Silicon Valley Bank or why bank regulators should ban WhatsApp

Apologies about the delay. We’re back

Silicon Valley Bank collapsed last week. The bank lost money on a bunch of investments that looked safe (they always do) but turned out to be very risky. When it announced the loss, some of the people who had money with the bank got worried. What if the bank didn’t have enough money to pay back its depositors, they asked? Unfortunately, they asked these questions in group chats with other depositors. And it turns out that the start-up founders and venture capitalists who made up most of Silicon Valley Bank’s customers like group chats. Worried people saw other people worry on Whatsapp, pulled out their money and the bank failed. A classic bank run but where everyone listens to Tim Ferriss and has a friend who works at Google. For the record, I like Tim Ferriss.

Much ink has been spilt on why SVB blew up, whether the government should have rescued depositors (it did) and if the collapse will trigger more bank runs. Here are some venture capitalists predicting Armageddon without government intervention, some traders downplaying the risk of a wider banking collapse and finally Matt Levine wrapping up the debate around moral hazards and bailouts beautifully. Highly recommended.

I’ll add one thing: Crises rumble on for years.  Lehman Brothers blew up in September 2008, a year after the run on Northern Rock bank. The US Federal Reserve started raising interest rates roughly a year ago. Since then there have been cryptocurrency bankruptcies, a meltdown in the UK pension fund sector (remember LDIs) and the collapse of two Silicon Valley banks. All unique, all unlikely without higher rates. Expect more to go wrong as rates barrel through through the economy’s creaking pipes.

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