Learning from SVB's Woes: The Bank Run of 1873 and Beyond

Silicon Valley Banks Share Woes: Lessons From the Bank Run of 1873


When it comes to banks, a lot has changed in the past 150 years. But one lesson from the 19th century still holds true today – never tell your customers that you’re in trouble if everyone takes their money out. The quote by Walter Bagehot “Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone” rings just as true today as it did back then.

The recent news about Silicon Valley Bank (SVB) and its CEO David Becker’s comments on the bank’s “ample liquidity" highlights this timeless truth. SVB was facing a run on deposits due to fears of its solvency; however, Becker made things worse by telling shareholders and potential customers of potential problems should they all come asking for their money at once. This statement did not inspire confidence and could have been avoided altogether had he kept quiet or provided more reassuring words instead.

This brings us back to Bagehot’s quote about proving worthiness for credit - banks must project confidence even when there are doubts surrounding them in order to maintain trust with customers and stakeholders alike. This is especially important for smaller banks such as SVB which don’t have access to large corporate investors or government bailouts like bigger lenders do should times get tough.

But what can SVB do now? As alluded to by Becker himself, finding an acquisition partner would be ideal since this would allow another larger bank with more resources absorb SVB into its balance sheet while there is still value left – thus avoiding a WaMu-like situation where everything goes up in smoke due to holding too much long term paper when rates began rising rapidly.

There are also lessons here beyond just banking - political thinking tends come in waves where certain ideas start becoming popular regardless of whether they actually make sense or not (Wokeism being one example). In addition, using “fabulous witticisms” can often win people over who want validation without necessarily having facts backing up their claims; this kind of rhetoric can lead people astray if taken seriously instead of being challenged critically for accuracy first and foremost before anything else happens.. Finally, one should exercise caution when making statements publicly as even offhand remarks can end up coming back later down the road and cause more harm than good – it only takes one tweet nowadays to start a firestorm.

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