As I understand it, many of Silicon Valley Bank’s clients were tech companies, who should have had finance professionals handling the dough for the company. Since even *I* know that deposits are only insured up to $250,000, how could these finance professionals make such a stupid mistake?
SVB went out of its way to cater to the tech/start-up community. They were the "go-to" bank because they were one of them, and they understood the "special needs" of tech and start-up companies.
What none of those tech companies ever identified as a "need" was prudent and conservative cash management.
If you've ever been around companies liberally funded by venture capitalists you'd appreciate that very few of them can balance a checkbook, or count to twenty without taking off their shoes and socks.
How could they make such a stupid mistake? Because they really are that stupid.
This raises so many questions in my mind. *You* are able to see that the balance sheet problems and uninsured deposits of First Republic will inevitably become the problems of the other banks - but to what extent do *they* grasp that? Do they all see that their own bank has a big problem, or, in reassuring their clients, do they talk themselves into believing that it will all be okay somehow (I.e. the government will bail them out)?
How did banks such as Silicon Valley get to a point of having 90% uninsured deposits? Are their risk management officers incredibly incompetent, or were they trying to get away with something, and are there no check measurements in place to prevent this?
The banks in trouble have uninsured deposits at levels of 67-90%, and as interest rates rise, other banks will get into the danger zone, too. What is the historical average level of uninsured deposits, or the level at which finance professionals regard as acceptable? Is this figure widely agreed upon in the industry, leading bank management to take drastic fire-sale measures before their own bank reaches it?
Please don’t feel you have to answer my questions directly, Mr. Kust; it’s just fodder for your future columns...
Do the banks believe that the government will bail them out? Yes. They have made that their baseline presumption since the S&L crisis of the 1980s.
As for the uninsured deposits, that's not on the banks. If your deposit exceeds the $250,000 account limit for FDIC coverage, it's on you to adjust your account, or to accept the risk.
That baseline presumption is also known as a "moral hazard" and some of us have been upset about it since the 1980s, particularly when the Continental Illinois bailout protected not just depositors, but also bond holders.
As I understand it, many of Silicon Valley Bank’s clients were tech companies, who should have had finance professionals handling the dough for the company. Since even *I* know that deposits are only insured up to $250,000, how could these finance professionals make such a stupid mistake?
SVB went out of its way to cater to the tech/start-up community. They were the "go-to" bank because they were one of them, and they understood the "special needs" of tech and start-up companies.
What none of those tech companies ever identified as a "need" was prudent and conservative cash management.
If you've ever been around companies liberally funded by venture capitalists you'd appreciate that very few of them can balance a checkbook, or count to twenty without taking off their shoes and socks.
How could they make such a stupid mistake? Because they really are that stupid.
Mind boggling and disturbing. I like the phrase you’ve used: ‘epic stupidity’.
This raises so many questions in my mind. *You* are able to see that the balance sheet problems and uninsured deposits of First Republic will inevitably become the problems of the other banks - but to what extent do *they* grasp that? Do they all see that their own bank has a big problem, or, in reassuring their clients, do they talk themselves into believing that it will all be okay somehow (I.e. the government will bail them out)?
How did banks such as Silicon Valley get to a point of having 90% uninsured deposits? Are their risk management officers incredibly incompetent, or were they trying to get away with something, and are there no check measurements in place to prevent this?
The banks in trouble have uninsured deposits at levels of 67-90%, and as interest rates rise, other banks will get into the danger zone, too. What is the historical average level of uninsured deposits, or the level at which finance professionals regard as acceptable? Is this figure widely agreed upon in the industry, leading bank management to take drastic fire-sale measures before their own bank reaches it?
Please don’t feel you have to answer my questions directly, Mr. Kust; it’s just fodder for your future columns...
Do the banks believe that the government will bail them out? Yes. They have made that their baseline presumption since the S&L crisis of the 1980s.
As for the uninsured deposits, that's not on the banks. If your deposit exceeds the $250,000 account limit for FDIC coverage, it's on you to adjust your account, or to accept the risk.
That baseline presumption is also known as a "moral hazard" and some of us have been upset about it since the 1980s, particularly when the Continental Illinois bailout protected not just depositors, but also bond holders.