Banks have a funny way of expecting more from their borrowers than they should….

It’s part of what sunk SVB.

When you take a large loan from the bank,

They expect you to do more business with them.

For some banks it’s:

We gave you a $1M loan for a building,
Now we expect you to lease cars through us too.

For SVB it meant:

We just gave you a $5M loan,
We want the other $5M equity you just raised to be kept with us too.

It may not be a written agreement,
(sometimes it is),
But even if it isn’t written,
It’s expected.

Break it,
And your next loan’s interest rate will account for that…

SVB used this to even make some of their loans net-positive.

Loan out $5M.
Now keep that $10M in equity you just raised with us.

As this happened more and more,

SVB found themselves overly dependent on these additional deposits.

So when 20% of them went out the door overnight,

They were ruined.

I understand having some expectations for your borrowers,

But having extra money into the billions on your balance sheet thanks to a soft expectation…

Not a great plan.

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Digging deep on banks is what I do.

🔔 Follow Brian on Linkedin: Brian Pillmore

#banking 

#expectations 

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