[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.

[parasubvert]

You completely misunderstand the situation. The bank failed because of the bank run. It’s unlikely any depositors are going to lose their money because the bank was not insolvent. They’re going to get 50-60% of their deposits by Monday or Tuesday.

[mertd]

Sorry but that's not correct. SVB is dead but solvent. People will eventually get their money back.

[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