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NPR had an excellent story of how a bank takeover and wind-down works back in 2009: https://www.npr.org/2009/03/26/102384657/anatomy-of-a-bank-takeover https:/

NPR had an excellent story of how a bank takeover and wind-down works back in 2009: https://www.npr.org/2009/03/26/102384657/anatomy-of-a-bank-takeover https://www.npr.org/2009/03/26/102384657/anatomy-of-a-bank-t... “On a mid-January night, some 80 agents of the Federal Deposit Insurance Corp. pull into Vancouver, Wash. Their rental cars are generic, their arrival times staggered. One by one, agents check into a hotel, each quietly offering a pseudonym to the guy at the desk. … He agrees it almost feels like a spy movie. "They've done this before — quite a production," he says.“ And in general, for people who are understandably worried: besides the $250k available on Monday morning, my bet is on at least 50% of uninsured deposits by end of the week, and 90-100% if not next week (via acquisition) then within a pretty short time. If Oaktree and others are offering folks 70%+ face value for their uninsured deposits, that should be a pretty strong indication of where this is heading (ie a high confidence level at those shops to make a quick 20-30% off panicky sentiment). Edit, PS: This whole story is so bewildering, probably the only bank I can think of that was killed by its own customers (flaky VC herd) despite being generally healthy and having picked the least worst option last year (maturity risk). VCs now banding together is laudable, but why there wasn’t a Buffett type preferred stock rescue earlier this week to save their literal community bank is kinda beyond me.

mkmk 4y ago
And 60 Minutes had a nice segment following a bank takeover as well: https://youtu.be/TAE8i40A5uI https://youtu.be/TAE8i40A5uI
- teruakohatu 4y ago
  Fascinating. Thank you for sharing. In my country there is no insurance for deposits, although sometime this year they plan to introduce mandatory insurance up to ~$60,000 USD.
rootsudo 4y ago
Bank gives all the money and risk to a VC, they take it - the second the risk is at the bank it they run.
- htag 4y ago
  The entire point of depositing money at a bank is that it is a very unrisky place to keep it.
  - rootsudo 4y ago
    Agreed, I just find it humorous that it isn't both ways.
deleted 4y ago
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nico 4y ago
> This whole story is so bewildering, probably the only bank I can think of that was killed by its own customers (flaky VC herd) despite being generally healthy So essentially it was all just panic. Scary how fragile our financial systems can be in the face of herd mentality and irrational behavior. Hope that panic slows down and First Bank doesn’t have to go through the same as SVB (people were lining up to withdraw their money today).
- santoshalper 4y ago
  As ever, the markets can stay irrational longer than you can stay solvent.
- everydayentropy 4y ago
  How is withdrawing your cash before everyone else withdraws their cash irrational? It's the Nash equilibrium.
  - mertd 4y ago
    After a large concert ends, would you say everyone stampeding to the exits is the rational behavior?
    - ccn0p 4y ago
      Yes if there's a material chance that the last third of folks at the concert get torched in a fire.
    - PKop 4y ago
      The bank failed. How could you possibly argue that withdrawing wasn't rational?
      - mertd 4y ago
        That isn't the case. To continue the concert analogy, the concert hall had more than enough doors to let everyone out if people left in their usual walking pace, but some doors were locked and the security was paying someone to unlock them. People took this as a sign that they should sprint to the gates.
462436347 4y ago
> This whole story is so bewildering, probably the only bank I can think of that was killed by its own customers (flaky VC herd) despite being generally healthy and having picked the least worst option last year (maturity risk). VCs now banding together is laudable, but why there wasn’t a Buffett type preferred stock rescue earlier this week to save their literal community bank is kinda beyond me. That was my take as well: https://news.ycombinator.com/item?id=35103411 https://news.ycombinator.com/item?id=35103411 I'd love to see the partners of Sequoia, Union Square, YC, and other VC firms grilled by members of Congress over this.
- FireBeyond 4y ago
  > I'd love to see the partners of Sequoia, Union Square, YC, and other VC firms grilled by members of Congress over this. Yup, and how Peter Thiel and his fund just so happened to say "You need to move your money out of SVB, and you need to do it TODAY", on Thursday, to all their startups...
  - numbsafari 4y ago
    And by Friday night were offering those same people bridge loans via Brex…
  - flangola7 4y ago
    That doesn't sound like bad advice from him
    - Aperocky 4y ago
      It's a self fulfilling advice. Though granted, SVB is a ticking time bomb since all of their deposit went to low yield long term securities. So such a run would have been an eventuality in the current interest rate. The question is, who else is doing this.
- brunooo 4y ago
  +1 re LTCM resolution, also great example. I’d rather hope that in the unlikely event of there being no private market buyer(s) and a public solution becoming necessary, that lawmakers will at least force some wider ecosystem stakeholders to chip in. The SVB CEO’s call of basically begging for people to support them the way they tried to support them for 40 years was very emotionally relatable. It’s one story if they’d gotten back with “Greg, we really spent day and night pouring over the balance sheet etc but couldn’t get there”, but as far as I recall TPG was the only publicly known group to even seriously look and consider. It sometimes makes me think that if there’d ever be a war in my lifetime, the very last regiment I’d want to serve in would be the Bay Area one. Imagine being in a foxhole with Sacks crying for the government, Balaji just stringing random words together, and 80% of the rest just opportunistically and led by Thiel weaseling out through the back trench…
RJIb8RBYxzAMX9u 4y ago
> One by one, agents check into a hotel, each quietly offering a pseudonym to the guy at the desk. This is actually the part that intrigued me the most. I'm no traveling salesman, but I've stayed at several different hotels over the years, and IIRC I was always asked to provide ID during check in. Cursory search seems to say that some states actually require it; in other cases it may be corporate policy. So, do the FDIC agents (?) also have cover identities? Or are they forced to stay in no-name, possibly rundown and bedbug-ridden motels for the sake of the ruse?
- wtallis 4y ago
  The 60 Minutes video linked in this thread doesn't mention cover identities for the individual FDIC employees, but does show that they're using a fictitious corporate identity for their reservations of meeting space (and possibly for a group booking of the hotel rooms). Keeping the FDIC involvement secret seems to be more important than keeping the individuals' identities secret.
  - RJIb8RBYxzAMX9u 4y ago
    Ah I see. So it's more about "hmm why did 100 (wo)men in black(tm) just all checked in -- something big must be going down -- oh they're all just here for the numismatic convention"; and not "hmm isn't that Bob who works for the FDIC? What's he doing here?"
graderjs 4y ago
VCs are like horses: easily spooked / slaves to the "sacred signals". Shouldn't surprise anyone how VCs reacted...but I think it is surprising that SVB failed. Unless you were really watching the numbers, as a few niche Twitter accounts, mostly unknown in these realms until yesterday, seem to have been. It's BS that the HN commentariat is all now Lasik Hindsight, "iT wAs ObViOUs": but this is what they are, have been and will be for every surprising thing--intellectual arrogance and inadequacy does not like being wrong. So it just pretends it wasn't. And gets mad at anything that reminds them. Obviously not all you dear HN cuties are like this...but it's a large enough trend that it'd be misleading to say you can't clearly see it. I don't know why everyone is scared to just say: "I was wrong. I'll reflect and learn something." I mean...that's the only way anyone ever does, when they're wrong. If you just carpet over it, and forget, I mean...you're just shrinking your world. And one day your model of the world is so tiny...that all you can do is look back to the past, and say: "Those days were better." But they weren't. Cause those days set you up to fail, to head towards this inevitable present, like you did. A shrunken future. Where you're the only right thing in the world. But the real world's far away. I think that kind of thinking is like an admission of deafeat / anathema to having a brain. But I get that everyone gets tired, and feels like they've seen it all before. And they don't want to stop, process, and integrate the new info into themselves / their lives because doing so...wouldn't be something you could just do in a 5 minutes and get on with your life. It would take time. Readjustment maybe. Reevaluation. Recalibration. It would be uncomfortable. You might have to give up some cherished beliefs. Some pet delusion. People fucking hate that. It's hard. But it's liberating. It's the kind of thing that should be taught in schools. How to properly lose.
wolverine876 4y ago
> the only bank I can think of that was killed by its own customers (flaky VC herd) Many of the VCs think of themselves as 'disrupters' who live in a world of disruption and taking advantage of it. Some are trying to disrupt SV for political reasons. Once upon a time, VC funders were looking for incredible innovations in technology and productivity, not in tearing things apart.
Stratoscope 4y ago
That is a great article that conveys both the facts and the drama around an FDIC takeover. I can also recommend the movie Margin Call which includes a fictionalized account of a similar takeover. If you haven't seen it before, this may be the weekend to watch it.
deleted 4y ago
[deleted]
fairity 4y ago
> If Oaktree and others are offering folks 70%+ face value for their uninsured deposits Does anyone know if the 70% offer from Oaktree applies to the remaining amount after FDIC pays out what they can on Monday/Tuesday? For example, if the FDIC releases 50% of uninsured deposits on Monday, can you sell the remaining 50% to Oaktree and recoup 85% (50% + 50% * 70%)?
- brunooo 4y ago
  Great question and no idea. They’re sophisticated cats and thus guess the answer is “the deal is whatever you can negotiate with them.” But it wouldn’t be very likely that anyone would give you the same terms for a junior tranche. Not investing, legal, or any other advice, but unless my company would be in a very weird situation requiring access to 50% or more of our funds in the next 2 weeks, I wouldn’t even start entertaining offers below 95% or maybe 92%.

mkmk 4y ago

And 60 Minutes had a nice segment following a bank takeover as well: https://youtu.be/TAE8i40A5uI https://youtu.be/TAE8i40A5uI

teruakohatu 4y ago
Fascinating. Thank you for sharing. In my country there is no insurance for deposits, although sometime this year they plan to introduce mandatory insurance up to ~$60,000 USD.

rootsudo 4y ago

Bank gives all the money and risk to a VC, they take it - the second the risk is at the bank it they run.

htag 4y ago
The entire point of depositing money at a bank is that it is a very unrisky place to keep it.
- rootsudo 4y ago
  Agreed, I just find it humorous that it isn't both ways.

deleted 4y ago

[deleted]

nico 4y ago

> This whole story is so bewildering, probably the only bank I can think of that was killed by its own customers (flaky VC herd) despite being generally healthy So essentially it was all just panic. Scary how fragile our financial systems can be in the face of herd mentality and irrational behavior. Hope that panic slows down and First Bank doesn’t have to go through the same as SVB (people were lining up to withdraw their money today).

santoshalper 4y ago
As ever, the markets can stay irrational longer than you can stay solvent.
everydayentropy 4y ago
How is withdrawing your cash before everyone else withdraws their cash irrational? It's the Nash equilibrium.
- mertd 4y ago
  After a large concert ends, would you say everyone stampeding to the exits is the rational behavior?
  - ccn0p 4y ago
    Yes if there's a material chance that the last third of folks at the concert get torched in a fire.
  - PKop 4y ago
    The bank failed. How could you possibly argue that withdrawing wasn't rational?
    - mertd 4y ago
      That isn't the case. To continue the concert analogy, the concert hall had more than enough doors to let everyone out if people left in their usual walking pace, but some doors were locked and the security was paying someone to unlock them. People took this as a sign that they should sprint to the gates.

462436347 4y ago

> This whole story is so bewildering, probably the only bank I can think of that was killed by its own customers (flaky VC herd) despite being generally healthy and having picked the least worst option last year (maturity risk). VCs now banding together is laudable, but why there wasn’t a Buffett type preferred stock rescue earlier this week to save their literal community bank is kinda beyond me. That was my take as well: https://news.ycombinator.com/item?id=35103411 https://news.ycombinator.com/item?id=35103411 I'd love to see the partners of Sequoia, Union Square, YC, and other VC firms grilled by members of Congress over this.

FireBeyond 4y ago
> I'd love to see the partners of Sequoia, Union Square, YC, and other VC firms grilled by members of Congress over this. Yup, and how Peter Thiel and his fund just so happened to say "You need to move your money out of SVB, and you need to do it TODAY", on Thursday, to all their startups...
- numbsafari 4y ago
  And by Friday night were offering those same people bridge loans via Brex…
- flangola7 4y ago
  That doesn't sound like bad advice from him
  - Aperocky 4y ago
    It's a self fulfilling advice. Though granted, SVB is a ticking time bomb since all of their deposit went to low yield long term securities. So such a run would have been an eventuality in the current interest rate. The question is, who else is doing this.
brunooo 4y ago
+1 re LTCM resolution, also great example. I’d rather hope that in the unlikely event of there being no private market buyer(s) and a public solution becoming necessary, that lawmakers will at least force some wider ecosystem stakeholders to chip in. The SVB CEO’s call of basically begging for people to support them the way they tried to support them for 40 years was very emotionally relatable. It’s one story if they’d gotten back with “Greg, we really spent day and night pouring over the balance sheet etc but couldn’t get there”, but as far as I recall TPG was the only publicly known group to even seriously look and consider. It sometimes makes me think that if there’d ever be a war in my lifetime, the very last regiment I’d want to serve in would be the Bay Area one. Imagine being in a foxhole with Sacks crying for the government, Balaji just stringing random words together, and 80% of the rest just opportunistically and led by Thiel weaseling out through the back trench…

RJIb8RBYxzAMX9u 4y ago

> One by one, agents check into a hotel, each quietly offering a pseudonym to the guy at the desk. This is actually the part that intrigued me the most. I'm no traveling salesman, but I've stayed at several different hotels over the years, and IIRC I was always asked to provide ID during check in. Cursory search seems to say that some states actually require it; in other cases it may be corporate policy. So, do the FDIC agents (?) also have cover identities? Or are they forced to stay in no-name, possibly rundown and bedbug-ridden motels for the sake of the ruse?

wtallis 4y ago
The 60 Minutes video linked in this thread doesn't mention cover identities for the individual FDIC employees, but does show that they're using a fictitious corporate identity for their reservations of meeting space (and possibly for a group booking of the hotel rooms). Keeping the FDIC involvement secret seems to be more important than keeping the individuals' identities secret.
- RJIb8RBYxzAMX9u 4y ago
  Ah I see. So it's more about "hmm why did 100 (wo)men in black(tm) just all checked in -- something big must be going down -- oh they're all just here for the numismatic convention"; and not "hmm isn't that Bob who works for the FDIC? What's he doing here?"

graderjs 4y ago

VCs are like horses: easily spooked / slaves to the "sacred signals". Shouldn't surprise anyone how VCs reacted...but I think it is surprising that SVB failed. Unless you were really watching the numbers, as a few niche Twitter accounts, mostly unknown in these realms until yesterday, seem to have been. It's BS that the HN commentariat is all now Lasik Hindsight, "iT wAs ObViOUs": but this is what they are, have been and will be for every surprising thing--intellectual arrogance and inadequacy does not like being wrong. So it just pretends it wasn't. And gets mad at anything that reminds them. Obviously not all you dear HN cuties are like this...but it's a large enough trend that it'd be misleading to say you can't clearly see it. I don't know why everyone is scared to just say: "I was wrong. I'll reflect and learn something." I mean...that's the only way anyone ever does, when they're wrong. If you just carpet over it, and forget, I mean...you're just shrinking your world. And one day your model of the world is so tiny...that all you can do is look back to the past, and say: "Those days were better." But they weren't. Cause those days set you up to fail, to head towards this inevitable present, like you did. A shrunken future. Where you're the only right thing in the world. But the real world's far away. I think that kind of thinking is like an admission of deafeat / anathema to having a brain. But I get that everyone gets tired, and feels like they've seen it all before. And they don't want to stop, process, and integrate the new info into themselves / their lives because doing so...wouldn't be something you could just do in a 5 minutes and get on with your life. It would take time. Readjustment maybe. Reevaluation. Recalibration. It would be uncomfortable. You might have to give up some cherished beliefs. Some pet delusion. People fucking hate that. It's hard. But it's liberating. It's the kind of thing that should be taught in schools. How to properly lose.

wolverine876 4y ago

> the only bank I can think of that was killed by its own customers (flaky VC herd) Many of the VCs think of themselves as 'disrupters' who live in a world of disruption and taking advantage of it. Some are trying to disrupt SV for political reasons. Once upon a time, VC funders were looking for incredible innovations in technology and productivity, not in tearing things apart.

Stratoscope 4y ago

That is a great article that conveys both the facts and the drama around an FDIC takeover. I can also recommend the movie Margin Call which includes a fictionalized account of a similar takeover. If you haven't seen it before, this may be the weekend to watch it.

deleted 4y ago

[deleted]

fairity 4y ago

> If Oaktree and others are offering folks 70%+ face value for their uninsured deposits Does anyone know if the 70% offer from Oaktree applies to the remaining amount after FDIC pays out what they can on Monday/Tuesday? For example, if the FDIC releases 50% of uninsured deposits on Monday, can you sell the remaining 50% to Oaktree and recoup 85% (50% + 50% * 70%)?

brunooo 4y ago
Great question and no idea. They’re sophisticated cats and thus guess the answer is “the deal is whatever you can negotiate with them.” But it wouldn’t be very likely that anyone would give you the same terms for a junior tranche. Not investing, legal, or any other advice, but unless my company would be in a very weird situation requiring access to 50% or more of our funds in the next 2 weeks, I wouldn’t even start entertaining offers below 95% or maybe 92%.