[brunooo]

NPR had an excellent story of how a bank takeover and wind-down works back in 2009:

https://www.npr.org/2009/03/26/102384657/anatomy-of-a-bank-t...

“On a mid-January night, some 80 agents of the Federal Deposit Insurance Corp. pull into Vancouver, Wash. Their rental cars are generic, their arrival times staggered. One by one, agents check into a hotel, each quietly offering a pseudonym to the guy at the desk.

…

He agrees it almost feels like a spy movie. "They've done this before — quite a production," he says.“

And in general, for people who are understandably worried: besides the $250k available on Monday morning, my bet is on at least 50% of uninsured deposits by end of the week, and 90-100% if not next week (via acquisition) then within a pretty short time.

If Oaktree and others are offering folks 70%+ face value for their uninsured deposits, that should be a pretty strong indication of where this is heading (ie a high confidence level at those shops to make a quick 20-30% off panicky sentiment).

Edit, PS:

This whole story is so bewildering, probably the only bank I can think of that was killed by its own customers (flaky VC herd) despite being generally healthy and having picked the least worst option last year (maturity risk). VCs now banding together is laudable, but why there wasn’t a Buffett type preferred stock rescue earlier this week to save their literal community bank is kinda beyond me.

[462436347]

> This whole story is so bewildering, probably the only bank I can think of that was killed by its own customers (flaky VC herd) despite being generally healthy and having picked the least worst option last year (maturity risk). VCs now banding together is laudable, but why there wasn’t a Buffett type preferred stock rescue earlier this week to save their literal community bank is kinda beyond me.

That was my take as well: https://news.ycombinator.com/item?id=35103411

I'd love to see the partners of Sequoia, Union Square, YC, and other VC firms grilled by members of Congress over this.

[FireBeyond]

> I'd love to see the partners of Sequoia, Union Square, YC, and other VC firms grilled by members of Congress over this.

Yup, and how Peter Thiel and his fund just so happened to say "You need to move your money out of SVB, and you need to do it TODAY", on Thursday, to all their startups...

[numbsafari]

And by Friday night were offering those same people bridge loans via Brex…

[flangola7]

That doesn't sound like bad advice from him

[Aperocky]

It's a self fulfilling advice.

Though granted, SVB is a ticking time bomb since all of their deposit went to low yield long term securities. So such a run would have been an eventuality in the current interest rate.

The question is, who else is doing this.

[brunooo]

+1 re LTCM resolution, also great example.

I’d rather hope that in the unlikely event of there being no private market buyer(s) and a public solution becoming necessary, that lawmakers will at least force some wider ecosystem stakeholders to chip in.

The SVB CEO’s call of basically begging for people to support them the way they tried to support them for 40 years was very emotionally relatable. It’s one story if they’d gotten back with “Greg, we really spent day and night pouring over the balance sheet etc but couldn’t get there”, but as far as I recall TPG was the only publicly known group to even seriously look and consider.

It sometimes makes me think that if there’d ever be a war in my lifetime, the very last regiment I’d want to serve in would be the Bay Area one. Imagine being in a foxhole with Sacks crying for the government, Balaji just stringing random words together, and 80% of the rest just opportunistically and led by Thiel weaseling out through the back trench…

[isatty]

+1 despicable behavior.

If even one option or short position is found for anyone involved I hope they face jail time (spoiler: they won’t).

[rocqua]

Why would shorting be illegal?

[brunooo]

Tempted to come up with a market manipulation angle, but actually great question.

If eg Founders Fund put on a decent short right before mailing the portfolio, I wonder how one could pierce through a “how’s that different from Hindenburg / Adani” defense.

Fingers crossed for a good Matt Levine take next week…

[isatty]

Shorting is not illegal - market manipulation is.

[vkou]

You can't blame the participants in a bank run on the bank run. Blame management that put the bank in a bad financial position.

[graderjs]

VCs are like horses: easily spooked / slaves to the "sacred signals". Shouldn't surprise anyone how VCs reacted...but I think it is surprising that SVB failed. Unless you were really watching the numbers, as a few niche Twitter accounts, mostly unknown in these realms until yesterday, seem to have been. It's BS that the HN commentariat is all now Lasik Hindsight, "iT wAs ObViOUs": but this is what they are, have been and will be for every surprising thing--intellectual arrogance and inadequacy does not like being wrong. So it just pretends it wasn't. And gets mad at anything that reminds them.

Obviously not all you dear HN cuties are like this...but it's a large enough trend that it'd be misleading to say you can't clearly see it. I don't know why everyone is scared to just say: "I was wrong. I'll reflect and learn something." I mean...that's the only way anyone ever does, when they're wrong. If you just carpet over it, and forget, I mean...you're just shrinking your world. And one day your model of the world is so tiny...that all you can do is look back to the past, and say: "Those days were better." But they weren't. Cause those days set you up to fail, to head towards this inevitable present, like you did. A shrunken future. Where you're the only right thing in the world. But the real world's far away.

I think that kind of thinking is like an admission of deafeat / anathema to having a brain. But I get that everyone gets tired, and feels like they've seen it all before. And they don't want to stop, process, and integrate the new info into themselves / their lives because doing so...wouldn't be something you could just do in a 5 minutes and get on with your life. It would take time. Readjustment maybe. Reevaluation. Recalibration. It would be uncomfortable. You might have to give up some cherished beliefs. Some pet delusion. People fucking hate that. It's hard. But it's liberating.

It's the kind of thing that should be taught in schools. How to properly lose.

[mkmk]

And 60 Minutes had a nice segment following a bank takeover as well: https://youtu.be/TAE8i40A5uI

[teruakohatu]

Fascinating. Thank you for sharing. In my country there is no insurance for deposits, although sometime this year they plan to introduce mandatory insurance up to ~$60,000 USD.

[wolverine876]

> the only bank I can think of that was killed by its own customers (flaky VC herd)

Many of the VCs think of themselves as 'disrupters' who live in a world of disruption and taking advantage of it. Some are trying to disrupt SV for political reasons.

Once upon a time, VC funders were looking for incredible innovations in technology and productivity, not in tearing things apart.

[nico]

> This whole story is so bewildering, probably the only bank I can think of that was killed by its own customers (flaky VC herd) despite being generally healthy

So essentially it was all just panic. Scary how fragile our financial systems can be in the face of herd mentality and irrational behavior.

Hope that panic slows down and First Bank doesn’t have to go through the same as SVB (people were lining up to withdraw their money today).

[robryan]

Is it really just panic though? If their assets marked to market were of greater value than their liabilities there would be no reason for a panic in the first place.

[brunooo]

Good point, and obviously not a great time for SVB equity holders or EVE sensitivity regulation, but looking through their 10Ks or Marc Rubenstein’s great math yesterday at https://www.netinterest.co/p/the-demise-of-silicon-valley-ba... also not that much worse than Goldman at some points in 2008.

Not great, not terrible as they say, but aside from a couple of very niche specialists no bank on the planet would survive getting 25% of deposits pulled in a day.

[JumpCrisscross]

> no bank on the planet would survive getting 25% of deposits pulled in a day

Systemically important ones would, due to the Fed’s discount window and liability diversification.

[everydayentropy]

How is withdrawing your cash before everyone else withdraws their cash irrational? It's the Nash equilibrium.

[mrcode007]

Nash Equilibrium has nothing to do with efficiency. In fact Prisoner’s Dilemma is the game you’re playing here and the equilibrium is NOT Pareto efficient at all

[ummonk]

It's not the only Nash equilibrium. The other Nash equilibrium is that everyone keeps their money in SVB. That would have also been the Pareto optimal Nash equilibrium.

The fact that VCs settled on the suboptimal Nash equilibrium actually reflects poorly on them as a community.

[bostik]

It's not an accident that the "V" is often read as "vulture". The only way to prevent someone from stabbing you in the back is to stab them first.

People often equate finance to gambling, because even the terminologies overlap: you don't make "risky investments", you "place bets". But that's too simplistic a take, because there are two MAJOR differences between finance and gambling.

1: In finance you gamble with other peoples' money. Not your own. And when your bets go the wrong way, you ruin lives of thousands of families. Not just your own.

2: If you manage to find a loophole and turn the letter of a contract against the spirit of the contract, in finance that's a cause for celebration and a big bonus. ("Well played.") In gambling, that's called a breach of regulations.

Both are amoral, highly utilitarian ecosystems.

[hatsunearu]

I don't see how keeping the money in SVB is another equilibrium; the payout matrix seems exactly like the prisoner's dilemma.

[mrcode007]

An INDIVIDUAL payoff. Not the global one. By your argument, nothing stops the nuclear powers from destroying themselves. Yet somehow in the 60s the nuclear powers figured out the mutually assured destruction is also a prisoner’s dilemma and they COOPERATE despite the individual payoff being greater.

[ummonk]

No, because if everyone else keeps their money in SVB and it avoids going under, there is no payoff for defecting - you simply disrupt your own operations for no reason by trying to switch banks.

[mertd]

After a large concert ends, would you say everyone stampeding to the exits is the rational behavior?

[ccn0p]

Yes if there's a material chance that the last third of folks at the concert get torched in a fire.

[PKop]

The bank failed. How could you possibly argue that withdrawing wasn't rational?

[mertd]

That isn't the case. To continue the concert analogy, the concert hall had more than enough doors to let everyone out if people left in their usual walking pace, but some doors were locked and the security was paying someone to unlock them. People took this as a sign that they should sprint to the gates.

[PKop]

The bank has failed and those with deposits in excess of 250k have not been guaranteed and cannot withdraw now what are you talking about? The bank failed!! lol. If one had withdrawn fast enough, they have their money; those who waited lost.

The analogy is, it doesn't matter, those who didn't leave quickly got stampeded and died. Anyone who had huge amounts of cash in excess of the FDIC limit sitting there is an idiot. Doubly so if they heard of the "run" and did nothing.

As long as Fed has rates way way above 0% checking accounts, the gravity is going to pull deposits out of banks and into US Treasuries.

I've been withdrawing personal and business account cash for months and rolling in short term treasuries, many others are too as commercial bank deposits have been declining at record pace this year. Now this bank run. Anyone over the FDIC limit + those who begin to notice the interest rate differential (so..safety plus excess returns) are going to be incentivized to pull money out. This might not be the last bank failure... even if technically there is not danger on paper, human psychology will probably dictate that more will withdraw.

The rational choice is clear in this situation: anyone with excess deposits should move quickly. Who cares if nothing else breaks? Better to do it and not need to, than to need to but not do it.

[brunooo]

It is, but if that’s how you apply it to your partner who built 4 decades worth of plumbing that underpins your community, then stuff falls apart.

[wolverine876]

> Scary how fragile our financial systems can be in the face of herd mentality and irrational behavior.

Ironically, that response is the herd mentality and irrational.

Depositor funds aren't fragile: They receive 100% of $250K, and a substantial amount of other funds.

The financial system isn't fragile at all: There is no systemic impact.

[MiscIdeaMaker99]

I see it as a self-fulfilling prophecy.

People perceive their bank as unsafe (whether it is or not), so lots of people start withdrawing their funds, and suddenly the bank fails because it can't fund those withdrawals.

It reminds me of the toilet paper shortages here at the beginning of the pandemic. People heard about others hoarding toilet paper, so they started doing it, and before you know it we had a huge national shortage for a while. Some folks had none or little toilet paper -- while others had tons. I knew some assholes who did that, and bragged about it like they got one over on everyone else.

[lazide]

Looking at where inflation and interest rates were going, they were far from healthy.

This was inevitable, as they locked away too much capital in bonds that were losing money every month in a way they can never recover.

It’s the wrong way to bet when interest rates have been low, but are going up soon.

[rocqua]

Their bonds weren't losing money. They were losing value. Value that would inevitably recover as the bonds reached maturity.

There was an easy and plausible scenario here where everything was fine.

Heck, the core of the problem here is that they got too many deposits over the last few years.

[lazide]

Correct on value vs money! I was being sloppy.

What is that easy and plausible scenario?

The only one I can think of is if they suddenly started getting a lot more cash deposits than withdrawals, or we entered a deflationary spiral (unlikely).

[santoshalper]

As ever, the markets can stay irrational longer than you can stay solvent.

[ryanSrich]

> So essentially it was all just panic

How? What was “all just a panic”? The bank run? Of course, that’s what a bank run is. People panicking to not be the last ones out the door.

Do not get this story twisted. SVB wildly mismanaged their risk, and went permabull in 2021/22. This lead to buying shit MBS’ and subsequently being forced to liquidate those securities to stop the bleeding.

[mlindner]

> Do not get this story twisted. SVB wildly mismanaged their risk, and went permabull in 2021/22. This lead to buying shit MBS’ and subsequently being forced to liquidate those securities to stop the bleeding.

Do you have any objective points on what they actually mismanaged and what they should have done instead for each point? Most of the people I see saying this don't actually understand what happened.

As someone said up thread. What SVB did was the "least bad option". The people to blame are the VCs and the fed for creating this situation by extreme devaluing of treasuries.

[isignal]

Banks do not park such a big fraction of their funds in such a long term investment.

They should have chosen a ladder of differently maturity timelines to trade off between yield and availability. For example, they could have invested more in short term treasuries instead, which yield 4.5% now.

In finance terms, they were not hedged against interest rate risk.

[rocqua]

Could perhaps 'park most of the money at the FED' been a safer option even without hindsight?

Ofcourse with hindsight pouring money into hedged stock positions would have been much better. But that is very much hindsight dependent.

[aardvarkr]

It’s not so much as mismanaged, which implies negligence, but more that they made a bad bet that kicked off a chain of events that led us to this point.

[IAmGraydon]

They didn’t buy MBSs. They bought 10 year treasuries.

[aardvarkr]

I think you need to double check your source. They had significant investments in MBS’s with a ten year maturity. SI had the t-bills

[phpisthebest]

> Scary how fragile our financial systems can be in the face of herd mentality and irrational behavior.

The systems of finance are only as strong as the currency that underpins it, and when your foundation is based on nothing more than "hopes and dreams" then you will have this...

Our "financial systems" are smoke, mirrors, and heavy complex set of scams we all pull on each other everyday...

The true "irrational behavior" is the system itself, and everyone that buys into it, you have to suspend rationality to engage with the banking system, and fiat currency

[RJIb8RBYxzAMX9u]

> One by one, agents check into a hotel, each quietly offering a pseudonym to the guy at the desk.

This is actually the part that intrigued me the most. I'm no traveling salesman, but I've stayed at several different hotels over the years, and IIRC I was always asked to provide ID during check in. Cursory search seems to say that some states actually require it; in other cases it may be corporate policy.

So, do the FDIC agents (?) also have cover identities? Or are they forced to stay in no-name, possibly rundown and bedbug-ridden motels for the sake of the ruse?

[wtallis]

The 60 Minutes video linked in this thread doesn't mention cover identities for the individual FDIC employees, but does show that they're using a fictitious corporate identity for their reservations of meeting space (and possibly for a group booking of the hotel rooms). Keeping the FDIC involvement secret seems to be more important than keeping the individuals' identities secret.

[RJIb8RBYxzAMX9u]

Ah I see. So it's more about "hmm why did 100 (wo)men in black(tm) just all checked in -- something big must be going down -- oh they're all just here for the numismatic convention"; and not "hmm isn't that Bob who works for the FDIC? What's he doing here?"

[Stratoscope]

That is a great article that conveys both the facts and the drama around an FDIC takeover.

I can also recommend the movie Margin Call which includes a fictionalized account of a similar takeover. If you haven't seen it before, this may be the weekend to watch it.

[fairity]

> If Oaktree and others are offering folks 70%+ face value for their uninsured deposits

Does anyone know if the 70% offer from Oaktree applies to the remaining amount after FDIC pays out what they can on Monday/Tuesday? For example, if the FDIC releases 50% of uninsured deposits on Monday, can you sell the remaining 50% to Oaktree and recoup 85% (50% + 50% * 70%)?

[brunooo]

Great question and no idea. They’re sophisticated cats and thus guess the answer is “the deal is whatever you can negotiate with them.”

But it wouldn’t be very likely that anyone would give you the same terms for a junior tranche.

Not investing, legal, or any other advice, but unless my company would be in a very weird situation requiring access to 50% or more of our funds in the next 2 weeks, I wouldn’t even start entertaining offers below 95% or maybe 92%.

[rootsudo]

Bank gives all the money and risk to a VC, they take it - the second the risk is at the bank it they run.

[htag]

The entire point of depositing money at a bank is that it is a very unrisky place to keep it.

[rootsudo]

Agreed, I just find it humorous that it isn't both ways.