Matt Levine at Bloomberg also has good comments on this—basically it was a boring bank run/collapse. With it being primarily a duration issue (rather than an impaired assets issue) and a large amount of deposits, I also suspect we’ll see an acquisition.
Despite being a near-religious Levine reader, I somehow missed Friday’s post and wrote this post without it. (In my defense, he said on Thursday that he’d be off Friday, then came back to talk about SVB.)
Anyway, Matt has a good phrasing of the unusual weirdness in SVB’s assets, for a bank:
Or, to put it in different crude terms, in traditional banking, you make your money in part by taking credit risk: You get to know your customers, you try to get good at knowing which of them will be able to pay back loans, and then you make loans to those good customers. In the Bank of Startups, in 2021, you couldn’t really make money by taking credit risk: Your customers just didn’t need enough credit to give you the credit risk that you needed to make money on all those deposits. So you had to make your money by taking interest-rate risk: Instead of making loans to risky corporate borrowers, you bought long-term bonds backed by the US government.
One point that’s not often (enough) made is that liquidity crises and insolvency are more similar than they are different. They’re distinguished by duration and certainty. If the value loss is KNOWN to be temporary, because the long-term securities are truly safe, and “temporary” is on the order of a few months to maybe a year (again, with guarantees of payout), then it’s liquidity. If it’s longer-term than that, or there’s a real chance that it’ll NEVER pay out in full, it’s solvency.
Matt Levine at Bloomberg also has good comments on this—basically it was a boring bank run/collapse. With it being primarily a duration issue (rather than an impaired assets issue) and a large amount of deposits, I also suspect we’ll see an acquisition.
Check the date on this too.
https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run is the Levine article for anyone else interested in it.
Despite being a near-religious Levine reader, I somehow missed Friday’s post and wrote this post without it. (In my defense, he said on Thursday that he’d be off Friday, then came back to talk about SVB.)
Anyway, Matt has a good phrasing of the unusual weirdness in SVB’s assets, for a bank:
I second the recommendation of reading Matt Levine. https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthew-s-levine . Bloomburg subscription required to see back-issues, but you can subscribe to future ones for free.
One point that’s not often (enough) made is that liquidity crises and insolvency are more similar than they are different. They’re distinguished by duration and certainty. If the value loss is KNOWN to be temporary, because the long-term securities are truly safe, and “temporary” is on the order of a few months to maybe a year (again, with guarantees of payout), then it’s liquidity. If it’s longer-term than that, or there’s a real chance that it’ll NEVER pay out in full, it’s solvency.