Silicon Valley Bank
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Chez Guevara — Dining in style at the Disaster Café™
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So much ink has been spilled you don’t — yet — need more of it from the JC, except to mention how nice it is that, suddenly , every bot account on Twitter has an opinion, suddenly, about duration mismatch and moral hazard.
Was it a bailout?
Seeing as the depositors were paid out by bailed-in bank debt holders and shareholders, and a FDIC call on its levy fund. So, no, we don’t think so. This might cause the investing community to reappraise the credit standing of bank term debt — make it more expensive, since it is effectively subordinated to deposits — but that is probably the truth of the matter anyway. It might also encourage banks to shift their weighting between term debt and deposits towards deposits, as they’ll be cheaper.
Those depositors
Yes they are all Silicon Valley techbros and VCs and no we shouldn’t feel sorry for them, and it is okay to (privately) revel in the hubris of their distress. Also, you may well ask, fairly, what the hell they were doing leaving hundreds of millions on deposit with a bank and not sticking it into money market funds or some such thing (and indeed why SVB wasn’t encouraging them to do this given it was transparently deposit funding the bank did not need).
Concentration of, and correlation between, depositors is a significant risk
Deposits really are flakey
Since they can be removed at once, deposits are a really flakey balance sheet liability.
No bank can survive a bank run. For all Larry Summers’ declarations to the contrary, duration mismatch is a systemic problem for all banks, and one of their core jobs should be to properly manage it.
Bank runs are triggered by liquidity (if you have enough liquidity you can meet all withdrawal requests, so no problem) but once triggered, depend on confidence. If you are having a liquidity “moment”, you need to be able to impart confidence to depositors that, liquidity notwithstanding, their deposits are fundamentally safe. Even if not now, they will eventually get all their money back. If they believe that, then no bank run.
Making deposits effectively super-senior — giving them priority over term debt — helps generate that sense of confidence.