| The flighty deposit base is also complicated. There are rules around depositors and capital ratios, and they include primitive models of depositor types. It turns out VC money is more like a "deposit broker" than a retail or merchant account, even when you have rules in place to make borrowers use your other services. We know this in retrospect, but I can't fault them too hard over deposit risk modelling. I would have thought "don't cause a bank run on your own bank" was something a dude who used to work for Credit Suisse would already know. Maybe thats why I shitpost on HN instead of running a high finance company myself. > Its SVB's responsibility to understand its own depositor base. Its SVB's responsibility, and they paid a price for it by getting zero'd out. But it's _also_ the regulator's job to look out for such risks, to protect deposit insurance among other things. One professor puts the blame on a shift from regulating risk to regulating process[1], promoted by Alan Greenspan. Who later said of the 2008 crises "those of us who have looked to the self-interest of lending institutions to protect shareholder's equity – myself especially – are in a state of shocked disbelief." Said differently the regulators aren't there to protect shareholders from the risk of owning a bank. That's just a handy benefit. It seems likely though that this risk would have been easy to spot and the power prevent had regulators been motivated to do so. For whatever reason, banking seems to attract a lot of "heads the exec suite wins, tails shareholder loses" agent-principal problems. Thats really my point: the cost of hedging risk is the profits -- and profit-sharing -- that you might have earned. Probably _all_ of it. "Not hedging your risk" then isn't just staff and execs being "dumb dumbs" who forgot about it, but a deliberate enterprise and strategy. In the fullness of time we'll probably learn how execs were incentivized to take the risks that took the company down and how they influenced the board to give them those incentives. IDK how relevant it is but Greg Becker was on the board of the SF Fed, while running a regulated institution. > No one else had the stupid amounts of interest-rate risk associated with having a Silicon Valley tech-startup as their #1 depositor / typical customer. No one else had 95%+ uninsured deposits. About that... if fed keeps raising rates, I expect more banks to float to the surface. Collateral damage, in both senses. SVB was hardly unique in the 'unrealized losses' category. [1]: https://podcasts.apple.com/us/podcast/the-regulatory-blunder... |