When is a depositor not just a depositor
There’s still a story to tell for SVB and it has everything to do with why the king shot the golden goose.
As mentioned, SVB was a dream financial instrument for startups and it makes no sense why they would kill it overnight. It’s either extreme stupidity from the herd mentality of investors or there’s something much more in the deadly undercurrents of recent money movements of the past 2 years.
Either way, it will be a bomb of a story that’s yet to come to light.
excellent write up. prob my fav one on svb ty 🙏
Great article, as always, but there's one important piece that I fundamentally disagree with:
"There are just so many self-reinforcing variables at the micro and macro level that enriched SVB depositors in ways community or regional banks could never dream of."
Community and regional banks could absolutely dream of it, because the way SVB worked is based on the template established by those very same community and regional banks, even if it took it to new heights thanks to the general exponential magnification that happens around startups.
Historically, community and regional banks DID offer bigger loans with better terms to locals, resident and business alike. They DID invest in local infrastructure and business. And they DID do a lot of underwriting based on reputation and familiarity. A small-town Chevrolet dealer could go to their small-town bank and get a floor loan and a low-interest mortgage because he was a fixture of the community, and in exchange he did all of his banking with them and gave them priority when making car loan offers to customers. These were exactly the same kinds of self-reinforcing structures as set up by SVB, only their "community" was an ideological one rather than based on location.
And it was the loss of those community relationships that both destroyed so many community and regional banks AND so many small communities. In a desire to "modernize," local institutions tried to compete on metrics and efficiencies and processes, they killed off these community structures, only to realize too late that the Local Bank of West Apalachia is never going to be able to build a risk model that returns better than the ones at Chase and BofA, which simultaneously drove away all of their existing business (why bother banking local if you're getting the same or worse rates as from a big bank that also offers other services) AND resulted in a series of massive crashes from poor risk modeling.
The lesson with SVB isn't that community banking is incestuous and should be distrusted. It's that community banking is the only way to compete with the big banks and win, so long as you don't fly too close to the sun.
“”Memestocks don’t happen without Robinhood, and the COVID-ZIRP manic tech boom doesn’t happen without SVB.
...... And the greatest irony of all is, it was the same depositors, who got disproportionately rich thanks to SVB and whose wealth was too much for SVB to handle, that brought down the bank by both withdrawing their own money and advising all their startups to as well."
what goes around comes around. just brilliant. summed it all up perfectly.
“why were the VC’s whipping everyone up into a frenzy?”
Could it be just as simple as ‘because they couldZ’
One of the clearest explanations of how SVB operated and what the ramifications of that can be.