1) Anyone confidently saying there is zero risk of contagion from SVB should read the “Panic of 1907.”
Especially with Treasury saying they are carefully monitoring “several other banks.”
Contagion is a real risk.
Especially with Treasury saying they are carefully monitoring “several other banks.”
Contagion is a real risk.
2) Separately, risks to the VC ecosystem are reasonably contained.
Even absent a depositor bailout and/or acquisition, recoveries for uninsured deposits should be comfortably above 80% with some % paid out promptly and good VCs likely to supply any necessary interim cash.
Even absent a depositor bailout and/or acquisition, recoveries for uninsured deposits should be comfortably above 80% with some % paid out promptly and good VCs likely to supply any necessary interim cash.
3) So risk to venture ecosystem is not a reason for a bailout of any kind.
A run on other regional banks is the risk that actually matters.
And it’s not an easy decision for regulators - well encapsulated in this thoughtful thread from @BobEUnlimited
A run on other regional banks is the risk that actually matters.
And it’s not an easy decision for regulators - well encapsulated in this thoughtful thread from @BobEUnlimited
4) Many investment firms (PE, VC & public equity) are recommending and/or mandating that portfolio co’s move deposits from regional banks to large money center banks that are “too big to fail.”
Same dynamic happening on social media.
That is how the run starts.
Risk is real.
Same dynamic happening on social media.
That is how the run starts.
Risk is real.
5) I thought @biancoresearch made a good point on how bank runs are more likely in todays lower friction, digitized banking world with social media amplifying fears.
Point is that the risk is real even w/o investment firms recommending moving deposits out of regional banks.
Point is that the risk is real even w/o investment firms recommending moving deposits out of regional banks.
6) Acquisition is best outcome, but the way the regulators treated JPM and BofA after they acquired Bear Stearns/WaMu and Countrywide/Merrill makes this harder without gov guarantees.
Still strange to me that the regulators punished JPM/BofA for doing them a favor during GFC.
Still strange to me that the regulators punished JPM/BofA for doing them a favor during GFC.
7) If the just announced FDIC auction leads to a larger bank acquiring SVB without any government guarantees, great.
But if it does not, then I believe depositors should be protected as this will facilitate an acquisition.
Obviously not an easy trade-off vs moral hazard.
But if it does not, then I believe depositors should be protected as this will facilitate an acquisition.
Obviously not an easy trade-off vs moral hazard.
8) If this auction doesn’t lead to an acquisition and uninsured deposits aren’t protected, I think we have a real crisis and there are better ways to get to a highly consolidated banking system if that is the regulatory goal.
9) Only protecting deposits with all other SVB creditors going to zero (equity obviously a zero) is a reasonable compromise.
Yes, there was a credible short case, but this was a top-20 bank meeting regulatory requirements.
Yes, there was a credible short case, but this was a top-20 bank meeting regulatory requirements.
10) So choices if auction fails are to explicitly protect uninsured deposits to facilitate an acq OR risk a bank run and a real crisis that ends with a consolidated banking system of 5-10 large money center banks with implicit protection for uninsured deposits via TBTF status.
11) There may be a bank run even if this acquisition goes through without guarantees.
The train has left the station on deposit risk at regional banks.
Explicit guarantees for uninsured deposits with even tighter regulations in the future may be the only way to stop a run.
The train has left the station on deposit risk at regional banks.
Explicit guarantees for uninsured deposits with even tighter regulations in the future may be the only way to stop a run.
12) Strange that in a prior life, my benchmark had 100s of regional banks in it with SVB one of the biggest.
And all of this takes me back to the 100s and maybe 1000s of hours I spent meeting with bank CEOs/CFOs from 2008-2012.
History doesn’t repeat, but it sure does rhyme.
And all of this takes me back to the 100s and maybe 1000s of hours I spent meeting with bank CEOs/CFOs from 2008-2012.
History doesn’t repeat, but it sure does rhyme.
13) Out just a few minutes ago:
washingtonpost.com
washingtonpost.com
14) And this. I promise they care what he thinks.
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