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Silicon Valley Bank meet B&L in Bedford Falls

Silicon Valley Banks sudden takeover by the regulators brings memories of 2008 but this collapse is more like “It’s A Wonderful Life’s B&L’ potential demise. Jimmy Stewart portrays character George Bailey who thwarts the run on the bank that might have been. However today, tragically SIVB could not avert the “run on the bank” and unlike in Bedford we’re left with wondering why things aren’t so Wonderful.

There are parallels though that we see in the fictional Bedford that seemed to have played out in the real Silicon Valley. And we’re already hearing the questions about how this collapse of SIVB will affect the tech and start up community in Silicon Valley. In Bedford, it seems there were only two financial institutions “the bank” and George and Harry’s Building and Loan (B&L). The key to the story and the beauty of Capra’s story is the people and key in the story, outside of George Bailey, is the depositors and the borrowers or homeowners.

It is true for Silicon Valley too, though talking heads on superficial cable channels will say otherwise as they make dire comparisons to 2008. 2008 was not about depositors but really about the investments and assets that banks and bank borrowers bought with leverage that were suddenly no more. Both cases seem to highlight the concentration of depositors in both Bedford and now Silicon Valley. Are there only two banks in Silicon Valley? Of course not, but clearly we need to understand why the close knit network and twitter induced fear was so concentrated among depositor clients of SIVB.

Much like the homes of Bedford that B&L loaned money to purchase, there will be surely unequivocal evidence that SIVB’s investments were sound despite some short term losses on the treasury bond holdings caused by the forced liquidation of the inflation reduced bonds. In this case we might even be able to point to inflation’s first victim.

In “It’s a Wonderful Life” it’s the Uncle Billy character that sets all the events in motion as he absent mindedly loses the $8000 deposit money. We also find out who, Potter, the antagonist, doesn’t mind stealing the money or doing a number of unethical things to get ahead. Very much the opposite of the kind-hearted George Bailey. We feel awful for Uncle Billy but it’s not like we trust him to put himself on the line to rectify things.

This is the same for Silicon Valley Bank, the “Uncle Billy” or Billys that crafted the last couple days of announcements and actions by SIVB didn’t know that this would induce a run on the bank and crash the bank. My guess is there are many other bank executives that probably genuinely feel bad for SIVB and themselves are trying understand what happened. They may even be thanking their lucky stars that it wasn’t them or their banks. Be assured every bank board is scrambling now to get a full report on whatever and whenever. However, these bankers still can’t help their inner “ Potter” feeling that there is an advantage for them to have the George Bailey of banks go under. Stay tuned, we’ll uncover some more “Potters” in this story.

This gets me to my assessment. This is a “run on the bank” that really should never have happened and there is plenty of blame to go around, mostly at Silicon Valley Bank obviously…poor Uncle Billy. But this is the drama, induced by fiction and a little twitter, as fears around the viability of SIVB exploded in a “two bank “ town. It’s not 2008 and the massive majority if not all the banks are very much de-risked from 2008 with huge reserves. Their loans and investments are well under written and regulated, and it’s a rarity that a bank defaults like SIVB. Does it happen? Yes! Even most recently in 2020, but a “run on a bank” is rare, even in Hollywood. So please, if your twitter feed tells you to run to the bank and withdraw all your cash, only do it if you’re going to buy that Porsche in all cash, not because you think you’re going to lose your deposit. You’re not and no depositors at Silicon Valley Bank are going to lose their money either.

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