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Comment by SilverBirch | Hacker News Reader

What's really scary about the SVB situation is the dynamic that there's no cost to causing a bank run, so now you've got all these VC guys who are disingenuously claiming that every bank in America is now at risk because of SVB. We all know what they're doing - they're trying to create panic so that the government has to step in, but it's a massively dangerous game to be playing. If other regional banks do start failing it's going to be in no small part due to these people preaching doomsday scenarios. Will they pay a price for their behaviour. Of course not.

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> VC guys who are disingenuously claiming that every bank in America is now at risk because of SVB

They’re deflecting blame. A bailout is unrealistic given the House. And there is no contagion to the systemically-important banks. VCs should have advised their founders to adopt reasonable treasury procedures. Instead, they funnelled them into an easy solution.

You're speaking with confident 20/20 hindsight.

Who, realistically until now has had “bank goes bust” on their risk list?

“Crypto exchange goes bust”, almost a certainty, but “major bank goes bust”, I don’t think it’s reasonable to criticize for not having five distributed bank accounts.

This line of thinking infuriates me. As an individual, I risk manage my deposits by making sure I remain under federal insurance limits by spreading my investments among multiple institutions (the FDIC limit isn't that relevant to me but the $500k SIPC limit is). Yet somehow "sophisticated" VCs aren't able to tell their partner companies how to manage the millions they hand them? There are straightforward, simple ways to increase insurance limits (primarily by services that automatically distribute deposits among multiple banks, like MaxSafe and IntraFi). The was just fundamentally poor asset management by VCs who got on the "well, everyone else uses SVB you should too" bandwagon.

As an individual, you have much lesser money to spread around than a company. If a company with 25+ million in cash has to manage more than 100 accounts, they are more likely to make some other banking mistake and lose some of that money through some administrative mistake.

That said, I sympathize with your broader point. With hindsight, it would make more sense for a company to have a brokerage account, and do something like invest their cash 1/3 each in 1-month/2-month/3-months Treasuries, rolling over every month.[1]

But most tech CEOs/founders of tiny startups probably don't know much about finance, and I can't really blame them for just putting their cash in a large bank.

[1] There's a startup opportunity to build this product right now, a pure custodian-style cash-management "bank" for small companies.

> If a company with 25+ million in cash has to manage more than 100 accounts

These products already exist. That is why I mentioned IntraFi (https://www.intrafinetworkdeposits.com/) and MaxSafe (https://www.wintrust.com/maxsafe.html). There are standard cash management accounts, https://www.moneycrashers.com/cash-management-account/.

> But most tech CEOs/founders of tiny startups probably don't know much about finance, and I can't really blame them for just putting their cash in a large bank.

Completely agree. But this is exactly the type of area VCs should be there to assist with, even if just purely for self interest.

> There's a startup opportunity to build this product right now, a pure custodian-style cash-management "bank" for small companies.

Again, these already exist, and are literally called "cash management accounts".

Also, though, it wasn't just SMBs. Roku had nearly $500 million, a quarter of their cash, in a plain old SVB bank account!! Why they wouldn't put more of their money in 3 month TBills earning nearly 5% is beyond me.

"well, everyone else uses SVB you should too"

Which is not even true because it is a tiny no name bank. Prior to this debacle if you asked an American to name a bank nobody would have said SVB.

Most Americans not being able to name it is not a good standard for bank size. Banks like SVB exclusively have businesses as customers and most Americans do not run businesses. It’s not a tiny no name bank by any reasonable measure.

It was apparently the 16th-largest bank in the US. I live in SV but wouldn't have guessed it was that big. I'm sure it's much, much smaller than the #1 bank, but it's by no means a "tiny" bank in objective terms. It may not be well known in most of America, but it was a very large bank.

You've misunderstood. When I said a VC says "everyone else uses SVB you should too", by the "everyone else" I was referring to other VC-funded startups, not the American populace at large.

America has about 5000 banks. Most banks outside 5-6 are no-name banks.

> Who, realistically until now has had “bank goes bust” on their risk list?

Every corporate treasurer. This is a core function of a CFO. I didn’t realise the degree to which this was missing in Silicon Valley so soon after a global financial crisis.

Startups don’t hire CFOs until the revenue is in 10s of millions of ARR. And most companies don’t ever get there.

I, and others, would never keep more than $250k in a bank account even before this SVB debacle. There are products made to manage this risk. For example, Mercury gives you up to $1M of insurance by sweeping to four different banks on the back end without you having to lift a finger. You can also sweep excess into money market funds.

I do have sympathy for 20-something founders who were too young and unaware of these risks, and focused on other aspects of their business, but this is not a “hindsight only” kind of thing.

Really?!! There's a reason the government insures deposits, but up only to a certain amount. Because banks go bust pretty frequently. Of course this is the sort of think that should be on your risk register, whether you're an individual or a company.

> VCs should have advised their founders to adopt reasonable treasury procedures. Instead, they funnelled them into an easy solution.

I am in awe of how aggressively stupid VCs are being about this:

https://twitter.com/htaneja/status/1634620603469647873?cxt=H...

Silicon Valley Bank has been a trusted and long-time partner to the venture capital industry and our founders. For forty years, it has been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the US.

The events that unfolded over the past 48 hours have been deeply disappointing and concerning. In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.

In other words, they're going to keep doing the same stupid thing, more vigorously.

Maybe the standard banking model is broken. Banks offer a theoretical guarantee of the ability withdraw your money at any time and then just hope the situation that prevents that doesn't happen.

Perhaps they should require your consent to invest your money in illiquid assets. If they can't promise depositors liquidity they are cheating on their obligation in hopes seek a higher interest rate (profit).

> Maybe the standard banking model is broken. Banks offer a theoretical guarantee of the ability withdraw your money at any time and then just hope the situation that prevents that doesn't happen.

In this case it's not just a case of the depositor's money being tied up in illiquid assets, it's that the asset's market value dropped so that they're worth less than the deposits. This is slightly different than just the assets being "illiquid", because if were only illiquid, you can presumably pay off your depositors once a sale can be arranged. In this case even if they were able to sell the bonds, there won't be enough money to pay back the depositors.

>Perhaps they should require your consent to invest your money in illiquid assets. If they can't promise depositors liquidity they are cheating on their obligation in hopes seek a higher interest rate (profit).

That's... basically how banks implicitly work and one of their core functions (maturity transformation).

You could go stronger with your assertion, that the MBS are actually fairly liquid (defintion: a quick sale will not cause a large drop in their value) but have large losses in market value compared to when they were bought. SVB should not have been allowed to use HTM accounting on such a large portfolio of their assets generated from hot money inflows.

Liquidity vs Solvency

It's not the bank that guarantees it. It's the US Government through FDIC insurance. And that is working perfectly. There is no guarantee implied or explicit over 250k / entity / bank. There are distribution facilities that allow higher amounts to be guaranteed and that is working too.

If by "cause" you mean "say lots of scary-sounding stuff in public", then no, there probably isn't. If by "cause" you mean "take your money out", then yes, there is a cost. It takes time and effort to do. It especially costs if you're playing dodgeball, trying to get out of every institution that everyone says might possibly be in danger of failing.

How long until we have a 4chan-inspired bank run spill into real banks?

DON"T GIVE THEM IDEAS.

Or a YouTuber making "Fun financial pranks [gone wrong] [gone sexual]"

What % is federally insured tho?

For SVB it was tiny. I'm guessing other banks it is bigger but idk

It's 250k at every bank.

The comment section on hn makes this seem like it was obviously risky to bank with svb but to everyone making treasury decisions, it looked to be the same as banking with any significantly old and significantly large bank. They are very large, publicly traded, regulated like everyone else, have their assets primarily in us treasuries and all fdic member banks have the same insurance policy.

There really can be a run on other large banks, svbs balance sheet wasn't upside down unless you marked to market their hold to maturity assets. If people start withdrawing you have to sell those and you get exposed and all of the banks are holding us treasuries that are worth a lot less due to rapidly rising interest rates. If people start withdrawing from other banks they get exposed too.

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