I don’t think startups will have a harder time banking in the future.
This isn’t even the fault of startups. It’s a complete risk management mistake on the side of the bank. Buying 10 year low yield securities and not hedging them against rising rates.
Plenty of banks would love to have the deposits of startups and VCs.
I bet a bank like Mercury or some other ones will grow to take SVB’s place.
I think the attention is put on some, likely, bonds backfiring. Not going into questioning how a 20y old bank would buy very long bonds as historically lowest returns. There is even more likely some bad lending in there in the order of billions that either have or are going going to materialise as defaults. And that's plain'n simple having to wipe numbers from the books, and those books aren't going to look good.
Banks take deposits but also loan with a 10x or even more ratio. Not difficult to imagine a SV bank would have lended a lot of cash, with marginal interests that aren't covering the actual risk.
Only speculation on my part there but needs to see further unwinding to bring some clarity or where the hole mostly comes from.
Until then, the narrative sounds far better than pointing out a widespread bad credit issue that other banks are also going to face in the coming months.
> has nothing to do with the startups using the bank
The proximate cause is short-term funding from risky depositors, i.e. start-ups. The ultimate cause was insolvency. (Yes, not illiquidity, simple illiquidity is solved by the Fed’s discount window.)
> This isn’t even the fault of startups. It’s a complete risk management mistake on the side of the bank.
And those startups should have diversified their millions of VC cash to reduce their exposure and over-centralization on a single bank. In fact, they should not have been over-relying on VC cash in the first place. Now they will be getting $250k out of the millions of VC cash they chose to place in SVB.
The FDIC system working as intended once a bank goes under. No bailouts and no exceptions.
> I bet a bank like Mercury or some other ones will grow to take SVB’s place.
Mercury is not a bank. [0] It just works with other FDIC banks like Evolve Bank & Trust and CFG (Choice Financial Group).
In other thread someone wrote that VC made a contractual requirement that "their" startups use a particular bank. Perhaps due to lower fees for companies with same owners.
no. the problem with long term AAA securities was only 100B of their 200B book. the dead loans to startups are a much bigger problem and why nobody would buy them.
This isn’t even the fault of startups. It’s a complete risk management mistake on the side of the bank. Buying 10 year low yield securities and not hedging them against rising rates.
Plenty of banks would love to have the deposits of startups and VCs.
I bet a bank like Mercury or some other ones will grow to take SVB’s place.