/biz/ - Business & Finance

>>54352737

>>54125850
This is all true of all banking, to the extent that deposit insurance and lender-of-last-resort mechanisms exist, but certainly it is more true when the government expands its protection of depositors. But it is true of all banking, which is why there is so much bank regulation. Because the standard solution to this problem is regulation and government supervision: The government says to banks “look, we all understand that you are effectively making bets with government money, so we are going to keep a close eye on the bets you are making to prevent you from losing our money.”

The modern view that bank deposits should be safe and information-insensitive kind of goes along with a modern view that banks are public-private partnerships, that a bank is sort of a business partner with the government in taking deposits and providing credit, and that the way the partnership works is that the bank’s executives make the day-to-day decisions but the government has a lot of input into and oversight over those decisions.

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SVB
The lesson might be that there are some industries that are bad to bank. Imagine that it was 2021, and someone was like “do you want to start the Bank of Crypto? What about the Bank of Venture-Backed Tech Startups?” You’d be tempted, right? Those industries had so much money! They seemed cool. If you were their bank — if you were the specialized bank that exclusively focused on those industries — influencers on Twitter would tweet nice things about you, and you’d get invited to fancy parties. Also, as their bank, you’d probably find a way to get a cut of growing industries with lots of potential. Provide banking services to tech startups, get warrants in those startups, get rich when they go public. Provide banking services to crypto exchanges, start some sort of blockchain-based payment network, get rich through the magic of saying “blockchain” a lot.

But the structure of being the Bank of Crypto or Startups was a bit rickety. Traditionally, the way a bank works is that it takes deposits from people who have money, and makes loans to people who need money. The weird problem with focusing exclusively on crypto or startups in 2021 is that they had too much money. If you were the Bank of Startups, the main service that you provided to startups is that equity investors would give them a truck full of cash and they’d deposit it at your bank. Here is how SVB Financial Group, the holding company of Silicon Valley Bank, describes the vibe of 2021 and 2022 in its Form 10-K two weeks ago:

>Much of the recent deposit growth was driven by our clients across all segments obtaining liquidity through liquidity events, such as IPOs, secondary offerings, SPAC fundraising, venture capital investments, acquisitions and other fundraising activities—which during 2021 and early 2022 were at notably high levels.

People kept flinging money at SVB’s customers, and they kept depositing it at SVB. Perfectly reasonable banking service.