Latest / The Curve / TCW10: A BIG week for the banks. Is your money safe?

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TCW10: A BIG week for the banks. Is your money safe? · The Curve

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  Hi and welcome to the Curve Weekly. The podcast that keeps you up to date with all the money,
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  business and stock market tea. I know exactly what I needed to do but it would take money to get
• 0:30
  there. Show me the money! For the record feminism by definition is the belief that men and women
• 0:38
  should have equal rights and opportunities. Everyone should experience for us class at least once in
• 0:43
  their lives and Annie. Shouldn't miss out just because she can't afford it. Help me own poor.
• 0:47
  What would be the first thing you would buy? Like the first food she'd been paying a period of money.
• 0:52
  Someone asked me this recently and honestly I thought I just want someone to book flights for me
• 0:56
  if I'm ever going anywhere or pack my bag because I always fuck up my flights and fuck up what I pack
• 1:01
  when I go anywhere. Like I- No seriously like I went to Great Barrier this weekend and what I took
• 1:07
  was just so stupid. Kind of like I was going to the Bahamas. I had all summery shirts. Like when
• 1:12
  you went to feed you and you packed hoodies and jeans. Exactly. I took a suit. I took big chunky boots
• 1:18
  on the plane. A suit to the barrier. Oh no no sorry I had to know there was a VG. Equally bad.
• 1:23
  What would you do? Oh gosh. Probably a chef. A chef. Imagine. There's a chef. A personal chef.
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  Yeah. Because definitely for you efficiency is key. Yeah. You like eating well. Cleaner,
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  Gardener, chef. Mainly for efficiency right? Oh totally. Yeah everything's about efficiency.
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  For you everything you're quite- your mentality is quite like masculine. Yes. Like being told
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  we've got to get this done now. Hi emails. Hi please see below. Thanks Vic. Not even please see below
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  Vic and I'm like that's not put some fluff in there. But I don't have time to write fluff and so
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  I feel like the person reading it doesn't have time. You just skimmed through that shit you know
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  anyway. Right now I had this been some scandal in the market. It's been a bit of a fiasco. And when
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  I say I hear I didn't see this in the news. I got a text message from Victoria being like the
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  market's falling to pieces. But I was actually genuinely a bit scared when you sent me that text. I
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  thought shit. I think because someone the night before it given me a big chat about how the world
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  is ending global warming and then when you set the bank- Oh sorry. Oh thank you. I don't want
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  the world is feeling scary at the moment. Yeah. I emailed so I thought hey babe there's been a
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  bet that's gone on in the markets over the last you know 48 hours. And I didn't want to say the
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  word banks because I knew she'd be like oh who cares honestly. Say the word banks and it like
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  cures and somnia for you. And so I tried to make the email sound really like and we can teach
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  them this and we can talk about this. I thought you just shut it shut it down like straight away.
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  But you don't know. Clive is quite interesting and this is it's funny when I go to work sometimes
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  and stuff's happened and you're trying to figure out if it's going to be a big deal is it not like
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  when COVID was happening it was like pins down everyone like what the hell is going on and it's
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  quite like it's quite a buzz you know like the geek in me you know loves that but this you
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  can even know what you're going to wake up to and that's kind of like good and bad. Oh so exciting.
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  We actually had a few deems as well asking us to. Are you making that up? Do it? No.
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  I've got proof. No I believe you. I just can't find them right now. Well I think this is good.
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  I love that people message to say I've seen this can you explain it because if I had seen a headline
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  yeah I also sometimes don't know what what is an actual headline that's true and what's not
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  anymore you know like don't find the headlines so when I see this I'd probably be like
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  it's just someone trying to stir a bit of shit that actually no this is a serious thing.
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  Yeah this was serious so this came out on Friday and the bank that we're talking about is
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  it's called SVB and it stands for Silicon Valley Bank so it is a bank that funds over half the US
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  kind of tech VCs so all these young tech companies half of the half of the companies in the US
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  bank with SVB it's based on Silicon Valley where there's lots of tech companies right
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  around and it's the 16th largest bank in the US which kind of sounds quite low but you know
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  the US is massive place anyway so it was announced on Friday so this is Saturday morning our time in
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  New Zealand that financial regulators you know so the the bank had effectively failed and this is
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  it had collapsed and I'll get to I can see you're like hell why yeah I'm gonna get to there
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  there's a lot of information so I'm gonna try and take it kind of step by step but so this is
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  the biggest US bank failure since the global financial crisis so trying to put that you know kind
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  of trying to put it in perspective so it is it is massive and it's the second largest bank collapse
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  ever in the history of ever yeah so even though it's the 16th largest bank it's it's a big deal
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  and it's because of who it funds and it funds these tech companies anyway if we just take a
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  step back and we kind of think about you know what does a bank do holds people's money yeah so it
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  takes your money and you deposit your money in the bank but it doesn't just keep it in the bank it
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  then takes that money and it leans it out to other people that need to borrow money so it's this
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  constant balance of money coming in and money going out and you know not taking too much risk with
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  with your money that you've deposited because you might need that one day and I don't know when
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  you're gonna need it and so it's this constant risk management around you know investing in some
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  low-risk things to ensure that but you know to ensure that you can still get your money out when
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  you need it is that why it's quite hard to get loans from the bank because you have to prove
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  you exercise your blah blah blah blah and because they have to make sure that someone's not
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  running a default or they're they're risk managing because they're giving out essentially someone
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  else's money yeah to that loan and the thing with this bank is it's focused on tech startups so
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  you know there's a few questions like why is it focused on them it's like well because a lot of
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  other traditional banks won't take the risk of having them as customers so this bank's gone hey we'll
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  take your money give it to us and that's obviously lead to a lot of risk that's been taken and now
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  it's kind of blown up so wouldn't it be better for that risk to be spread across lots of different
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  banks rather than just one bank taking the hit yeah exactly and so with these kind of tech companies
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  investors invest in them and then that money gets deposited into these banks and then what we've
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  seen lately is that there's those deposits have kind of dried up so you know the market's pretty
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  uncertain at the moment and we had amazing time in 2021 when the markets are really great and
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  there was lots of money around and there was funding and so all these tech companies were
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  depositing money into the bank and now that's kind of dried up we've had you know record low
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  IPOs external IPOs initial public offerings so companies raising money from financial markets
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  because markets are uncertain at the moment so there's been the deposits are dried up so this
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  bank sitting there going shit we've just lent out all this money and invested in other things and
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  now deposits have dried up and so that that balance is kind of come undone effectively the most
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  simple terms on Friday there was this I'd just like to stop you there and say you're doing a very
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  good explaining this really unfollowing yeah so effectively what happened they didn't have enough
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  money well we've got out that the bank was starting to struggle and the last thing any bank wants
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  is to have a run on the banks which means people literally running the bank to get money out
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  and even if the most well capitalized and I mean by you know they're balancing their risk
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  well even if the most well capitalized bank had a run on the bank like if we all went running
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  to ANZ it runs like oh my god ANZ's in trouble I've got you know I've got a hundred thousand
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  dollars there or tens of thousand dollars I'm going to run to the bank imagine that a million
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  people running to the bank to get money out like the banks just can't manage that balance so
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  it would never be able to pay out regardless exactly the bank had been and so what's happened with
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  this VV is that how would the word even get out though that oh it's you I mean if you're in
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  Silicon Valley and you're in the tech space you know and if your money's in there you're pretty
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  across what's going on in terms of and how financially secure your bank is but yeah so
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  it started this run on the banks which was never never good news and that caused a lot of people
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  to freak out and go in with your heaps of money and some companies would have got all their money
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  out a lot of companies didn't and they put a hold on you know any any funds being withdrawn now
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  you can get insurance for up to two hundred thousand dollars that's nothing else if you had five
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  ten million so one company Roku which is a tech company that does all the kind of technology
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  behind video streaming it's like twitch stuff I don't know what that is it's like twitch is like
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  an online streaming kind of like they will you watch gamers play online okay I think I don't know
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  over they do all the technology behind this video streaming they had four hundred and eighty
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  million dollars with SVB and they can only get two hundred thousand dollars four hundred and eighty
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  yeah so they're the largest so if you think if we just put and so there's been questions around
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  like oh my god is this gonna be the start of you know a massive event that's gonna you know
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  really cripple the financial system in the US and everyone's thinking like okay what are the
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  impacts and even at work we had companies announcing you know look we don't have any exposure to
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  SVB or we do we've got about six hundred dollars there we're trying to get it out like companies
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  like zero for example you know a very well known Australian New Zealand company it's what operations
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  in the US it thanks with SVB so it's kind of all these fly on effects so it's not just like centralized
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  to America no actually no and they've got UK subsidiaries they've got a Chinese subsidiary
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  like a world yeah arm of their business in different countries but if you just think about
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  you know when you're trying to think about what the fly on effects are if you're sitting there
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  thinking okay if I was running a business and I had all my money in this bank and then I woke up
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  on Saturday morning and couldn't get any money out I can't pay my stuff I can't access any of
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  that money you know that that's my business kind of gone and there's something something happens
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  where that money where I can get that money out you know because you're reliant on that money
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  and tech companies they don't have they don't generate a lot of cash you know these are startups these
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  are early stage companies which have invested their money more into building their products their
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  burning cash quite quickly going through it quite quickly you know they're trying to grow fast
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  and so they don't have you know money coming in the door they're not a micro software
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  they're not like some yeah the big tech companies will be fine they've been established they've got
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  them they're profitable and so that they can pay you know yes they might lose millions of dollars
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  which is terrible but yeah it's just a case of that these are smaller tech companies that need
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  that cash and so what about the insurance side of things so insurance you get up to 200 in
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  $50,000 or $200,000 US but then after that for how long ever yeah so it's why would you ever put
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  all that money in a bank then it's about 90% of all deposits in SVB are at risk but good news
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  eventually on the way to record this podcast the US government came out and said we will cover all
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  deposits how would they even have enough money to do that because how much do you know how much
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  was in there so 200 billion dollars yeah so I say 16th largest bank and I could see your eyes
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  you're like no that's tiny that's how much 200 billion so the US government can pay that much
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  just but then that's the phone if it's okay well where did they get their money they
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  and then what if another bank that happens to another bank exactly so this is the thing that
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  everyone was kind of annoying right over the weekend is like well if the government comes in
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  and saves this bank well then all the other banks can take heaps of risk because they know they're
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  going to get saved they're going to get bailed out so it doesn't set a good precedent but at the same
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  time what's the alternative the government said anyway and shit this could really have phone
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  effects and ripple effects to the whole tech sector and so they kind of got this balance in place
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  that they are trying to juggle in terms of the impact and you know what should we do so thankfully
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  the government has bailed out because a lot of companies and I yeah I know a few people in the US
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  who have tech companies and they haven't been able to access money and gosh I can't even imagine how
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  scary that would be and how do you feel about the fact that I mean obviously you're happy because
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  especially because you know people who have companies that are affected blah blah blah like from
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  an economic standpoint do you think it was the best thing I what frustrates me with this is that
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  is that companies taking too much risk when the times are really good it's kind of like the bank
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  for startups and so they're like you know what everything's great in startup land let's take
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  a bit of risk or like a bank of crypto you know everything's great in crypto let's take heaps of
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  risk and then cryptocurrency prices fall substantially you know because this kind of it frustrates me
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  when companies take too much risk when times are good and then when times turn quickly and
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  don't you know aren't as good then it's even our two pays and then they get bailed out so it's
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  it's kind of you know this will happen again you know there will be another time whether it's
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  next year next 10 years next 20 years that this will happen again you kind of where does the government
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  get that much money from so then they effectively have to take debt to pay for that from where that
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  so then they will then to get there to you know shore up their deposits they just get it from
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  increased taxes or so eventually we all pay for it so that's what frustrates me is that you know
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  they've got these big companies taking all this risk and then we end up paying for it.
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  Do you think it's a company so what is this the bank's fault sorry the company is an SVB so the bank
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  the bank's fault yeah yeah so there's people's jobs there is to manage that balance and the thing
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  also is that they they paid out bonuses hours to SVB staff hours before the regulator
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  sees the company so shit like that I'm like come on like you don't have any moral compass you know
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  it's kind of like we gave their staff bonuses when there's companies they know they're not going
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  to be able to pay that yeah so they would they probably know that the writings on the wall they're
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  like shit yeah so it's kind of like yeah anyway but so she is an SVP of falling off a cliff
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  as you'd imagine they SVB unfortunately they have fallen they fell about 60% and actually ETFs
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  so there's a lot of bank ETFs they're they've fallen a lot as well if you're listening to this
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  and you don't know on ETFs we've got lots of earlier episodes to explain what ETFs are but they're
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  basically just a big bundle of a holder company so yeah you get maybe like a little tiny slice of
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  pizza from 100 200 300 companies rather than just buying one company but if that makes no sense
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  go back some of our early episodes you know when you I know like when we talk about cash you would
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  say example having cash under the mattress and I was like lol no one has their cash under a mattress
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  now would be a great time to have your cash under the mattress
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  it was as bad to say I was like do I get all my money out of the banks and just hide it somewhere
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  because imagine if a bank collapse and you didn't have any access to that and you kind of just
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  don't have any like it's quite strange to think you rely so heavily on the system that you think
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  is so secure and then when something like this happens it actually makes you question whether
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  or should even have your money well the bank exactly and that's I think a big one of the big learning
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  curves and kind of learning experiences from this will be there'll be a lot of those tech companies
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  going gosh we really need to spread where we keep our money yeah so on that then does that mean
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  that you'd be clever to put some of your money in one bank and some of your money in another like
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  just so that you're spreading your own personal risk if you have a lot yeah well I think it comes back
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  to with anything you should spread your risk you know if you've got and I say this I'm sitting
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  here going oh dear gosh I've got my house my savings with one bank I'm like but you know you
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  shouldn't I don't actually sorry but until like recently I had everything with one bank and so
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  making me think I want to diversify with my savings even though it's hardly in it but the good
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  thing with actually I don't need to do that now I've got literally no money yeah I mean I would
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  if the bank slaves would be great because I've got my mortgage with my mortgage my mortgage is
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  gone all that that doesn't work like that and all that would be great no sorry I do not wish the
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  bank did not but no another question we got asked is like what could this happen in New Zealand
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  Australia you know with the banks here and I mean you never say never there's always risk you
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  are literally giving you're lending your money to a bank when you deposit you know you are
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  lending your money to a bank to go and do with it what a what I kind of didn't think I always
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  thought I just put my money in it's just in this big giant like Harry Potter vault you know which
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  they go down and open up and they're all there and here's so people right there oh now she wants
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  them out and now she wants me yeah could it happen to Australia New Zealand banks I mean it could
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  but the thing is that we have such high requirements here in terms of that balance and having that
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  amount of what we call capital requirement in the middle all liquidity requirements so the
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  likelihood is far far lower but this is one pretty risky bank and you know when you're when
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  you're dealing with startup and tech companies and you know they're very risky a lot of early stage
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  tech companies don't even survive so yeah they are taking a lot of risk but so okay do you know
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  what I think this conversations maybe you realize it's not as scary as I originally thought when
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  you said a one of the biggest banks has collapsed and I was like oh my god this hasn't happened since
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  the last you know global financial crisis I was like there's blood on the street come down please
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  but it makes me feel better knowing it's a really risky bank yeah and why it happened rather than
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  just seeing the headline and being like oh the world in there yeah yeah and it is it is good to
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  understand you know to kind of take a seat back and go what do banks actually do and actually
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  I mean but it is risk with keeping your money in the bank put it under the mattress but also
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  I think this is a really good reminder to diversify you know whether it's you know your
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  investments your income anything because you never know what's going to happen no one would have
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  expected to wake up and you know and then if you were running a tech company you would not
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  expect to wake up and they're like oh my gosh the money yeah the company that I bank was
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  I can't get money out you know you never would have thought so it's a really really good reminder to
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  you know diversify diversify diversify and it's also there's been talks of and you gotta be quick
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  around here you know is that you know is this a good buying opportunity for all the other banks
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  that are really really solid and you know not huge risk takers like this bank that have been caught
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  up in this whole like drama oh isn't so their share prices are falling and because everyone's
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  like oh my god the world's ending and it's like okay and then once and this always happens with
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  with the stock market everyone freaks out and then slowly people start reading during their
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  research all that kind of stuff and they go whoa it's not actually as bad as I thought and then
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  the people that actually understand what happens or or kind of take a more level head approach
• 20:27
  or keep investing because they're they're dollar cost averaging we'll get those you're throwing out a
• 20:33
  lot of fucking acronyms here and a lot of people are like I'm not gonna know what you're talking about
• 20:36
  so dollar cost averaging is like auto investing when you just keep investing no matter what happens
• 20:41
  in the market so there's also an episode on that yes we need to start numbering out episode so
• 20:46
  that we can be like number seven go back and listen in fact maybe I'll do that this week um
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  sorry close the S&P 500 and the NASDAQ so the top 500 companies in there you would stop
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  market and the NASDAQ which is the more growth index we're down 4% so if you kept investing over
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  this past week you would have got prices that are a lot better than the previous week so you know
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  there is some pluses of minuses so the whole stock market was affected by it's not just banks
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  not just bank prices yeah okay no the banks they fell the most that they'd fallen since June 2020
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  so last three years so that's yeah but yeah that does bring down the hope because there's a lot of
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  banks in the S&P 500 you've got JP Morgan Bank of America Merrill Lynch all those kind of um
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  I'm like who are these people like it in sex you know like those big big banks you
• 21:41
  need it all the yeah you said Merrill and I was like Merrill straight me all straight no of course um
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  okay wow so big week yes big curve weekly yeah does this like long episode in normal so sorry
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  if you've just churned in you know like I thought these were 10 minute episodes no yeah quite good
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  to get a full explanation though yeah and we'll see this probably continue in the headlines so now
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  hopefully you'll kind of know what's going on if you see any memes instagrams or a few of those
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  have a lot because you get it it was like life of a tingle this is a finance joke you can just
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  feel it now repost it and no it was like the life of a tech startup and it was like 2020 yeah
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  pandemic hit me with the fucking pandemic and then I was like 2021 and it can't remember
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  something else it was like 2022 cool now I've got to pay my engineers like 10% more because
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  I'm inflation you know so and then 2023 cool now I can get my money out like was that the
• 22:33
  time well you know it's like they've just been hurt and hurt again and I do not I've got a joke
• 22:43
  we end on a good joke okay yeah yeah why was the mashroom invited to the party
• 22:49
  you know my joke this is my one only good joke because you're a fun guy okay you know we can
• 22:54
  steal that and why was he asked to leave the party because there wasn't my room we're really
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