Peter Thiel's Founders Fund pulled cash from SVB before collapse: Report

https://www.businessinsider.com/peter-thiel-founders-fund-pulled-cash-svb-before-collapse-report-2023-3

by windexh8er • 3 years ago

171 153 3 years ago

ttoinou• 3 years ago

Another proof how smart this guy is ? Or for those who hate him, he might be te reason of its collapse

fullshark• 3 years ago

It's both, also it's a sign of how this industry is full of followers, once word got out Thiel fled the bank the run started and it was over within what 30 hours?

kypro• 3 years ago

For the record I like Thiel but I don't think it's controversial to say that he was a large catalyst in SVBs demise.

It was probably also a smart move to remove the funds, but I'm not sure it was sensible for someone with his level of influence to encourage a bank run. Even if you believe a bank run is likely telling people to withdrawal their funds doesn't solve the problem that some people will be too late. If you want to help you should try to ease nerves if anything.

itsoktocry2• 3 years ago

If you want to help you should try to ease nerves if anything.

Why would Thiel want to "help"? The bank literally put customer's deposits at risk.

colechristensen• 3 years ago

No, this wasn’t just a liquidity problem, the bank was insolvent. The bank run was a result not a cause.

chank2• 3 years ago

Or did he have insider information that allowed him to act early?

mannerheim5• 3 years ago

https://twitter.com/RagingVentures/status/161582608803847373...

collegeburner5• 3 years ago

probably, he's well-connected. but withdrawing from a bank on insider info isn't illegal.

blincoln• 3 years ago

I'm not a Thiel fan, but I see no reason to suspect insider information. Their stock was already down Wednesday night. Articles about SVB's conference call started showing up almost immediately it happened mid-day on Thursday.[1] I'm not much of a finance person, but the SVB CEO's comments[2] set off alarm bells for me as soon as I saw them on Thursday.

Withdrawing their funds was the action that both short-term game theory and act-utilitarianism would point to,[3] so it seems like a no-brainer that Thiel would have his organization pull their funds immediately. If they saw transaction oddities as well, it's even more understandable.

[1] e.g. https://techcrunch.com/2023/03/09/silicon-valley-banks-share...

[2] "If everybody is telling each other that SVB is in trouble, that will be a challenge.", "stay calm. That’s my ask.", etc.

[3] I'm more of a rule-utilitarian/long view person myself, but it's a lot harder to use that approach in this kind of scenario.

MiscIdeaMaker992• 3 years ago

I think "lucky" is the better word here. He was lucky because he was able to get all of his money out of the bank while he could. Maybe he knew something was happening before others? Maybe he was just able to move faster? ¯\_(ツ)_/¯

Regardless, he definitely helped contribute to its collapse, as well as everyone else who took their money out of the bank during the run. To what degree is Peter Thiel responsible? I don't know and I don't think it really matters.

oatmeal1• 3 years ago

I'm guessing he has the contacts to be ahead on things like this. "Lucky" to have worked at Paypal to get him where he is.

macinjosh• 3 years ago

Maybe he pays attention or can afford to pay people to pay attention?

There were public discussions about the bank's issues months ago:

https://twitter.com/RagingVentures/status/161582608803847373...

seydor• 3 years ago

Thiel is lucky a lot

iakh• 3 years ago

Next story will be much more interesting about how he shorted SVB before he started a bank run.

cloudking• 3 years ago

https://www.bloomberg.com/news/articles/2023-03-09/founders-...

Advised his companies to withdraw on Thursday, bank shutdown on Friday

SkyPuncher2• 3 years ago

To be clear, most VCs advised the same. This was a massively-multiplay prisoners dilemma - with withdrawing your being the safest option.

Same thing happened at the start of the pandemic. Even if you thought the panic buying was overblown, you couldn't afford to be left with empty shelves if things got bad.

collegeburner5• 3 years ago

man just did another double on his roth IRA

bastardoperator• 3 years ago

Thank god we saved the billionaire...

paulgb7• 3 years ago

I’m worried about setting a precedent that the right thing to do is head to the exits the moment rumors start to circulate. It’s hard to argue now that that wasn’t the right move for any individual depositor in retrospect.

I can easily imagine this being weaponized by short sellers and foreign actors.

itsoktocry2• 3 years ago

I can easily imagine this being weaponized by short sellers and foreign actors.

Hate to break it to you, bank runs have been a thing for hundreds of years. This isn't new. You put your own money at risk by participating.

One of Elon's biggest achievements is normalizing demonizing "the shorts". In this case the Bank took took much risk and was insolvent; the shorts would be right.

warent• 3 years ago

demonizing short sellers is nonsense. They help markets correct and they lessen the damage of a crash by slowing the velocity of the drop

macintux• 3 years ago

Bank runs have been around, but social media and easy money transfers are much more recent.

The U.S. has two major foreign powers and a noisy subset of its own elite who would like to see economic chaos right now, and it's never been easier to do that.

paulgb7• 3 years ago

I worked for a long/short fund and am personally (and vocally[1]) short some names. I have nothing against short selling, it’s an important function of healthy markets.

To give you an example of what I'm worried about, our accountant cautioned all of their clients yesterday about keeping funds with another bank that has had rumors circulating about it, saying that regardless the truth of the rumors, the fact that they are circulating could cause a run. This is the right thing for them to do; their fiduciary duty is to us and not to the stability of the market, but in aggregate, it's easy to imagine how everyone's accountant sending the same message at the same time could be exploited by someone who wants to destroy a small bank.

[1] https://paulbutler.org/2022/the-problem-with-bitcoin-miners/

yieldcrv• 3 years ago

demonizing shorts has been a thing for ages too. just obscure.

frgtpsswrdlame• 3 years ago

You don't really need precedent, it's just the logical thing to do to get your money out when collapse seems possible. The prisoner's dilemma isn't a dilemma because of 'precedent' or because of arguments, it's just a structural fact.

JumpCrisscross3• 3 years ago

worried about setting a precedent that the right thing to do is head to the exits the moment rumors start to circulate

I’m surprised this is news so recently after a financial crisis. When the CEO of the bank starts pleading for deposits to stay, you wire out.

seanmcdirmid2• 3 years ago

Since when was that not a precedent? Hanging tough fails 9 times out of 10.

collegeburner5• 3 years ago

nope. nuh uh. wrong. the right thing for any individual to do in a potential bank run is always to withdraw. this is basic game theory. you expect someone to take a junk bond level of risk for 0.5% interest? miss me with that

there is one possible way to solve the coordination problem: just stop allowing withdrawals. the chinese figured this out. but you have to limit withdrawals on ALL banks because you bet your ass if one bank gets frozen, everyone will think another one is next and run that one too.

the only time we've rushed a serious contagion before was by instituting a bank holiday and basically putting in 100% deposit insurance. and that was when we had someone in charge whom most people trusted (FDR). biden, yellen, powell aren't so loved.

paulgb7• 3 years ago

Well yeah, everyone is a genius in retrospect. If you know it’s going to be a bank run, you get out. The problem is that by the time you know a bank run is happening it’s probably too late.

The logical conclusion of this thinking is a system where any rumor about any bank can cause a bank run, because people who take the time to figure out if the rumors are true lose out.

SkyPuncher2• 3 years ago

I believe SVB is going to be relatively unique. Their deposits were highly concentrated in startups. Startups receive funding from a highly concentrated number of funds. This ends up with an unusual concentration of influence and group-behavior.

A very interesting risk in hind-sight, but unlikely to be a wide-spread issue.

paulgb7• 3 years ago

I think you’re right from a rational, look-at-the-balance-sheet point of view, but I think that’s less important than it might seem. If people see other people heading to the exit, they don’t have time to look at the balance sheet, they join the stampede.

There’s already rumors going around about other banks, and even though I think SVB is a structural outlier, I would be moving money around if I were with them above the FDIC limit, even if I knew for a fact they were solvent.

JumpinJack_Cash• 3 years ago

> I can easily imagine this being weaponized by short sellers and foreign actors.

There is nothing to weaponize. If we taught the basics of finance everybody would know that the money you have in the bank is not yours but they are a IOU from the bank.

And if you wire them out to another account that you hold with another bank that is going to still be an IOU aelbit from a different bank.

The only true and true money guaranteed by the Federal Reserve is the Federal Reserve Note. All the rest is an IOU.

We accept to deal in IOUs because physical transportation, storage and protection of physical notes would be a nightmare, but still the nightmare can AND WILL show up for somebody randomly in the sample of participants in the form of insolvency of the banking institution issuing their IOUs.

It's all very clear and also the reason why some people refuse to deal with banks and opt for cash transactions and metals. Not to mention the hard assets such as water, gasoline, weapons, animals, vehicles, real estate etc.

These people seem loons 364 days out of 365, but there is a reason why evoloution put that seed thought inside their brains.

mmastrac• 3 years ago

Given the massive outflows and impact on the bank, I wonder if there will be some clawback from the government here.

Ekaros• 3 years ago

If special considerations is given to any depositors. I think it is reasonable to clawback any money withdrawn outside what could be considered normal operations in past week or fortnight.

JumpCrisscross3• 3 years ago

it is reasonable to clawback any money withdrawn outside what could be considered normal operations in past week or fortnight

There is no legal basis for this.

UncleEntity• 3 years ago

The government makes whole all deposits except the ones that were able to be withdrawn before they pulled the plug on the servers?

How’s that work?

leftcenterright• 3 years ago

Related discussion:

Peter Thiel’s fund wound down 8-year Bitcoin bet before market crash: https://news.ycombinator.com/item?id=34444980

penguin_booze• 3 years ago

I recall seeing that title at the time. I wonder how their "foresight" works so effectively, "stepping in" just before an adverse incident happens. Is it superior acumen, or insider information?

moomoo112• 3 years ago

It’s self interest pursuit at all costs.

It’s his and his followers core beliefs to always do everything out of self interest. Always.

hoofhearted4• 3 years ago

I recently listened to an episode of the How I Built This podcast with one of the members of the PayPal mafia.

He mentioned that one of Peter Thiels greatest abilities is to spot and predict upcoming economic declines. Max Levchin said that Peter seemed to always know when to get in and out of markets.

https://podcasts.apple.com/us/podcast/how-i-built-this-with-...

chegra• 3 years ago

I recall reading in "Wanting" by Luke Burgis that he was a follower of Rene Girard. "Thiel left the corporate world and co-founded Confinity with Max Levchin in 1998. He began to use his knowledge of mimetic theory to help him manage both the business and his life. "

"When there was risk of an all-out war with Elon Musk’s rival company, X.com, Thiel merged with him to form PayPal. He knew from Girard that when two people (or two companies) take each other as mimetic models, they enter into a rivalry for which there is no end but destruction—unless they are somehow able to see beyond the rivalry."[1]

Maybe he has found a way to identify when things will self-destruct based off of mimetic theory.

[1] I did a summary of the book here : https://www.chestergrant.com/summary-wanting-by-luke-burgis

sidibe3• 3 years ago

His foresightful actions are the triggers of the adverse incidents so of course the timing is perfect.

joseftexas• 3 years ago

There is nothing lucky about his pull. When you are super rich you get access to highly restricted network. You will know people and have access to them directly that ordinary peasants like us cant. He most likely have been warned months ago. And his own ai tech can piece together how reliable his warnings are.

mannerheim5• 3 years ago

There were newsletters saying SVB was insolvent in January.

ayewo2• 3 years ago

Do you have any links handy?

kkielhofner2• 3 years ago

Yet Thiel took no action until Thursday.

Find me a potential scenario and I'll find a random newsletter or tweet thread predicting it.

Things like this remind me of the hindsight lens of many conspiracy theorists ("We're wrong 99/100 but look at this one we got right") or even people (mostly playfully) saying things like "The Simpsons predicted 9/11".

To say that the average startup founder/team should have taken action based on a random newsletter or tweet thread predicting this (storied 40 year old bank failing) in January is pretty absurd.

edem• 3 years ago

Which ones?

pfannkuchen3• 3 years ago

I'm a bit confused by some of the discussion here. Many people talk as if there was factually no underlying issue with the bank, and the run was caused purely by panic. For that to be true though, I think the rationale presented alongside the urging to pull out would need to have been fabricated, or "mistaken". But I haven't seen anyone explicitly claim that. Am I missing something? Is there just a lack of general understanding of the prisoner's dilemma?

metalspot4• 3 years ago

there is a very concerted pr effort to spin it that way, and people regurgitate pr memes.

the underlying issue was that SVB knew they were f'd and so they were begging VCs to stop taking money out because they knew they couldnt cover and those VCs turned around and pulled money faster, because that is what smart money does.

SVBs bargaining chip was that the VCs wouldnt want the books being opened, which is what happens when the fed takes over, but the VCs called their bluff, because they figured they were well enough insulated from any potential fall out.

this is america, so we have the keating S&L scandal, ltcm, enron, worldcom, countrywide financial, 2008. the game never stops.

dataangel• 3 years ago

This is the only place I've read the idea of SVB hoping VCs wouldn't want their books opened. Is it common when the FDIC comes in for them to be auditing for criminal behavior and not just looking at what balances are so they know how much money to give each account? Is there precedent?

toss15• 3 years ago

There are many situations where a bank is literally solvent, but cannot survive the liquidity crunch of a bank run.

In fact, it's probably true of pretty much every bank every day, since this is partial-reserve banking. If everyone wants their money back, NOW, the bank doesn't have it, but in normal banking, the institutions can be stable for centuries.

SVB put themselves in a somewhat bad situation by heavily concentrating the high levels of deposits in 2019-2021 in long-term treasury bonds (which would not have been permitted had not the previous administration not rolled back Dodd-Frank regulations, in no small part due to the lobbying of SVB's CEO).

So to service the net withdrawals that started earlier this year (lower levels of VC investment and higher expenses in the concentrated startup community SVB served), after the big interest rate increases, they had to start cashing out their T-Bonds at ~80% of face value. This lead to need to raise new capital, which reduced confidence in the bank...

Had everyone, including Thiel, stayed calm instead of Thiel yelling "FIRE!!", it is entirely likely that it could have been at least calmly wound down or sold.

It's kind of like crossing thin ice. If you can keep your weight spread over enough surface area with no mis-steps, you can get across just fine. But if you take one wrong step focusing the pressure at one spot, you are now in the freezing water with a life expectancy of minutes if you are helped.

oarabbus_• 3 years ago

SVB put themselves in a somewhat bad situation by heavily concentrating the high levels of deposits in 2019-2021 in long-term treasury bonds (which would not have been permitted had not the previous administration not rolled back Dodd-Frank regulations, in no small part due to the lobbying of SVB's CEO).

And they put even more into 30-year mortgage backed securities. Bonds are normally purchased across a mix of maturities by banks. It's strange how everyone is absolving them for the mistake of holding almost no 1-2 year bonds and instead blaming VCs for pulling out.

To be explicitly clear: it's the responsibility of the bank to maintain their own liquidity (just like the borrower needs to do the same with their loan repayments), and putting $100B (33%+) of assets into 10-30Y securities was highly irresponsible and poor risk management.

pfannkuchen3• 3 years ago

Had everyone, including Thiel, stayed calm

This is the prisoner's dilemma, though. Unless there is sufficient, government-esque coordination across VCs (and founders, etc) to force everyone to remain calm, no individual can rely on the others remaining calm, and they are all in a position to individually lose if they remain calm while others do not.

If anything I think it would be extremely spooky if that level of coordination did exist across VCs. The lack of strong coordination this has demonstrated is almost heart warming, in a way (if you like free markets).

gruez9• 3 years ago

Had everyone, including Thiel, stayed calm instead of Thiel yelling "FIRE!!", it is entirely likely that it could have been at least calmly wound down or sold.

But in this case the assets (at present market value) are literally worth less than the deposits. Yelling "FIRE" seems totally justified in this case.

ars3• 3 years ago

There are many situations where a bank is literally solvent, but cannot survive the liquidity crunch of a bank run.

That simply isn't true.

One of the functions of the Fed is to lend money in situations like that.

If the bank has illiquid assets they can borrow whatever they need.

reb2• 3 years ago

Is that how people are talking about it? At this point the thread of most conversations here seems to follow this pattern: lots of deposits > overallocated to interest-rate-sensitive long-term bonds > short-term withdrawal pressure forces SVB to sell assets at a loss and then attempt to sell itself > Thiel urges pawns to pull based on that knowledge (and possibly more) > word gets out, wider bank run > FDIC takeover. A potential issue become a concrete issue through panic.

The rationale presented alongside the urging to pull out doesn’t have to be fabricated, just hypothetical. That the risk become real as a consequence of being suggested is potentially interesting, but ya know.

zhte415• 3 years ago

Another way of dealing with a run would have been to simply replace the funding through interbank lending:

Take a deposit from another bank to offset the deposits being withdrawn. Through funds or repo. If it was a short term funding issue, this is normal (at a system level, interbank lending always balances, just an accounting identity). But that wasn't done. Whether that's because other banks were unwilling to step in may be interesting to see.

pfannkuchen3• 3 years ago

the urging to pull out doesn’t have to be fabricated, just hypothetical

Isn't any identification of a run risk hypothetical? I think the question is whether it was a reasonable concern or not. If it was a reasonable concern, then the run is simply rational behavior for an uncoordinated group. If it was not a reasonable concern, then the run was irrational and panic driven. My issue with it being an unreasonable concern is that I haven't seen anyone claim this explicitly or provide a rationale. If anyone has a rationale for how it was an unreasonable concern, I am interested..

snapplebobapple3• 3 years ago

I think the understanding issue is that all banks are basically insolvent by design under any situation that differs from normal because the business model is to take in customer funds and then deploy them (lend them for mortgages, but mortgage backed securities and other bonds, buy stock, make loans, etc) and that will always involve a duration mismatch given that those customer funds can all be withdrawn on demand and whatever you deployed those customer funds into will not be able to be withdrawn on demand (and may have a multi year withdrawal limitation).

How this is managed is by making sure you have enough capital on hand or in assets you can liquidate immediately to cover customer withdrawals, which wasn't possible for SVB because 20-30% of their total customer deposits were leaving each day by the end. In that regard it is true that the bank run caused the failure. However, what caused the desire to get out is bad management at the bank and unrealized losses because the bank had a large portfolio of mortgage backed securities they weren't required to mark to market (thanks dumb regulators) and the loss on them from the sudden increase in interest rates was large. In addition they had a very large portfolio of loans to startups that were questionable given the massive shift in that market so there really is a big question mark on how many billions that portfolio would be down which makes it really questionable whether the bank was actually solvent or not and that drove the panic to get out.

So the correct answer here is the regulators screwed up allowing losses to not be marked to market, the bank management screwed up exposing themselves to a very risky duration mismatch and very risk asset mix and when the bank customers figured it out they caused the bank to officially fail by trying to protect their assets by moving them elsewhere.

ericpauley• 3 years ago

This isn’t true at an individual bank level. See the related post on JPM’s report. Systemically important banks need to mark to market regularly, and are still well capitalized after accounting for unrealized losses.

JumpCrisscross3• 3 years ago

by making sure you have enough capital on hand or in assets you can liquidate immediately to cover customer withdrawals

Also by using the Fed’s discount window. If you’re illiquid, and not insolvent, you borrow from the Fed. If your assets are worth less than your liabilities, you’re insolvent, and the FDIC takes charge.

machina_ex_deus2• 3 years ago

The regulators literally increased the limit required as a response to the lobbying of this specific bank.

It's not "dumb regulators". The regulators didn't "screw up".

The government isn't coming to save you and you shouldn't expect it to, because it's literally controlled by the same griefters who have learned to perfect the art of milking money from everyone by taking innocent people hostage.

Let them blow the hostages. Or get more hostage situations. I'm all in favor of letting them blow the hostages this time. The good startups will be forced to dilute the corrupt VCs who pointed them towards SVB, and raise money elsewhere. The bad startups should just fall.

HDThoreaun• 3 years ago

No, all banks are illiquid by design, not insolvent. Sure the banks don't have cash in the vault to cover all deposits, but the mark to market value of their assets should be greater than liabilities which makes them solvent. SVB was insolvent due to the interest rates increasing since they bought their mbs's.

zainhoda2• 3 years ago

Even for insolvent banks, a bank run is typically rare or if it happens, is a very slow-moving event because of FDIC insurance.

The difference here is that SVB’s customers did not understand proper corporate cash management practices and had deposits far in excess of FDIC insurance. So from a game theoretic perspective if you hear a whiff of insolvency then you want to pull your cash as fast as possible.

This is on startup CEOs as much as it is on SVB.

lamontcg• 3 years ago

I think the understanding issue is that all banks are basically insolvent by design

Banks are not balance sheet insolvent at all.

The problem is that their liabilities are deposits which are very short term and depositors can show up and demand money, while their assets are loan paper which is typically very long term.

They can become cash insolvent fairly quickly during a run, that doesn't mean that they are "insolvent by design" though.

However, what caused the desire to get out is bad management at the bank and unrealized losses because the bank had a large portfolio of mortgage backed securities they weren't required to mark to market (thanks dumb regulators)

Rather the inverse. If they had been able to hold their securities to maturity then they would have been fine. The problem is that the drawdown in deposits forced them to sell securities and inherently mark them to market, which made them balance sheet insolvent.

If regulators forced them to market to market that would have just created more panic, that isn't really a solution.

What they needed was to stress test their portfolio back in 2021 when they were buying mortgages against a 6% federal funds rate, and avoid buying so much in order to not have so much interest rate exposure. In 2021 that would probably have been considered laughable.

rewgs• 3 years ago

Is there just a lack of general understanding of the prisoner's dilemma?

The answer to this question is a resounding "yes." As far as I can tell, the prisoner's dilemma, as well as a wide-spread ignorance of it, can pretty much explain the totality of human behavior.

bobleeswagger• 3 years ago

Many people talk as if there was factually no underlying issue with the bank

These people are led by propaganda. Modern banking is evil and the fact we put up with "losing lotteries" like this is so despicable.

stephen_g• 3 years ago

There were definitely issues with SVB. They reportedly didn’t hedge at all against interest rate rises. That didn’t present a big issue until this year… Also apparently they had an unusually huge amount of deposits backed by mortgage-backed securities.

This is potentially going to be a problem for other banks (although SVB seems to have been unusually susceptible), as when interest rates are so high but banks can’t afford to pay anything like that on deposits (because all their loan book and much of their bonds is at lower rates), there will be a lot of cash flowing out of banks into treasuries…

jalapenos• 3 years ago

Unfortunately, this is a universal phenomenon. Bank runs are always blamed on the runners, not on those that precipitated the runs.

It's part of a general sliminess that is and always will be a part of corporate finance, and that sounds quite reminiscent of narcissism: when we're doing good, it's because we're super smart, innovative, good, and hard working (oh and that means we should keep all the rewards); and when we're doing bad, it's because other bad and silly people have done it to us, we did nothing wrong and are blameless, and we're the victims (oh and that means we should be bailed out at everyone else's expense).

Never forget 2008. None of them have paid for it yet.

And by the way, without commenting either way on their politics, a handy trick anyone can use to determine if a behaviour is narcissistic, is to ask "if this position came from the mouth of Trump or Trudeau, would it sound like them?".

tempsy2• 3 years ago

if you’re an influential figure your words alone can trigger a bank run that wouldn’t have happened if you said nothing

Imo the question isn’t whether Thiel privately emailed founders advising them to pull money but whether they made a decision to leak their advice to the press to incite broader panic (eg how did Thiel’s advice make it into the headlines to begin with? who tipped off reporters?)

There is plenty of evidence that Founders Fund wanted to fan the flames: a Founders Fund partner literally published a “some VCs are saying to pull money out” the night before. Not sure how anyone can read this and think there was no intent to broadcast panic.

https://www.piratewires.com/p/some-vcs-advising-founders-to-...

ars3• 3 years ago

A bank run is basically impossible in a solvent bank.

They could borrow as much funds as they need from the Fed or other banks as long as they have assets to cover it.

The issue here is not a bank run it was simply that they were insolvent.

tripletao4• 3 years ago

It has aspects of a prisoner's dilemma either way, but what happened to the SVB is indeed different from the classic "It's a Wonderful Life" style bank run.

In "It's a Wonderful Life", the bank has the money, but not right now. If the depositors all wait, then they'll all get their money. If they do a bank run, then the first movers get their money, and the rest get left with nothing, as good assets get liquidated at heavy discounts in a fire sale. So compared to waiting, the bank run is negative-sum to the depositors in aggregate, and zero-sum to the first movers. (It's positive-sum to Potter, who wants to buy the bank's assets at a discount.)

In either a mark-to-market or a net-present-value sense, the SVB doesn't have the money. When interest rates increased, their long-term bonds lost value. The hold-to-maturity accounting treatment saved them from reporting that, but that accounting is a fiction; it's a real economic loss, same as if they'd lent to a bankrupt startup. If the depositors all wait, then they'll get the right number of dollars in ~ten years, but those dollars will be worth less by then. So a bank run is positive-sum to the first movers, who can get their dollars now and buy Treasury bills at five percent (or put them in a better bank, or wherever else). It's roughly zero-sum to the depositors in aggregate. That makes a bank run relatively more attractive.

I think there's confusion because in both cases, "if you wait then you'll get your money". They're completely different reasons to wait though, the first economically rational, the second not.

Overtonwindow• 3 years ago

"There are three ways to make a living in this business: be first; be smarter; or cheat. Now, I don't cheat. And although I like to think we have some pretty smart people in this building, it sure is a hell of a lot easier to just be first."

-Margin Call

jimnotgym3• 3 years ago

Won't this get called back in as a preferential creditor if it turns out there are not enough funds to pay back all deposits?

metalspot4• 3 years ago

no, your deposits in a bank are yours. you can withdraw them at any time. the bank has a contractual obligation to return your money whenever you demand it.

jimnotgym3• 3 years ago

Out of interest, why did so many VC funds and their playthings bank with SVB?

MaxfordAndSons• 3 years ago

It's in the name

metalspot4• 3 years ago

because SVB was making loans to the startups they invested in. startups had a contractual obligation to bank exclusively with SVB and then SVB would give them loans, so they had a fat cash balance on their balance sheet, but they couldnt actually withdraw the money. SVB was getting paid to make startups look good so they could raise more money.

jimnotgym3• 3 years ago

So it sounds like the depositors did know they were working with a higher risk bank?

cjbenedikt• 3 years ago

Easy one: he pulled his money and then triggered the run https://mobile.twitter.com/jonsarlin/status/1634712724117794...

Peter Thiel's Founders Fund pulled cash from SVB before collapse: Report

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