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Saturday Night Thoughts on the SVB Collapse
What the economy needs: clear and strong communication that depositors will recover all their funds.
Welcome to issue #44 of next big thing.
Today’s my birthday. Yes, March 11, the day the pandemic was declared by the WHO in 2020, and the day after SVB collapsed in 2023, is also the day I was born in 1989. I sadly don’t make the rules here.
1) It's important that we all learn from what happened on Thursday. Panic began to spread in the morning, and there was a run on the 16th largest bank in the U.S. Many people and companies' assets are now stuck. And it unfolded in less than 24 hours. Roughly 25% of SVB deposits attempted to be withdrawn in that time period, meaning that 75% of the funds were not in "panic mode." It was the first time we've seen a bank run in the age of instant messaging, public forums, electronic money transfer, and most of the world being always online.
2) So the entire focus of the federal government, federal reserve, FDIC, state governments, banks, and companies should be: "how do we make sure there isn't a run on any other bank?" Because if there's a run on another bank on Monday, it will be catastrophic for the U.S. financial system.
3) There is one action that those in charge across DC and Wall Street can take to lower the probability of a run on any other bank. It's the single most important thing that needs to happen by Monday morning. A clear and loud message that SVB depositors will ultimately recover their funds beyond the FDIC-insured limit. Not that SVB is bailed out as a company, not that SVB shareholders get anything, but that *depositors,* who in good faith had their money in cash so that they could run their businesses, will get their money. This should not cost the taxpayer much, perhaps even zero, given where SVB's assets were last week, before the run: ~$200B in assets against ~$180B of deposits. But what it does is send a message to everyone with funds at other banks above the FDIC-insured limit: that their money is safe. That there's no need to move it to a bigger bank. A further step of increasing the FDIC-insured limit would further help prevent more bank runs.
4) The problem is that the contagion has spread. Please don't blame the messenger - I just know from private texts and email threads, and public conversation, that many wires are queued up on Monday morning to transfer assets from smaller banks to the top few U.S. banks. I sincerely hope these wires are canceled. As someone who actively sought to prevent Thursday's bank run, by not immediately panicking and fueling the bank run fire, caught in the prisoner's dilemma as others acted out of individual interest, I never want to see it happen again. But the only way I see that being the case is through very strong and clear communication about the safety of SVB deposits, on the lines of what I describe above.
5) This is such an awful weekend for the founders, CEOs, and leaders at every company and organization affected by SVB's collapse. For those that think it's rich VCs and elites that are affected, you're wrong. It's hardworking small business owners - 40,000 of them. It's non-profits - universities, foundations, museums, hospitals (all of whom are the backbone of limited partners to venture capital firms). What I see around me is an incredible amount of effort being poured into planning for the scenarios that lie ahead. Answering questions such as: "if we only have $250K in funds on Monday, how do we make payroll and other obligations?" "What's the easiest way to loan money to companies to make sure they meet these obligations and don't have to shut down?" All of this is critical work. The stress is brutal. No one is sleeping well. Everyone is exhausted. Please keep these folks in your thoughts. Please speak up about the need for a strong message from the government, regulators, and banks by Monday morning. That's my birthday wish for us all.
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