Interview, Fireside Chat
Jackie Reses & Kris Dickson: What Happened with SVB? Are VCs to Blame? | E988
- Jackie anticipates that VC firms will likely demand control over funding placement, bank selection, and capital management strategies, driving a de-risking of deposit bases toward systemically important or large regional institutions like PNC.
- Predictions suggest that memories of financial risk will be short, potentially leading to inadequate risk assessment of banks, while a "super concentration" of funding in major institutions could create "banking deserts" and undermine capital flow to smaller towns.
- Historical context notes that while 390 banks failed in the three years following the Lehman collapse, only nine failures occurred in the last five years including SVB, though Chris warns that a market for trading receivership certificates may emerge quickly if liquidation is protracted.
- Regarding SVB's liquidation, Chris predicts that if no buyer steps in, the process could take nearly five years to distribute $130 billion as seen with Lehman (September 2008 to March 2023), though the asset portfolio is expected to be less extensive due to being conservative and easier to sell.
- Chris expects that if a buyer assumes the deposit base liability, operations will continue, and regulators including the Senate may overcome hurdles like the 10% deposit limit to facilitate a sale, with buyers likely to assume SVB's client base as a strategic asset.
- Jackie predicts a buyer for SVB will be secured by Wednesday of the following week, possibly Morgan Stanley or PNC, and anticipates an immediate "advance dividend" calculated on super-liquid assets to be released above the standard $250,000 insured limit.
- Jackie warns of extreme broader economic impacts affecting schools, clubs, and industries such as wine and farm growers in Northern California, with small companies potentially facing an inability to make payroll or pay severance if funds remain inaccessible.
- Guidance suggests founders move corporate money into neo-banks for immediate access if the underlying bank is vetted, while explicitly advising against moving funds to personal accounts due to risks regarding corporate corpus integrity and potential audit or tax issues.
- Jackie forecasts that Monday will allow capital withdrawals, though the exact recoverable amount depends on the advance dividend, and cautions that social media rumors are likely inaccurate as only the FDIC, SVB employees, and buyers possess definitive information.
- Expectations indicate that other banks will face significant pressure as capital moves, prompting CFOs to intensify scrutiny of banking relationships, disclosures, InfoSec, and business continuity planning, while some institutions with digital asset focus may face panic-driven deposit pulls despite strong balance sheets.
- Chris notes that almost 400 banks failed post-Lehman compared to the recent low failure rate, and while 100% of fintech products rely on underlying banks, the psychology of risk and the tendency for clients to distinguish safety levels remains a critical challenge.
- Jackie predicts that by Wednesday next week, a buyer will be secured, likely Morgan Stanley or PNC, and anticipates that the FDIC is actively working to prevent a scenario where companies cannot make payroll due to withdrawal halts.
- Chris expects that venture capital firms and companies will publicly state they will remain with SVB to instill confidence in potential buyers, as a buyer must assume the liability of the deposit base, and believes regulators will pull out all stops to avoid a crisis of confidence.
- Jackie warns that memories regarding financial risk will be short, meaning people may not currently be making risk decisions based on company management, necessitating self-education on the risks associated with systemically important, regional, and tiny banks.
- Jackie anticipates that on Monday, people will be able to pull capital out, with the exact amount depending on an "advance dividend" added to the insured $250,000 per account, as the FDIC calculates super-liquid assets to sell immediately.
- Jackie predicts that some small companies will not be able to make payroll or pay severance if they cannot access funds immediately, leading to layoffs, while the FDIC is working hard to prevent the worst-case scenario where companies announce they cannot make payroll due to withdrawal halts.
- Jackie cautions that rumors circulating on social media are likely inaccurate because the only people who truly know what is happening are the FDIC, SVB employees, and potential buyers, and advises that moving money into personal accounts is highly risky.
- Jackie expects that other banks will feel significant pressure as massive amounts of money move and institutions make board-level decisions on risk controls, with CFOs scouring banking relationships and reading disclosures more carefully.
- Chris agrees with the bet that there will be a buyer and that the FDIC is orchestrating continuity to avoid a crisis of confidence, and warns that there is a massive psychology impact where "no one wants to be the last man standing."
- Jackie suggests that founders should consider moving money into abstraction layer companies (neo-banks) for immediate access, provided the underlying bank is vetted, while warning that moving corporate money into personal accounts is highly risky.
- Jackie predicts that by Wednesday next week, there will be a buyer for SVB, hypothesizing it might be Morgan Stanley or PNC based on strategic fit, and expects that the FDIC is working hard to prevent the worst-case scenario where companies announce they cannot make payroll due to withdrawal halts.