Filing this at 11pm on March 9th with the rare sensation of writing INSIDE the incident: SILICON VALLEY BANK — the 40-year-old institution holding the deposits of half the startup ecosystem, including companies whose logos fill this archive — is in collapse as I type. The mechanics, assembled from today’s filings and this evening’s frantic group chats: SVB parked pandemic-era deposit floods in long-duration Treasuries and MBS at 2020-21 yields (#231’s rate cycle repricing THOSE marks like everything else — held-to-maturity accounting concealing the mark-to-market hole from everyone including, apparently, themselves); yesterday they announced a forced sale crystallizing ~$1.8B of losses plus an equity raise; and TODAY the depositor base — the most network-connected, group-chat-coordinated, herd-velocity clientele in financial history — attempted to withdraw $42 BILLION in one day. VC firms advised portfolios to pull; the advice WAS the run (#228’s reflexivity: the stabilizing actors’ self-protection is the destabilizing event); and tonight payroll providers are failing and founders are counting insured fractions of eight-figure operating accounts. The FDIC arrives in the morning, the file expects. What happens to uninsured deposits — which is to say, to a generation of startups’ Friday payrolls — is the weekend’s question, and the answer will teach the ecosystem what “systemic” means at regulator o’clock.
The principal-file’s structural notes, written mid-fall per the #171 charter (file at the moment of not-knowing): (1) This is the #239 LDI lesson and the #230 Celsius lesson wearing a charter — duration mismatch plus confidence-dependent liabilities, in a REGULATED institution this time, the 2018 threshold-relaxation (banks under $250B exempted from the strictest stress tests, lobbied for by, among others, SVB’s own CEO) now a named contributing factor before the postmortem’s even drafted (#151’s org-chart bug: the certification process was the vulnerability). (2) The RUN VELOCITY is the novel variable: 1907’s runs took weeks, 2008’s days; this one took HOURS, because the depositors share Slack channels and board seats — coordination costs collapsed (#197’s doctrine) now applies to PANIC, and every treasury operation on Earth needs to reprice “how fast can belief exit” (#163’s capacitor, measured tonight at $42B/day). (3) Being a YC-lineage fintech makes tonight personal twice over: half our peer batch banks with SVB, the founder group chats are (per our CEO) “the Somme,” and our own treasury moved operating cash into T-bill ladders last year during the #230 winter on exactly the logic now executing — the CFO and I exchanged a single grim emoji tonight. Preparation feels like paranoia until 11pm on the day it doesn’t (#174, forever).
TIL: held-to-maturity vs available-for-sale accounting — the classification choice that made a solvent-looking balance sheet insolvent-on-contact with a run. The confession was in the footnotes for QUARTERS (#162’s reconciliation doctrine: the diff never lies, but somebody has to read it). Weekend of the year ahead; fifteen days will know more than tonight does.