SVB and the Only Choice We Have

Yves here. This post makes a point that is glossed over in nearly all mainstream coverage of the collapse of SVB and resulting bailout: the discount window liberalization and the creation of the Bank Term Funding Program together achieve what is just a hair’s breadth away from a full backstop of uninsured deposits, while letting the officialdom pretend it hasn’t made that huge extension of subsidies to banks. Biden officials claim that banks will be made to pay for all these new goodies, when even now, they don’t pay the full value of FDIC deposit insurance.

However, the post gets a key element of the SVB-depositor power dynamics wrong. It was not the venture-capital backed companies that chose or agreed to keep all their deposits at SVB. It was their venture capital investors that forced this arrangement on them, confirmed by a reader: “Speaking as a former customer as dictated by my VCs.” This distinction matters because it puts the locus of influence and favor-trading much higher up the food chain.

By Thomas Neuburger. Originally published at God’s Spies

He is not a socialist.

Last week’s collapse of Silicon Valley Bank (SVB) and its subsequent rescue has much to tell us about the state of our lives, the nation-state we inhabit, and what’s left to do if we’re unhappy with things as they are.

What Happened to SVB?

Let’s start with why the bank collapsed. In a nutshell, the bank was under-capitalized, its assets over-exposed to interest rate increases, and it held too many accounts with assets greater than the $250,000 limit covered by the FDIC. All of that came into play after a classic run on the bank’s deposits.

As one bank analyst put it via email (my emphasis):

Silicon Valley Bank is the 16th largest US bank whose clients are mostly high-tech firms. On Thursday shares of SVB Financial Group sunk 60%after it disclosed it had sold over $20 billion in securities which resulted in a nearly $2 billion loss. The sales followed larger than expected declines in deposits as its clients have withdrawn many of their funds on deposit to pay their bills faster than the bank anticipated. SVB was reasonably well capitalized but had invested in longer maturity Treasuries that have decreased in value as the Fed has raised rates in its battle to control inflation, so its rush to sell securities to replenish cash [this is the bank run; depositors wanted out] resulted in rather significant losses. On Friday morning SVB looked to raise capital from willing institutional investors, but clients had already withdrawn a significant portion of their deposits, essentially killing the small possibility of a quick sale to a larger institution. By later in the day Friday, the bank was officially shut down by California regulators and was taken over by the FDIC.

The bank’s assets totaled $210 billion. Uninsured deposits totaled $160 billion. A run on the bank’s assets, in the form of a rush to move deposits to other institutions, was expected to start the following Monday (amid some talk that the big depositors themselves would trigger the run while screaming for a bailout).

To forestall that event, the FDIC decided to extend, free of charge, interest rate protection to every dollar deposited, starting Monday. Krystal Ball and Saagar Enjeti explain:

Washington Post reporter Jeff Stein did a TikTok on why this is still really a bailout. Of course, the bailed-out beg to differ. As one member of the super-rich class just wrote:

Can’t be raising those 2008 anti-bailout hackles, can we?

Feb. 13, 2010 — The government’s $700 billion rescue of the financial system in 2008 was as popular as “bailing out rattlesnakes,” Vice President Joe Biden said Friday in Seattle. “In fact,” he quipped, “I like some of the snakes better.”

Keep the (ironic) Fed part of that story — “as the Fed has raised rates in its battle to control inflation” — in mind. In its rush to impoverish the working class by raising the unemployment rate to 4.6%, it accidentally impoverished its own, or the big-dollar part of its own that owns the Big Tech.

All This and Corruption Too

It’s highly possible, one could even say likely, that those massive deposits — Roku alone kept almost half a billion dollars in a single account — were part of a corrupt set of practices by the bank itself and its big-dollar clients.

David Dayen, in an excellent, comprehensive piece, writes: “So you have depositors that either didn’t know the first thing about risk management, or were bribed by the bank into neglecting it.”

Keep in mind who these depositors are: the very very wealthy in the West Coast venture capital world. The corruption didn’t start just with the bank. The VCs often initiated it. As a friend and former Silicon Valley entrepreneur pointed out to me recently:

SVB was a special case. VCs required the companies they funded to keep their cash there. So the companies (and their employees) really were victims, not incompetent at risk management. In exchange the VCs received various favors from the bank. This is how Silicon Valley works behind the scenes. I was in one deal where the lead VC for our funding required a secret kickback of a certain % of the company stock and that this arrangement be kept secret from the firm. This is typical.

Where Does That Leave Us, Part I

Where that leaves us is here: The U.S. banking system, which hasn’t been private in my recent memory, has been officially taken under the wing of the federal government, with every deposited dollar now de facto insured by the FDIC.

To cover these claims, the FDIC normally collects money from the banks receiving the insurance benefit. This means that the covered banks prepay a reasonable amount for a bailout of depositor funds up to $250,000 per account.

What would a “reasonable amount” be to cover all funds on deposit in the U.S.? Are the banks willing to prepay it? Highly unlikely. After all, who’s going to make them? The government they control?

So the federal government has nationalized the banking system, or nationalized its insurance of bank deposits to 100% of risk, all at no new cost to the banks.

What do you think these banks will do next, with that worry off their backs? I hesitate to find out, but I know we’re about to.

Where Does That Leave Us, Part II?

The second “where does that leave us?” leaves the financial realm and enters the political. If Saagar Enjeti is right (see the clip above), the rich decided that taking even a 10% loss (“haircut”) via the normal unwinding process was still too big an ask.

Meanwhile, in East Palestine OH where the working class makes its life, this went on:

With a population of about 5,000 people, there are roughly 2,600 residential properties in East Palestine according to Attom, a property data provider. The average value of a property there in January of this year, prior to the derailment, was $146,000, according to Attom.

Taken together, the value of all residential real estate in the town adds up to about $380 million, including single family homes and multi-family properties.

Those values are only a fraction of the money that Norfolk Southern earns. Last year it reported a record operating income of $4.8 billion, and a net income of $3.3 billion, up about 9% from a year earlier. It had $456 million in cash on hand on its books as of December 31.

It’s been returning much of that profit to shareholders, repurchasing $3.1 billion in shares last year and spending $1.2 billion on dividends. And it announced a 9% increase in dividends just days before the accident.

A year ago its board approved a $10 billion share repurchase plan, and it had the authority to buy $7.5 billion of that remaining on the plan as of December 31. (Emphasis added)

The point couldn’t be more simple. When the wealthy face losses, the government they control bails them out, within days if necessary.

When the rest of us faces losses, we’re on our own. Neither the wealthy who caused the mess nor the government that represent “the people” will step up to the plate.

And it will be this way forever unless force is applied.

The Only Choice

Which brings us to the point of this piece. If indeed…

• The culture of the obscenely wealthy is “pathological” and predatory.

• There’s one set of rules for the rich, another for the rest of us.

• They will never stop asserting their right to profit and thrive at everyone else’s expense until they are forcibly stopped.

• Anger against this predation has burned since the Obama Bailout of 2008.

• The people’s anger is bipartisan. Republican and progressives alike, at the voter lever, share the emotion.

• Neither institutional party wants to save real workers. There are two bad choices — the Party of the Status Quo and the Party of Fake Rebellion.


  1. some guy

    As an utterly ignorant layman, I just have to ask . . . has the Federal Government just Nationalized the U S Banking System? Or has the Federal Government just Privatised and “Bank-ized” its own self? And is that a distinction without a difference? Or a distinction with a very big difference . . . . the difference between who owns whom?

    1. OnceWereVirologist

      All losses covered by the public purse, all profits delivered to the shareholders” is pretty much as far from “nationalization” as it’s possible to get. Though calling it “nationalization” or “socialism for the rich” is part of the ink cloud that pro-capitalists like to throw up in order to convince the layman that the essence of socialism is nothing more than “free government handouts to undeserving interest groups” rather than “public ownership of productive assets”.

      1. Michaelmas

        OnceWereVirologist: All losses covered by the public purse, all profits delivered to the shareholders …

        Except in the real world the shareholders are NOT getting bailed out, it’s the depositors. Last I looked, anyway; it’s early days and the story may change. No: the real core point of the SVB story is as stated in Neuberger’s OP: “In its rush to impoverish the working class by raising the unemployment rate to 4.6%, it (Powell’s Fed) accidentally impoverished its own, or the big-dollar part of its own that owns the Big Tech.”

        A couple of other points —

        [1] Though it will doggedly try, Powell’s Fed is likely to have further problems defaulting to the standard Fed reflex of “when in doubt, crush employment with rate hikes” when it’s likely to hit many of the “wrong people” — wealthy asset-holders — first. (Commercial RE, in particular, is a gigantic problem that the TPTB don’t want marked to market.)

        [2] The rest of the world is — very belatedly — expressing anger at getting jerked around by US financial corruption and incompetence. Good. But it should have happened post-2008, and would have except for those Fed swap-lines.

        European regulators criticise US ‘incompetence’ over Silicon Valley Bank collapse:
        Critics label handling of Californian lender’s failure a ‘disaster’ and claim Washington is failing to adhere to global rules

        Europe’s financial regulators are furious at the handling of the Silicon Valley Bank collapse, privately accusing US authorities of tearing up a rule book for failed banks that they had helped to write.

        While the disapproval has yet to be conveyed in a formal setting, some of the region’s top policymakers are seething over the decision to cover all depositors at SVB, fearing it will undermine a globally agreed regime.

        One senior eurozone official described their shock at the “total and utter incompetence” of US authorities, particularly after a decade and a half of “long and boring meetings” with Americans advocating an end to bailouts.

        Europe’s supervisors are particularly irate at the US decision to break with its own standard of guaranteeing only the first $250,000 of deposits by invoking a “systemic risk exception” ….

        “This is the US version of the small Venetian banks,” said one French policy expert, referring to the US’s criticism of Europe’s handling of the Monte dei Paschi debacle. “You are always systemic for somebody…”

        A former senior UK policymaker who helped negotiate global standards for bank resolution described the SVB handling as a “disaster”.

        And so on.

        1. OnceWereVirologist

          Point taken – I was certainly a little too cute in saying shareholders are getting bailed out in this particular case. It would have been better to say “All losses covered by the public purse, all profits to connected insiders in the executive suite”.

          1. Michaelmas

            OnceWereVirologist: It would have been better to say “All losses covered by the public purse, all profits to connected insiders in the executive suite”.

            Heh. Except rather amusingly from Gillian Tett’s latest —
            SVB’s collapse exposes the huge carry trade problem


            When Silicon Valley Bank slid into a death spiral last week, Peter Thiel, the (in)famous libertarian, shot into the spotlight. The reason? Last week, his Founders Fund reportedly pulled its business accounts from SVB. That led to angry accusations that Thiel and other venture capitalists had sparked a bank run.

            …But …“I had $50mn of my own money stuck in SVB,” Thiel tells me in his defence. Apparently, he failed to flee fast enough — never mind what Founders Fund did — because he did not quite realise or believe that SVB might fail.

            1. JustTheFacts

              In that article, Ray Dalio makes an important point:

              “This bank failure is a ‘canary in the coal mine’ of a changing cycle,” warns Ray Dalio, founder of Bridgewater Associates, a hedge fund. Dalio notes that while the pain in “2008 was heavily in residential real estate, [now] it’s in negative-cash-flow venture and private equity companies as well as commercial real estate companies”.

        2. juno mas

          …and so on: If only the Euro’s had noticed this sort of “rule beaking” before jumping into the US fomented Ukraine debacle.

        3. cfraenkel

          Except in the real world, the shareholders are not the ones skimming off the profits anymore, only absorbing the risk.

          We’re now transparently in a post caplitalist world after last weekend. (or maybe capitalist raised to an exponent or two). Who are shareholders these days? Mostly you and I, with our 401ks and pension plans and quarterly dividends you might be able to buy a coffee with. Where did the real money in SVB go? Into ‘favors’. Bonuses. Leverage. You name it.

          1. some guy

            Well . . . . and if you are a super-rich shareholder with a million shares ( or more) of something, those million ( or more) little dividend trickle-drips add up to a large dividend stream. But most of us are not super-rich shareholders. Most of us are market-hostages. The shares I “own” through my retirement plan belong to me in the sense that the coyote with its foot in a leg hold trap still owns its foot.

            1. chris

              in the sense that the coyote with its foot in a leg hold trap still owns its foot.

              I really like that analogy. It’s a good way to describe where so many are right now. The new mental image ill conjure up the next time mentions Coyote Ugly.

        4. steelhead23

          My only argument with the “blame the Fed” response to this event is that the event is happening now and the idiotic monetary policy of the Fed that led us here happened years ago with QE, lax rules at the overnight windows and ZIRP, encouraging banks to take on risk, then doubled down during the pandemic. Yes raising rates now is painful, even harmful to U.S. financial institutions, but the set-up for this problem occurred over 15 years of easy money policies. Today, the blame is on regulators who missed the scale of risk – and the FDIC who is bent on eating that risk – thereby encouraging more risk-taking by the banks.

    2. Jeff Stantz

      The Federal Government is acting like an insurance agency for private banks but is not charging them appropriately for the risks they take, nor denying them insurance if they are taking stupid risks.

      It is just a pipeline of taxpayer money to the rich.

      1. jobs

        After an accident, try arguing with your insurance company about coverage you clearly didn’t pay for.

    3. wendigo

      Nothing new, privatizing profits and socializing losses has been how banks always operate in the US. Andrew Jackson has some quotes from the 19th century.

      1. Bjarne

        Its about time we applied some old hickory to these people. Its the only thing they understand.

        1. Adam Eran

          “Old Hickory”? Andy Jackson? JFYI, in 1835 he paid off national ‘debt’ and closed the central bank. What ensued was a population reduced to conducting its business in specie (gold) and 7,000 varieties of private bank notes. No public projects were possible, and the Panic of 1837 ensued.

          There are better responses than anger…tempting as that is.

          1. Philo67

            The panic of 1837 began and ended in 1837 and the nation moved forward with vigor.
            The current, anemic state of affairs is clearly untenable. It’s been 15 years since QE1. I dont even recognize my own neighborhood. Tent cities are popping up everywhere. What is your solution?

    4. eg

      “The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”

    1. Yves Smith Post author

      It was extensively covered in the press at the time that both Obama and McCain were brought into the bailout discussions as candidates. Even more important, Obama whipped for the TARP and his support was critical to the bill passing.

    2. Bjarne

      Aren’t you cute. Obama saved the banksters, allowed them to commit the largest fraud in history, keep their bonuses and jobs, get over a decade showered with taxpayer cash called “QE”, and continue their wrecker ways against the 99%, all while he ruined any chance for a decent economic future for tens of millions of Americans. The minute they take away the punchbowl, after 14 years, SVC and Signature collapse and the free money for the rich starts again. Its going to take a crash so big these people all jump out of windows… or more bombs on Wall Street, to change things.

      1. spud

        always remember why we have this crushing inflation, as powell said, its the imports. as hudson has said, imports, you have to pay other peoples prices, and that price will not go down.

        this is all traceable to bill clintons disastrous polices. all obama did was bail out those disasters, then double down on those disasters.

        biden is doubling down on bill clintons disastrous free trade, deregulation, privatization, jim crow laws and slashing the social safetynet.

        and of course biden helped to write those laws.

        anyone who voted democrat last election, really will buy anything.

  2. Louis Fyne

    if there was a POTUS with imagination, it would have uses this crisis to clear house.

    Tell Jamie Dimon that fine, defacto unlimited FDIC. then DC will slap a progressive asset tax on all banks with more than $100 billion in assets, particularly focusing on those $1 trillion in assets (JPM BAC, WFC C).

    With that nudge, Jamie Dimon would have been much more open to buying SVB for $1/share; and DC would rescue SVB without a need to change the FDIC status quo

    but now the horse ledt the barn, there really needa to be a punative asset tax dor banks with more than $1 trillion in assets. not holding breath

      1. Fraibert

        Also can only make threats that you are plausibly able to make good. President Biden does not plausibly have the power or the ability to push Congress to give him the power to implement the original poster’s idea.

    1. Grumpy Engineer

      At a minimum they need to start charging FDIC premiums on all deposits. Not just the portion under $250k. And I likewise think that some “progressiveness” is in order, where the “premium per dollar” would rise with larger accounts, to encourage very large depositors to literally spread their wealth around a bit to the smaller banks.

      Right now, only having to pay FDIC insurance on portions under $250k while having implicit government backing for all account sizes favors the large banks.

  3. jt

    Me thinks we need a simple definition of bailout. How about if you can’t survive without it, it’s a bailout? For those corps already dead, any gov’t expenditures making anybody partially or fully whole = bailout.

  4. griffen

    I appreciate how the above includes the situation from East Palestine in part II. We have a serious, legitimate infrastructure concern with railroad safety, but we can’t fix those no-good, horrible Trump regulations just yet. Pay no heed to facts, like a Democrat in the White House since 2021. So it is best to live at the moment with the risk of more derailments. I can throw in the commercial and consumer airlines, with an ongoing risk of near misses on runways at major airports in the US.

    Thinking backward to 2008 and the Global Financial Crisis (maybe I need a therapist after all) that era had begotten a unique coterie of acronyms. HARP, HAMP, TARP, TALF, TBTF. I’m sure that has to be a wikipedia entry for these or similar. Now we should form a new analogy for 2023 and this mini crisis. I’m going to throw a curveball of sorts below, just random thoughts. My brain works in odd ways these early mornings granted. Nice job there, new FDR.

    VINS. Very Important Need Saving.
    GPSD. Go Pound Sand Deplorable.
    WCDN. We Can Do Nothing.
    NBLB. No Banker Left Behind.

  5. cnchal

    > What are your thoughts for now?

    Where that leaves us is here: The U.S. banking system, which hasn’t been private in my recent memory, has been officially taken under the wing of the federal government, with every deposited dollar now de facto insured by the FDIC.

    All banks have the same problem, customers putting their money to “work” elsewhere that pays higher interest. In the case of SVB, $200 billion in deposits, a $2 billion haircut on forced selling of long term low interest paying securities to cover withdraws wiped it out. Backstopping large deposits won’t stop them from leaving for better returns elsewhere, so it’s musical chairs for money at the moment.

    Powell knew this would happen so it’s a surprise that the Mr Market is surprised. This is what ‘the FED painted itself into a corner’ means. Raising interest rates at this pace to beat inflation also will not work because the bulk of inflation is monstrous price increases by the corporate Biggs, now with profits at 13.5% of GDP and inexorably climbing. The already rich get a threefor. Moar money on their money, higher profits and no tax increases on their wealth and profits, and free protection from loss of money through their own greed. The price of eggs does not even enter their equation.

    One moar thing. Whenever I read the word “value”, I mentally substitute the word “price”. That is clarifying as the first word is used to hide what’s really going on.

    1. Michaelmas

      cnchal: Raising interest rates at this pace to beat inflation also will not work because the bulk of inflation is monstrous price increases by the corporate Biggs, now with profits at 13.5% of GDP and inexorably climbing.


    2. Fraibert

      Good point. Banks aren’t paying market rates to depositors (4 week t-bills pay 4.5-5%) so a low moving general bank run has been ongoing since the latter part of last year. I imagine this trend will pick up now that SVP put banks into the forefront of the news…

  6. Lena

    Railway workers should strike. Millions of people in other areas of work should strike. That’s how we show our power when voting no longer counts for anything.

  7. The Rev Kev

    Shouldn’t be surprised that they were so quick to bail out SVB. It is in a Democrat stronghold and likely all the shakers and movers in that California like Newson had all sorts of financial links to that bank. It is even rumoured that Harry and Meghan also had their money at this bank on the recommendation of friends. This is rightly an important story and it may be seen as an inflexion point in future years. From now on, any bank in the US can now dismiss the very idea of a moral hazard as they now know that if they run their bank into a ditch in future, the Feds will immediately act and the printers will go BRRRRR. This is laying the groundwork for a worse crisis than what happened in 2008 and if it happened before 2030 I would not be surprised.

  8. nap

    European regulators criticise US ‘incompetence’ over Silicon Valley Bank collapse – from today’s FT


    Europe’s financial regulators are furious at the handling of the Silicon Valley Bank collapse, privately accusing US authorities of tearing up a rule book for failed banks that they had helped to write…

    One senior eurozone official described their shock at the “total and utter incompetence” of US authorities, particularly after a decade and a half of “long and boring meetings” with Americans advocating an end to bailouts.

    Europe’s supervisors are particularly irate at the US decision to break with its own standard of guaranteeing only the first $250,000 of deposits by invoking a “systemic risk exception” — despite claiming the California-based lender was too small to face rules aimed at preventing a rerun of the 2008 global financial crisis…

    “At the end of the day, this is a bailout paid for by the ordinary people and it’s a bailout of the rich venture capitalists which is really wrong,” (a European regulator) said… (paywall)

  9. redleg

    People, please stop calling bailouts socialism, because it’s more like a return on an investment that the plutarchs bought and paid for in the free market.

  10. chris

    I think this article raises a lot of good points and provides a useful summary. As for the “what do we do?” question at the end… I have two thoughts.

    To the extent possible, secure things for your family and friends and local community absent federal or state intervention. Local support, local spending, local food, local power options, local engagement, policies that make sense to your neighbors and you. Tool libraries, seed libraries, people paid by the local area to walk around and see who needs help. There is no benefit to being further engaged with the national system unless you’re of a kind the national system cares about. Small donors need not apply.

    After acting locally, collective action on a larger scale is needed. Rail strikes would be good. People banding together to support the strikers is essential. And then keep targeting industries that are vulnerable to collective strike action.

    I won’t advocate for violent revolt. But anything non-violent needs to be done with teeth bared. These people will not stop unless they’re forced to stop.

    P.S. I have little hope of any large scale collective action beginning in the US. And I think any small scale communal arrangements of the kind I favor stand a chance of experiencing a modern day Albigensian Crusade. I can imagine DHS staff with military gear destroying larger towns that found a kinder, better way to live. And getting paid a bonus for doing it.

  11. tet vet

    Privatized profits and socialized loses (which also includes hidden subsidies) = fascism. And not only banks receive the benefits. The term is used a lot but I say virtually no one understands what fascism really is. Biden is our latest Il Duce.

  12. Lexx

    If you haven’t seen it yet and are interested, the latest Frontline doc: ‘The Age of Easy Money’. A review of how we got here in the last decade.

    We sat down together and watched it in its entirety last night. One of the more interesting pieces for me this week was reading who is on SVB’s board. One guy with any investment banking experience at all and the rest are Democratic party donors for fat cats like Hillary, Pelosi, and Schumer? What could go wrong?! The level of ‘wokeness’ and virtue signaling from those board members was gag-reflex inducing. They really do think they’re quite special in the eyes of the gods.

    A few thoughts that occurred to me… this answers my question about what we assume about how insurance works, that everyone pays in equally and will have their claims received by their insurance with equanimity. ‘We’re all in it together’. We’re really not, some depositors are more equal than others.

    ‘The culture of the obscenely wealthy is “pathological” and predatory.’ It’s worse than that depending on how you identify in the world. It’s deeply tribal (human) and who doesn’t belong to a tribe of some kind? All of those ‘tribes’ are attached to their confidence that ‘we’re okay… we’re the good guys!’ (See ‘wokeness’ and philanthropy, job creation and other notions of ‘giving back’>) Even the bad guys think they’re the good guys. Nevermind how they use their assets or the tax breaks; they need to believe in their own moral superiority and that they are capable of altruism. Ayn Rand was a whack job but not wrong on every point.

    If ‘exceptions’ can be made for banks, can they be make for credit unions? A lot of money fled to the credit union system back in ’09 thinking it was ‘safe’.

    Who actually owns those homes in East Palestine? The total of $380m seems low, so what figures were used? We went to visit our 5th wheel this week. The fenced and gated storage facility sits up on a hill facing west, where as soon as we clear the gate the panoramic view of the snow-capped Front Range opens up to our right. The insured value alone of all those recreational toys parked tightly on that small acreage is greater than $380m.

  13. Revenant

    I’ve spent some time looking at SVB’s accounts and I think people are still missing the big picture (I did this because I got stomped by Yves in the comments to the first SVB post on 11th March and I cheerfully agree I partly deserved it for saying I didn’t know something rather than looking it up).

    Portfolio companies were forced to keep their deposits at SVB by their VC investors (which is… unusual) or by the terms of any SVB lending that they drew (which would be perfectly reasonable). In either case, it makes the depositor more of a victim since, once they took the VC investment of SVB loan, they didn’t have any banking risk options other than SVB. We just don’t know what percentage of depositors were compelled either way but it just doesn’t matter because the more important players in the failure are the funds themselves.

    This is the real scandal at SVB: how its managers’ and fund clients’ greed drove it into the ground in the last eight years of the ZIRP and pandemic boom, having spent the first thirty years building a solid business lending primarily to real business (albeit VC-backed). It is the shift from industrial to financial capitalism personified and on fast forward!

    In 2015 when I first dealt with SVB, 50% of its loans were to portfolio companies and 33% to funds and 66% of its high quality liquid assets were available-for-sale securities, i.e. marked to market. SVB doesn’t publish a breakdown of depositors but it would be reasonable to assume the split broadly follows the loan book, given the relationship banking approach and the fact that a the bank only takes deposits to cultivate a borrower.

    By 2022, only 23% of loans were to companies and 56% were to funds. This is the killer change, if the deposit base mix followed suit. Deposits from companies are comparatively sticky, given lending relationship and other services like card merchant services etc. Deposits from funds are not sticky: the general partner is borrowing cash today (to accelerate investment pace) against an agreed schedule of future capital injections by the fund’s limited partners and, given these relationships are contractual, the only practical security for the loan is that the capital calls are paid into a nominated SVB account from which the loan is satisfied (1).

    Worse, by 2022, the high quality liquid assets were only 22% available-for-sale (I.e. marked to market), down from 66%. The rest were held at book value.

    So the stage is set. The overall asset base has increased by 400% but high quality liquid assets available for sale have lagged and only increased by 50%. The majority of the loan book is now lent to funds as hot money advances on capital calls and these funds (or the funds plus their puppet portfolio companies) are the likely majority of the deposit base. Cue a rumour among the herd mentality funds and that deposit base flees overnight, as the general partners pull their money and order the portfolio companies to do likewise.

    If SVB had kept to its 2015 ratios, this would not have happened. The AFS losses would have forced an earlier capital increase and the deposit base would have been stickier because the portfolio companies would have been taking their banking decisions. Similarly, by chasing the funds as the source of loan growth and relying on the fund relationship to drag portfolio companies in for deposit base growth, SVB put its deposit base in the hands of a tiny coterie of people like Peter Thiel, who promptly crashed their own bank….

    I still think we should not approach SVB with Schadenfreude just because VC in the last decade has been unsympathetically triumphalist and Hobbesian (Uber, Wework, Palantir etc). But, having reviewed the numbers, I have revised my impression of SVB “doing God’s work” as a banker to startups. It has instead been a greedy enabler of a clique of general partner arseholes.

    Unfortunately, the portfolio companies have been used as a human shield by the VCs and they have not got what they deserved (2).

    (1) The money advanced can likely be moved without penalty – if there was any requirement to hold the loan advances with SVB, this cannot be a very hard requirement because the fund is borrowing precisely to invest the money rapidly. I wonder if the funds also promised SVB that their portfolio companies would keep the investment proceeds at SVB, hence the compulsion from the funds to the portfolio companies…?

    (2) revenge is a dish best served cold. The funds that borrowed their future capital to bet it all on black in the 2020-2021 peak will have torched their entire fund’s investment returns for good, given the active investment period us typical four of the ten fund years and they borrowed money from all four of those years to spray it around in two. So they will get a comeuppance – but they will probably raise a new fund because there seem to be no penalties for failure at the top in public life any more….

    1. Yves Smith Post author

      This is extremely helpful. I had seen the Dawn Lim piece at Bloomberg on 56% of the loans being subscription lines of credit and was going to say something about that.

      The idea that the deposit mix followed or somewhat followed their loan mix had not occurred to me. That generally makes sense. But recall also they bought Boston Private Bank and got with that (and presumably also solicited) wealthy individuals.

      SVB was making vineyard loans, for instance, presumably prior to that acquisition. Oprah and Harry & Meaghan have been rumored to be among SVB’s customers. They would have been hot money too. They might not have been as plugged into news to be as quick trigger to move money as finance people but their deposits were not “sticky”.

      1. lampoon

        I wonder if the apparent collusion between SVB and the funds to require the companies to keep all deposits at SVB, use SVB payroll and other services, etc. (if that is the case), is an illegal tying arrangement? Nathan Tankus raises this question in his latest article on SVB, which is free at
        Here is a link to a 1995 OCC bulletin on tying restrictions.
        As Tankus notes, there are exemptions and if they apply here maybe they need to be tightened.

      2. Revenant

        It’s a huge swing in business model from 2015, by any measure. Basically ALL their growth in lending from 2015-2022 was to funds. The balance sheet grew from c. $40bn to $200bn but lending to businesses grew from (wait for it)… $9bn to $18bn and AFS securities from $16bn to $26bn. Whereas lending to funds grew from $5bn to $41bn and HTM securities (hold to maturity or in this case Hail-to-Mary yield chasing) grew from $9bn to $91bn!

        However, while it seems a reasonable supposition that the depositor mix tracks the borrower mix because a bank makes its margin on the loans and would rather not take deposits that will not generate high margin banking, it is just my supposition in connecting the dots. The counter-argument would be that funds don’t hold cash, they draw it down as invested and it passes only briefly through the fund account and lands in the portfolio companies, so the funds’ balances would be small and the portfolio companies’ balances large.

        On that basis, the $41bn borrowed by the funds would show up as portfolio deposits instead. However, if there was a requirement/expectation for these to be lodged with SBV, that still places a substantial part of the deposit mix under the control/suasion of the funds. If the $41bn fund borrowing represents advances on capital calls 12 months ahead, that implies $82bn ($41bn this year and $41bn next year) of portfolio company balances (ignoring their cash drawdown for runway) whereas total deposits were only $173bn….

        SVB basically “over-traded” in ordinary business terms, which for a bank meant taking more deposits than they could convert into productive loan assets (and sticky depositors) and bet the excess cash on long-duration securities. Then the VC’s got individually skittish and every man for himself and collectively did a rug-pull. And moving a fund’s banking is simple, there are no merchant services and other banking functions to disentangle beyond deposit holding.

        If they had stuck with the original model of lending directly to the companies and not to the GP’s, they would have had a slower and more diversified reaction function to bad news, but as you can see, there was only a modest increase in absolute borrowing appetite in 8 years among the portfolio companies and the loan book.

        Discovery on the lawsuits will be fascinating!

        1. Yves Smith Post author

          Actually, on further thought, I disagree.

          Subscription lines are used in lieu of capital calls. Capital calls are made on very short notice to LPs, 5-10 days, for funds for acquisition. The money is then transferred to the seller at closing. Any deposits related to this borrowing woud be very short lived, less than a month.

          1. Revenant

            I don’t think so. You cannot have $45bn of outstanding loans of 2 week maturity at the accounting date. That implies writing subscription line business of $1.17tneach year!

            I think the loans are mostly to the “scale-up” funds, drawing money from SVB at near zero rates in the pandemic because the same money drawn from LP’s has a 6% or 8% hurdle on it. Private equity already plays this game, where the fund is leveraged up as well as the LBO target, because greed. Why not later-stage VC? Especially if they had to compete / coinvest with the tourists (Softbank, Tiger Global)….

            1. Revenant

              Actually, on rereading, I think we are agreeing. The loans are not short term but the funds are moving that cash on quickly into the portfolio companies. And the portfolio companies are keeping that cash in SVB.

              If the lead investor in the round is part of the SVB magic circle, they can arrange for the portfolio company to bank the round proceeds at SVB, which may be much bigger than the lead investor’s subscription line of credit because of all the coinvestors in the round.

            2. Yves Smith Post author

              You are missing my point.

              The deposits would be in bank only for a short time. The loan generates a deposit that sits at SVB only until the deal closes, then it is used in place of what would have been the equity portion.

              1. Revenant

                I think our posts crossed: I agreed with you on second thoughts. The loan is only drawn to find an investment. My point is that the money then moves inside SVB from the fund to the portfolio company.

                By chasing the upstream business of fund lines of credit, SVB also generated “traditional” deposits from VC portfolio companies. So not only did the line of credit borrower not hold any of the funds on deposit, they had a huge incentive to instruct the portfolio company to cut and run and move the money out. SVB holds the bag for an illiquid fund loan and has to borrow or sell another asset to find the outflow.

                My guess is that the funds and portfolio companies doing this were all later stage scale-up investors (big revenues but poor cashflow business, some of them growing faster than internal cash generation permits and some of them part of fake it til you make it cargo cult of negative unit margin business like Uber) rather than start ups.

  14. Robert

    Don’t you think that a company’s deposits at a bank should be safe? As a small business owner I think it’s a reasonable expectation of mine that the money we’ve worked so hard to earn won’t just vaporize because our bank has problems.

  15. Waking Up

    There is so much corruption in this country (U.S.) that I doubt Russia or China will destroy us. Instead, they can diplomatically build alliances with other sovereign nations and wait us out.
    Our country will be destroyed from within.

  16. Eclair

    Re: The costs of the latest bank bailout will not be borne by the US taxpayer. But banks will be increasing their ‘fees.’

    My husband and I, for decades, have dealt only with credit unions, not banks. But, he has kept an account in a smallish NY/Pennsylvania commercial bank, having inherited the money and the account from his parents. Kind of a sentimental thing. There are a couple of (really really low interest) CD’s and a small ‘savings’ account.

    Well, the balance on the savings account was low, because last summer he withdrew cash to pay an Amish neighbor who planted some trees for us. I recently finished up our 2022 taxes and was filing all the bank statements and tax documents and looked at the most recent statement from the bank: Good grief! Since the first of the year, they had been charging a fee of $7.50 per month! At that rate, the pathetic balance would be zero in no time.

    Husband phoned the bank and asked to close the savings account (the CD’s are maturing next year.). They said, “No,” can’t do it by phone, but you can send us more cash, increase your balance to the minimum amount, and we will stop the monthly charges.

    Maybe I will finally persuade him to ditch the commercial bank and move everything to a credit union.

  17. David in Santa Cruz

    I still want to know who started the run? Not the Peter Thiel run on March 8-9 brought on by SVB’s liquidation of long-maturity Treasuries and MBS and failed equity offering. Why was SVB already having to raise so much cash before March 8-9?

    SVB’s 12/31/22 SEC Form 10K (now locked from public view) disclosed a huge run-up in time deposits during 2022. Page 81 of SVB’s 10K showed a nearly 5-to-1 imbalance in “non-U.S. time deposits” exceeding the FDIC limit, most having a maturity of 3 months or less.

    Who were these “non-U.S.” depositors? Were they responsible for SVB’s sudden 2023 need for liquidity?

    Why was SVB’s management team unable to understand the risk profile of this sudden influx of foreign time depositsrather than local “parked” VC investment — and match their own investments to them (simple incompetence and the absence of a risk officer likely explains this part of the puzzle)?

    Were the “non-U.S.” depositors state actors aware of SVB’s reckless and corrupt exemption from the Basel rules?

    Was the pre-March 8-9 an asymmetrical introduction of financial contagion and crisis into the U.S. banking system by outside state actors aware of the hubristic lack of regulation and oversight in the U.S. financial system?

    1. Phichibe

      “Who were these “non-U.S.” depositors? Were they responsible for SVB’s sudden 2023 need for liquidity?” Interesting you raise this question. The same issue was raised by a longtime YTer named Lei who is native Chinese, lives here, is very fluent in English, and a critic of the CCP. She was discussing the SVB & CS disasters and that in both there was a sea change in deposits vs. withdrawals starting in 2022. She says that her interlocutors in China say that the Chinese billionaires, most of whom are ‘princelings’ and who are very locked in to living in China rather than a wealthy exile abroad, have acceded to Xi’s demand that they repatriate their billions from abroad.

      She also said that many of the Chinese billionaires are afraid that their loot might be encumbered by sanctions if China attacks Taiwan, much as the West has tried to seize Russian oligarchs’ fortunes stashed abroad (although not too hard, otherwise the London real estate market would have crashed by now). She brought up the reports of large withdrawals at SVB starting in Q4 2022 and said this lines up with what she has been told was the timing. One of the forcing functions that drove this timing was the PRC/CCP 5 year congress, and she says Xi made clear to the upper reaches of the CCP princelings that much would be forgiven if they repatriated before the Congress but there would be little mercy after. The same reversal in net deposit flows from Chinese kleptocrats and tycoons apparently has been happening at CS although in that case it’s harder to discern because CS is so much bigger and so many of its private banking clientelle have been removing their savings.

      Anyway, good question, great minds think alike.

      Cheers from New Mexico, I briefly lived in the Santa Cruz mountains near the intersection of 84 and 35. Magical place.

      1. David in Santa Cruz

        Thank you for this terrific observation by someone fluent in Chinese language, culture, and politics. The CCP “princelings” withdrawing SVB deposits to avoid a potential sanctions-war seizure to please Xi Jinping before the PRC/CCP Congress is the best explanation for SVB’s pre-March 8-9 liquidation of Treasuries and MBS that I’ve heard.

        But why did the CCP “princelings” run-up their SVB deposits during 2022 — after the Russians had publicly suffered asset seizures? The 2022 increase in time deposits reported in SVB’s 10k was striking. Was there market manipulation by the PRC elites in order to spread contagion in the U.S. economy? Welcome to the age of asymmetric warfare!

        The Santa Cruz Mountains are magical but as you know in the Land of Enchantment, there are other magical places in the world. Silicon Valley has ruined Santa Cruz. I’m off to an equally magical but much less populous destination this very month!

    2. Michael Fiorillo

      A less well-articulated form of this occurred to me, though I have no way of gauging the likelihood of it. I assume some forensic accounting could give at a least a rough idea of the provenance of those foreign money flows.

    3. JustTheFacts

      I read somewhere that Israeli startups were pulling money from SVB as it was crashing which suggests Israeli citizens might have had other accounts there too. Given that two extraordinarily wealthy Middle Easterners invested in two different places I worked at, it would not be particularly surprising if they too had money at SVB, for instance in order to invest in startups. SVB was supposedly a bank that made doing international business easier for US startups, and that capacity probably works the other way too.

  18. Sgt Oddball

    …Looks like it’s about time to dust off the ol’ Xtranormal Bears… – Get back to edumacatin’ the peeps…

    – Also:

    “Power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority; still more when you superadd the tendency of the certainty of corruption by authority.”


    “The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”

    – John Emerich Edward Dalberg-Acton, Lord Acton

  19. Gulag

    “How do we free ourselves?”

    1. Recognize as real the accelerating loss of faith in our institutions, leaders and representatives.

    2. Never confront capital-state or state-capital head on.

    3. Think in terms of giving institutional power the slip, become more and more comfortable living on the edge even in a highly urban community.

    4. Practice hiding in plain sight or try retreating to create zones of cultural refusal.

    5. Continue to work on softening our respective hearts.

    6. Find ways to restoring a sense of rootedness.

    7 Take a moment to read the writings of Paul Kingsnorth and evaluate the strengths and weaknesses of his concept of reactionary radicalism.

    1. Bsn

      Nice. I’d add one concept: avoid giving up free data at (nearly) all costs.
      Leave your cell phone in a drawer and only use it if you really have to (I can’t imagine why you would have one anyway).
      Use email only if needed. Write letters – and you will enjoy getting replies.
      Ask friends to tape over their amazon door bell before you come over.
      You get the idea. We give the feds and their puppet masters huge amounts of data for them to predict when you will join the strike. Where you go to submit complaints, what you post in nearly all on line activity – they know.

      A strike per say can be very difficult, especially if you have children or dependents. By being a model of ways one can back out of the surveillance system, you are in essence, striking. When you show up with pitch forks, they’ll show up with guns. Therefore, the less they know, the better we will be. Bon courage.

  20. antidlc

    We need a movement.

    A third party is probably unrealistic, but I would like to try anyway.

    It’s called the “I give a *&* party” (insert expletive).

    I give a “&%* about living wages.

    I give a “&%*” about the need for universal healthcare.

    I give a “&%*” about people retiring with dignity and respect

    etc., etc.

    –antidlc, proud member of the “I give a *&%* party”.

    Should I have t-shirts made up?

    1. JBird4049

      I think that either or both parties are going to go the way of the American Whigs, but they don’t want to lose their grift. It is likely that any political party that looks to replace them as the Republican Party did the Whigs is likely to get the same treatment as the American Socialist Party did nationally in 1917 or in the South before 1900, and the Communists and the Leftists did in the 1950s and 60s. I am including JFK, RFK, MLK, and Malcom X. Bullets, false arrests, blackmail, and slander.

      Although, somehow the Progressive Movement did get some power and did get some real reforms before being consumed by the Democrats. But both the Republicans and Democratic Parties were functioning organizations with deep and organized roots into the population. Any of the political parties of a century ago would crush the parties of today. There is really nothing, but poisonous ground with the current system. Trying to plant a new organization into the same ground or party likely means death for it.

    2. fjallstrom

      Not living in the US, I never the less found an interesting aspect in that fellow in Vermonts campaign who ran in and won the republican primary while declaring himself independent and that he would caucus with neither side.

      I think one way of starting a new party could be to be a network of candidates that run on common principles but is flexible in using either primary to get to the general election. Only when you have enough incumbants in a city, county or state to be the first or second party, you break out and form your own party forcing the remaining major parties to fight it out over being your opponent (or split the vote between themselves).

      This would be a hack to get past the two party system. The trick is not caucusing with either, if you do you will get eaten. That also means you won’t get anything passed before you get a majority new party, so until then focus on propaganda and grand-standing, don’t get bogged down.

      Ah well, maybe there are good reasons this wouldn’t work. But I think it would be an interesting attempt.

  21. steven

    The solution is a world-wide ‘debt jubilee’ implemented by requiring the rich to document the provenance of their money – and confiscating that created just to protect them from the folly of their overreaching greed. The sums expropriated would provide more than enough money to fund legitimate living expenses for people deluded into thinking they were saving for that purpose – also to pay for the infrastructure changes required for a sustainable environment (IF that can still be accomplished??)

    The world’s wealthy and their bought and paid for politicians use the money Washington and Wall Street create for them to use and abuse the world’s real wealth. The US government has been using the country’s credit to backstop the creation of ever more money as debt so people like Elon Musk and Jeff Bezos can launch their rich friends into space joyrides. Or the likes of Donald Trump can continue to add decimal laces to their financial accounts, just to “keep score”.

    It is way past clawback time.

  22. Anthony Noel

    How do we create change? Well unfortunately at this point the only real way is to start mass constructing madame la guillotine, place them outside every single bank, vc firm office, govt building, homes of the wealthy etc and let them know that if they don’t change then we will start giving them very real and very severe “haircuts”

  23. Susan the other

    Theoretically, capitalism and its financial system are based on fair play and equality and everyone plays by the rules. But the rules themselves are contradictory. Banks can only afford a fractional insurance on the value of their deposits. Well duh. Because simultaneously the Fed is saying the opposite thing about equality and fair play. The Fed has a totally delusional idea that equality must be quashed for the sake of the value of the currency. Dear god please splain me that one since the value of the currency is nothing more than the good faith and cooperation of the people. So the Fed does a magic trick and blames the everyday economy, especially labor, for rising inflation. Because prices. Wull… why prices? Because finance, the tool of the currency, and therefore the dollar, can only stay steady at a slow pace of appreciation because everyone locks in their interest rate long term. So the Fed freaks out and raises rates and demolishes everyone’s carefully invested money, wipes out ten percent of its value overnight, causing instant bankruptcy and sending prudence flying out the window. Is that dumb or what? Why doesn’t the Fed, guardian of the currency, guard it? With adjustable rate treasuries. Real time, like reality? We need to start over from scratch and rewrite the rules of finance. And while we are on the subject, why have the Fed and the Treasury allowed crypto to be pegged to the dollar? Both institutions have gone batshit.

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