Posted on 03/11/2023 6:32:30 AM PST by DoodleBob
On Wednesday, Silicon Valley Bank was a well-capitalized institution seeking to raise some funds.
Within 48 hours, a panic induced by the very venture capital community that SVB had served and nurtured ended the bank's 40-year-run.
Regulators shuttered SVB Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis and the second-largest ever. The company's downward spiral began late Wednesday, when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet. What followed was the rapid collapse of a highly-respected bank that had grown alongside its technology clients.
Even now, as the dust begins to settle on the second bank wind-down announced this week, members of the VC community are lamenting the role that other investors played in SVB's demise.
"This was a hysteria-induced bank run caused by VCs," Ryan Falvey, a fintech investor at Restive Ventures, told CNBC. "This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face."
The episode is the latest fallout from the Federal Reserve's actions to stem inflation with its most aggressive rate hiking campaign in four decades. The ramifications could be far-reaching, with concerns that startups may be unable to pay employees in coming days, venture investors may struggle to raise funds, and an already-battered sector could face a deeper malaise.
The roots of SVB's collapse stem from dislocations spurred by higher rates. As startup clients withdrew deposits to keep their companies afloat in a chilly environment for IPOs and private fundraising, SVB found itself short on capital. It had been forced to sell all of its available-for-sale bonds at a $1.8 billion loss, the bank said late Wednesday.
The sudden need for fresh capital, coming on the heels of the collapse of crypto-focused Silvergate bank, sparked another wave of deposit withdrawals Thursday as VCs instructed their portfolio companies to move funds, according to people with knowledge of the matter. The concern: a bank run at SVB could pose an existential threat to startups who couldn't tap their deposits.
SVB customers said CEO Greg Becker didn't instill confidence when he urged them to "stay calm" during a call that began Thursday afternoon. The stock's collapse continued unabated, reaching 60% by the end of regular trading. Importantly, Becker couldn't assure listeners that the capital raise would be the bank's last, said a person on the call.
All told, customers withdrew a staggering $42 billion of deposits by the end of Thursday, according to a California regulatory filing.
By the close of business that day, SVB had a negative cash balance of $958 million, according to the filing, and failed to scrounge enough collateral from other sources, the regulator said.
Falvey, a former SVB employee who launched his own fund in 2018, pointed to the highly interconnected nature of the tech investing community as a key reason for the bank's sudden demise.
Prominent funds including Union Square Ventures and Coatue Management blasted emails to their entire rosters of startups in recent days, instructing them to pull funds out of SVB on concerns of a bank run. Social media only heightened the panic, he noted.
"When you say, `Hey, get your deposits out, this thing is gonna fail,' that's like yelling fire in a crowded theater," Falvey said. "It's a self-fulfilling prophecy."
Another venture investor, TSVC partner Spencer Greene, also criticized investors who "were wrong on the facts" about SVB's position.
"It appears to me that there was no liquidity issue until a couple of VCs called it," Greene said. "They were irresponsible, and then it became self-fulfilling."
Thursday evening, some SVB customers received emails assuring them that it was "business as usual" at the bank.
"I'm sure you've been hearing some buzz about SVB in the markets today so wanted to reach out to provide some context," one SVB banker wrote to a client, according to a copy of the message obtained by CNBC.
"It is business as usual at SVB," the banker wrote. "Understandably there may be questions and I want to make myself available if you have any concerns."
By Friday, as shares of SVB continued to sink, the bank ditched efforts to sell shares, CNBC's David Faber reported. Instead, it was looking for a buyer, he reported. But the flight of deposits made the sale process harder, and that effort failed too, Faber said.
Falvey, who started his career at Wells Fargo and consulted for a bank that was seized during the financial crisis, said that his analysis of SVB's mid-quarter update from Wednesday gave him confidence. The bank was well capitalized and could make all depositors whole, he said. He even counseled his portfolio companies to keep their funds at SVB as rumors swirled.
Now, thanks to the bank run that ended in SVB's seizure, those who remained with SVB face an uncertain timeline for retrieving their money. While insured deposits are expected to be available as early as Monday, the lion's share of deposits held by SVB were uninsured, and it's unclear when they will be freed up.
"The precipitous deposit withdrawal has caused the Bank to be incapable of paying its obligations as they come due," the California financial regulator stated. "The bank is now insolvent."
Dry run.
We really are built financially on a house of cards.
Result of eating BidenShit.....FJB
If it happens quickly my believe is that the money was pulled out and sent to interested parties. Our financial system has turned into a savings deposit box for the elites, with each of us being their savings deposit box.
Too busy with EDI to bother with finance
“ This was a hysteria-induced bank run caused by VC”
Interesting… I thought that had ended decades ago.
As I understand it there is an agreement to every savings account that says something that withdrawals could be delayed.
This bank did not lose money, it was not able to raise cash due to its long term assets being degraded. Selling a 2% bond in a 4% long market is not going to return par. Something closer to half of that. At maturity it returns PAR, but sways as rates change. Omit current protestations that all is well in the sector, it is probably not. Some may get glossed over a few many not.
As usual George Webb has an interesting take on what’s behind it all.
https://georgewebb.substack.com/p/malones-big-domane-lie-is-crashing?utm_source=post-email-title&publication_id=674856&post_id=107775677&isFreemail=true&utm_medium=email
we’re now seeing the downside of social media
it was first created, supposedly, to make everyone “more connected” and make the World better ... aaaahhhh
but instead, we’re seeing criminals use it to organize flash mobs, FedGov using it to spread propaganda, and now the nerds are using it to create paranoid panic mobs that kill a functioning bank ...
It did not occur in just 48 hours. The SVB President sold $3.5M in stock (at a higher price) two weeks before the crisis. Other executives did also.
(From the article):" On Wednesday, Silicon Valley Bank was a well-capitalized institution seeking to raise some funds.
Within 48 hours, a panic induced by the very venture capital community that SVB had served and nurtured ended the bank's 40-year-run."
"Regulators shuttered SVB Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis and the second-largest ever. (Emphasis Mine)
The company's downward spiral began late Wednesday, when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet.
What followed was the rapid collapse of a highly-respected bank that had grown alongside its technology clients."
"Even now, as the dust begins to settle on the second bank wind-down announced this week, members of the VC community
are lamenting the role that other investors played in SVB's demise."
"This was a hysteria-induced bank run caused by VCs," Ryan Falvey, a fintech investor at Restive Ventures, told CNBC.
"This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face."
(My Comment) : The fall out from this loss will reverberate through out the economy in "ripple down" fashion.
Several 'Start up companies' used this bank for payroll as well as for reserve funds. Employees didn't get paid !
The demise of the bank was driven - "This was a hysteria-induced bank run.."
Where else have we recently heard about hysteria ? (Hint: Covid vaccine)
Preppers : Keep some cash on hand (one months expense) to prevent becoming a victim of cryptocurrency, or nation wide economic slow collapse, or outright failure.
See the original article for more precise information on how this run on the second largest bank failure occurred so quickly!
It appears they may still have enough assets to pay all depositors in full, or close to it. Other creditors will probably not be paid.
Like Lehman Brothers SVB didn’t manage their balance sheet properly. Asset concentration has to be managed carefully.
Over the past five years (including SVB) we've had nine failures.. The asset total in these nine failures was $210 billion.
That's roughly a 0.04% annual failure rate by count, and 0.2% by assets.
The phrase "liquidity kills" applies to SVB and Lehman. I suspect SVB had captial but not enough liquidity to sustain the run. The $21bn in AFS sales were likely the most liquid; the rest were probably under water due to rates etc. What's puzzling, is why they didn't borrow from the Discount Window.
To be sure, individuals should guard against the downside. Diversify, and hold a basket of financial and hard assets, and ordnance.
Ultimately, this will likely impact tech mostly but not ripple more broadly. It is like Barrings - they failed, we gasped, and then moved on.
We really are built financially on a house of cards.
Don't be dragged down by the leftist doomsters. I'll take this house of cards any day of the week.
Instead of bailing out these mostly wealthy tech liberals, they should apply for unemployment benefits like everyone else has to do.
“paranoid panic mobs that kill a functioning bank ...”
Some folks think that folks who put deposits in banks (above the $250K insured amount) are over-trusting in the integrity of bank officials.
This particular bank was run by some insane woke zombies—glad to see them go up in flames.
“Preppers : Keep some cash on hand (one months expense) to prevent becoming a victim of cryptocurrency, or nation wide economic slow collapse, or outright failure.”
Wise advice, no matter what the economy!
The problem is that the Fed has raised interest rates very quickly and many banks have balance sheets than can get “out of balance” in a hurry if they are forced to liquidate their holdings.
If folks make sure and keep their deposits below $250K per bank that would mitigate their risk substantially.
Small businesses are at particular risk since they need to keep high bank balances to meet payrolls and pay vendors—and some banks could take a bunch of small businesses down with them.
This is a lot bigger than you think it is—and a lot smaller than the end-times preachers think it is....
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