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Comment by coldcode | Hacker News Reader

Most banks do not have most of their capital tied up for ten years; SVB had to sell their treasuries before the ten years at a loss. The only thing tying other banks who don't do that to SVB is random fear of a bank run.

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If I’m a treasurer at a small firm, I’m just going to move my funds to the biggest bank I can find. Who has the time or energy to spend interrogating the asset mix and bond duration of the bank with your checking account?

> Who has the time or energy to spend interrogating the asset mix and bond duration of the bank with your checking account?

The treasurer should have time as that’s part of her job.

Just not remotely feasible. How many companies have dedicated treasury functions? It’s almost always part of the role/responsibilities of a CFO or VP Finance until much larger than the companies in question here. People have really odd ideas about what corporate finance roles entail.

I worked for a 50 person startup that only had $6M in VC funding. Our comptroller with staff of zero did this.

It’s not terribly complicated.

I would expect that even the smallest companies have someone responsible for finance. Or they can rent or contract out for it. But if there’s truly no one then that company has a huge mundane risk.

> I’m just going to move my funds to the biggest bank I can find.

Why would 2023 lead to you do that if 2008 had not?

It felt like there was a distinction between the community bank with a few billion under management and banks like SVB with hundreds of billions under management. SVB-sized banks felt “safe” post-2008, apparently they’re not.

Washington Mutual was bigger then SVB, even ignoring inflation

> SVB-sized banks felt “safe” post-2008, apparently they’re not

I don’t think SVB has ever had an investment-grade (EDIT: issuer) credit rating. Certainly not in the last year.

It sure did, every part of their business was investment grade and as of last week it was rated A by Moodys.

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

Sorry, flubbed. They were medium risk, not junk, but borderline investment.

Or better yet, keep less than 250k at each institution.

This is HN. Who else had a funding term sheet which required the ongoing and exclusive use of SVB for deposits? I did.

Wow. What was the putative reason for this clause? It's interesting that a VC would have such a strong incentive to pressure portfolio companies to keep their money at one specific bank.

Invested in the bank? Got a sweet personal deal with the bank in return for pinning their investments to the bank?

It certainly sounds like they had some side-things going on, otherwise hard to believe they'd not just recommend fiscally unsound practices to their portfolio companies, but even require them to.

If practices like these are widespread, it could explain why some VCs are pushing hard for a government backstop. It would be embarrassing to them if these clauses came to light, and they could arguably be on the hook for damages in lawsuits by shareholders of their portfolio companies.

It also seems possible that some VCs have their personal funds tied up in SVB.

A LOT of them do. And late-stage founders as well. You know how people like Elon cash out their shares via collateralized loans? What bank do you think processes those loans? And SVB really didn't like to be transactional--they work hard to make sure your SVB collateralized loan is linked to a SVB checking account and a SVB founder-shares-backed mortgage for your 5,000 sqft mansion in Los Altos Hills.

It's indirect and, I think, unintentional on the VC's part. The VC required closing via wire to a SVB account, and that a SVB deposit account be maintained to assist in further financing rounds, bridge loans, and other things. Separately, SVB required an exclusive depositing relationship when signing up with them for commercial bank services. It's the SVB side of this that I have issue with, really. No fault of the VC that they wanted a shared banking relationship, but that bank should not have been allowed to prohibit us from using other banks for deposit services.

TL;DR: If we went with that VC for the Series A, they wanted us to be a SVB customer, and SVB demanded exclusivity.

Wow, that's incredible. I can't imagine signing up with a bank that demanded exclusivity. I know some banks give better rates if you have a broader relationship, but I've never heard of one that insisted on exclusivity across the board.

I've never heard of another example like this.

The amount of coordination / bank reconciliation / overhead that would add is absolutely not worth it. It’s completely normal to have $10M+ in cash in a checking account for these companies, if I need to make payroll of $500k twice per month + pay vendors, accounts will necessarily have much more than the FDIC limit.

I could find 40 community banks and shift funds around constantly or I could just put it all in JPM and actually worry about running my business.

Or you could split it between two banks and reduce your exposure by half. Four banks and you reduce it by 75%. That way a deathblow turns into a setback, and overhead is minimal. There are cash management services that will do this for you if you can't be personally bothered.

Running a business means doing the maintenance keeping ship afloat as well as charting a course to exotic destinations.

Those probabilities assume there’s an equal likelihood of going under for each bank which certainly isn’t true. I could just move it to half at WFB and half at JPM and cut my risk by substantially more than spreading it across random community banks.

If I split between SVB and FRB, have I reduced my exposure by half? I agree with GP that using a too-big-to-fail bank seems to be the more practical option.

Also the big banks will do overnight sweeps as well to protect customers over the FDIC limit. I’m not sure if smaller banks do this as well, but I know JPM will do it for large customers. From the brokerage side interactive brokers will do it on any cash sitting in your account as well if you opt in.

Are there any figures on "weighted average maturity" of bond holdings of banks? That seems like a key health indicator right now...

> Most banks do not have most of their capital tied up for ten years;

Why would SVB be particularly special with respect to investments? They were all sharing the yield environment the the current effects of recent monetary policy.

Answering myself, JPmorgan at least says SVB's asset mix was different: https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/ins...

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