5 min read

Blazing Warm Take on SVB

"When in doubt, tell the truth." - Mark Twain
Office workers line up to look at a quilt-like arrangement of Occupy Wall street posters and banners.
Day 12 Occupy Wall Street September 28 2011 Shankbone 28, David Shankbone, public domain

In a competitive financial market, an asset’s price incorporates all available information about the asset. (Ultimately.) At least, this is what I think I learned in business school in the mid-1990s.

Also in the mid-90s, banks began to weaponize this understanding. They hired PhDs and rocket scientists to build proprietary financial models to generate trading insights. Banks also lobbied successfully for deregulation.

The financial ecosystem that arose alongside these shifts gave us the 2007-08 financial crisis, bank bailouts, recession…and more.

So, WTAF, Silicon Valley Bank?

SVB could not recover from a bank run; their depositors were bailed out (imo.) As of today, conventional wisdom is that SVB’s problems were not exotic. Vanilla interest-rate risk was hiding “in plain sight” on their publicly-available financials. Simple as a b-school case study. Failure of management.

If it’s all so simple, I’m curious about why relevant data points weren’t picked up by analysts in banks and hedge funds, and yes, by regulators.

Usually when I write about management, I’m considering people who are not (yet) skilled at people management. Or who do not understand employment law, or the outlines of a healthy human resources function.

Managing an enterprise is about more than the people side of things. It’s also about money, its sources and uses.

When you’re an emerging manager, you may not have your own budget; you should still care to learn as much as you can. When you manage emerging managers, it’s on you to teach them their way around a budget, a P&L, the company’s overall finances, and their team’s contribution. If you’re an executive, you should either know this stuff, or have a strong team member who does.

One of last week’s news stories quoted a startup founder. He reported having had 8 figures in assets at SVB; he was quoted as having believed that there was no risk in holding cash in an SVB checking account.

Early in my business career, I managed client relationships at a bank. I still remember my boss, Charlie, reminding me,“The first rule of banking is, ‘Know your customer.’”

Charlie meant, in part, that it was up to me to educate my clients. If they made a mistake because they didn’t understand a service we were providing, I’d be responsible. Of course, it was also my belief, back in the boring and more-regulated day, that the bank and client had aligned interests. So I look at SVB and wonder, who was being responsible to this, um, naive customer?

I also have questions for investors, board members, or others who looked at this company’s finances. Who commented on the organization's structure; where was the financial professional who could effectively push back at the notion that a checking account was a risk-free place to store cash?

You could file a lot of what I write about here under “management inexperience.” It’s not a crime to be an inexperienced manager, lol, it’s how everyone starts. And it’s no secret that many startup founders are new to leading organizations.

When the “job to be done” is to fly from NYC to Chicago, most of us “hire” an airline to provide a flight crew and a well-maintained aircraft.

Part of startup founder's “job to be done” is to steward investors' assets. Yet some of the people "hired” by investors have little or no experience leading enterprises. After the recent panic, this practice doesn’t seem merely risky. It seems bizarre.

There’s a saying that history doesn’t repeat itself, but it does rhyme. They also say, never let a crisis go to waste. Though things are still unfolding, my fear is that we didn’t learn enough from earlier crises. What will we learn from this one?


I wasn't going to say anything about SVB, but a friend and reader said they had wanted to hear my thoughts, and that you might, too. Like my usual Warm Takes, I did start this off on Sunday morning, but by the time my coffee was gone, the newsletter was still a mess. So I went for a walk, and came home and cleaned it up a bit. It will remain messy, but I'll likely fix typos and terrible sentences later on, on The Internet.

Lol last week I dreamt that I owed money to a bank I had never done business with, one that died in the aftermath of 2008 financial crisis. If you – or like me, your clients – have been affected by these events, I am sorry. I think we all need to buckle up for a bit of a bumpy ride. Godspeed.

If you have questions, comments, suggestions, want to report on your own dreams, or just say "hi," please hit reply and send me note. (Apparently my emails become more deliverable by your ISP when you send me a note, so that's nice too.)

May you, your loved ones, community members, co-workers, and, yes, your bankers, be safe, healthy and free.

Anne Libby

Showing (some of) my work

I do wonder about all of the consolidations in journalism – it seems to me that SVB should have been on someone's beat, and not at the level of "they served filet mignon the other night at their SXSW dinner." In today's regulatory landscape, we need the media to be analysts, too. (This why I pay to subscribe to the NYT and the WSJ, both of which I read, extensively, on all of this.)

  • Silicon Valley: The Consequences of a Bank's Failure, March 17 2023, by Carl Tannenbaum, which is both content marketing and analysis from the Northern Trust bank. I'm sharing this here after only scanning it; it looks good and I will re-read.
  • SVB’s collapse exposes the Fed’s massive failure to see the bank’s warning signs, Aaron Klein at Brookings, March 16, 2023. Opinion piece that makes the distinction between "regulation" and "supervision," which are key concepts.
  • The SVB bank failure, explained. Isaac Saul at The Tangle, March 14, 2023. This solid explainer goes into some of the culture war stuff that has also come up about this. Sigh.
  • The Banking Crisis: More Kicking the Can, March 14 2023. At his blog, Continuations, Albert Wenger of Union Square Ventures offers his perspective as an investor in early stage companies.
  • Earlier this week, I watched a double feature: Margin Call and Too Big to Fail. Margin Call is the fictional story of bankers discovering that unwinding some of their trades will cause a financial meltdown. Too Big to Fail is a fictionalized tick-tock of events when Lehman failed, and subsequent efforts to avoid global financial meltdown; the film jumps into the story of 2008 as though you might have seen the previous episode.
  • Last night, I re-watched The Big Short. Despite some elements that aren't "as amusingly educative as the film-makers imagine" I laughed out loud several times. Of note, the film opens with a quote attributed to Mark Twain. (It's probably not a Mark Twain quote. He also probably didn't say, "History does not repeat itself but it often rhymes." More Twain quotes here.)
  • Last week I also listened to two episodes of This American Life, both of which I've likely shared here in the past. The Giant Pool of Money (May 9, 2008) delves into the relationship between the housing crisis and the subsequent financial meltdown. And, The Secret Recordings of Carmen Segarra, tells a whistleblower's story, and also explains the concept of regulatory capture. Regulatory capture is when individuals who work at regulators fail to provide adequate supervision to a financial institution, because they have started to identify themselves with the institution. Both episodes are good companions for The Big Short.
  • Know Your Customers’ “Jobs to Be Done,” by Clayton M. Christensen, Taddy Hall, Karen Dillon, and David S. Duncan, Harvard Business Review magazine, September 2016
  • I purposely did not link the article quoting the startup founder who had a lot of money in an SVB checking account. He may regret having spoken, at this point, and I truly believe his actions were a) not unique and b) a product of the system he's succeeding in. If you're super curious and can't find the article, send me a note and I'll share the link.

I saw this on the big screen when it came out, imo it was worth a second viewing, now.