SVB does a lot of venture debt. When venture debt is not repaid, SVB ends up owning the company, and can recover its exposure only if there is a buyer for the company or assets.
In early stage land where valuations are the result of a fairly small consensus, it is plausible that SVB would have over-extended.
These losses aren’t related to SVB’s debt portfolio. It’s due to their deposits being flighty.
SVB banks start-ups. Start-ups are spending cash faster than they’re getting it from VCs or customers. That leaves SVB with fewer deposits with which to fund their assets, so they must fire sell assets, which isn’t fun to do.
Doesn't SVB require a startup to keep a certain amount of cash reserves deposited in order to be eligible for things like merchant accounts and other "free" financial services?
Too much latency with official reporting to suss out an insured institution going over the cliff, indicator would be SVB reps meeting with FDIC examiners around receivership and liquidation. Doors close on Friday, receiving bank opens all the branches back up as them on Monday.
They used to be, after glass stegall in the 1930s.
this was a problem we learned during the 1920s
That has since been...... relaxed gradually, and almost completely done away with under Clinton in the 1990s. And then <10 years later we got the 2007/2008 crisis. But, the original separation of investment and banking didn't get re-instated during the dodd frank stuff that came after the last crisis.
Maybe, but that's not relevant here. All banks invest their deposits in similar types of debt. SVB just made some bad decisions in terms of timing and liquidity, and now they have to recapitalize. If they can pull it off successfully then the bank will be fine but shareholders will get diluted.
In early stage land where valuations are the result of a fairly small consensus, it is plausible that SVB would have over-extended.