Silicon Valley Bank Collapses

[Rick Law]

This info is not exactly about technology, but I think knowing it is beneficial to a tech person.

Silicon Valley Bank (SVB) has collapsed and as of Friday, it is shutdown and taken over by regulators.  SVB has been in business for 40+ years funding technology startups and being the banker for many firms in the Silicon Valley area.

For example: Ruko just filed with regulators that they have about $1.9b cash but at this time uncertain the exact amount they have in SVB account(s).  Rumor (unconfirmed reports from CNN, Hollywood Reporters...)  has it that Ruko has about 1/4 of its asset in SVB account.  It is unknown if any of it will be recoverable and if so, when?  For sure Ruko is not the only tech/media firm to be caught in that mess.

SVB like most banks in the USA is covered by FDIC insurance.  But it is only $250K per account.  For many tech firms, $250K is not even a day's operational expenditure.

Expect some or perhaps plenty of smell all over the valley now that the stuff hit the fan...  Closures, layoffs, what not.

Do you have an order with a company located in Silicon Valley or banking at SVB?  If so, perhaps look again before you send a purchase order or a payment for yet-to-arrive items...

[Rick Law]

good luck figuring out what bank a company uses without asking them.

If you have money in SVB, it is too late -- doors already lock.  If you are merely planning on ordering, just wait a couple of weeks after the dust clears if you can.

Not sure about SVB, but when I had my already-cashed checks back each month, the receive bank name is stamped on the back.  "Had" because now I moved to accounts that doesn't send me my cashed checks.  But even without image, when I had a service provide claiming non-payment but my check was cashed.  Tracing the check with my bank, my bank was able to tell me exact date and bank it was deposited to.

So if your supplier can't tell you and you have used them before (prior payments occurred), check with your own bank.

EDIT: adding this below:

At the very least, if you know you are ordering something from a valley company, alert your procurement department in writing.  It is far less trouble writing an email to purchasing than explaining to your boss afterward that the $100K or whatever you asked purchasing to send when into the abyss.

[jonpaul]

1/ never have over THE FDIC limit total, in any bank per person/SS number

2/ check list of 20 most at risk US banks

3/ pay invoice, vendors after goods are,recieved

Jon

[bdunham7]

I'd wait until Monday evening to panic, but I suppose not completing any orders for a day won't hurt.  The Fed is having an emergency meeting Monday.  That's a mistake, they should be having it tomorrow (Sunday).  Lots of banks don't have the issue that SVB did but are still vulnerable to runs if something doesn't change quickly.

And look for immediate layoffs next week if the bank isn't acquired--and it may not be.  Usually they line that up ahead of time, but this is a WaMu level event that happened suddenly and was not initiated by the FDIC, so perhaps they're still trying.

Anyone here affected by this?  I'm guessing so...

[jonovid]

news just in- Silicon Valley venture capital loss
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 Silicon Valley bank runs
https://www.forbes.com/sites/qai/2023/03/12/investors-wiped-out-as-bank-run-causes-collapse-of-silicon-valley-bank/?sh=1707ed63e95c

https://www.wsj.com/articles/investors-startups-work-to-find-cash-lifelines-after-silicon-valley-bank-collapse-1b7c9ceb
is this the 2008 financial crisis part 2?

[SiliconWizard]

Uh, the new financial crisis has been going on for a good while now. It's just handled in a different way so that impacted people tend to suffer just as much, but they are told to look elsewhere.
Just a thought.

[coppice]

I found it interesting that so many companies in one area had a large part of their cash holdings in the same place. Don't these people know what SPOF means?

[nctnico]

I found it interesting that so many companies in one area had a large part of their cash holdings in the same place. Don't these people know what SPOF means?

I agree. Even a Dutch company had tens of millions of pounds and dollars at that bank. If you do business like that, you'd at least choose a big bank that is financially healthy. But maybe the beancounters thought it was a better idea to choose a small bank with lower costs over financial security... Penny wise, pound foolish.

[coppice]

Uh, the new financial crisis has been going on for a good while now. It's just handled in a different way so that impacted people tend to suffer just as much, but they are told to look elsewhere.
Just a thought.

Its not really a new financial crisis. They never really dealt with the old one. That band aid is just starting to fall off.

I was amused to see that SVB was one of the key lobbiers who successfully loosened bank regulation in 2016. They said they were super safe under the existing regime, and things didn't need to be so tightly regulated.

[coppice]

I found it interesting that so many companies in one area had a large part of their cash holdings in the same place. Don't these people know what SPOF means?

I agree. Even a Dutch company had tens of millions of pounds and dollars at that bank. If you do business like that, you'd at least choose a big bank that is financially healthy. But maybe the beancounters thought it was a better idea to choose a small bank with lower costs over financial security... Penny wise, pound foolish.

It wasn't small. $175B in assets is pretty big by most standards.

[TimFox]

Side bit of amusement:
A big problem with this bank failure is that most of the deposits were commercial, rather than personal.
In the US, bank deposits are guaranteed up to $250 k USD per depositor (joint account), but the commercial accounts were much, much larger.
Many companies have been caught short, and will have difficulty making payroll while their accounts are frozen.
That's not funny, but the US newspapers discussed the related closure of this bank in the UK, and reported the legal limit there as "$204,544", a rather precise value, which I assume is really 170 k GBP (for a joint account)?
This reminds me of when banks were robbed the old-fashioned way:  an American newspaper would report a robbery in UK as being "$2,350,000", because the UK police had reported "about a million pounds".

[bdunham7]

I agree. Even a Dutch company had tens of millions of pounds and dollars at that bank. If you do business like that, you'd at least choose a big bank that is financially healthy. But maybe the beancounters thought it was a better idea to choose a small bank with lower costs over financial security... Penny wise, pound foolish.

SVB was 1/3 to 1/2 the size of Credit Suisse (IOW huge, just not JP Morgan huge) and up until last Wednesday it had top grades for capitilization and overall soundness according the the first level of metrics currently in use.  You have to dig a little to see what the problem was, although now that everyone is talking about it I'm sure it will be claimed that it should have been obvious.

[tom66]

Uh, the new financial crisis has been going on for a good while now. It's just handled in a different way so that impacted people tend to suffer just as much, but they are told to look elsewhere.
Just a thought.

Its not really a new financial crisis. They never really dealt with the old one. That band aid is just starting to fall off.

It's a really weird financial "crisis" though, if you think about it:

- Record high employment / low unemployment
- Some companies are laying off but net employment increasing and time to fill a vacancy climbing, with the effect that salaries (at least for joiners) are being pushed up
- Productivity staying broadly similar per worker
- Inflation biting everyone but spending still remaining pretty solid in discretionary sectors
- Property prices and stock market still staying reasonably steady (a 'slump' but not a 'collapse')

IMO we are seeing the impact more from Covid/Ukraine than the after effects of QE.  It just happened that the economy was such a feather touch due to a decade of QE that when an actual crisis did happen, banks had no where to go.  They couldn't really increase money supply more than they already had and ECB were worried higher interest rates would kill off weaker economies.

The US Fed has done well being that they started relatively high (peak of 2.5% lending rate pre-Covid) so returning to that baseline and going a bit beyond it was not a dangerous from a monetary policy perspective.  The Bank of England on the other hand has had a real battle against politicians convincing them that 0.5% lending in an inflationary crisis is a bad move.

[SiliconWizard]

Uh, the new financial crisis has been going on for a good while now. It's just handled in a different way so that impacted people tend to suffer just as much, but they are told to look elsewhere.
Just a thought.

Its not really a new financial crisis. They never really dealt with the old one. That band aid is just starting to fall off.

True, same causes and nothing fundamental was done to address it.
I call it "new" in the sense that this time, most people don't seem to realize it's ungoing.

[EEVblog]

MOD: Two different threads merged

[EEVblog]

Reports that :

SVB did not have a chief risk officer for most of 2022 
And the new Chief Risk Officer was Managing Director at Deutsche Bank during 2008 AND led credit ratings in 2007
And Twitter is abuzz about her focussing on DEI initiatives instead of risk.
And SVB's Chief Administrative Officer was CFO of Lehman Brothers' Investment Bank when it collapsed.

Many people are going to get pushed under the bus today!

[EEVblog]

Side bit of amusement:
A big problem with this bank failure is that most of the deposits were commercial, rather than personal.
In the US, bank deposits are guaranteed up to $250 k USD per depositor (joint account), but the commercial accounts were much, much larger.

Official reports that something like 95%+ of accounts were not covered under FDIC insurance. i.e. greater than $250k.

[themadhippy]

Even a Dutch company had tens of millions of pounds and dollars at that bank. If you do business like that, you'd at least choose a big bank that is financially healthy

what like an icelandic bank?

[coppice]

That's not funny, but the US newspapers discussed the related closure of this bank in the UK, and reported the legal limit there as "$204,544", a rather precise value, which I assume is really 170 k GBP (for a joint account)?

I think it used to be 85k for a single, or 170k for a joint account. It has been reduced to 75k for a single account, but its also mixed in with some bail in legislation that might make even that protection meaningless.

[SiliconWizard]

Anyway, it's not the first bank that has collapsed and my little finger is telling me that it's not going to be the last one.

[tom66]

That's not funny, but the US newspapers discussed the related closure of this bank in the UK, and reported the legal limit there as "$204,544", a rather precise value, which I assume is really 170 k GBP (for a joint account)?

I think it used to be 85k for a single, or 170k for a joint account. It has been reduced to 75k for a single account, but its also mixed in with some bail in legislation that might make even that protection meaningless.

No, it's still £85,000 per person per banking licence.  £170k for joint, and protection up to £1m for balances up to 6 months in certain circumstances, e.g. sale of a house or inheritance funds.  https://www.fscs.org.uk/what-we-cover/

The reality is that if a bank did fail in the UK it's very likely the full amount would be covered because it would massively hammer confidence in the banking system if this did not occur.

[bdunham7]

Official reports that something like 95%+ of accounts were not covered under FDIC insurance. i.e. greater than $250k.

By my calculations, ~86% of overall deposits were uninsured.  For all the details, I've attached their Dec 2022 call report.  The information on why they failed (off balance-sheet losses wiped out capital reserve) is on forms RC and RC-B and the info on uninsured deposits is on form RC-O.  They had $151B in uninsured out of a total of $175B.

[EEVblog]

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How is Patreon involved?

[coppice]

That's not funny, but the US newspapers discussed the related closure of this bank in the UK, and reported the legal limit there as "$204,544", a rather precise value, which I assume is really 170 k GBP (for a joint account)?

I think it used to be 85k for a single, or 170k for a joint account. It has been reduced to 75k for a single account, but its also mixed in with some bail in legislation that might make even that protection meaningless.

No, it's still £85,000 per person per banking licence.  £170k for joint, and protection up to £1m for balances up to 6 months in certain circumstances, e.g. sale of a house or inheritance funds.  https://www.fscs.org.uk/what-we-cover/

The reality is that if a bank did fail in the UK it's very likely the full amount would be covered because it would massively hammer confidence in the banking system if this did not occur.

Watch out for that bail in legislation. There are some interesting conditions which have been added to bank conditions in the last 3 or 4 years. Things like them reserving the right to refuse deposits. So far they don't seem to have given any indication about the scale of balance they are likely to refuse.

I suspect that if one of the big UK banks had any serious trouble, it would be the end of London as a major financial centre, and perhaps the UK. The government had issues coping with RBS last time. Another of the big banks being in trouble, when the government's own borrowing status is not in great shape, is probably something they just couldn't cope with.

[coppice]

news just in- Silicon Valley venture capital loss
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How is Patreon involved?

Who do (did) they bank with?