Lets talk... Tech
Discussion
Big tech, startups, scale ups, PE, VCs, Silicon Valley, layoffs, unicorns, SaaS...
Apart from the Twitter thread I don't see another place for talking Tech news.
Lets get going with the big news of the day.. Silicon Valley Bank is in trouble.
Why is that important? Over half of tech companies who have raised capital in the last year hold their funds in a bank that is now... failing.
VC firms are advising their portfolio companies to pull their cash out, and guess what.. a run on the bank now ensues.
https://techcrunch.com/2023/03/09/silicon-valley-b...
Apart from the Twitter thread I don't see another place for talking Tech news.
Lets get going with the big news of the day.. Silicon Valley Bank is in trouble.
Why is that important? Over half of tech companies who have raised capital in the last year hold their funds in a bank that is now... failing.
VC firms are advising their portfolio companies to pull their cash out, and guess what.. a run on the bank now ensues.
https://techcrunch.com/2023/03/09/silicon-valley-b...
Just checked the local news - yeah its been seized by the FDIC and effectively closed until they have sorted a few things out.
Odd, and I am not a banker. Lots of words and they seem to make sense, but dont really know what this actually means. Something about people taking their money out which forced them to sell some assets? Surely you would have had this covered before? No idea.
Odd, and I am not a banker. Lots of words and they seem to make sense, but dont really know what this actually means. Something about people taking their money out which forced them to sell some assets? Surely you would have had this covered before? No idea.
In my understanding, banks multiply the deposits they have.
So 100 people deposit £100 in a bank - £100,000
The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
Because it's unlikely everyone will want their cash back at once
This multiplier effect has underpinned modern banking, and effectively enabled the huge rise in living standards. It works well: until it doesn't.
What's happened here is probably either:
- the bank has lent too much without sufficient capital, or
- the capital they had has turned out to be worth less, or
- everyone wants their money back at once (a banking run)
Or maybe some unspecified naughtyness which I'm sure we'll get to hear about
So 100 people deposit £100 in a bank - £100,000
The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
Because it's unlikely everyone will want their cash back at once
This multiplier effect has underpinned modern banking, and effectively enabled the huge rise in living standards. It works well: until it doesn't.
What's happened here is probably either:
- the bank has lent too much without sufficient capital, or
- the capital they had has turned out to be worth less, or
- everyone wants their money back at once (a banking run)
Or maybe some unspecified naughtyness which I'm sure we'll get to hear about
Edited by Ian Geary on Friday 10th March 18:44
I think in addition, being a banking partner to many tech / start ups (which we know is in a world of hurt right now) has caused so much turmoil and uncertainty.
Of course, who will suffer in the end? The faceless corporations or the employees now working for companies who just lost their cash?
More layoffs incoming.
Of course, who will suffer in the end? The faceless corporations or the employees now working for companies who just lost their cash?
More layoffs incoming.
Ian Geary said:
In my understanding, banks multiply the deposits they have.
So 100 people deposit £100 in a bank - £100,000
The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
Because it's unlikely everyone will want their cash back at once
This multiplier effect has underpinned modern banking, and effectively enabled the huge rise in living standards. It works well: until it doesn't.
What's happened here is probably either:
- the bank has lent too much without sufficient capital, or
- the capital they had has turned out to be worth less, or
- everyone wants their money back at once (a banking run)
Or maybe some unspecified naughtyness which I'm sure we'll get to hear about
I have often thought of abandoning PH altogether of late, But then I read this and it reminds me that sometimes, it is worth the time. Thank you for your very clear and understandable explanation. I never knew this!So 100 people deposit £100 in a bank - £100,000
The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
Because it's unlikely everyone will want their cash back at once
This multiplier effect has underpinned modern banking, and effectively enabled the huge rise in living standards. It works well: until it doesn't.
What's happened here is probably either:
- the bank has lent too much without sufficient capital, or
- the capital they had has turned out to be worth less, or
- everyone wants their money back at once (a banking run)
Or maybe some unspecified naughtyness which I'm sure we'll get to hear about
Edited by Ian Geary on Friday 10th March 18:44
chris watton said:
Ian Geary said:
In my understanding, banks multiply the deposits they have.
So 100 people deposit £100 in a bank - £100,000
The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
Because it's unlikely everyone will want their cash back at once
This multiplier effect has underpinned modern banking, and effectively enabled the huge rise in living standards. It works well: until it doesn't.
What's happened here is probably either:
- the bank has lent too much without sufficient capital, or
- the capital they had has turned out to be worth less, or
- everyone wants their money back at once (a banking run)
Or maybe some unspecified naughtyness which I'm sure we'll get to hear about
I have often thought of abandoning PH altogether of late, But then I read this and it reminds me that sometimes, it is worth the time. Thank you for your very clear and understandable explanation. I never knew this!So 100 people deposit £100 in a bank - £100,000
The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
Because it's unlikely everyone will want their cash back at once
This multiplier effect has underpinned modern banking, and effectively enabled the huge rise in living standards. It works well: until it doesn't.
What's happened here is probably either:
- the bank has lent too much without sufficient capital, or
- the capital they had has turned out to be worth less, or
- everyone wants their money back at once (a banking run)
Or maybe some unspecified naughtyness which I'm sure we'll get to hear about
Edited by Ian Geary on Friday 10th March 18:44
The multiple you lend is a function of the asset (a loan maybe) risk weight hence RWA. So under Basel 2 it was capital 8% minimum so for every £8 you could lend £100 in RWA value but if the loan as a low risk then the actual loan would be far greater than the £100. Average Risk weight across a mixed portfolio are roughly 50% but that's really rough guesstimate lots of other factors come into plat (collateral, customer type, loan type etc).
Under new rules for 2025 the RW on your exposure will tighten forcing firms to hold more capital as all modelled RWA will also have to use an Standardised equivalent calculation (which is kind of what the previous poster describes but not). Since 2008 the rules have got a lot tighter and its not really as simple as lend x times yout customer Deposits.
FYI I do this for a living and till Sept was actually at SVB
Ian Geary said:
In my understanding, banks multiply the deposits they have.
The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
and it's now worse than that...........The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
https://www.investopedia.com/terms/f/fractionalres...
"On March 26, 2020, the 10% and 3% required reserve ratios against net transaction deposits were reduced to 0% for all banks, essentially removing the reserve requirements altogether.2 It was replaced with Interest on Reserve Balances (IORB), or interest paid on reserves the banks hold as an incentive rather than a requirement"
Even in the old 10% system, if you think about someone getting a car loan and buying a car, what does the receipient of this newly created money do? he likely pops it in the bank, and what can they then do with 90% of it?.........and round and round it goes.
Gecko1978 said:
FYI I do this for a living and till Sept was actually at SVB
Are the systems/products fully understood internally or is the banking sector so broad that there is room for some ignorance for some people in some areas?To the guy on the street it's a bit smoke and mirrors and not easy to dive deeper into and understand fully all that goes on. You might say that's indicative of any company or tech, but I feels to me that money and banking and how the two interact should not only be relatively easy to explain, but should be relatively easy for most to understand as we all have to use it and it's operation is pivotal to all our lives?
This makes for grim reading.
https://www.cnn.com/2023/03/10/tech/silicon-valley...
Companies not being able to make payroll.. asking angels for cash to keep them afloat etc..
https://www.cnn.com/2023/03/10/tech/silicon-valley...
Companies not being able to make payroll.. asking angels for cash to keep them afloat etc..
Scootersp said:
Gecko1978 said:
FYI I do this for a living and till Sept was actually at SVB
Are the systems/products fully understood internally or is the banking sector so broad that there is room for some ignorance for some people in some areas?To the guy on the street it's a bit smoke and mirrors and not easy to dive deeper into and understand fully all that goes on. You might say that's indicative of any company or tech, but I feels to me that money and banking and how the two interact should not only be relatively easy to explain, but should be relatively easy for most to understand as we all have to use it and it's operation is pivotal to all our lives?
But governments, and people also want the economy to grow and so that requires lending which has to be funded so going back to a gold standard type arrangement is just a non starter.
Banks have since 2008 become much better in their controls so this sort of thing should not happen but should is not can't.
What I will say of SVB is the people their were great and I am sorry to hear they are facing tough times ahead as believe it or not the average banker bonus really isn't ferrari money its more big screen TV from currys jn the sale money
Sheepshanks said:
Gecko1978 said:
Am I due a parrot because that's not how it works.
To be fair you basically said the same thing, but also added some more detail which is interesting (so thanks for that) but also becomes baffling.Anyway interesting to see where this all ends news so far is it won't cause contagion in banking sector but markets are down.
Ian Geary said:
In my understanding, banks multiply the deposits they have.
So 100 people deposit £100 in a bank - £100,000
The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
Because it's unlikely everyone will want their cash back at once
This multiplier effect has underpinned modern banking, and effectively enabled the huge rise in living standards. It works well: until it doesn't.
What's happened here is probably either:
- the bank has lent too much without sufficient capital, or
- the capital they had has turned out to be worth less, or
- everyone wants their money back at once (a banking run)
Or maybe some unspecified naughtyness which I'm sure we'll get to hear about
Wouldn't be PH unless I pointed this out... that's £10K, not £100KSo 100 people deposit £100 in a bank - £100,000
The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
Because it's unlikely everyone will want their cash back at once
This multiplier effect has underpinned modern banking, and effectively enabled the huge rise in living standards. It works well: until it doesn't.
What's happened here is probably either:
- the bank has lent too much without sufficient capital, or
- the capital they had has turned out to be worth less, or
- everyone wants their money back at once (a banking run)
Or maybe some unspecified naughtyness which I'm sure we'll get to hear about
Edited by Ian Geary on Friday 10th March 18:44
The point still stands though - fair enough
abzmike said:
I think the next year will see a lot of blood spilled in the tech space. VCs are not seeing the returns expected, for all the reasons we know… refinancing is very tight, cutbacks all round, probably just starting - don’t ask how I know 
I think a lot of folks on these boards work in tech to some degree (myself included). It's going to be a very difficult time if this is anything to go by.30% of YC companies exposed through SVB can’t make payroll in the next 30 days.
https://twitter.com/garrytan/status/16342866889221...
Eek.
Looks like SVB is no more, accounts with up to $250k are protected above that is less certain.
https://www.fdic.gov/news/press-releases/2023/pr23...
https://twitter.com/garrytan/status/16342866889221...
Eek.
Looks like SVB is no more, accounts with up to $250k are protected above that is less certain.
https://www.fdic.gov/news/press-releases/2023/pr23...
Mars said:
Ian Geary said:
In my understanding, banks multiply the deposits they have.
So 100 people deposit £100 in a bank - £100,000
The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
Because it's unlikely everyone will want their cash back at once
This multiplier effect has underpinned modern banking, and effectively enabled the huge rise in living standards. It works well: until it doesn't.
What's happened here is probably either:
- the bank has lent too much without sufficient capital, or
- the capital they had has turned out to be worth less, or
- everyone wants their money back at once (a banking run)
Or maybe some unspecified naughtyness which I'm sure we'll get to hear about
Wouldn't be PH unless I pointed this out... that's £10K, not £100KSo 100 people deposit £100 in a bank - £100,000
The bank thinks: rather than just lend a max of £100,000, why don't we lend £1,000,000? (X10)
Because it's unlikely everyone will want their cash back at once
This multiplier effect has underpinned modern banking, and effectively enabled the huge rise in living standards. It works well: until it doesn't.
What's happened here is probably either:
- the bank has lent too much without sufficient capital, or
- the capital they had has turned out to be worth less, or
- everyone wants their money back at once (a banking run)
Or maybe some unspecified naughtyness which I'm sure we'll get to hear about
Edited by Ian Geary on Friday 10th March 18:44
The point still stands though - fair enough
InformationSuperHighway said:
Best bet for all is SVB finds a buyer and the money is somehow made available again.
The tech bubble popped in the middle of least year, but this feels like it will have deep and long lasting repercussions.
The tons of companies not being able to make payroll is scary.
Who are they though?The tech bubble popped in the middle of least year, but this feels like it will have deep and long lasting repercussions.
The tons of companies not being able to make payroll is scary.
My wife and I both work in tech, my company public hers not, I can’t find too much out there about who this is going to hurt most?
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