20VC: SVB: What Happened? What Happens Now? Will Depositors Have Deposits Guaranteed? How Long Will It Take? Will There Be a Buyer? Who is the Most Likely Buyer? What is the Best and Worst Outcome?

Jackie Reses is the CEO of Lead Bank and previous Exec Chair of Square Financial Services and Head of Lending and Banking. One of only people to have started a bank as a de no; Only tech company to get approved for a de novo. Chair Economic Advisory Council of SF Federal Reserve. Kris Dickson is the CFO of Lead Bank and previously the CAO / CFO of post-BK Lehman Brothers parent co-estate for 10 years. Lehman Holdco estate has liquidated and distributed $129 billion to unsecured creditors through the end of 2022. In Today's Episode on SVB We Discuss: What Happened? How and why did SVB fail so fast? Was it the result of systemic problems or a series of management mistakes? What role did VCs play in the downfall of SVB? What role did social media and online banking play in the failing of SVB? What Now? What happens now? Will depositors have their deposits guaranteed? Will there be a buyer for SVB? Who is the most likely? Should founders be worried about moving their money to neo-banks? Should founders in any circumstances transfer money to their personal accounts? What is the best and worst outcome?

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Harry, let me be crystal clear. I believe that there will be a buyer or buyers for the assets and that 100% of the deposit base will be assumed and it'll be announced before tomorrow morning when the market opens. Based on the prior behavior of the FDIC, listening to Chair Yellen and understanding the quality and financial profile of the deposit base, I think we should see this resolve itself pretty quickly tomorrow.

• 0:24Harry Stebbings?

  So I'm going to keep this very short. I wanted this to be a resource for the community to understand what happened with SVB, what to do from here and the subsequent next steps. I wanted two of the best in the business to join me for this show. So I'm thrilled to welcome Jackie Reese, CEO of Lead Bank and previous exec chair of Square Financial Services and head of lending and banking. Joining Jackie is Chris Dixon, CFO of Lead Bank and previously the CAO and CFO of post-bankruptcy Lehman Brothers parent co-estate for 10 years. Lehman whole co-estate has liquidated and distributed $129 billion to unsecured creditors through the end of 2022. I really appreciate these two joining me at such short notice. We're going to dive straight in now.

• 1:11Speaker 02

  You have now arrived at your destination.

• 1:14Harry Stebbings?

  Now, I want to start with a little bit of context just on each of you and your role and position within the industry. So Jackie, we're going to start with you. How are you so relevant and well-placed to speak on the current situation and the situation with SVB?

• 1:26Speaker 00

  I currently am the chairman and CEO of Lead Bank. We are a community bank in Kansas City that also provides infrastructure to the fintech industry. And so we work in-depth with a lot of venture firms and companies in Silicon Valley to help build their products. I also have been the chairman of the Economic Development Council of the Federal Reserve in San Francisco. I was on that council for eight years. Before that, I've worked in financial services for 30 years in all different kinds of capacities, helping to run a private equity firm, investing, you name it. I've worked across the board.

• 2:04Harry Stebbings?

  Chris, I want to dive into your career. Tell me, quick context. What makes you so well-placed?

• 2:10Speaker 02

  I joined Jackie at Lead Bank as the CFO late last summer. But for the 10 years before that, I was the CAO and then the CFO of the Lehman Brothers' post-bankruptcy parent estate. To the end of 2022, that estate had liquidated and distributed over $129 billion of assets. It's unfortunate that we're now in this place where that kind of experience is now weirdly relevant.

• 2:35Harry Stebbings?

  It is indeed relevant. And so I want to dive kind of straight into the AVAPs because I think there's still a lot of unknowns around why this happened and essentially where we're going from here. So I want to start on why this happened. Chris, if we start with you, why did this happen? And what's the cause of SVB going bust in this way?

• 2:50Speaker 02

  I mean, we'll start with basic principles. At their core, banks are in the business of managing risk. They take in customer deposits and they pay interest on those deposits. Then they invest those funds at a higher yield to make a spread. And there are risks that have to be carefully balanced and managed on both sides of that equation. And those risks are super dynamic. They can evolve over time, like, say, Fed rates. Or in today's hyper-connected media verse, of which you are a significant part, they can convulse almost spontaneously. Depositors can pull funds at any time, and banks have to manage investments for both yield and liquidity. That balance is every bank's primary challenge. For SVB, this challenge was particularly acute as their deposit base and their loan portfolio

• 3:32Speaker 02

  were heavily concentrated in the VC tech startup ecosystem. At the height of the recent tech boom in 2021, SVB was awash in deposits while interest rates were near zero. And at the time, the Fed messaging was that rates were going to be kept pretty low. So SVB invested heavily in long-dated securities, over $90 billion, mostly in MBS with maturities greater than 10 years. Take that in because that's a huge bet. They held these securities in their balance sheet as held to maturity, which means they were signaling they had no intent to sell these to meet liquidity needs. And because of that, they were not required to reflect any mark-to-market adjustments on these securities in their financials. That's a huge bet on the sustainability

• 4:17Speaker 02

  of low rates and continued tech momentum. Then 2022 happened, and momentum flipped on both. The Fed changed course toward aggressive rate hikes to try to staunch inflation, and VC funding slowed, and many once cash-happy tech startups became cash burners. And so for SVB, that meant deposits shrunk, interest expenses ballooned, and their giant investment portfolio, which now have yields way less than the Fed rate, was worth less and less. At the end of '22, they reported $91 billion of held-to-maturity securities with the actual value of $76 billion. That $15 billion gap was bigger than their market cap for

• 4:58Speaker 02

  most of the fourth quarter. So that mark-to-market gap, and the fear about what that gap could mean about the bank's soundness, is what ultimately led to the bust. SVB's depositors, which were super-concentrated in this hyper-connected VC tech ecosystem, started pulling their funds in mass. SVB had to sell some of those securities, which they'd held to maturity, at a hefty loss to meet those demands. But then that loss led to a capital hole, and they tried to fill unsuccessfully that capital hole with a last-minute $2 billion capital raise. When that didn't materialize, depositors panicked and attempted to withdraw over $40 billion in a single day. And when SVB couldn't meet those withdrawal requests,

• 5:40Speaker 02

  they had no choice but to hand the keys to the FDIC. It's a tough story.

• 5:44Harry Stebbings?

  Jackie, I do have to ask you, you know, a lot of people are suggesting that there's been quite a few PR or strategic communications mistakes here. How do you think about that, given what we just heard from Chris?

• 5:53Speaker 00

  Well, there was one dynamic that I thought was very unusual, and I think part of the straw that broke the camel's back. And SVB went out and made an announcement that they were doing a $500 million capital raise with General Atlantic and doing a market offering the following morning. And so they basically had a billion and a half dollar hole they were going to fill. Ordinarily, a company can go out, announce overnight that they're going to go do a deal in the market, raise some capital. But when you're a bank and you're already being rumored to have capitalization issues around deposits, it immediately created a panic dynamic. And there's a psychology element as a bank where no one wants to be the last man standing

• 6:37Speaker 00

  in that bank with your deposits as the FDIC shows up in an illiquid situation. And so that announcement did the exact opposite of what it intended to do, and it created immediate fears around the tech community, who started sending notes around to each other almost in an instant that said, anyone worried? Should we be pulling funds? And immediately, the answer was, yes, I don't want to be the last guy standing. And so as much as there is an incredible amount of support for SVB, the psychology dynamic of that situation created a run on the bank. And so by the following morning, by 11:00 a.m., it's fair to say that's the moment when

• 7:17Speaker 00

  the chalk strikes and $40 billion was already being demanded out of SVB by institutions that had significant amounts of capital there. That is a really unusual order of operation. They should have raised the money, made the announcement that they raised the money, and that they were in great position. And so that dynamic and the advice they were getting in that situation, very unusual.

• 7:39Harry Stebbings?

  So I listened to both of the explanations there and the different kinds of sides, but one being kind of the systemic kind of capital allocation decisions and then the PR and strategic communications decisions. And my question is, like, is this a symptom of like systemic risk crystallizing? Or is this a series of specifically bad decisions being made and screw ups?

• 7:59Speaker 02

  With both Silvergate and SVP coming to a head in a single week, it would be naive to suggest there isn't some broader risk to consider here. One data point that's been referenced quite often in the last few weeks came from the FDIC's latest quarterly report on the health of the insured banking system. That came out the end of February, and the report noted that banks' aggregate unrealized losses on securities remain, in their words, elevated at $620 billion in Q4. In fact, throughout 2022, these unrealized losses were materially higher than at any other time in the last 15 years by multiples of three to six, depending on the year. A number of banks have securities in their portfolios that lost values as REITs shut up, obviously. But we really need to do a double click on that data

• 8:43Speaker 02

  to determine how broadly those losses really are spread. Not every bank is sitting on a huge pile of unrealized losses. So we really need to understand that better. As for specific screw ups, hindsight is 2020. SVP made a risk assessed investment decision in 2021, then they doubled down on that decision in 2022, even as the rate environment changed and their very concentrated depositor base saw increasing headwinds. In hindsight, that bet was a bust. But would SVP have been able to ride out the investment losses had their depositors not gotten spooked and jumped ship all at once? We'll never know.

• 9:18Speaker 00

  Yeah, I mean, you do have to think, like, what could they have said differently that would have made the venture capital community, who is on instant communication with each other, and interestingly, able to communicate in a very concentrated way? A portfolio can be a thousand companies communicated to in one message. And you have to ask the question, like, as I sit here and try to reflect on what I would have done differently, I would have changed order of operations, I would have communicated differently. But I'm not sure anything different could have stopped the pull of deposits out in an instant because people were basically making the assessment that there was a non-zero chance of risk. And in a non-zero chance of risk, why not pull?

• 10:02Harry Stebbings?

  Jackie, I suppose one of the largest pension fund CIOs to this morning, and they said, "I'm angry. I'm angry at the VC community because this was caused by them." And there's a lot of people on Twitter saying that it was caused by VCs. Is that fair? I thought that sounded a little bit binary bluntly, and I don't think that all of the tar can be painted towards VCs. Am I right?

• 10:24Speaker 00

  I don't think so either, only because the logic of what they did makes tons of sense. Any one person can protect themselves and I can't imagine everyone sitting there saying, "Let's just sit here and do nothing as a risk assessment, as a public company board of directors." You would be questioned thereafter if you didn't make strategic decisions when you're looking at a bank failure. You know, I recall 2008, my third child was born October 2nd, 2008, and there was a bank that was failing in Europe. And I remember, I was the only partner, this was at Apex Partners, I was the only partner in the United States that could actually pull credit lines in order to get all of our companies' credit lines pulled before we thought a bank was gonna fail.

• 11:08Speaker 00

  And so, the only partner, I had two junior guys show up at Mount Sinai Hospital and we started pulling credit lines, literally as my child, as I'm trying to have my third child. And I just remember the panic of, "This is the situation that has to happen. You have to get this done. You can't be sitting there as someone who's a fiduciary for all these companies, not making these decisions in any circumstance. Just get it done." And so, here you are as a fiduciary for these companies and you have to make some decisions around pulling capital. And so, as much as I think you can immediately blame the VCs, I think that's part of the equation. But I think everyone needs to look at the situation and say,

• 11:49Speaker 00

  "In totality, did they make some decisions that probably were the smartest risk decisions because of understanding all of their capital was held at SVB or, you know, their payroll and they have no alternative systems in which to pull from?" And so, I would say a lot of companies made a lot of mistakes about their own assessment of risk. In addition to just, you know, the powder keg that happened the moment people realized that SVB might be a challenge.

• 12:15Harry Stebbings?

  You spoke about the speed of withdrawals earlier. You know, this is the first time for me, and maybe I'm wrong, but I believe the first time we've really had two things in such a bank run, which is, you know, social media and the speed of communications, and then electronic banking, the speed of the ability to withdraw. How much of a role does this, do those two elements play in this? Speed with which SVB came down.

• 12:36Speaker 00

  I think it'll change the dynamic for how people manage their deposits going forward. Like, I would not be surprised going forward if, when a venture-backed company raises money, that VCs don't demand that they take controls over where they put their funding, how many banks they put their funding, and how they're managing their capital. And so I do think there'll be a lot of output and risk changes that come out of this that no one might have thought about. Having said that, I do think unfortunately, memories are short. And if you go back to '08 and people making decisions around where is my money? What bank is it in? And you look systemically across different banks in the United States, you can make risk decisions about who you might believe to be safer

• 13:21Speaker 00

  based on how they run their company. And I don't think we ended up there today. And even some of the suggestions that I saw across different blogs were suggestions of sending capital to non-banks. I would think that people aren't understanding what that risk equation is for how a bank manages their balance sheet, who's safe, who's not safe. And so I do think people need to educate themselves if they're sticking significant amount of capital into different accounts for their own operating controls of their own company. And really think hard about, is it a systemically important bank? Is it a regional bank, tiny bank? How many accounts do you have? Do you have backup? Like in '08, for example, the Canadian banks were in much stronger balance sheet position than a lot of the US banks.

• 14:04Speaker 00

  And so the Canadian banks ended up lending throughout that cycle in a way that US banks didn't, and capitalizing on their own controls around risk in a way that US banks just couldn't do. And I think there are a lot of the same lessons here around diversification of your relationships.

• 14:20Harry Stebbings?

  We're going to move to the outcome, speaking of who could say. And I want to start with a really tough one, but I think we have to start here. So first, why have the FDIC not acted already? And what happens now at SVB?

• 14:33Speaker 00

  Yeah, so this is a pretty standard process. And if you even go back to '08, you'll find that Thursday nights are really important nights for the FDIC and weekends. Because what they do is they go in, and there's a whole series of outcomes that the FDIC can pursue. But they go in and take over a bank on a weekend. And they do that very purposefully, so that they have a moment when there's not a constant pull on deposits and they're able to do the work to assess what is in there in a balance sheet. That work typically happens on a weekend. And so what happens in a bank failure is as follows. So first of all, you're right, it is the FDIC.

• 15:16Speaker 00

  They take over a bank, they resolve it, they are the ultimate resolution authority, even despite a bank being regulated by a different regulator. Other than credit unions, they are the institution whose job it is to go in and resolve how to manage bank deposits and then how to therefore resolve the issues with all the assets. They send their team in, they actually send people in, they work part and parcel with bank employees to do their job. So in the case of SVB, for example, the team at SVB has signed four-week contracts with the FDIC, so that they're now being employed by the FDIC. And they are doing the work to be able to pull data in the systems, be able to count

• 15:58Speaker 00

  up deposits, so that they could be prepared before a Monday morning opening to announce what their plan is on how they are going to release cash to depositors. So there's actually an order of repayment. It's the FHLB, then they pay admin expenses, then they pay out insured deposits, up to $250,000 per account. So if it's a consumer couple, they get $500,000. And then they're able to go through this process of disposing of the assets minus the liabilities that they're able to pay off. So that is the waterfall of funds. So they come in and they basically do the analysis of what they find, and then they are not an investor. They

• 16:43Speaker 00

  Immediately start selling. And so I would not be surprised if on Friday, they weren't sitting in there making massive sales so that they could do what's called an advanced dividend. So in addition to the depository amount of 250,000 per account, they have the ability to do this advanced dividend. They go in, they calculate what they think is super liquid, immediately sold, right? And then they can make a judgment about how much they're going to release above the 250. That is the number that I think people are waiting to see on Monday. Is it 50%? Has been speculated all across Twitter. Is it more or less? And that way, at least they can try to make depositors immediately liquid

• 17:26Speaker 00

  so that they can gain access to their accounts at a level greater than SVB. So SVB also was uniquely concentrated in terms of larger deposits. I think only 2% of their depositors were below the 250,000 amount per account. The rest were above. And so you could see that the 250 doesn't really get you very far. And they will go in and try to release as much funds as they can that's immediately liquid. And then they will go in and start to go through this process to mark things to market and do the dispositions.

• 17:58Speaker 02

  If it goes that path, if there isn't another buyer that steps in and we could talk about that, or I'll let Jackie talk about that in a moment. If there isn't another larger bank that can step in and buy SVB, or at least buy parts of SVB, the liquidation process can be extensive. Lehman filed for bankruptcy in September of 2008. Here we sit in March of 2023. It's not done. They've distributed almost $130 billion. There's still multiple nine figures. And last estimate, still multiple nine figures to be distributed. That is what I would call an extreme case, likely not in SVB's depositors' future. But that's how long it could take to wind it all down. Now, if a quick look at their, at SVB's balance sheet as of year end,

• 18:40Speaker 02

  if you take the market value of their investment portfolio, both the AFS securities and the health and maturity securities, plus their loan portfolio, which should be saleable, it's more than their deposits. So there should be enough to cover most of their deposits. So ultimately, over time, but it just may take some time.

• 18:58Harry Stebbings?

  So can I ask, sorry, I'm deliberately asking kind of very base questions. But I think also what a lot of founders are thinking is I'm the founder of a company in whatever space. I have no idea what all this means, so I'm going to get 250K back on Monday. And then I get 50% back hopefully next week. And then what happens?

• 19:18Speaker 02

  And then as the FDIC, as the primary liquidator of the bank, goes through and actually liquidates all of the assets, primarily being the investment portfolio and their 74, 75 billion dollar loan portfolio. Then they can actually go through and make additional payments. And one would like to think since their investment portfolio as a regulated bank is pretty conservative, those investments should be relatively easy to sell. So it should not be anywhere near as extensive a time period as it was for Lehman, which had far more complex assets.

• 19:51Harry Stebbings?

  Is it like six months? Is it like three years, five years?

• 19:56Speaker 02

  Again, the assets are pretty straightforward. What you don't want to have happen is anybody come in knowing that these things need to be sort of fire sailed off. You don't want anybody to pick it off at a low rate. So they have to make sure they sell it to maximize the value back. But it shouldn't be an incredibly extensive process to the likes of Lehman.

• 20:14Speaker 00

  But they are going through a sale. Like that is their job. Their job is not to sit there and say, wait, if I held it for another month, maybe I could get a better buyer. Immediate sale. So the best outcome that would happen is if someone were to come in and take over the deposits. Buying the company is buying whatever's left. And so you could have a buyer or a group of buyers who come in and immediately take over the deposits to do a continuation of operation. That would be the best outcome. Frankly, given the quality of Lehman, duh. Given the quality of SVB's client base, you can absolutely see a situation where buyers like Morgan Stanley, PNC, JP Morgan,

• 20:57Speaker 00

  Goldman Sachs would really want to have the client base of Silicon Valley Bank and you are seeing some messages go out on Twitter that are trying to instill that confidence in a buyer such that venture capital firms and companies are publicly stating we will stick with SVB if there is a buyer. We want to work with SVB. They've been a partner to us. We will be a partner to them. And so you actually are seeing that very purposely as a message to a buyer because a buyer has to pay that deposit. And what happens is though, the amount above the insured amount and the total amount of the deposit base unless it is funded with the liquid assets by what's available there. That's the liability hole that could be left in

• 21:40Speaker 00

  a typical scenario. And that liability hole is what the buyer has to assume. Now, as Chris said, given the asset base that's there, you would assume that the deposits actually have the capital to fund the 100% of the deposit base. But I'm describing the alternative scenario if the money is not significant enough to support the entire deposit base.

• 22:02Speaker 02

  And at least in most bankruptcies and using Lehman as an example, if there is going to be a protracted liquidation process and folks are given receivership certificates that they have to wait to get their dividends and wait to be made whole, at least in the case of Lehman, very quickly after the filing, a market sprung up, a very efficient market sprung up to trade those claims in the bankruptcy case. And I imagine a similar thing would happen here.

• 22:27Harry Stebbings?

  Given the lack of liabilities, given the customer base SVB being so high quality, is this not an extremely strategic and good acquisition for a potential buyer like JPM or Goldman Sachs or anyone else?

• 22:40Speaker 00

  I mean, I personally think it is. I think SVB is a very, very unusual, super high-quality set of customers that many banks would want to have. They're making an economic choice about whether they could do it. There is a significant LTV to these customers. They also have to look at their own regulatory issues and I'm sure many of them are negotiating with the FDIC over whether they can buy it. And so there's lots of dynamics around that that cause someone to either pause or pursue it aggressively. But it's not like the situation we had in oh eight, where you'd say there's a time bomb ticking on the, you know, on the client base or in this situation, it's a pretty healthy set of venture capital firms.

• 23:24Speaker 00

  You know, the innovation economy across the United States that I think anyone would want to have if nothing else mattered. There's, I don't think there's a bank that wouldn't want to have the clients of SVB at their fingertips.

• 23:36Harry Stebbings?

  Will regulation get in the way of an acquisition?

• 23:38Speaker 00

  I think all different banks have all different issues and they're looking at financial metrics, their own, their own challenges around how they deal with their own balance sheet and what it looks like combined. But the regulators are highly incented to get a buyer for this business this weekend. Going back to oh eight as the example, they will pull out all the stops in order to get it to the likely and best outcome possible for American insurers. You know, when you walk into the FDIC's office in Washington DC, there's a gigantic gold circle that highlights the mission of the FDIC, which is it's working on behalf of the American people to ensure the depositors and create stability in the financial system. The regulators and the folks who work at the FDIC

• 24:23Speaker 00

  take their job pretty damn seriously. Many of them have worked there for 20, 30, 40 years. They understand how to deal these. They've seen, deal with these. They've seen cycles. They go in there laser focused on how to analyze, take apart a balance sheet, focus on liquidity and make sure they get to a good outcome with a buyer.

• 24:41Harry Stebbings?

  I have to ask, and I, I think one of the biggest problems is kind of fear mongering, but you know, important to cover. On the back of everything we've discussed, some people suggest subsequent bank runs on, on different banks. How likely do you think alternate bank runs are? And what type of companies get impacted?

• 24:58Speaker 00

  Chris commented on the $600 billion of mismarked assets if everything were to be priced to a mark to market on Monday. That is in totality across the US banking system. The bigger issue to focus on is that around the impact of psychology and whether a bank has issues around concentration within an industry. Or a customer base in particular. And so there are some banks that have been named that are digital asset focused, or they might have an imbalance in their customer base versus being diversified. I do think those banks will start to see deposit pulls just out of panic, even if they have a very strong balance sheet.

• 25:42Speaker 00

  You know, there was one bank in the West Coast, First Republic, very strong bank. They put out a notice on Friday that said only 15% of our assets are, you know, securities, 9% of our deposit base is tech, you know, broadly diversified. And what they're basically saying to you is, we're not SVB. We're highly diversified, our balance sheet looks good. Don't pick on us and create this dynamic around us. We are in a very different situation from a balance sheet point of view. I think there's, again, lots of rumor mongering around some of these banks. There's like a list of names that people are looking at. They're creating a pretty negative cycle around looking at it, as we talked about earlier. But I think, you know, you really have to go back and look at the fundamentals

• 26:27Speaker 00

  before you go into a mad panic, is what I would say to the folks who are trying to drive this type of psychology and movement in their own personal trades. Part of the reason why they want to get it sold is to provide confidence. The more they instill confidence before Monday morning, and frankly, Tokyo opens this afternoon at 4:00 PM. And so you'd want to see an outcome so that the trading days are less sloppy. You are about to see a lot of slop because Asia's going to open and no one knows what's going to happen by tomorrow morning before the market opens. They will hopefully have made an announcement about finding a buyer.

• 27:05Harry Stebbings?

  Jackie, what can they do to instill confidence? If you were in charge today, what can you do now to instill that confidence?

• 27:13Speaker 00

  I would want to see an announcement that a buyer has taken over the depository accounts and two, those depository accounts will be paid out at par. That's optimal. All and Monday morning, people will have immediate access to liquidity. Those are the three things that really matter. And so Monday, people will definitely be able to pull capital out. The question is how much? It depends on this addition of the insured amount plus the advanced deposit. Assuming they do in fact do this advanced deposit, and I'm almost certain they will. And then the third thing is someone standing behind my deposit 100%. And so if they're able to do all three things, that really goes a long way to giving depositors confidence.

• 27:53Speaker 00

  And that would delay a lot of the immediate panic that could happen because the broader amount of contagion across different industries that's unintended is pretty extreme. You know, you don't think about companies in all different states who also work with SVB, you think of schools, you think of clubs, you think of all kinds of institutions. It's not a 1%er problem. There are employees at those companies that do all kinds of jobs. And those companies, it's the wine industry, so farm growers across Northern California. And so as much as we want to think of SVB and its clients, and then its clients' clients, as being impacted, that is a broad swath of the economy right there.

• 28:35Speaker 00

  And because they had such a heavy concentration of small companies, they don't have the multiple banking relationships that big Fortune 500 companies would have to be able to as agilely move money. And so a lot of these companies are more limited in their immediate ability to demand liquidity and move assets all over the place to keep an ordinary course of operation. And that's what's really important for next week.

• 29:00Harry Stebbings?

  You said the best outcome there being that buyer, the guarantee of deposits. I think it's important that people do also know the worst. If that's the best, what's the worst?

• 29:09Speaker 00

  So the worst is they don't announce a buyer. They announce a, you know, percentage of advanced deposit that people aren't happy with. That scares the daylights out of people. Companies announce they can't make payroll. They can't, you know, keep their operating. You start to see little companies try to find immediate liquidity, and people are doing that now. You saw some great announcements by Ramp, by Brex, by anyone who can do payroll financing to try to immediately finance some of these companies. There's great lists going around of different companies that are doing payroll financing for folks. VCs are trying to line that up for their portfolios. I don't think everybody has access to that, though, and they don't have access to it immediately.

• 29:52Speaker 00

  And so you will start to see these companies who actually can't make payroll. Think about, I saw one company on Friday say they were going to do a layoff, but they can't pay severance. You have companies that pay their payroll into SVB. And so it'll have a broader market effect, but that's in the worst case scenario. I do think we are not going to get to that point on Monday. And so I think the FDIC is working pretty hard to try to not have that happen.

• 30:19Harry Stebbings?

  Can I just ask a couple, just for founders who listen, and I've seen a lot of questions in groups. And a couple of questions from founders is like, should I, I want to move money as fast as possible from whichever institution. Just say whichever institution. And there's like, is it okay to move it into a startup account, being one of the, you know, rising neo banks? I don't want to name names because I don't want to pick any out, but is it okay to do that? Or that not okay and I shouldn't do that?

• 30:45Speaker 00

  So I think you can do that. And those startups have beautiful abstraction layers on top of underlying banks. Meaning they're beautiful, they're easy to use. The account opening process is probably super easy to use. I think that might be a great option for Monday. But then I'd actually go and I'd look at what's the underlying bank that supports that entity? And decide whether you want to have your money sitting at that bank. It's worth doing whatever you can to create an account diversification. Me personally, I would move to a systemically important bank or a strong regional bank. Or if you have local accounts that you need at different local banks, like we run a bank in Kansas City. You know, our depositors are really sticky, our client base is super sticky at Lead Bank.

• 31:29Speaker 00

  And so we look at our situation, our liquidity situation. And I'm not worried about our local clients in Kansas City. You know, reading Twitter and having like a you're too invested in tech bank run on Monday morning. Because of the way we're highly diversified and what they're invested in and the way that our loan portfolio looks. But I do think it's worth looking at your account structure and saying, having diversification of accounts and just having them open and have them funded for in a small amount is a great option. Working with one of those abstraction layer companies might be a great option to have it immediately available and super easy to use. But if it were me, I would be moving money to Citigroup, JP Morgan, Truist, those kinds of companies.

• 32:13Speaker 00

  But that's me personally.

• 32:15Harry Stebbings?

  Okay, so we've got those accounts. The other question is, Harry, what if withdrawals get halted before I can withdraw my money out? Is there a chance that withdrawals get halted before people can move money in whatever bank from a crop?

• 32:28Speaker 00

  So there is. I think we saw that on Thursday and Friday with SVB. People have wires that said approved and then the money never came out. Having said that, there are payments coming out of SVB. It could be ordinary course bills, it could be payroll movements, and so there was money moving on Friday. And so there is probably billions of dollars that were in process before the FDIC struck the chop line in the moment when they took over. And so you can get stuck, and that's what the FDIC is trying to unstick.

• 33:00Harry Stebbings?

  A final one on the Founder Must Ask. I've had a couple of founders be like, hey, is it okay to move to my personal accounts because I haven't been able to open accounts? And they've been told that on trust, I didn't quite understand, I'm not a lawyer, but on trust, it's okay for a split amount of time to move money to your personal accounts. Is that okay?

• 33:21Speaker 00

  So I would work like hell on Monday to open up an account somewhere. I wouldn't find that to be okay, but there are a lot of dynamics around moving money out of a corporate entity into a personal entity that I would be very cautious about, and I would work my damnedest to get the money into an account. You actually can get an account set up in a day. We've been doing it this weekend for folks with our team sitting in Kansas City, opening up some corporate accounts for people that we have worked with and are in process with. And so you can actually get banks to open up accounts so that you can move money or BlackRock and any kind of account that might be a money market account, things like that.

• 34:04Speaker 00

  But I would try to keep the corpus whole and manage from a corporate entity point of view.

• 34:10Speaker 02

  Neither Jackie nor I are lawyers, but no doubt that any founder's auditors and their tax advisors would highly recommend against intermingling their corporate monies and their personal monies.

• 34:21Harry Stebbings?

  Is there anything here that I have missed or you think is a misconception the public has, that founders have, that should be recognized or acknowledged?

• 34:30Speaker 00

  There are three groups of people who know what's happening. The FDIC, the folks at SVB, and at the banks, the people who are buying and looking at the assets of these companies. I can't imagine any of those three people are sitting on Twitter and WhatsApp rumor mongering about what is happening. And so I'd be very thoughtful about what you're hearing, who you're hearing it from, because all of those folks are really contained in rooms on Tasman Drive in Santa Clara, and they are working their butts off right now. And I highly doubt they're at chatting it up with their friends. And so I would be very cautious about all the rumors that are out there. You know, I spoke to someone at the FDIC yesterday.

• 35:15Speaker 00

  He's very senior at the FDIC. And even he is not familiar with the depths of what is happening, nor would he ever cross a fiduciary line as a regulator and tell me anything that breaches the confidence of his job. Right? And so you can imagine that this is a group of people sitting there. And I would just caution everybody amongst these rumors of like, I'm chatting to so and so, I'm chatting to so and so. Because I think these guys are highly professional and doing their jobs. And, you know, there's a very small group of people who actually knows what's going on.

• 35:46Harry Stebbings?

  Final, final one. Where do you think we are Wednesday next week? If you would have put a bet on it.

• 35:52Speaker 00

  Harry, let me be crystal clear. I believe that there will be a buyer or buyers for the assets and that 100% of the deposit base will be assumed. And it'll be announced before tomorrow morning when the market opens. Based on the prior behavior of the FDIC, listening to Chair Yellen and understanding the quality and financial profile of the deposit base, I think we should see this resolve itself pretty quickly tomorrow. That's the, that's the good news. That's my bet. The rest, what I said is like a backup plan, BCP planning that everyone should be doing anyway.

• 36:24Harry Stebbings?

  Chris.

• 36:24Speaker 02

  I'm in complete agreement because I think the FDIC is fully aware that the potential crisis of confidence among depositors is something that must be avoided at all costs. And the simplest and most elegant solution to that is orchestrating continuity through a buyer.

• 36:39Harry Stebbings?

  Dear Lord, I hope you are both right. I can't thank you enough for doing this at such short notice.

• 36:44Speaker 00

  Oh, good to see you. Good to see you.

• 36:46Speaker 02

  Thanks for having us.

• 36:49Harry Stebbings?

  I want to say a huge thank you to Jackie and to Chris for joining me at such short notice. I hope you found today's episode helpful and I really appreciate you tuning in and listening.