That's not really how this works. The CAO of the bank was CFO of Lehman. People in these positions just get credit for the fact that they had a front row seat for this sort of financial implosion, so they can (theoretically) help whoever else's board they join avoid that sort of thing.

> But those players within the venture capital community who were singularly responsible for triggering and then exacerbating this run will not escape accountability.

The people in the VC community who triggered the bank run did the right thing by their startups. They don't have a responsibility to SVB. If they saw a run on the bank starting, it was in their best interests and the best interests of the startups in which they invested for those startups to get their money out as quickly as possible.

It's just game theory.

The problem is when everyone acts to protect themselves from the 0.1% chance event it actually becomes a 100% likely event.

That's why FDIC Insurance was invented in order to prevent bank runs and is why we have had so few in the hundreds years since it was invented.

The obvious solution is to waive the FDIC insurance caps and probably increase the cost of the insurance to make up for the increased risk of failure.

How rude for the contractual obligation of a bank be asked to uphold their end of the deal. thats rude and racist. customers at that bank were real jerks.

But within 24 hours we had VCs from Founder’s Fund and the All In podcast personas who intentionally and knowingly fueled a panic on social media.

That panic was designed to benefit them and it worked, to the detriment of everyone reading this who has a deposit at a US bank, and who will now be assessed a fee to cover the cost.

However it was not the rational decision for a fund to do so. You have a) substantially larger voice and also ability to coordinate for better outcomes, for a fund it is no longer a gamer theory 101 standard prisoner's dilemma.

The larger funds could have

- Banded together and made a joint statement ( like they were able to organize and do after the run) reassuring every startup of their confidence in the bank

- Participated in the equity infusion into the bank

- Organized and bought debt in the bank to give it liquidity

- Simply moved their own money as new deposits into the bank.

Just doing a joint statement - which wouldn't have costed them a single penny would have gone long way to reassure the markets and also gained the key guys a lot of clout and established their influence J P Morgan style.

Unless those first people were actively trying to create an insolvency crisis, it seems to me they were either being prudent or prescient. There's a reason it's called the "tragedy" of the commons, and not the "tyranny" of the commons.

https://www.bloomberg.com/news/articles/2023-03-11/thiel-s-f...

A relatively small group of VC firms effectively did coordinate the depositors very effectively to organize except it was to take money out

Saying coordination wasn’t possible is therefore incorrect. And had it not occurred, getting people to keep their money in would have been a moot point, the whole thing a non issue.

In previous generations the industrial titans had a sense of nobless oblige, or at least pretended to; they knew their lucrative position came with responsibilities, and in times of crisis they would step up to do their share. Whereas when a crisis hits Silicon Valley, apparently you look after number 1 and when you reach out to the government it's not to ask how you can help but to ask them to bail you out.

But part of what makes that whole bit of game theory interesting is that it has a lot more complexity then just the simple version. Yes in a plain prisoner's dilemma betray can make sense, but in an iterated prisoner's dilemma that's no longer true. That's been part of the debate around the whole debacle, for much of SV's history it was very much iterated, it wasn't just about any one company for VCs or even founders, there was some interest in the overall ecosystem. Some very successful people only found success after multiple failures, but success could pay for it all in the end. VCs too, maintaining the ecosystem mattered. In that sense, killing the goose laying the golden eggs, even if there is some short term payoff, is still clearly a poor idea.

There was an HN piece sometime in the last few days I think talking about this and speculating/arguing that the rise of unicorns changed the community from iterated towards the more singular game. If it only took a single megahit to cash out forever, then incentives might be more towards selfishness vs thinking about the next company and the next after that.

>If you saw the HN thread on Thursday, there were founders posting that they were told it will be fine. How do you think they were feeling on Friday?

Sure, but how do you think they were feeling Monday? Or now? Zero threat to deposits after all for anyone including those who sat tight, but they lost a valuable service and icon, invited other problems and scrutiny, etc. While I'm sure lots will confidently say they did the right thing and that purely looking out for #1 was "responsible" I suspect there are at least a few who have some real regrets, even if SVB absolutely made very stupid choices as well.

It is, but also it's even worse. The usual prisoner's dilemma is explained with 2 parties. In this case, it was thousands of parties with a choice of: a) do what's best for your business, b) bet that almost all the other parties with also choose b.

2-person prisoner's dilemma is a fun game theory exercise. "All the customers" prisoner's dilemma is a social "have you met other business people" exercise.

https://en.wikipedia.org/wiki/Prisoner%27s_dilemma

From their article:

https://www.google.com/amp/s/www.circle.com/blog/an-update-o...

> We have reason to believe that under applicable FDIC policy, transfers initiated prior to a bank entering receivership would have otherwise been processed normally.

In other words it shouldn't be entirely dependent on whether they were in the bank run. Earlier transfers, yeah.

In a bank run situation people were rushing to the bank and tying up the phone lines. Panicking shouldn't be encouraged to such a degree as to make millions of dollars depend on it.

The amount recoverable ended up not depending on whether an SVB customer attempted a late withdrawal. And that's good. I would have expected it even if depositors had to settle for a portion of their funds.

What does Friday matter? Friday was when the cynics would rejoice in righteous indignation. Monday was when responsible people were redeemed; when society through its government recognized that the real moral dilemma here was whether or not to vindicate the cynics.

There is a solution to the Prisoner's Dilemma, and it's called civilization, known in the modern era as institutional government. Like their communist cousins, die-hard libertarians should be forced to live in truly libertarian countries (i.e. those with extremely weak governmental institutions where wealth is safeguarded primarily through a web of private arrangements) and only then be allowed to opine on what's rational. For some reason libertarians can't often be found in those countries; not by choice, at least; and certainly they don't park their wealth there.

I mean, it was fine for them by Monday.

But without that pressure, there probably would have been enough time for this to have been a much more orderly transition. The panic didn't help anyone, it just made SVB's existing problems more difficult to manage.

To put it another way -- SVB went bankrupt the old fashioned way... slowly and then all at once. The bank run was the inflection point.

If it was in a vacuum maybe they could have kept a lid on it. But I disagree that they should have stayed calm about it with what happened prior with TerraUSD, Luna, Celsius, and FTX. The length of the list shows that it would have been infeasible to collude to stay quiet.

This hall of shame feels like an ego trip.

Future founders will know that the VCs helped them protect their cash?

Transaction accounts don't earn me anything and have fees of their own. There's little incentive to stay at one bank over another. If they want equity, they should sell long-term secured loans with LVRs under 100% or lock in my cash with term deposits or any number of other less liquid asset classes. But why should I feel guilt over moving my cash from one bank to another?

Maybe it's because I'm Australian but I feel our banking industry is significantly more stable. The last time a bank had any serious issue was 1990 and it was a (single bank that itself was bailed out by the government). Australian banks make their money through mortgages (averaging less than 80% LVR or insurance-backed if higher and with fixed terms of generally no longer than 5 years), credit cards and management fees on long-term investment products -- they don't rely on investing cash deposits on long-term illiquid instruments.

The fact this doesn't seem to be the case should raise questions over the entire US banking industry. Cash should be liquid.

Edit: For reference, APRA (bank regulator in Australia) has some very strict liquidity risk management requirements and most banks own liquidity requirements are significantly higher than this: https://www.apra.gov.au/apra-explains-liquidity-banking -- an Australian bank would never be allowed to purchase a 10-30 year bond to match against cash assets.

I just find it strange that after all that SVB is using the bailout as marketing. “All your new dollars are safe too!”

Under the circumstances, I'd have pulled out money while I could. Money in hand is better than a hope in hell.

But seriously, I wonder if it makes sense to have some common ground to greatly reduce odds of SVB-likes happening?

Dealing with this kind of emergency is all about communication. The final collapse happened frightfully quickly. There is no time to organise when the car pile-up has begun. You got to have groundwork in advance, and comms open too.

Maybe its too black of a black swan that you can't ever prevent. Maybe the competitive dynamics of the startup world do not lend support for a commons. Yet, maaaybe if you can see that your number one business partner's books have become crazy, someone should be able to say something, at the very least?

At the time the VCs advised their portfolio cos to pull funds out of SVB, it was a perfectly rational reason because only 2.7% of SVB's deposits were FDIC insured. That means, there was no guarantee of the Fed, treasury and FDIC would take the action to make good all depositors.

The entire site appears like something from an affected party (shareholder/investor/exec/boardmember of SVB) who lost their shirt in this fiasco and has an axe to grind. Just saying. Not sure why the are not naming and shaming the former SVB execs and boardmembers who missed to identify these risks early on and mitigate them.

The failure of SVB is just capitalism, isn't it? They risked their capital on a business that took bad decisions, so it is only fair that the specific company (SVB) ceases to exist and something else comes up to take its place.

Interesting.

I have sympathy for nobody in this debacle, except maybe the federal government for having to clean up the mess.

You’re dreaming.

Boards are mainly hired to do nothing in established companies.

How dare customers demand their demand deposits. how rude, right?

All the bank had to do was upsell their customers into savings accounts and then no bank run is possible.

Edit: From the about page:

> Who I am is not important. Holding accountable the hypocrites responsible for Silicon Valley Bank’s collapse is. I can be reached at svbhallofshame@protonmail.com. All correspondence will be kept anonymous.

It's just missing a PAC called something like "Citizens for Depositor Accountability."

Depositors making individual decisions? Ok.

Funds advising their companies? Ok, but it really hides the agency: deciders are in the funds (what CEO would refuse that advice?), but the companies are the responsible actors.

Now, would it matter if most of those funds were responding to their investors, say, Saudi's or Russians or the Chinese Communist Party, or to a consortium of friends who had shorted the bank? Most would say it does matter, but AFAICT it's perfectly legal, and no outsider would ever know the difference.

Market self-regulation, insurance, and investment diversification all depend on agents acting independently in their own interests, say, of making money.

Once agents are coordinating, or colluding, or have other dominant strategic interests, market self-regulation fails. And everyone else, who reasonably relied on the market behaving stochastically or in response to economic forces, loses.

One might hope that if this were all good, the response to a wall of shame would be a wall of honor, with transparency around decisions. But confidentiality is a key feature for any investment firms, so the best we'll get are retrospective letters of intent.

Aside from bad actors, the irony is that high federal rates means more risk-taking from banks, not less. SVB assets were good and safe, albeit not worth much (as the auction is showing).

I would have no problem with new rules saying that firms with assets big enough relative to the bank needed to schedule major withdrawals in advance. There's really no other reason than a bank run to move $100M emergently. (There'll be a secondary market for large urgent transfers, but it won't cost much, securitized with a pending transfer.)

So: yes the system is susceptible to bad actors, and there's no good way to respond without throwing out the baby with the bathwater. Really society's only defense is that the wealthy are getting wealthy enough legally that there's no real need to go all-out.

Aside from the moral hazard of covering bank risks, there's another moral hazard in creating opportunity and incentive for an already-confidential and largely unregulated industry to collude. It might push good investors into combines with bad actors, amplifying ill effects.

What's shameful really is that these systemic gaps are relatively obvious to thousands of the involved engineer/MBA/JD's, but everyone greedily grabs their local maxima, instead of insisting the system work right. That's where I'd welcome leadership, some way to reduce coordination costs.

Safe deposit boxes are also not insured.

If you put $250k of cash in a box and the bank catches on fire or gets robbed, you will most like get $0 back, while people with accounts will atleast get the FDIC insured portion of funds back.

Edit: this is based off a two minute Google I could be wrong.

There are millions, if not billions, of unbanked people whose survival depends on cash.

And the US has civil asset forfeiture, were cops call "dibs" on cash and the owner has to essentially disprove a negative they're using it for a legal purpose in order to recover it.

That's irrelevant. My main point is you appear to not want the traditional "bank account" product, but rather a "secure storage" project. I provided an example of the latter from my jurisdiction, but that was only an example.

When people request their money back en masse, banks face a liquidity issue because of the required fraction reserves they must keep. Directly or indirectly, without your deposits banks cannot lend out money.

But outside of the central bank reserve requirements the banks are free to loan our or otherwise invest their depositors cash, which is in fact prudent since cash "loses" value from inflation. Putting that excess funds into loans or other investments can all lead to what happened to SVB if a run on the bank over runs the reserves.

So, I'm curious - what do you think this means, when you say it?

Things one can sell at fair value in a few mins are liquid, and things one has to sell slowly or take 80 cents on the dollar to get rid of it fast (like a house in your example) are illiquid. It's a function of buyers and process, not my accounting treatment or tax treatment or whatever other treatment might make me not like the idea of selling right now.

What's next? The FX markets aren't liquid because I don't feel like realizing a gain from a tax perspective?

>> That is not the financial world’s definition of “liquid”

Yeah, it is, to us in the financial world.

The 10x multiplier is on the bank's equity. For every dollar of home loan there is a dollar or more of deposits.

The multiplier effect of fraction reserve occurs over iterated loans and depositing. The fraction term comes in because the bank can lend out a fraction, less than 1, of deposits.

But they're going to use depositor funds first because these days those funds are available at a virtually 0% rate.

The depositor withdrawals forced them to admit that they had taken a massive loss because of insufficient hedging against interest rate hikes, but they didn't really seem to have a path to unwinding their underwater positions in any realistic timeframe. HTM was an accounting misdirection to try to hide the hole in their ship while they bailed water, but it was a massive hole and they had a tiny bucket.

Imagine the ALL-CAPS tweets and backdoor phone calls that could have been possible if these very same investors (who now rally behind the shuttered and reopened bank) could have called for calmness instead of panic. But that's not what happened. Once the run starts, you can't stop it.

Unfortunately it’s very rare to have the knowledge and/or connections necessary to guarantee that you can not instigate a run, but still withdraw before the collapse.

https://www.federalreserve.gov/newsevents/pressreleases/mone...

"Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law."

Now you may argue it is unfair to other banks to penalize them for the failings of a few. What the SVB fiasco showed is that systemic risk is not just in the too big to fail institutions, but also ones like SVB that are important to specific sectors of the economy, like SVB for Tech or GMAC for cars. As it turns out, SVB had recently gotten TBTF and started the risk management compliance process, including the so-called "living will" to give the Feds a roadmap for an orderly wind-down of the bank, which must have been well-thumbed over the weekend. I expect one of the consequences of this is that more banks will be subject to oversight.

This isn't true, interest rates risk of securities of long duration (especially when current fed interest rate is zero) is well known to be risky by anyone who has a cursory understanding of the matter.

For the SVB bank run, the main loser is the bank, who isn't party to this game (of whether to keep deposits or not). Even if everyone defected, the early defectors don't lose anything. And arguably, it can be foreseen that even late defectors don't lose anything either due to SVB marginally in the "too big to fail" category, or at least, the startup ecosystem being "too important to fail".

It was in their best interest to cooperate to not run on their bank, and they failed to do so, which in turn brought down SVB, risks bringing down other regional banks in a domino-like fashion, and has already resulted in government bailouts that have made people outside of the SV bubble hate them even more than they already did.

Furthermore, the supposedly "evil" big banks, as I've repeatedly noted, have shown a comparatively greater ability to cooperate for the greater good of their industry and the wider economy, which is embarrassing given how these VCs posture.

As for moral hazard, past bonuses for executives including the past Chief Risk Officer who left a year ago and cashed in her chips can and should be clawed back.

There hasn't been a buyer yet, which indicates the perhaps the assets aren't that great.

Banks are just picky, because they can be (and because regulation makes it hard to have a boring bank, so there's no competition). Because banks still don't understand the business they are in (because they can be dumb, because regulation, etc), as the Hashicorp story illustrates.

People want dumb banks, but banks make money buy upselling shit to people. So banks are basically evil MLM machines instead of trusted/trustable financial partners for people. (Because the people who actually need financial support will get taken advantage of in less time than it takes me to type this. And those who don't need it are constantly annoyed by the scam machine. Rightfully.)

And, ridiculously, Chase spent time and effort educating tellers in case the next startup ends up opening an account at them ... instead of making sure that they provide a good service so that founders choose them.

And that story is perfect. Everything went as expected. Nobody bothered the startup. Yes, closing the account was harder than imagined, because they were impatient, still they got it done in 2 days.

There is a clip I saw on twitter as this was happening of Jason Calacanis bragging insufferably about his special treatment from SVB in obtaining quick and favorable terms for a private mortgage, likely thanks to the amount of business he and other investors brought the bank.

So no, I reject your claim that the same people that would design Class A shares to be inferior to Class B shares, then say “no takesy backseys!” when executing a hostile takeover of your company are not at fault here.

How can a discipline that prides itself in superior networking ability, information gathering, and prudent decision making not be at fault for pooling a stupid amount of wealth in the first bank to go broke post COVID bubble?

This is not a prisoner's dilemma because there is no hope for the success case. The prisoner cooperates or not, and either way they go to jail. The only rational action is for all participants to not participate.

If you have a point to make, now is the time to do it...