SVB – a self-fulfilling prophecy / Prisoners Dilemma

Thursday, March 9, 2023 to today


SVB Overview

  • 209bn assets

  • 175bn deposits

  • 13-14bn market cap

  • 16th largest bank

Financial Profile

  • Heavily reliant on tech / VC companies - <10% deposits from stickier US domestic retail

  • 90% deposits uninsured – very different form other banks (in a bad way)

  • Low loan to deposit ratio – small lending book. Aka larger securities portfolio

  • Large HTM investment portfolio, especially in higher yielding long duration USTs and MBS over Fed reserves and t bills

    • Huge interest rate risk exposure

    • 50%+ assets invested in fixed rate securities

    • Average maturity of HTM bond portfolio was 6+ years

  • Mark to market losses

    • End of 2022: SVB had 15bn+ mark-to-market losses

What happened

  • 2021 deposits doubled – concentrated in longer dated USTs

  • Bank moved too slowly to shore up capital base, vulnerable to rapid deposit outflows

  • ALM policy errors, mark to market losses exceeded equity base

    • Usually higher interest rates drive stronger earnings b/c loan rates rise faster than deposits

    • SVB had the opposite happen due to customer base

    • Why didn’t SVB manage the assets better, or raise capital sooner?

  • Failed capital raise --> 42 billion deposit run on March 9

  • Entered FDIC receivership on March 10

What the government did

  • Yellen made FDIC make all depositors whole

  • Bank Term Funding Program provides banks up to 12 months financing with qualifying assets used as collateral valued at par rather than mark to market

Prisoner’s dilemma

  • A lot of SV investors banded together to ask companies to continue with SVB and support the bank

  • Peter Thiel was the first to run away 

  • Classic prisoner’s dilemma – once one starts, the rest will follow. How to get everyone to agree to stay with SVB? Impossible given human nature


What I am tracking now

  • J Powell is supposed to hike rates again next week (week of 3/20/2023)  

  • Which companies will benefit from this

    • Mercury deposits sky rocketed already and offered 3mm FDIC insured

    • Angellist launched custodial accounts to help startups

  • Who will serve the large crypto institutions now that both Signature and Silvergate are dead

What will happen to startups now and the venture landscape

  • Survival mode

    • Companies who were valuation sensitive will not be

    • Just get money to last 2 years

  • Funders need to always have follow on capital reserved and strong capital providers around the table


Silvergate Capital profile

  • 11+bn assets

  • 6+bn deposits

  • Market cap ~550mm

  • Founded in 1988, pivoted to digital assets in 2013

  • Large concentration in crypto – super risky

  • 12 bn --> 4bn deposit run in Q4, post FTX

  • Forced sale of security at huge losses

  • Voluntary wind down and liquidation March 8

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