets and that depositors can expect their $250K Monday and access to 50% of deposits by Wednesday, remainder of deposits will be dependent on recovery that should happen within 6 months. Depositors who had loans with SVB will be able to write off balance of loan towards deposit.

Whether this is good, bad, or deeply ugly I guess depends on the amount of exposure depositors had, and how desperately they need cash now above that 50% of deposits. I have a feeling this is going to be pretty hard for a lot of companies.
posted by jzb at 9:20 AM on March 12, 2023

I went looking for a reference on that 50% rumor and found this Bloomberg article from yesterday afternoon.

US regulators overseeing the emergency breakup of SVB Financial Group are racing to sell assets and make a portion of clients’ uninsured deposits available as soon as Monday, according to people with knowledge of the situation. ... Figures being floated behind the scenes for an initial payment range from 30% to 50% or more of uninsured deposits, the people said, asking not to be identified discussing private talks.

That article has a lot more detail about various efforts to handle the immediate crisis.
posted by Nelson at 9:44 AM on March 12, 2023

FDIC Auction for Failed SVB Underway, Final Bids Due Sunday
posted by credulous at 10:12 AM on March 12, 2023

@[e-mail]:
Venture capitalists and NYTimes working overtime to rewrite history on Silicon Valley Bank.

I'd believe it's a "systemically important financial institution," except that #SVB and VCs were adamant that it was not one, and lobbied hard to make sure it wasn't treated as one.

Sorry, no, we're not going to consider it one for bailout purposes only, especially not without any reforms to prevent the next one.
posted by Artw at 10:23 AM on March 12, 2023 [3 favorites]

@[e-mail]: "Terrific if depressing look inside how the whole SVB debacle was instigated, slowly then all at once, starting with a well-intentioned attempt to shore up its balance sheet in the face of a possible Moody's downgrade."
posted by kliuless at 10:48 AM on March 12, 2023 [3 favorites]

U.S. officials weigh protecting all deposits at Silicon Valley Bank
posted by credulous at 12:40 PM on March 12, 2023 [1 favorite]

This guy also seems to have nailed it:
Dr. Jorge Caballero Mastodon: @[e-mail]
"Let's be crystal clear: this was a bank run directed by one group of venture capitalists, which left another group of venture capitalists holding the bag. The latter is vocally demanding that taxpayers "make them whole" which translates into: rewarding them for assuming unmitigated risk.

The FDIC will ensure that bills are paid, loans are serviced, and payrolls are funded. The VCs that go out of business played the game and lost. That's capitalism. They can't have it both ways."

If 'thiel' isn't German for 'despicable tool', it should be.

Also, this from Dan, the former biz editor of the (glory-days K/R era) SJ Merc:
Dan Gillmor @[e-mail]
The more we're learning about Silicon Valley Bank, its management, and the industry that made it a linchpin of the startup ecosystem, the worse it sounds. This is an epic combination of arrogance, big money, incompetence, and backstabbing. And that assumes no major corruption...
---
Looking like Silicon Valley Bank and the financiers who handed it billions found a way to ensure they'd be bailed out if there was trouble: Highly visible collateral damage if regulators didn't rescue the ultra-wealthy.

Shades of 2008-2010, but in that case the feds rescued ONLY the ultra-wealthy.

posted by zaixfeep at 1:15 PM on March 12, 2023 [4 favorites]

As I wrote elsewhere on MeFi a while back, it's clear nobody's in charge, but there are a bunch of billionaire 'mean girl' cliques pummelling each other for supremacy and using the rest of us as human shields. And if they had no money, they'd still be pulling stunts like this because that's just the kind of thiels they are.

If they're so rich then why aren't they smart (as in wise) rather than just clever?
posted by zaixfeep at 1:27 PM on March 12, 2023 [3 favorites]

"Let's be crystal clear: this was a bank run directed by one group of venture capitalists, which left another group of venture capitalists holding the bag.

That reminds me of the period in early pre-Canadian banking when we didn't have a national currency and banks would try to secretly buy up each other's scrip in order to do a run on the other bank and drive them under. It was a dangerous, destructive game.
posted by clawsoon at 1:57 PM on March 12, 2023 [2 favorites]

I feel like there's definitely pressure to save the donor class from themselves here.
posted by Selena777 at 2:13 PM on March 12, 2023 [1 favorite]

Would be nice if Thiel could be forced to buy the bank.
posted by clawsoon at 2:26 PM on March 12, 2023 [4 favorites]

"you broke it you bought it, bud"
posted by clawsoon at 2:27 PM on March 12, 2023 [2 favorites]

The chutzpah here beggars belief. The VC “community” literally started the $SIVB run on Thursday, when it urged its portfolio companies to pull their deposits…which they did($42B). And they now want the Taxpayer to bailout their investments…?! Capitalism, Silicon Valley-style.

Here’s an idea for all the aggrieved venture “capitalists” out there: Become real capitalists and offer to buy the FDIC unsecured deposit IOU’s at a slight discount, from your portfolio companies that receive them. They can make payroll, and you can make a small return.

I can guarantee you that the capitalists on Wall Street will be trading these claims, so non-Taxpayer liquidity will be available…at a price. No one will need to miss payroll if the VC “community” supports their portfolio companies. The 10% haircut(my estimate)is manageable.

- Jim Chanos (twitter)
posted by are-coral-made at 2:29 PM on March 12, 2023 [1 favorite]

Corporate checking accounts should have $250,000 of FDIC protection per payroll employee or somesuch.

SVB was the easiest 'big short' in the history of mankind, in retrospect.
posted by Heywood Mogroot III at 2:35 PM on March 12, 2023 [1 favorite]

meanwhile, over on the orange site:

1. Y Combinator & over 5,000 CEOs petition the government: "Small business depositors at Silicon Valley Bank should be made whole. Regulators need to conduct a backstop of depositors. We are not asking for a bank bailout" (YC blog link)
2. someone posts the above YC petition to Hacker News (operated by YC), with the editorialized title "YC is Asking for a Bailout". Upvotes and much discussion accrue. The top voted comment is "LOL, nope. Not interested in taking another spin on the “privatize gain, socialize loss” merry-go-round."
3. the title of the post is changed by mods to match the title of the YC blog post "Urgent: Sign the petition now"
4. readers start "flagging" the re-titled post and it vanishes from the Hacker News front page
posted by are-coral-made at 2:42 PM on March 12, 2023 [5 favorites]

The bank's depositors getting their checking account balances back online isn't bailing them out of any risky investments – backstopping corporations like Roku that were keeping $400M in their checking account earning 0.2% or whatever isn't a moral hazard.

Not doing this just forces these corporations that want to keep more than $250,000 in their corporate accounts to either move to the bigger TBTF banks, which is bad, or manage their own treasury accounting which is inefficient, or just move their money into bitcoin since that can't go to zero or be paused by the bank regulators, yet.
posted by Heywood Mogroot III at 2:48 PM on March 12, 2023

"No one will need to miss payroll if the VC “community” supports their portfolio companies. The 10% haircut(my estimate)is manageable."

This is a stupidly large brush that Chanos is painting with here. I work for a company that banks with SVB. We are not VC funded. We're customer funded, slow growth over 17 years to 350 people.

The "manageable" 10% haircut would be piled on top of a rough economy and years of navigating the pandemic. I don't know about the company I work for, but I expect for some companies that "haircut" will translate to layoffs or closure. Because no matter what, this is a fear-inducing event that's going to slow spending and make it harder for SVB-banking companies to assure prospective customers that they're robust enough for new business.

Not to mention that 10% may be operating cash they can't afford to lose right now, especially as companies are also buffeted by inflation and rising interest rates.

I'm all for whatever regulation we need, but money in a bank account should be insured. All of it. Raise the necessary taxes on profit to account for it, fine by me.

But I'm really frustrated so many people are willing to hurt all the businesses banking with SVB just to see a fraction of the customers "get what's coming to them."
posted by jzb at 2:50 PM on March 12, 2023 [1 favorite]

But I'm really frustrated so many people are willing to hurt all the businesses banking with SVB just to see a fraction of the customers "get what's coming to them."

You’re a hostage. You and your coworkers and all the other workers of all the other businesses are. Get mad at the hostage taker, not the people who are rolling their eyes because we’ve seen this guy take hostages before and get away with it despite shooting a bunch of the hostages anyway.
posted by Etrigan at 3:18 PM on March 12, 2023 [1 favorite]

That is a bizarre view of banking services.
posted by Nelson at 3:28 PM on March 12, 2023 [6 favorites]

Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC

After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer." ...

Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

posted by Nelson at 3:31 PM on March 12, 2023 [7 favorites]

But I'm really frustrated so many people are willing to hurt all the businesses banking with SVB just to see a fraction of the customers "get what's coming to them."

If it helps any, none of the complaining here or elsewhere will make any difference at all - those businesses will be made whole by the government in way or another.
Even if there were an election for every branch of government tomorrow and every voter went single issue on "let them sink" they would be made whole.
Even if the gods themselves moved the stars in the sky to spell out the words "let them sink or the false vacuum gets it," they would be made whole.
It's going to be fine.
posted by thatwhichfalls at 3:34 PM on March 12, 2023 [4 favorites]

I'm all for whatever regulation we need, but money in a bank account should be insured.

Surely this must be something that is already available if companies want it. Something like PMI for deposits over $250k.
posted by Mitheral at 3:39 PM on March 12, 2023 [4 favorites]

Also mentioned in that press release:

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

So along with Silvergate, that's the third crypto-adjecent bank failure in a week. Not sure how much crypto fueled the fire, but that smoke smells funny.
posted by credulous at 4:01 PM on March 12, 2023

rubber always smells funny when you burn it
posted by pyramid termite at 4:05 PM on March 12, 2023 [1 favorite]

Meanwhile, in Canada, the OFSI took control of SVB's Canadian subsidiary.
posted by seanmpuckett at 4:17 PM on March 12, 2023 [1 favorite]

Advice for startup founders from accounting provider Pilot.
posted by brainwane at 9:16 PM on March 12, 2023

I don't want to live in a world where people can't do interesting things because they're told they're not rich enough to qualify for those dreams, or that their financial situations are too weird to fit the traditional banking system.

If it requires subsidy from my pocket while student loan borrowers in desperate straits are told, "LOL, you should've been born rich," I'm actually...quite fine with it.

(Note that the "too weird" here refers to things like...wanting loans backed by "premium wines.")

But if the reports on the assets are correct, I'm not surprised the Treasury is now saying depositors will be made whole. Even assuming some of the loans are collateralized by magic beans, you could buy the whole kit and kaboodle at a healthy discount and still make the depositors whole.
posted by praemunire at 10:30 PM on March 12, 2023 [3 favorites]

> No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.... Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks

So, a tax on banks run at least a little bit more responsibly, passed on to their customers.
posted by ASCII Costanza head at 10:56 PM on March 12, 2023 [2 favorites]

Elizabeth Warren: Silicon Valley Bank Is Gone. We Know Who Is Responsible
posted by Artw at 6:37 AM on March 13, 2023 [5 favorites]

First Republic and a couple of other "small" banks now appear to be in trouble this Monday morning.
posted by Dashy at 7:19 AM on March 13, 2023

I think this is going to be the end of Jerome Powell at the Fed. His interest rate plan seems to have done little to curb inflation and it is killing the industries we need to bring inflation down via increased productivity and investment in boosting output from industry and resiliency in our supply chains. Now Powell’s rapid rate hikes have started to create a bigger problem of a potential financial panic.
posted by interogative mood at 7:43 AM on March 13, 2023 [1 favorite]

First Republic and a couple of other "small" banks now appear to be in trouble this Monday morning.

That would be the same First Republic that old school VC idiot Jason Calecanis was praising over the weekend.
posted by Lentrohamsanin at 7:45 AM on March 13, 2023 [1 favorite]

re: interest rates, arguably the bigger contributor to SVB's failure was their reluctance to pay competitive rates on deposits, once rates went up. So, putting their own profit above stability.
posted by Dashy at 8:02 AM on March 13, 2023 [3 favorites]

Make the Post Office a bank.
posted by Artw at 8:24 AM on March 13, 2023 [11 favorites]

Dan Davies writes: "Call it what it is":

...if the FDIC had operated normally and not extended insurance to people who hadn’t paid the premium – then the bill would have arrived at the VCs’ door. They are the owners of the tech startup companies, and they would have been the ones responsible for ensuring that those companies could make payroll if they had lost money in a bank failure through no fault of their own. It might not have been pleasant for the VCs to put up more funding, or to admit that their contribution of management expertise and financial acumen had been so spectacularly negative, but they would still have done it.... The venture funds were the source of the cash that was at risk in the SVB failure; it’s their loss that has been socialised.

And the fact that the VCs were able to use their portfolio companies as human shields in this way – a natural extension of the pretence that venture capitalists are in the tech industry rather than the financial industry – shows us what the real long-term cost of our current system of bailouts is, in terms of policy.

posted by brainwane at 9:24 AM on March 13, 2023 [3 favorites]

I don't think that "them's the breaks, customers" is a great response to a failure to adequately regulate.

I agree, I much prefer "let's regulate competently", but I also can't blame people going "You specifically lobbied to weaken regulations which would've prevented you from being able to collapse like this (and drew in customers by running a riskier business like this), live by the sword die by the sword" either. It's a bit weird to blame inadequate regulation when some of the entities in question has been sawing on the supports so to speak.
posted by CrystalDave at 9:55 AM on March 13, 2023 [4 favorites]

I love this guy:

https://www.youtube.com/watch?v=GdfYnqyu7v8
posted by Heywood Mogroot III at 11:00 AM on March 13, 2023 [1 favorite]

Regarding the closure of Signature, when did Barney Frank become a stooge for the cryptoscrip industry?
posted by They sucked his brains out! at 12:08 PM on March 13, 2023 [1 favorite]

We need to nationalize any bank that is too big to fail.
posted by chaz at 1:52 PM on March 13, 2023 [4 favorites]

It's not totally reassuring that my credit union just felt the need to send out the "we are a competently run institution that is not at risk!" e-mail. But the explicit confirmation that they've got nothing to do with crypto is nice to have.
posted by EvaDestruction at 2:02 PM on March 13, 2023 [1 favorite]

Oracle: Welcome Neo, please break my vase!
posted by pwnguin at 3:24 PM on March 13, 2023

We need to nationalize any bank that is too big to fail.

We need to nationalize any bank whose lending is underpinned by the purchase of cryptoscrips, before their inevitable failures tank the real economy.
posted by They sucked his brains out! at 3:29 PM on March 13, 2023

I'm not an expert on banking/economics, but I suspect the recent crypto-fallout from SBF has to have something to do with this, or am I completely off-base?
posted by Chuffy at 3:46 PM on March 13, 2023

There's like ten causes, probably more. You might argue that the crypto bust led to either a decline in revenue from SVB's depositors, or less money available to raise from, but there's no direct connection I'm aware of. At a higher level, interest rate hikes mean over the past year bond investors have lost ~10 percent of their investment, and banks only have to kinda sorta report that. There's a chart floating around Twitterverse from FDIC (chart 7) that shows something like 750 billion dollars of unrealized losses for the banking sector:

Unrealized losses on securities totaled $689.9 billion in the third quarter, up from $469.7 billion in the second quarter, reflecting increased market interest rates. Unrealized losses on held-to- maturity securities totaled $368.5 billion in the third quarter, up from $241.8 billion in the second quarter. Unrealized losses on available- for-sale securities totaled $321.5 billion in the third quarter, up from $227.9 billion in the second quarter.

Its probably best I not go look up how many deposits they have total.
posted by pwnguin at 4:05 PM on March 13, 2023

I suspect the recent crypto-fallout from SBF has to have something to do with this

Not SVB. There's already several good explanations linked upthread. Maybe something to do with Signature's failure but I don't care enough about them at this time to dig into their exact causes.
posted by Candleman at 4:44 PM on March 13, 2023 [1 favorite]

From CNN: "‘Absolutely idiotic’. SVB insider says employees are angry with CEO"

Which contains the quote:

“People are just shocked at how stupid the CEO is,” the Silicon Valley Bank insider said. “You’re in business for 40 years and you are telling me you can’t raise $2 billion privately? Get on a jet and fly to Kuwait like everyone else and give them control of one-third of the bank.”

What a world these people live in.
posted by automatronic at 7:13 PM on March 13, 2023 [6 favorites]

> What a world these people live in.

To be fair this was the venture capital bank, headquartered in the place with the highest concentration of billionaires in the world, so you'd think the CEO would be chummy with some people who could have shored up their liquidity issues easily and quietly long before things exploded. honestly you do have to be pretty stupid to fuck up running a well established bank. people literally knock on your door to *give you money* (yes, i get that deposits are technically liabilities not assets on the bank balance sheet but all the same).
posted by dis_integration at 7:29 PM on March 13, 2023 [2 favorites]

Those unrealized losses though are in assets that were designed to be held to maturity and are in things like treasuries and mortgages (not the pre-2008 shit mortgage backed securities) that have traditionally been very stable. They would only incur a loss on those assets if they had to sell them before they came due. If you bought a treasury paying 1% it is worth less because new treasuries are paying 5%. The problem was that because start ups can’t raise money right now they needed to sell some of those hold to maturity assets and take a loss, but it wasn’t a lot only a few billion worth. Hence the desire to limit that by holding a secondary offering and selling stock.
posted by interogative mood at 7:29 PM on March 13, 2023 [1 favorite]

The Incredible Tantrum Venture Capitalists Threw Over Silicon Valley Bank
posted by Artw at 9:00 PM on March 13, 2023 [8 favorites]

you'd think the CEO would be chummy with some people who could have shored up their liquidity issues easily and quietly long before things exploded.

I figure that Thiel et al have a computer somewhere that told them 20 months before the election was the best time to start a banking crisis, so word was already out to the majority of the billionaire class to get ready for a run.
posted by Etrigan at 8:54 AM on March 14, 2023 [3 favorites]

but they blew up their own bank!
posted by Heywood Mogroot III at 10:20 AM on March 14, 2023

→ ... recovered by a special assessment on banks

So does this mean that the FDIC will be upping the premiums to the not-bankrupt US banks to cover the losses from SVB? Banks are gonna bank and pass those new costs on to their customers. People in the USA will end up paying for this as a privatized form of tax in all sorts of interesting ways.

Or am I completely wrong?
posted by scruss at 10:50 AM on March 14, 2023

Banks are gonna bank and pass those new costs on to their customers.

Well, yes, but I would argue that if the banks were properly regulated in the first place, they would have incurred extra costs that would have been passed on to the customers anyway.
posted by 1970s Antihero at 10:53 AM on March 14, 2023

I enjoyed Morning Brew's humorous short videos (under 2 minutes each) satirizing the crisis, posted to Twitter:

Part I

Part II

Viewable through the nitter proxy in case you don't want to/can't view tweets:

Part I

Part II
posted by brainwane at 12:09 PM on March 14, 2023 [1 favorite]

The moral hazard here is that SVB didn't properly hedge their 2021 bond buying with interest rate swaps or whatever competent banks do for that.

According to the video I linked above, they didn't even have a Chief Risk Officer for the past year.
posted by Heywood Mogroot III at 12:09 PM on March 14, 2023 [1 favorite]

Unrelated, unless it's an example of everybody doing it, in which case:

Credit Suisse finds ‘material weakness’ in its financial reporting, scraps exec bonuses

"Credit Suisse said in its annual report that it had found “the group’s internal control over financial reporting was not effective” because it failed to adequately identify potential risks to financial statements."
posted by clawsoon at 12:41 PM on March 14, 2023

Unsurprisingly, some right-wing pundits misidentified an SVB employee, came up with a theory that this is all the fault of diversity, equity, and inclusion initiatives, and are now saying things like "I’m not saying 12 white men would have avoided this mess, but the company may have been distracted by diversity demands" on the Wall Street Journal opinion pages.
posted by clawsoon at 12:50 PM on March 14, 2023 [4 favorites]

As often, Gaslit Nation provides a context-rich viewpoint.
posted by progosk at 3:08 AM on March 15, 2023

The Nib: Bank Shot
posted by Artw at 10:16 AM on March 15, 2023 [3 favorites]

The moral hazard here is that SVB didn't properly hedge their 2021 bond buying with interest rate swaps or whatever competent banks do for that.

I read elsewhere that this is technically true, but that regulations forbid banks from hedging interest rate risk on assets categorized as "Hold To Maturity." I'm not an expert, so maybe the regulation just says "all assets for which the bank's rate risk is hedged are to be classified as Available for Sale instead of Hold To Maturity."

Maybe a more prudent bank would probably still balance that by not holding low rate long term bonds in HTM, and maybe not having so much HTM? But also maybe a regulator would have said something if it was expected to be bad?
posted by pwnguin at 11:01 AM on March 15, 2023

SVB CEO statement: As stated in yesterday’s announcement, depositors have full access to their money and both new and existing deposits are fully protected by the FDIC. This action by FDIC effectively means that deposits held with SVB are among the safest of any bank or institution in the country.

…I would maybe phrase this differently if I were the SVB CEO.
posted by Artw at 12:22 PM on March 15, 2023 [3 favorites]

they didn't even have a Chief Risk Officer for the past year

And where is Eric Dale?
posted by maxwelton at 12:52 PM on March 15, 2023

I would maybe phrase this differently if I were the SVB CEO.

It seems unlikely he would suffer any legal consequences, either way. From what I read, for instance, he will likely have access to an SEC loophole to get around insider trading allegations.
posted by They sucked his brains out! at 4:48 PM on March 15, 2023

I think this is, at least, a different guy?
posted by Artw at 4:50 PM on March 15, 2023 [1 favorite]

The Case for a Banking Public Option- Every individual and business should get the same Federal Reserve account benefits that banks enjoy.
posted by Artw at 4:51 PM on March 15, 2023 [3 favorites]

The CEO of SVB now was appointed to that position by the FDIC to basically manage the day to day and try to keep the franchise value of the bank so it can be sold, hopefully at a price that means FDIC doesn’t actually have to pay out the insurance claims on deposits.

He also helped Fannie Mae get back on solidish footing after 2008. I think there are people who are just Crisis Executives, like that guy who dismantled Enron and just took over SBF’s firm.
Seems like a fun niche tbh
posted by dismas at 6:03 PM on March 15, 2023

There is infinite political will and bottomless appetite for money creation when VC-backed companies face distress, but when the death of your parents is followed by years of brutal debt-collector armbreakers chasing you from phone number to phone number, it's just crickets.....

Upton Sinclair said, 'It is difficult to get a man to understand something, when his salary depends on his not understanding it.' It's even more difficult to get a one percenter to understand something when the system that insulates them from the endless, spiraling economic wreckage of our new feudal economy is on the line.

posted by brainwane at 3:45 AM on March 16, 2023 [2 favorites]

Three thoughts on Silicon Valley Bank - This was almost a literal bank-error-in-Peter-Thiel's-favor
posted by Artw at 8:42 AM on March 16, 2023 [2 favorites]

One reason some companies banked at SVB: competing banks took up to 6 weeks to actually approve and create a bank account.
posted by brainwane at 8:00 PM on March 16, 2023 [1 favorite]