So, I was just a few hours early then about SIVB:
Silicon Valley Bank – just an old fashioned bank run?
Banking is a confidence trick and when the confidence is lost so is the bank. Perhaps that’s the lesson for us here at Silicon Valley Bank?
That was at 8.40 am today.
NYT at 5.36 UK time today:
Silicon Valley Bank, a lender to some of the biggest names in the technology world, did just that on Friday, becoming the largest bank to fail since the 2008 financial crisis. The move put nearly $175 billion in customer deposits, including money from some of the biggest names in the technology world, under the control of the Federal Deposit Insurance Corporation.
Straight old bank run. I even got the why correct:
However, that then still leaves the possibility of a run. The usual cure for a run is deposit insurance, which the US does indeed have. But such deposit insurance only holds for accounts up to a certain value ($250k in the US we believe). And if the bank’s deposit base is largely from corporate entities then average deposit balances are going to be rather larger than that. Which means that the larger depositors are uncovered.
And yes, they were largely corporate customers:
But for customers with deposits totaling more than $250,000, the news was grim. Customers with accounts that surpassed that amount — the maximum covered by F.D.I.C. insurance — would be given certificates for their uninsured funds, meaning they would be among the first in line to be paid back — though potentially only partially — with funds recovered while the F.D.I.C. holds Silicon Valley Bank in receivership.
This is one dumb bank, that has specific problems 1) loss making start-ups that raised cash in 2021 now need their cash 2) they invested the cash in long term assets.
Why can’t they just create more money out of thin air at the press of a key? I though that was how banks work – I’m sure I have read that several times online and even in some newspapers like the guardian.
If the trigger for this run was the fact that the bank had invested so much of its money in government bonds, and that these bonds had lost so much value because of the rise in interest rates from 0.x% to 4.x%, isn’t this exactly the same as the crisis in UK pension funds last autumn?
If so, two questions: firstly, why has it taken five months for investors to identify the same problem at this bank? And secondly, didn’t anyone ever point this out as one reason why we’ve never gone down the route of zero interest rates before?
These aren’t rhetorical questions. They’re genuine ones from someone way outside these circles looking in.
Demands for a government bailout to make depositors whole in 3 – 2 – 1 . . .
After all, the biggest losers in this failure are likely uniformly major Democratic party donors and supporters – being bailed out with taxpayer money is virtually a birthright, isn’t it?
llater,
llamas
Llamas,
No, the start-up venture capitalists tend to be more right-wing. Once those companies make it big like Facebook or Google, they veer left and lobby the government to pull up the ladder behind them.
Llamas,
You mean like this:
“ Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.
….
Anybody who thinks that preventing bank runs and panics isn’t a federal responsibility missed a couple hundred years of financial history. It’s called systemic risk, and only federal banking authorities can stop it.
https://twitter.com/davidsacks/status/1634292056821764099?s=61&t=VX5cJ0-osgn_JSz7j-uowQ “
David Sacks is a VC at Craft Ventures
There is some merit in thinking there’s a difference between depositors and bank owners.
Since in the failure of a bank like SVB, money is going to disappear, perhaps it might be more fun if the depositors are guaranteed, and the bank owners are hung out to dry….
After all, who was running the bank?
At least they meant well!
https://twitter.com/ConceptualJames/status/1634337097271201792
Rumour has it a certain member of the Royal Family and his fragrant wife have rather a lot of money stashed with said bank. Love Karma.
It’s banking book assets and liabilities so they don’t mark them to market so they don’t see any risk so they lost several billion dollars. Impressive really.