Hey, there! Log in / Register
At least two Boston companies hit by collapse of Silicon Valley Bank
By adamg on Sat, 03/11/2023 - 10:05am
TechCrunch reports how start-ups are getting hit by the nation's second largest ever bank collapse, including FarmboxRX, a Boston company that works with healthcare providers to send boxes of fresh food to Medicare and Medicaid recipients:
Bootstrapped founder Ashley Tyrner, CEO of FarmboxRx, says she has spent the past 24 hours unable to access her accounts or the millions of dollars she has in the bank.
However, the company also has money in accounts at other banks and so its 63 workers will still get paid, TechCrunch reports.
Separately, Aaron Pressman reports Boston-based Circle, which offers "stablecoin" cryptocurrency, "kept $3.3 billion of the $44-ish billion of total reserves" used to keep the cryptocurrency's value steady, at the bank. "Crypto traders freaked" and so its "stable coin," which is supposed to be pegged to the value of an actual dollar, dropped to 91 cents.
Ad:
Support Universal Hub
Help keep Universal Hub going. If you like what we're up to and want to help out, please consider a (completely non-deductible) contribution.
Comments
Not the only ones
I have heard from other friends in pharma about their companies having meetings/announcements towards the end of the day yesterday outlining a few delays in payroll this month as they shift things around. At least one was using SVB for their payroll account.
A lot of startups
Use 3rd party payroll admins, I’ve heard a few of them might collapse.
Looks like Etsy
Can be added to the list. That will hurt a lot of small mom and pop type sellers.
My two cents:
My two cents:
Bank contagion won't happen. Gold bugs and others are screaming from the rafters about fiat currency. We'll see what happens this week, but I'm thinking it's a big nothingburger. I have reasons.
1. There's always the FDIC guarantee. This will cover the first $250K in a deposit. There are differing arguments about checking/passbook accounts and different entities, but there will be no depositors hanging around out front with a coffee cup saying, "Quarter for the pint'.
2. There's a lot of crypto in there. Stable coin, etc, that was backed by dollars. Kind of a problem for the easily panicked, but if you wait it out, you'll see it come back. Here's why: let's be optimistic. Maybe it's a cash flow problem and not a serious balance sheet problem. All of a sudden everyone's lined up (figuratively speaking) at the door yanking their cash out. You don't have it. No bank does. That's how banks work. These Really Smart People shot themselves in the foot. It wasn't the bank. It was panic. I haven't seen a lot about the managers borrowing to buy back their own stock, but if they did, they're screwed. Their stock will probably be worth about what Freddie Mac was years ago.
This puts the bank in an interesting position. They have to liquidate assets to cover the withdrawals. Well, guess what. Due to interest rates climbing, most of their low interest rate bonds will be selling at a discount. If you have a T-bill at 1.9% and current ones are at 4.1%, who wants your bill unless there's a face value discount? Same with MBS. A year ago prime mortgages were selling at maybe 3.5%. Now it's over six. Over time, other banks will come in, figure out just what the hell is going on, then stabilize the ship. We're talking about $200 $B. In banking, that's bad, but not a catastrophe. To put it into perspective, Steve Case lost $100 $B at AOL. Twice. He was hit by the dot-com crash as well as some creative accounting. That was twenty years ago.
3. Roku made a terrible decision to put a gazillion dollars 'in the bank'. You don't need $490 $M to make payroll every week. So, put it in short term T bills. Even if you need a bunch of $$$$, either sell them or collaterize them. Smart people making absolutely dumb decisions. Six month T-bills are over 5%. Yes, you read that right.
4. Bottom line is that rates have to increase. The Fed, and Jerome Powell knows this, has to suck money out of the economy. It has to be pulled out.
5. Foolish politicians will try to push more money into the system. That will just make things worse. The bottom line is that we're at about 115-120% of GDP right now. That's a recipe for disaster, but it can be controlled. The FED should have been running up interest rates after 2008. This would have given them a cushion to lower interest rate to weather a storm.
This has been brewing for about fifteen years. It wasn't Covid or anything else. It was giving away free money for a decade and a half.
Solid post
I appreciate you taking time to post this. If you have cash, which I do, you can make a bunch of money very safely. A little risk and you can make even more.
Rates
The Fed might actually lower interest rates in response. Too many savers are pulling money out of their bank accounts and buying treasuries to earn higher interest. That's a big problem for banks which need to keep cash on hand to meet reserve requirements. Lowering rates will keep people from pulling money out of savings accounts earning 0.05% into T-bills earning 5.0%
Lower rates will worsen inflation, but added inflation is preferable (to Fed leaders) to the risk of a run on the banks causing a full banking crisis.
Rates, rates
Or the banks could actually raise the rates they give savers when interest rates go up. You know, like they use to?
My credit union is currently offering really good rates for CDs, so I pulled some savings from my bank (which is still paying 0.05%) and put them into the credit union.
Peter Thiel should be in Federal Prison.
.
He gives us gays...
A bad name.
A useful company and a useless one
I hope the first one is made whole and the second one crashes and burns.
The Globe had a rather fawning piece
On circle a few months ago.
But you can dress up a scam all you want, it’s still a scam.
https://www.bostonglobe.com/2022/12/17/business/amid-crypto-crash-boston...
If they are so smart, why did
If they are so smart, why did they made a run on their own bank?
Sociopathic con artists
They are not infrequently the smartest people in the room.
A LOT of startups had money
A LOT of startups had money in SVB. My company told us that they had some sort of relationship with them and are working with their counterparts there to sort it out. Hopefully we don't have our second layoff of this short year.
The one silver lining is that some more crypto scams - I mean companies - will get flushed down the drain.
FDIC
Let's hope they move quickly to make the smaller customers whole. Deposits up to $250K are covered: https://www.svb.com/fdic
Insured deposits will be available on Monday
This is how the FDIC normally works. The two unusual things in this situation are that the FDIC shut the bank down mid-day instead of waiting for it to close Friday afternoon, and that they are creating a temporary FDIC-controlled bank instead of finding another local bank to take this one over.
(I've been through two of these locally -- Coolidge Bank and Trust, taken over by Pioneer Financial, and Merchants Bank of Boston, taken over by Bank of Boston.)
Coolidge Trust
Was something far more nefarious.
That wasn't they were overextended on loans to local developers like say First American (The old Dorchester SB) or NewWorld Bank (The old Charlestown SB). That bank got got up in some shady international dealings with BCCI.
https://en.wikipedia.org/wiki/Bank_of_Credit_and_Commerce_International
source of this info?
There's nothing about Coolidge Bank on the page you linked to.
I recall Coolidge being a favorite of college students in the late 1970s, for offering free checking accounts and being an early adopter of ATMs (which they called "Cool Cash" machines)
My Memory
A lot of things get scrubbed from the internet on purpose Ron. Things like a certain bar owner on Beacon Street who demanded a bailout after 9/11 for his bar / t-shirt shop. Sometimes Not Everyone Knows Your Name. Things like that.
Coolidge Bank had ties to the BCCI scandal. Trust me.
Sorry that I did not save the clippings from 1991 in order to prep you in 2023.
Online archives might be worth a look
Heres a WaPo article from 1991, found very quickly with a Google search
https://www.washingtonpost.com/archive/politics/1991/07/28/bcci-scandal-...
Nothing in that article mentions Coolidge Bank
What I found in the Boston Globe archives around 1990-91 regarding Coolidge Bank was a much more prosaic problem: too many loans to bank insiders.
Yeah I should've mentioned that
It was easy to find a 1991 article mentioning BCCI but not Coolidge, hoping it gave John some help sourcing his statements
I Have A Life
Unlike you who appears they can spend time trying to confirm things that I can remember.
My source is my memory, trust me!
Would that be like the time where you incorrectly claimed that dooring a cyclist was not a crime?
And I recall some snarky comments you've made to other UHubbers about losing their memory and getting senile with age.
Shouldn't we be concerned about that too when it comes to verifying your statements?
Rabbit Hole
I went down a rabbit hole one night looking up information about new england based banks prior to 1994. Specifically banks like
Baybank
Farmers & Mechanics
Bank of New England
Merchants Bank
Connecticut Bank & Trust (CBT Corporation)
BankEast
And a whole host of others that were very small banks that some of the above acquired at one point. To John's point, there isn't much online about any of these except for some tiny burbs here and there in old newspaper articles online.
If the wiki page is correct, John.. are you sure you are not thinking about this instead?
https://en.wikipedia.org/wiki/Bank_of_New_England
Seems to be along the same thing as SVG.
Also this whole SVG thing feels like the Savings and Loan Crisis of the late 1980s. Selling high rate CDs to customers, then in return investing the $ into very high risk investments and losing their shirts in the process.
https://en.wikipedia.org/wiki/Savings_and_loan_crisis
PS - Love how John Fish's name is listed as key people under Bank of New England's page... some things never change.
Ashley Turner should have
Ashley Turner should have been smart enough to spread personal funds across multiple banks.
If there's any taxpayer-financed bailout at all of the uninsured amounts, it should be limited to businesses only. And that's only because the employees depend on those businesses. If not for that they should get nothing from the taxpayers too.
People like Turner who kept personal sums far in excess of the FDIC limit at SVB shouldn't get a dime from taxpayers. So if they lose some/all of it when SVB's assets are sold off, so be it.
From the article
Fortunately, Tyrner said the company had “diversified” and has money in other banks as well; it’s not at risk of being unable to make payroll.
What personal funds are you talking about here?
Pretty sure from the article she's talking about the accounts her company has in SVB, which are needed for things like "receiving payments from customers" and "covering payroll". It's absurd to suggest that every business with enough sales and more than a handful of full-time employees must open dozens of accounts to cover those purposes.
Some start-ups had no choice
I read elsewhere that many VCs told their start-ups they had to use this bank. Those same VCs then ordered them to pull their money out all, initiating the run on the bank with foreseeable results.
Meanwhile, the partial roll-back of banking rules under Trump meant that SVB didn't have the cash reserves it previously would have been required to have, which would have stabilized their situation.
Cash reserves?
From what I've read, it wasn't a cash reserves issue as any bank can only handle so much when it comes to a run on withdrawals. The issues were:
- a communication issue by management
- they took a $1.8 billion loss when they sold $21 billion in low-interest bonds. The bonds had lost value due to rising interest rates.
From NYTimes:
I'm no finance guy, feel free to correct me.
Of course, Fox blames this failure on Biden because yada yada yada...
They had to sell the bonds because they didn't have the cash.
They had their backs to the wall with the "run" and had to sell the bonds at a huge loss.
2018 bill made this much more likely
The 2018 bill lessened regulatory scrutiny for many regional banks, removing the requirement that banks with assets under $250 billion submit to stress testing by the Fed and changing requirements for the amount of cash they had to keep on their balance sheets to protect against shocks.
SVB paid themselves bonuses
SVB paid themselves bonuses hours before the takeover.
Of course they did.
When you know what's coming, it's time to cash out before everyone else finds out.
More details on the bonuses
FWIW, there are a few details pertaining to the bonuses.
The bonuses were for an annual bonus for 2022 and were always paid on the second Friday in March, which happens to coincide exactly on the day of the run on withdrawals.
The FDIC sign
reads Each Depositor Insured To "At Least" $250,000
That's different than "Up To" $250,000
Somebody needs to get clarification on that from FDIC. It would appear that people should get more than 250K if they have more than that.
That's quite clear to me
There is no guarantee that you will get your money in excess of $250,000. You might, or you might not, or you might get just part of it. A lot depends on whether the FDIC can find a ready buyer for the failed bank.
Back when the limit was much lower (I'm old enough to remember it being just $10,000), it was considered highly prudent to put your money in more than one bank to avoid being over the limit in any account.
History of FDIC limit changes
No one will lose deposits
See the latest announcement at
https://home.treasury.gov/news/press-releases/jy1337
Some Ma Banks do more?!
>I just got this from my bank:
Over the past few days, we have been hearing about the financial collapse of the Silicon Valley Bank (SVB). I want to ensure all our customers, with personal and/or business accounts that ALL your money on deposit at The Cooperative Bank (TCB) is safe. When I say all, I mean all – not just the first $250,000.
The Cooperative Bank has been a long-time member of the Depositor Insurance Fund (DIF). As a member of both the Federal Deposit Insurance Corporation (FDIC) and the Depositors Insurance Fund (DIF), TCB provides full insurance for its customers' deposits without limit or exception.
DIF insurance is available only on deposits in Massachusetts-chartered savings and co-operative banks. By combining FDIC primary insurance and DIF excess deposit insurance, TCB provides all depositors with full insurance.
It’s important to note that not all banks have excess insurance. I encourage you to ask your other financial institutions if they carry excess insurance. No depositor has ever lost a penny in a bank insured by both the FDIC and the DIF.
Here are some frequently asked questions about Depositor Insurance Fund (DIF):
Q: Are all types of deposit accounts fully insured in a bank providing both FDIC and DIF insurance?
A: Yes! All types and classes of deposit accounts, both personal and business, are covered including savings accounts, checking and NOW accounts, certificates of deposit (CDs), money market deposit accounts, and retirement deposit accounts.
Q: Are there any forms, applications, or special account titles required to receive full deposit insurance?
A: No. There are no forms, applications, or special account title requirements. Full deposit insurance protection works simply. You automatically receive this added insurance benefit when you make any deposit at a DIF member bank at no cost to you.
To learn more about DIF Insurance, please visit:www.difxs.com
Banks occasionally withdraw from DIF
I don't remember if they are required to withdraw if they demutualize, or if they grow beyond a certain size, but it has occasionally happened.
Petro dollar vs BRIC's. Read
Petro dollar vs BRIC's. Read up on it
Stealing your money
By design
Why Barney Frank Went to Work
Why Barney Frank Went to Work for Signature Bank
https://www.newyorker.com/news/q-and-a/why-barney-frank-went-to-work-for...
If Barney Frank Were a
If Barney Frank Were a Republican, He’d Be the Media’s Banking-Crisis Villain
https://www.nationalreview.com/the-morning-jolt/if-barney-frank-were-a-r...