Silicon Valley Bank, the 16th largest bank in the United States, is closed.
$SIVB In less than 48 hours one of the largest banks in the US went from a $15b market value to being closed by the California Department of Financial Protection and Innovation. The FDIC was appointed as the receiver.
The last 24 hours with this has been wild. Do they get bought now? Or do they get divided piece by piece? I heard this morning some banks were looking but deposits were out flowing so fast they couldn’t do a fair evaluation. But now….
@sazu might not be but I’d rather limit the risk by selling and see how it plays out, it’s not a high conviction company for me and it’s a small position/small loss. If it gets oversold and back into my buy zone I’ll buy it back, if not, that’s fine too.
I don't know why many of these businesses, VC funds, startups, and high net worth individuals ever thought of taking extra lengths to open up more bank accounts at different banks to qualify for the FDIC policy. They could afford the resources from the beginning.
@dissectmarkets If you had just $10M dollars, that’s 40 bank accounts at 40 different banks. Roku said they have $1.9B. That’s 8,000 bank accounts at 8,000 different banks. It’s gets pretty unmanageable pretty fast.
Yes, I know you can have multiple bank accounts qualify for FDIC insurance at the same bank but it requires unique ownership of the account so you start having to have a unique person on each business account. That isn’t financially safe or feasible.
@interrobangbros Roku and other firms can hire more finance or admin talent to manage all of those bank accounts. If they have great auditors, they can gain guidance from those auditors on how to scale the management of those bank accounts. Wealth management firms can offer those management services to high net worth individuals.
@dissectmarkets That would be an incredible waste of money and resources. Roku may lose $487M, sure, but this is recency bias. SIVB is the first US bank to fail since 2020. Since 2017, only 7 banks have failed totaling assets of just $600M. It's incredibly rare for an event like this so to spend enormous sums of money on software and employees to monitor an endless array of bank accounts and auditors to monitor the employees just isn't feasible. And you have to keep opening a new account at a new bank every time you get money that is uninsured?
The logistics would be a nightmare as well. Assuming Roku pays employees bi-weekly, they'd have to pull money from over 90 different accounts every two weeks just to make payroll. And how do employees know which account to use to pay invoices? Who determines which account needs to be topped off? How many people does that take? The GL and JE systems would be an utter shitshow. You'd need an accounting department just for the bank accounts to go with your actual accounting department.
FWIW, I literally work at a bank with >$50B in assets. I run the FX Operations departments. We work directly with large corporate clients to get their cross-border FX wires overseas via spot and derivative transactions and process there incoming FX wires. Many of our transactions are FX in excess of $1M. Our FX system is literally not capable of pulling USD from more than one bank account (nor have the 3 prior FX systems I have worked on, so this isn't an anomaly). So if our LC employed your strategy, they would need to either send an FX wire from each bank (and thus pay an FX wire fee or a higher spread, since FX wire spreads are based on tiers, with the higher the amount being a smaller spread) or they'd have to send a domestic USD wire from multiple banks to one bank, wait a day for them to settle (while hoping none of the wires get held up), and then do their cross-border payment.
Again, your strategy is quite literally not feasible the larger a company gets.
@interrobangbros I'd assume there has to be some software that people can use to manage multiple bank accounts. Fintechs have so many different bank accounts and they are able to manage all of them. If fintechs can handle over 1,000 bank accounts, I'd assume that other firms can as well.
@dissectmarkets Fintechs don't have one bank account per client. They hold all those funds for clients in very few accounts and their GL system classifies which funds belong to which client. Client funds are completely co-mingled.
My bank has an AUD account in New Zealand. We offer AUD accounts to our clients. We have approximately 75 clients who have AUD accounts with us. Those 75 clients are all unique with their own account number and their own funds that they see on the busoness online banking portal but on my bank system, all the AUD those 75 clients have are in one bank account in New Zealand. This is how banks operate. Funds are co-mingled on the banking systems. So to suggest fintech manage so why can't Roku manage is a bad analogy.