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Comment by paulpauper | Hacker News Reader

Weird or interesting how SVB survived 2000-2002 tech crash , and also 2007-2009, but 2022 was too much. Every crisis or cycle is different. Unique challenges, threats, etc. This is why it's so hard to predict these sort of things. It's impossible to anticipate all the ways things can go wrong.

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The author seems to allude to a difference between then and now is that it wasn't quite as easy to withdraw money back then, usually you'd have to at least make a phone call, or head over to your physical branch. Now you could just open the website/app and do it there, immediately.

Another point seems to have been that Silicon Valley bank have a customer base which is tightly knitted, so if any bad news gets shared in the circle, it gets around quickly. Maybe they weren't as popular the last crashes, or as impacted as other sectors, so it would be easier to avoid trouble. But specifically this time, the trouble was related to them, so they got hit the hardest.

Maybe... but SVB's immediate issue is that they lent money when rates were zero and those loans decreased in value when interest rates went up. This type of issue can only be caused by a decade-long zero-interest environment where people stop believing rates will ever go up again. It's interesting how every financial crisis has its roots in the specific economic conditions of the time.

Even so, no matter what cause, if people are unable to withdraw money + won't hear any rumors about a bank run, would SVB be in the scenario they are experiencing today? As it seems like the bank run is what did them in, not whatever magic they did with the deposited money.

Yes. Their issues started when they needed to sell their assets available for sale. This happened because interest rates made it harder to raise money, which caused their clients to draw down their accounts faster than they anticipated. The bank run at the end is more a symptom of SVB's issues rather than a cause. Everything about the bank's problems can be traced back to believing interest rates would be 0 forever.

They were insolvent before the bank run, that's why they needed the firesale and emergency equity raise to stay afloat. If they were able (allowed) to hide that fact and get the money quietly elsewhere, we may never have known. Or perhaps they would have continued to lose money and fail later, with depositors taking a larger haircut.

> quite as easy to withdraw money back then, usually you'd have to at least make a phone call, or head over to your physical branch. Now you could just open the website/app and do it there, immediately.

The main reason some of the other startup banks such as Ramp or BREX exist is because SVB was kind of a dinosaur when it came to cash management. Their online cash management apps were very basic and rudimentary. And they were a lot slower than these new online banks at responding to customer requests.

So now you're saying that bank (a very conservative investment bank from what I've been told) was moving too fast?

That’s because in those situation, SVB didn’t put $91b of its deposits into mortgage bonds right before interests rates soared. Those bonds are now worth a lot less (and will be sold for even less still to other banks that want to pick them up on the cheap).

Every crisis is different, but hedging so much money in one basket seems to be the real undoing here. I’d posit that the bank, which was much smaller in 2000 and 2007, didn’t make those sorts of moves then.

It might be impossible to anticipate which way exactly things will go wrong, but I’d say it’s pretty easy to anticipate the ways things can go wrong. I see this as at least ignorance, probably negligence, and at most, fraud, on the part of a lot of folks involved.

This has been the most widely predicted recession in history as far as I am aware. The Fed has openly and deliberately said they will raise interest rates until something breaks. Investing in assets that are negatively correlated with interest rates under these conditions is a terrible idea. Professional bankers should know this.

Startups are far less negligent, but still, could diversify their deposits with multiple banks (or use “real” banks) to mitigate their risk. Startups are risky enough; having sound money is important and I wouldn’t be risking it with a regional bank.

The Fed is negligent for treating financial markets like penny stocks. They had nothing else in their tool chest to fight inflation, though, so I can’t entirely blame them.

Politicians and the Fed are negligent for creating so much liquidity that it spurred such immense inflation. Anyone with a macro-101 level of economics could have foreseen this.

Voters are negligent and ignorant for their unwillingness to elect better politicians and demand change and reform in an area that continually fails them. We are failed time and time again by the banking system because it is fundamentally unable to be guaranteed solvent. We bail banks out or get by a crisis somehow and forget about it until the next time around and then shout “wow, who could have seen this coming?!” as if it is the first time a bank has failed.

What makes this thing even more interesting is that there is viral, wide-spread knowledge about banking - as opposed to 2000 or 2007. A bank run is one tweet away.

A lot of banks have similar asset books and asset values MUST go down as interest rates rise. So, banks are really screwed unless they offer MUCH higher interest rates on deposits ASAP. Because if they don't, most people are very aware of treasurydirect and will simply deposit there.

Inflation is the killer here. The Fed had no choice but to raise interest rates.

Is it really all that different or is it just bigger? shudders

Is this one of these innocent little articles popping up that people refer to as "the SVB moment" in the future?

Or was this bank just uniquely fucked?

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