I am glad the Silicon Valley Bank depositors will get their money back . Now the world can take the time to debate and fix the underlying problems .
As always, this is strictly my personal opinion and nothing more
This was not really a Lehman kind of scenario like a lot of social media posts seem to imply. It’s more of the classic “run” scenario . When there is mass panic and every deposit needs to be yanked out quickly – I doubt any bank can survive that , including the very big ones. That said – there is no excuse at all for SVB not managing their risk competently .
Banking business model – and the regulatory frameworks that need Banks to hold certain amount of highly liquid assets – generally assume a scenario less catastrophic than a full on run .
The primary question now in my mind is on what will change about risk management at banks – and potentially the regulations around it .
The last round of big changes were made because of the 2008 crisis . Those regulations were made when technology was not as advanced as it is today. The kind of run we saw in old movies and read about in college – they had long lines of people waiting at branches to take money out via tellers . Sure in 2008 there were smartphone apps – but not everyone had them . High speed internet was not as widely available . And social media was not yet the thing it is today .
It meant that people needed a bit of time to act because of the inherent inefficiency of banking processes .Now there is very limited friction . If a founder panicked seeing the VC’s email to pull money out of SVB – the instinctive response probably was not to go find the 8-K filing of SVB . The more likely scenario is a quick look at social media groups , Twitter etc and then do a wire transfer on the phone . The run in this case is a lot faster than any time before in history . Maybe we should find another word instead of “run” to refer to this in future !
I know that Banks do evaluate technology risk carefully – and so do regulators . But that’s about systems not crashing , being auditable and not causing trouble to customers and so on . Frictionless transactions have always been a good thing . Managing the risk of advanced tech and social media (which is also about great technology that advanced fast) fuelling a Bank run will be a new risk management muscle to exercise for all parties – but one I am sure they will start thinking about seriously and real quick !