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 (the 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 (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 charter (file at the moment of not-knowing): (1) This is the LDI lesson and the 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 (the 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 now applies to panic, and every treasury operation on Earth needs to reprice “how fast can belief exit” (the 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 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.
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 (the 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.