[gregruss]

If you don't understand the sentiment, I recommend that you read about what happens in a "run on the bank". Too many large withdrawals at the same time results in a liquidity crisis. No bank in the country has enough reserves to pay all of its customer accounts at the same time; it's part of our system of fractional reserve banking. A massive spike in withdrawals forces a bank to sell long term securities in a disadvantageous environment, often for a huge loss. That undermines customer confidence and exacerbates the issue, causing more people to withdraw. A single person could bring the most successful bank to its knees in that environment, as long as enough customers believe them; it's a self-fulfilling prophecy.

https://en.wikipedia.org/wiki/Bank_run

[lolinder]

I think we all understand why VCs telling people to get their money out caused or accelerated the collapse. But what was any individual VC supposed to do, tell their startups to just go down with the ship?

It's the same dynamic as the toilet paper shortages at the beginning of covid: most people weren't panic buying because they thought that there wouldn't be enough toilet paper to go around if everyone kept cool, they were panic buying because they knew not enough other people were keeping cool.

If it looks like the only reward you'll get for keeping your cool is a few weeks with a dirty bottom, it's hard to avoid joining in the run.

[hn_throwaway_99]

"When there is a run on the bank, it's important to be first in line."

Bank runs are fascinating psychological dilemmas to me. On one hand the SVB CEO was correct - everything would have been fine if every depositor hadn't run for the door. But, when a bank says "please don't run for the door", it's already too late.

[twelve40]

Yeah, he was basically asking for the customers to keep fronting his risky shit. I'm almost certain SVB CEO already knew what was going to happen in the next 24 hours after his "stay calm" interview - FDIC doesn't get dispatched like that for no reason.

https://www.barrons.com/articles/svb-financial-stock-sale-ce...

[kelnos]

Fronting risky shit or not, on the whole, SVB's depositors would have been better off if every one of them had calmed down and done nothing right now. I would certainly understand if depositors would then build a measured plan to diversify their deposits over the next year or so, but while SVB certainly caused lack of faith, the reaction to that was what caused SVB to fail.

So ok, we've "punished" SVB's management's poor money-management practices, but in the process we've also punished a lot of companies who had millions of dollars but now only have $250k (with uncertain future access to some portion of the remainder).

Good job! Stick it to those SVB execs! Talk about cutting off your nose to spite your face... or I guess cutting off the noses of others...

[lolinder]

You're talking as though the SVB depositors are some sort of hive mind capable of acting in concert. They're not.

Each individual depositor has to make the bail/stay decision with extremely limited knowledge of what everyone else is going to do. They know that the market is freaking out at SVB's sale, and they know VCs are sending panicked emails to their startups telling them to bail. They know that if enough people actually do bail they may lose everything they have (in excess of $250k).

Presented with that information, the only rational move for a depositor is to bail. It's weird to blame the VCs for making the only good choice available to them.

[jen20]

While I agree that removing money from SVB if you could was A Good Idea, this:

> You're talking as though the SVB depositors are some sort of hive mind capable of acting in concert. They're not.

… is patently absurd. Startups and the VC market are all about meme copying, on everything from which front end stack or build system to use to how to write a “regretful” layoff announcement on LinkedIn, to (apparently) management of funds.

The boards are incestuous with respect to the ecosystem, and absolutely capable of acting in concert, as constantly demonstrated.

[twelve40]

If you hold deposits at 4% and invest at 2%, that's simply not sustainable. The more I read about this, the more it looks to me they were simply going down no matter what. If everyone kept calm for a bit longer, what would have fundamentally changed?

PS. people didn't withdraw to spite anybody, this is not kindergarten. They started withdrawing because they don't want their small companies to die and need money for payroll, it's really the only sane thing to do.

[jgwil2]

Yep, it's the Prisoner's Dilemma. The rational decision for the collective is different from the rational decision for the individual.

[bostik]

What a strange game. The only move to win is to cheat.

[ignoramous]

If the CEO was correct, wonder why they sold £3m of their stocks in the weeks leading up to this? https://archive.is/0WCkf

[deepsun]

How can they do that right before the earning call? I thought all insiders, CEO/CFO especially, have trading windows that open after earnings call.

[hn_throwaway_99]

It was done as part of a 10b5-1 plan.

[bombcar]

The solution is one they couldn't or wouldn't do - when you have a panic run beginning, you need some trusted very large depositor to add a ton of money publicly.

The fact that the Feds did not maneuver this is another interesting datapoint.

[roguecoder]

That assumes a level of individualism that mostly doesn't exist. It doesn't matter if you are first in line if your customers are 1,000th in line: your business is going under either way.

[lolinder]

If your business isn't B2B, then any customers that you have are almost certainly fully FDIC insured.

And even if you're B2B, if you're 999th in line and your customers are 1000th in line, you're even more screwed. If you're first in line you at least have some remaining assets even if you have no customers. If your assets evaporate at the same time as your customer base then you have nothing.

[hn_throwaway_99]

I'm quite sure that businesses that got their cash out of SVB yesterday, and can thus make payroll today, are extremely glad they did so.

Not all bank runs are systemic in nature.

[jen20]

That wasn’t the point: they can be as happy as they like about making payroll today, but they’ll be screwed when their customers don’t make their invoices tomorrow.

[hn_throwaway_99]

My point is that not all of their customers were also SVB clients. It's faulty logic to assume that everyone's screwed because one bank failed.

[100001_100011]

SVB-like bank runs can be prevented with VBS-like locking.

https://havenprotocol.org/knowledge/vbs/

[randall]

>But toward the end of March, TP sales plummeted because the supply just wasn’t there.

TP was a result of people shifting from commercial toilet paper to home toilet paper, and supply chains not keeping up. Not from panic buying, fwiw.

https://www.washingtonpost.com/national/coronavirus-toilet-p...

(there are other better sources i'm sure)

[lolinder]

That article doesn't say it was just the supply shift, it says it was a combination of factors including panic buying. And other, later sources put a larger share of the blame on panic buying [0]:

> However, because grocery stores and other retailers usually only keep several weeks’ worth of toilet paper in their warehouses, the sudden increase in demand — largely fueled by panic-buying and hoarding — has quickly depleted stocks.

> “Consumers are experiencing nervousness and they are buying more than they should, depleting inventories of an industry that is very lean,” Gonzalez said. “It will take a couple of weeks for people to understand they have enough, and the inventories will increase on the shelves.”

Again, there are similarities to SVB. There were legitimate concerns about SVB's solvency that triggered a run. The same goes for toilet paper: there were a few legitimate hurdles which were made many times worse by panic buying.

[0] https://cnr.ncsu.edu/news/2020/05/coronavirus-toilet-paper-s...

[mtlmtlmtlmtl]

Ah yes, the classic "there can only be one cause" fallacy. Which is almost always wrong, especially in chaotic systems like the economy.

It's just never that simple.

[twelve40]

So my personal takeaway: pick a bank that is too big to fail, because if it happened to a bigger, non-niche bank they probably would have used the taxpayers' money to bail it out.

PS. the sentiment still makes no sense, SVB customers did not sign up for the bank to gamble with their money and they have a full moral right to do whatever it takes to get their working capital back the second they start to sense any trouble. These withdrawals are not just stupid meme stock lulz, this money belongs to the customers.

[kelnos]

I was talking to some friends in finance about this, and unfortunately most of SVB's customers couldn't just pick another bank. Allowing a company to open a business account requires a bank to do a lot of know-your-customer stuff, as well as taking on a bunch of money-laundering and criminal-enterprise risk (that is, there are laws that punish banks if they hold funds that are used for criminal activities, especially terrorism-related activities).

Many banks, even the big ones like Bank of America, Wells Fargo, and Chase, do not want to do this for random new small companies with no history and unknown founders. SVB was -- I believe -- founded in part to fill this gap.

Beyond that, there are also come contractual relationships between some VCs and SVB that require some VC portfolio companies to hold their deposits (at least some amount of them) with SVB. (I don't entirely understand this point, but even if I'm getting it wrong, the previous point is enough.)

[kmod]

It sounds like you're saying "if you don't sell you can't lose money"

[Randalthorro]

The same thing happened to all these stupid crypto exchanges and banks and yield scams.

The point is that they are supposed to have capitalization requirements and regulations that show they actually have more assets than liabilities.

But in reality they don’t so fractional reserve doesn’t work here. In fractional reserve the bank still has assets worth more than liabilities. That’s the whole point of the regulation.

This bank doesn’t meet that basic requirement.

This is due to the rate hikes, yes, but just like all the recent events if the bank had properly adjusted its portfolio after the hikes, making losses and having a shitty stock price for a while, it would have been able to weather this storm. The storm came because the bank never adjusted until too late. It waited until it was negative from asset devaluation due to interest rate hikes