I think this might be the beginning. I think various funds (public or private) which have capitals stored in SVB is gonna be in a lot of trouble. Every investment firms are probably scanning their portfolios and business cash lines to see how much they are impacted by SVB and similar banks.
I wouldn't be surprised to see a run on banks in the next few days/weeks if additional rumors (true or not) come out.
Edit: didn't want to reply to everyone.
1. SVB probably thought they are in good shape, like every bank out there.
2. Even if the deposits are OK by early next week. Every banks/firms/funds will need to start reviewing their books and see what exposures they have. Even the slightest "issue" will trigger a bank run. Tolerance is really low at this point.
Monday will tell. FDIC will have done enough rough accounting to roughly get an idea of how much money large depositors will actually get. It's also entirely possible a deal gets worked out over the weekend that results in all cash depositors being whole at a new bank. Monday will tell.
This is how financial crises start. IndyMac ($40 billion) went under in July 2008 which caused tension, and then Lehman fell apart two months later which led to 15 institutions failing in a matter of weeks.
There are other financial institutions that are suffering. We could definitely see cascades among some of the weaker banks
Avoid holding cash above deposit insurance limits. You can play the account titling game as well as use multiple institutions. There are some banks that promise to spread your funds to multiple banks to get coverage; but you need to be sure you don't use those underlying banks elsewhere, etc.
For stocks and things, you've got some options. For best protection, you would want to have your stock ownership registered on the books of the company; you might be able to make that happen with a full-frills brokerage, ask about holding stocks not 'in street name' or you might have to transact via the registered transfer agent. Expect that to result in paying comissions and hassle.
If you don't want to go that far, making sure you don't have a margin account is a good step. Brokerages generally have to maintain customer deposits and holdings separate from the brokerage's propriatary holdings, but not necessarily for customer's margin deposits. Anyway, one should always be careful with margin.
If a brokerage fails due to their own poor investments, it shouldn't impact your holdings. Of course, if they fail due to poor record keeping or fraud, your holdings may not actually exist. SIPC provides some insurance that may apply, but the limits aren't very high and there's not that many credible brokerages to spread your holdings among.
Silvergate bank which is THE bank for crypto companies failed a few days ago on the same day that SVB was trying to raise capital to plug losses. The after effects of that are still unknown.
Is there a way to tell which banks are the weaker banks? I know the fed does stress tests but I've read that Silicon Valley Bank didn't take part, so I don't know how to get the data.
Those banks were all built on a fraudulent and irrational housing bubble. SVB just bought too many bad bonds and got stuck. I don't see the industry-wide effects from this.
We're in a semi-fraudulent housing bubble now. Well, maybe not fraudulent, but unethical, and similar to what was going on in the '00s.
Big banks are holding onto large, mostly unoccupied housing developments to create artificial scarcity and drive the prices up. Then they're selling with huge loans to buyers that are going to see value plummet and be unable to pay anything back.
> Big banks are holding onto large, mostly unoccupied housing developments to create artificial scarcity and drive the prices up.
I’m assuming you’re talking about the US. Do you have a source for this claim? There is a problem with vacant houses, but this is the first I’ve heard of the narrative of empty developments implying new houses.
I can only speak anecdotally and assume it's happening everywhere. I'm in the Midwest US. Banks themselves are building neighborhoods full of spec houses. Half of them go empty because they're overpriced. A bunch of developments have stopped before being completely finished, presumably because they can't put up for sale in that condition, but they still contribute to the bank's assets.
I can't say I understand the whole economics of it, but it's obvious something sketchy is happening.
The bonds aren’t bad. They are performing according to all reports I’m reading.
They simply have a longer date to maturity then is comfortable for the depositors withdrawal cadences, and they have had to be sold / marked down in a period of rising interest rates.
They bought those bonds based on the assumption that money would flow in/out within a certain margin and that margin was exceeded. There will definitely be more cases to come where companies who are supposed to act conservatively took on more risk because they’re used to operating in an environment where it was profitable to do so.
I just got an email from Mercury saying they’re well capitalized and all is well.
“
I want to assure you that Mercury is in a strong financial position (profitable and well-capitalized), and we have a number of ways that we keep deposits on Mercury safe:”
JP Morgan Chase, Bank of America, Citibank, and anyone else who will be bailed out by the fed.
But seriously, the problem with SVB was that their assets are trash and everyone knew it. If their assets were actually worth what they claimed they would have no problems.
This is not the same situation as dogshit assets from the sub-prime crisis; the bonds are not "trash" in the sense people are thinking, but long-term, lower interest instruments. As interest rates have risen they are a relatively poorer invesment, but still have the long-term (illiquid) value of the underlying asset less the curret rate to return differential. It's inaccurate to say they mis-stated the value of their assets.
Yes, if you count central banks and don’t mind hyperinflation. But that’s probably not what you’re asking. I don’t think any ordinary commercial or retail bank could survive a run without outside help.
SVB had to know they were in trouble. The problem they had in some sense boils down to being caught holding the bag (they had a huge amount of securities that declined in price as interest rates rose).
To save people a quick search, here is part of the Wikipedia definition of Form 8-K: "...a very broad form used to notify investors in United States public companies of specified events that may be important to shareholders or the United States Securities and Exchange Commission."
Most of the top 20 are household names. Many in the top 50 as well. However, a few are top ranked because they have strong regional presence in tech/finance capitals and Silicon Valley is of course one of them.
I’m not surprised to see that American Express is a large bank, but if you’d asked me to produce a list of large banks, I wouldn’t have included any credit card companies.
Of course, a credit card company having a bank attached is not very weird at all. I mean a bank sprouted out of GE that one time, which seems much less on-mission.
The market expects the bank going under to impact Roku by that much expected value. That's very different than saying the market expects a certain percentage of money to be returned in the end and it's not clear why this is supposed to give even a ballpark estimate of the expected recoup. After all the share price has way more to it than what the current assets come to.
It's also very likely the market changes its mind shortly, especially if Roku lays out the plan and expected impact to operations in more detail.
The drop is in the aftermarket immediately after the 8-K release, so I think we can attribute most of it to the market's gut reaction to this piece of news and not the broader SVB impact (which would have occurred during market hours).
Agree that the market might change its mind quickly, especially if estimated recoveries are projected to be high or the depositors completely made whole.
Absolutely it’s the reasonable cause but as explained there is a difference between the news being the expected cause and the drop being what the market thinks the assets recoup will be.
It's exceedingly unlikely to be anything less than 99. The FDIC wants to reassure everyone so there aren't more runs. Do you really think they're going to let the eventual purchaser not make everyone whole?
Is it not? Most of the time the FDIC will find a buyer and guarantee some percentage (usually ~80%) of all losses to the purchasing bank (plus the very low upfront purchase price, of course) in exchange for them honoring all deposits. So ensuring most deposited funds are safe, at least in the long term, seems to be in line with their usual playbook, even if the unusual circumstances around this particular failure might make that less likely.
> in 55 failures since IndyMac of banks with total deposits over $1 billion, uninsured deposits were fully protected against any loss. The largest failure, Colonial Bank, had $20 billion of deposits, including an estimated $4.4 billion of uninsured deposits.
I was under the impression that, at least to a first order, $1 in cash in a company's checking account (money that could be immediately released to shareholders) does correspond to $1 of their market cap (MC=EV-Debt+Cash [1]). Why do you think this is not the case here?
As a side note, I find it fascinating how fractional reserve banking is not only legal but considered indispensable to the economy. It just sounds like a big scam. Why do private bankers get to create money and decide who gets it? It feels like there has to be a better way.
"It just sounds like a big scam. Why do private bankers get to create money and decide who gets it? It feels like there has to be a better way."
It's a time-shift. That's all.
You can absolutely run an economy - and a culture - without leverage and even without debt.
In such an environment it will take multiple lifetimes to accumulate a single lifetimes worth of provision and security ... and we all decided we wanted to provide and secure within our own lifetimes.
... and then we decided we wanted that before we had grandchildren, and then before we even had children.
We're time-shifting and this instability (and, in many ways, incomprehensibility) is the price we pay for it.
No, no, quite the contrary. I mean, money itself is an illusion, but within that illusion, understanding accounting and credit money creation is absolutely fundamental. Read this paper.
Thanks for the link. I read "The Mystery of Banking"[0] recently and understand more or less how it works. I realize that it's not the most neutral source but I haven't found any of the other side's arguments very convincing either (including this Bank of England paper though I just read the first few pages, planning on reading it fully later).
Good link- with respect, to my personal mental model the von mises stuff is a near total misunderstanding both of the mechanics and of the dynamics. Credit in particular seems to be a mystery to them, yet in anthropological terms humans- and other creatures- have credit/reputation accounting in their heads, long predating even organized math. But I have not engaged their arguments directly in depth.
I do all my reading on kindle, that one is only print but I will aim to track down a digital version of their arguments.
It is. Its what happens when a country's currency is used as the exclusive foreign exchange currency in international trade and that country can print money like a banana republic without that currency losing value. The US went apesh*t on the foreign exchange currency position of the dollar and not only printed $ from the Federal Reserve but also allowed quite high % ratios for private banks to do fractional reserve lending.
The legal % ratio was reduced after the 2008 crisis, but right at the end of Obama's 2nd term, they were restored to 2008 levels. So the cycle that started 2008 crash started again - not necessarily backed by high risk mortgages this time, but whatever could be used as a collateral.
Now that many countries are moving to trading in their own currencies, all the printed dollars are coming back to the US and hiking up inflation and causing all this mess.
So youre right. Its literally a scam. It could work if it was tightly regulated with low %es and what the banks could show as the backing asset could be very tightly regulated. But we all know what the corporate lobbies do to regulations in the US...
Every game has winners and losers. The fact that losers exist doesn't mean there aren't winners. Banks with poor management go bankrupt. The ones with good management run the entire economy. One doesn't detract from the other.
We need money for economic growth. Creating money causes inflation. So instead we borrow money from tomorrow to build/invest today. There is nothing inherently wrong with this system, and it has worked perfectly fine for hundreds of years (probably longer).
Why the downvotes? Is this not why fractional reserve banking exists? Please correct me if I'm wrong. Without it, the Fed would have very control over inflation/deflation.
By the way, I'm not arguing against the Fed. I'm against fractional banking, or at least feel they should require banks to offset their liabilities more than they do today.
We're literally discussing an example of why the current system isn't good.
Sure, but loaning out deposits creates money, does it not?
Most of that loaned out money is getting deposited into another bank account. And that deposited loan will (minus a percentage kept in reserve) get loaned out again. And so on, etc. I might be missing something important, though.
If a bank loans you money and you use it to build a house, or start a restaurant, then in due course there will be:
- new money, created by the loan; and
- a new, valuable asset — the house or restaurant — worth very roughly that amount of money.
Case by case these won’t always balance, but we trust private banks and borrowers to get it broadly right in aggregate. It all works out except for when it doesn’t.
But somebody had better be creating money in a growing economy. Otherwise the stock of desirable stuff will grow while the stock of money remains constant. And once that happens, people start hoarding money rather than doing the hard work of investing in new productive assets. But creating new productive assets is where the growth comes from, not to mention a big chunk of the jobs.
I doubt bank-created money is the only way to avoid deflation and depression. But it’s about the least centrally-controlled alternative I can think of.
I guess it's unclear what you mean by "creating money". Anytime I lend money to someone, they're going to spend it on something.
They have a liability (their debt to me) and an asset (the thing they "bought", which could be anything from a T-bill, to a bagel). Basically, any debt "creates money."
If you lend money to someone, it's no longer available for you to spend. However, if a bank loans out the money that you deposited, both the borrower and you can spend it. This is known as money creation, as it expands the money supply.
> if a bank loans out the money that you deposited, both the borrower and you can spend it.
When you "spend" money that you deposited with the bank, what you're actually doing is getting the money you lent to the bank paid off.
What's the difference between that and you lending money to someone to buy a bagel/T-bond, and then at some point in the future, getting money back so that you can buy a sandwich/car?
No. Less than their total deposires. But loaned money may well end up in a bank where it might be loaned out again. But it's not IMHO right to try to claim one deposite as somehow "the first one" that gets loaned out repeatedly. Each deposit is loaned out less than 100 percent.
The bottom line is that not all deposited money is not readily available on short notice.
If you deposit $1000 in a bank, and if the reserve requirement is 10%, the bank can lend out $10,000 to a borrower. It gives the borrower a bank account with a $10,000 balance. It has created $9000 of money out of thin air.
Sure, but why couldn't be a bank that's just like a money vault and that's it. I don't care if I get no interest, I may even pay a fee for that service.
Chase doesn't allow storing cash in them (other than collectible items) and I know that others banks don't allow either (most likely to limit their liability).
I lived through Washington Mutual going through FDIC receivership back in 2008 (I was their employee, shareholder and account holder at that time) and their stock price dropped to almost zero when the news broke about that. I'm curious why this is not the case here.
Roku having 75% of their money elsewhere instead of going 100% into a single bank seems to be a significant thing here.
Given the much-discussed recently limits of depending on the FDIC, not putting all your eggs in one bank basket seems incredibly wise, guess now we just see how broadly exposed other businesses and other banks are.
Obviously Roku is a lot larger than your typical startup, but it's a curious blind spot risk that all the VC's who panic-messaged founders to take out their cash yesterday didn't bother to try to mitigate it in advance across their portfolios of companies.
The more money you have, the less competence you need - hardly a surprise, but... there are no shortage of articles that make it to HN with VCs talking up their own book about how great they are, so I think calling them out is fair.
EDIT: and it's also worth everyone reflecting on where their own money is, and how many things would have to fail before they can get it. If you are fortunate enough to have any significant-to-you amount of assets your rely on vs just living paycheck-to-paycheck or on credit cards... think about spreading that shit out.
This is simply not a risk that most people would even consider worth thinking about.
Yes, banks fail. However, the large, reputable ones fail few and far between. If you're a seed/Series A startup, you'd be much better off focusing on creating value. Your far more likely to fail to find PMF than you are to have your bank go belly up.
"SIPC protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially-troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash."
Making the leap from ensuring money saved in safe, heavily regulated entities to "backstopping every single risk" is disingenuous. There are risks businesses should have to think about. Safety of money in their bank isn't one of them.
Why shouldn't they have to worry? FDIC insurance limits are hardly uncommon knowledge. I have more than $250K dollars and I certainly worry about how best to manage it.
Businesses are able to buy insurance on top of what FDIC provides. It's only too low if you're foolish enough not to buy additional insurance if needed.
It probably hasn't been recently (or ever) inflation-adjusted since it was set.
There are a lot of limits and thresholds like this that could use regular (or even extant) reindexing.
EDIT: it was increased to 250k in 2008 or 2010. As you note this is too low. It seems like it has been rather low its whole history. Given that our inflation rates are basically halving the currency every decade or so, it should be reindexed much more frequently (and also raised in any terms).
One thing I came across to watch out for though is that if you hold fixed income securities (e.g. GICs) that are issued by the same bank as the brokerage account, then if it goes bust, the securities are NOT covered by insurance.
"CIPF does not cover: the insolvency or default of the company or organization that issued your security"
For example, if you hold a $500k GIC issued by TD Bank in a self directed TD brokerage account, and TD goes bust, then you're gonna have a bad day.
In Australia most trade accounts use 'Chess' system which basically means when they buy shares they buy them in the account holders name so you own them and if the broker collapses it's not a problem.
In US I believe they are generally owned in the brokers name but using 'SPIC' so you have $500k protection coverage similar to bank deposit protection.
Only if you are faster to react to the news than the market. It would help to have a model of how much the company’s value is affected, so you can evaluate whether it’s priced in.
You need some of that for working capital, and if you want to play the t-bill game, you're better off with a money market fund and letting someone else do the work for you.
Where are the people offering to buy SVB claims for 60-70 cents on the dollar? This happened with FTX and traditional bank runs like in [It's a Wonderful Life](https://www.youtube.com/watch?v=iPkJH6BT7dM&t=99s). Maybe people are waiting to see how large the FDIC advances will be.
Does every public company need to file such a form by some time? Could we use these forms and public companies got get some sense of the contagion risk?
You need some amount of cash for payroll, POs, etc.
The rest is then generally held in "cash equivalents" such as short-dated government bonds. The latter has yield to offset inflation. But basically "cash" is being used quite loosely here.
From the 8-K:
> The Company has total cash and cash equivalents of approximately $1.9 billion as of March 10, 2023. Approximately $487 million is held at SVB, which represents approximately 26% of the Company’s cash and cash equivalents balance as of March 10, 2023.
> The rest is then generally held in "cash equivalents" such as short-dated government bonds.
Wouldn't these bonds belong to Roku but simply be bought/sold/held, for a fee, by SVB?
I mean: my bank in Europe can go belly up, my stocks are my stocks and they'll be transferred to my new bank. They cannot be used as part of a bank "bail in" procedure (well at least I think and I hope that's the case).
I'm not an expert in this area, but my understanding is that it doesn't really matter if it's cash, bonds or stocks – the bank is just a custodian of your assets and you always have the primary claim to those assets.
That said, the bank can still lend out your assets within certain regulatory guidelines, but in theory the regulation is in place so that they always have enough liquidity should you choose to withdraw it. Issues only really come into play when large numbers of consumers try to withdraw in rapid succession and a bank doesn't have adequate liquidity available. Ie, a "bank run".
Your point on stocks is interesting though because it's quite possible your bank actually does loan out your stocks to short sellers and makes some yields some profit in doing so. My understanding is that there are scenarios where you can actually loose your stocks in the event your broker goes bankrupt, although in such a case your government should insure you up to a certain amount (like with cash deposits).
But in a worst case scenario you can lose your stocks and banks can definitely lend the assets you hold with them.
But you typically run off firm promises of cash from investors. Then you only need a couple of weeks cash in the bank, and the investors promise to make cash available on demand as you need it.
In my experience with small SV companies over the last several decades, this would be exceptional. Typically you get money from investors at negotiated, spaced points in time. In between your CFO manages the cash on hand to cover everything: payroll, taxes, and any other accounts payable.
It was higher than I expected, but kinda makes sense. You're right that cash does lose value via inflation, but you need cash for when you need it. Looks like they sold a billion worth of stock in 2021 when times were good. I'd think they could invest in some bonds but long dated bonds dropped 20% in value last year so good job they didn't. https://finance.yahoo.com/quote/ROKU/balance-sheet?p=ROKU
Could someone please explain what SVB is and what money being stuck there means? Why do companies put money there? For what reason would a company file, or have to file, an 8-K?
Silicon Valley Bank was a go-to bank for many big technology companies because it forged deep connections in the industry. The bank experienced a bank run and had to be taken over by the FDIC (U.S. government). Roku is letting investors know that they have a lot of cash stuck there and may not be able to access it for a while (as the FDIC tries to sort out the mess).
The US Government is the people of the US. They went over the 250k limit. If they don't have private insurance for that, fuck them they're on their own. Not big enough to bail out, the regular people didn't get it either in the great recession.
And of course, the FDIC is not guaranteeing deposits of over $250k. What's actually happening is that the FDIC will take care of the sub-$250k deposits by itself and sell the remaining assets of Silicon Valley Bank (which they have taken over) to sort out the remaining uninsured deposits.
>And of course, the FDIC is not guaranteeing deposits of over $250k
FDIC says they are.
After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13.
You are misinformed. FDIC is not funded by the US govt. It operates on premiums.
> The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts - deposits in virtually every bank and savings association in the country.
(If anything, the US govt. and people receive more in taxes from the startup demographic and you should be looking at govt. corruption first if you are keen on saving taxpayer money.)
> Not big enough to bail out, the regular people didn't get it either in the great recession.
Why the bail out comment though? FDIC doesn't run on govt money. So even if FDIC helps them out with amounts greater than 250k it won't come out of govt. money.
Nah then it would simply be fraud, as they'd be misrepresenting the service offered for the premiums.
Of course if the government required FDIC to charter most retail banks, and you had to have a bank account to say not have all your cash stolen by crooked cops by the side of the road in civil forfeiture, then It'd look a lot more like a public good supported by an indirect tax on the return on your deposit. Which isn't far from the truth.
Judging by their user name they are from a german-speaking country like I am, and yesterday there was a mass shooting in a church in Germany. Which is not usual, and people care more about that than some bank over the pond.
suggesting he must have been hiding under a rock for the past 2 days to miss the news is funny because it pokes fun at just how prolific the news on this has been in the past 48h, but, the shoelaces comment is implying that he's stupid for not seeing the news.
I think its more about how this information is all very easily researchable, especially now. And most news articles about this situation will have explainers about the finer details in the articles, at least enough to get you up to speed that you don't have to ask commenter on an HN thread for super basic information.
Pretty sure it's just a troll. User has 3 comments including that one.
Another is calling someone a son of a whore(I think) in Spanish. And the third is just saying don't customise emacs. The 2 first comments were in 2021. What a strange account.
Do comments ever get deleted(by mods) on HN? Looks kind of like an account with lots of comments, all deleted, so it's just 3 comments with a weird 2 year gap in between.
If I think FDIC will make everyone whole in a reasonable amount of time, do I just buy call options on all these companies that are tanking because of ties to SVB?
A bummer to find out Roku ever raised 2B in the first place when I've met several brilliant founders with good ideas who failed to raise ~200k. Despite being a staunch capitalist, I have to say, funds are so cowardly allocated in SV.
Money is just a number on the ledger for the government. They can just give back everyone's deposits or maybe wait for a few months until it becomes a major crisis and then bail out everyone. The investors and shareholders of SVB are going to lose everything, but the depositors will be fine.
Except that's what the Fed is trying to correct. Inflation is caused when the money supply in an economy grows at faster rate than the economy's ability to produce goods and services.
I wouldn't be surprised to see a run on banks in the next few days/weeks if additional rumors (true or not) come out.
Edit: didn't want to reply to everyone.
1. SVB probably thought they are in good shape, like every bank out there.
2. Even if the deposits are OK by early next week. Every banks/firms/funds will need to start reviewing their books and see what exposures they have. Even the slightest "issue" will trigger a bank run. Tolerance is really low at this point.