Quote:
Originally Posted by dradernh
The gist of it is that SVB suffered a bank run.
This was for two reasons: 1) it was paying too-low rates on deposits, having placed a substantial portion of those deposits in low-rate, long-dated US Treasuries and mortgage bonds BEFORE the Fed started inexorably raising rates; and, 2) the bank's depositors were heavily skewed towards Silicon Valley startup founders who wanted their deposits back, either to get higher returns elsewhere or to deal with business issues in an economy no longer as enamored of tech startups as it recently was (esp. from mid-2020 to early 2022).
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Essentially correct, though when that piece referred to "the bank's clients" they were referring primarily to companies (many of them startups, some more established) and not individuals. Companies that, in some cases, had hundreds of millions of dollars in SVB and took _all_ of it out at once. To give you some sense of how big these accounts were, it's estimated that over 80% of the deposits at SVB were uninsured (over the $250k/entity FDIC limit), and totaled over $150 Billion. With a B, yeah. SVB was so desperate to raise cash that they sold $2.3B of Treasuries for $500M earlier this week. It clearly wasn't enough.
Many of those companies that did jump ship did so on the advice of their VC backers, who got spooked by some things that Peter Thiel (one of the most famous and successful VCs) said about SVB earlier in the week. VCs are herd animals and spook easily, and of course their clients listen very closely to them (or else), so when one of them panicked and ran, they all did.
Some companies were left holding the (empty) bag, as it were, and did not get their money out before the FDIC swooped in and shut SVB down. Several were pretty big firms. Roku, for example, announced today that 28% of their cash, about $500M, was in SVB. (Stock fell 5% on the news. Ouch!) The small companies that got locked out are likely to be in trouble, since many had all of their operating capital in that one bank. I personally know somebody who was told that his company is unlikely to be able to make their payroll next week because they don't have access to their funds at SVB. There will likely be a lot of stories along those lines, and I expect we'll see some companies fold as a result of this, too.
Depositors will likely get their money, eventually, but that could be painful for a lot of them. Shareholders and bond holders are likely wiped out. (SVB traded at $300 or so recently. OUCH!) And, while SVB was a very unique institution, it'll be interesting to see if anybody else catches this "corporate covid". The way some of the bank stocks went today (including Schwab) clearly there are some that think they will. Everyone keeps saying that this isn't 2008 and the banks are much stronger thanks to Dodd-Frank. I guess we'll see soon. In the meantime, collecting 4% on those 2-years seems like a good way to ride this one out.