Reply to I don’t know how banks work

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]So this SVB situation is going over my head. :([/quote]

I follow @yourrich.bff on IG.  She did a great job of explaining what happened to SVB, in a very simple, easy to understand way

https://www.instagram.com/p/CpqU7Mag4vS/[/quote]

She almost gets it right.

She is just parroting the many articles available online to explain WHAT happened with a partial understanding and explanation of WHY it happened.[/quote]

To continue--and to repeat my prior posts above--it does NOT matter what type of business SVB's main clients operated. It does NOT matter that VC (venture capital) money dried up. It does NOT matter that payrolls needed to be met.

All that matters is that the bank failed to match up the liquidity rights of its depositors with the investment terms of the bank's investments. (If you understand this very basic concept, then you should be able to understand that the SVB bank officers and directors were derelict in their duties--that SVB officers and directors "don't know how banks work".

SVB business clients always had payroll obligations and typically have funding needs. All of this could have been handled by SVB since it was ADEQUATELY capitalized, but it failed because it was NOT PROPERLY capitalized.[/quote]

Your right because all those things are irrelevant.  There is not a single bank out there that could survive the withdrawal of 1/3 of its deposits on the same day.  No amount of risk management would be adequate in that scenario.

We also don't need to speculate on why the funds were withdrawn because they've been saying why.  It wasn't to make payroll.  It wasn't to get a higher interest rate somewhere else.  It was because a VC group chat decided to do it because they were afraid that the bank would collapse if they did it.  They convinced themselves of a risk and then chose to trigger it.  They created a self-fulfilling prophecy.

Had the bank's depositors been more diverse in either size or industry then this would not have happened.[/quote]

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