The Weekly (3/17)

Thursday, Mar 16th 2023


You’re sitting in your local AMC theater, and someone from the back row yells, “fire!” What do you do? If you dash for the exits, you’d be met by a stampede of other panicked patrons. If you stick around to validate the claim, it may be too late. In other words, it’s a “lose, lose” scenario.

The banking system and its depositors ran into a similar “lose, lose” scenario over the past week. Silicon Valley Bank, a crucial cog of the startup flywheel and the nation’s 16th-largest bank at the time, collapsed after experiencing a run on deposits

Deposits are the lifeblood of a bank. The premise is simple: banks pay depositors an interest rate for keeping their money at the bank; in exchange for the (small) interest the bank pays on deposits, the bank lends depositors’ capital out at higher interest rates. The banks capture the spread as profit.

This practice is legal, it's regulated, and it works. However, when everyone decides they need their capital at once, the bank is in a pinch. 

Hopefully, you’ve seen It’s a Wonderful Life. Outside of being a holiday classic, it has an iconic bank-run scene where angry customers line up at the register and demand their cash. During the run, George, the movie’s main character and local bank manager, reminds the customers that their money is locked up in each other’s houses and businesses. Understanding that the bank will collapse if everyone withdraws all of their money, customers calmly take what they need to get by, and the bank survives the run.

Silicon Valley Bank’s CEO tried channeling his inner-George. But unfortunately, in the age of smartphones, where information traffic can move virally, a bank has no real defense if an instantaneous wildfire begins. 

WhatsApp groups and email chains with thousands of founders/CEOs and investors quickly became echo chambers for the bad news. Nobody wanted to be the last person in the theater in this lose-lose scenario, so they rushed to withdraw — on their smartphones.

Silicon Valley Bank processed over $42 billion in withdrawals in just 24 hours. To put this into context, the previously largest bank run was at Washington Mutual in ‘08  and totaled $16.7 billion over ten days. In terms of dollars leaving per minute, SVB was 25x. 

Being able to bank digitally is definitely a feature. An anxious group triggering a bank’s demise — from their smartphones — is definitely a bug.

The only solution available was a full government step-in. But in the future, we’ll have to have something different. The ability to trigger a landmine with a single tweet is a dangerous power.

Have a great weekend.

Your Titan Team

As of writing this newsletter, Twitter is a 4.78% holding in the ARK Venture Fund.  

As of this writing, TWITTER was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.

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