The Points And Miles Fallout From Silicon Valley Bank

Silicon Valley Bank was ‘the Startup Bank’. They took in a lot of cash from venture-backed companies, SPAC companies, and more. They did very little retail business, in fact less than 3% of their accounts had under $250,000.

That meant when the bank saw money flowing out – not as many venture deals in a high interest rate environment – and they had to sell assets and recognizes losses (also because of those high interest rates) they were no longer a solid institution. There was a run on the bank, they had to sell more assets they’d intended to maturity, and recognize more losses.

Just Monday they were one of ‘America’s Best Banks’ although I’m not sure that’s a story of how quickly fortunes change as much as how quickly Forbes has.

Thursday night, right before being closed by California regulators and turned over to the FDIC, they were hosting a fancy dinner in my town for South By.

Silicon Valley Bank’s situation is unique. They are a classic story of taking in short term cash, and putting the money into long-term bets, and then not having the cash when customers came calling (or meeting regulatory requirements). They were a victim of high interest rates and a concentration of risk in a single industry, which was no longer depositing money and which wasn’t borrowing from them significantly either.

By Monday there’s a reasonable chance that Silicon Valley Bank will be taken over by another bank, and even that uninsured deposits will be made whole. In any case, depositors will have access to cash soon.

However there’s one way in which this spills over… maybe not into other banks, but to miles and points?

Apparently online startup-focused bank Brex is seeing such an inflow of business from Silicon Valley Bank companies opening accounts that they’ve decided they don’t need to pay out as much in rewards. And they’ve gone ahead and devalued their points, without notice, not just for new accounts but for all of their existing accountholders. That also reduces their liabilities, too.

  • Instead of 1000 points transferring to 1000 miles with airline transfer partners, it now takes 1670 Brex points for 1000 airline miles.

  • They’ve also devalued statement credit and crypto redemptions by 40%.

JT Genter notes that travel portal and gift card redemptions haven’t been devalued (perhaps yet). Mastercard and Amazon gift cards still cash out at 1 cent per point.

The whole problem right now is trust in the banking system which causes runs, and the beneficiary of a lot of Silicon Valley Bank’s problems is… undermining trust. Seriously?

If you had an account at Silicon Valley Bank, here’s a twitter thread of advice, to which I’d add: don’t bank with Brex. There are plenty of institutions that will serve venture-backed startups (well, maybe not so many if you’re in cryto).

I’m glad I used up my 210,000 Brex points last year when they fired customers outside of their core demographic.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Actually, this bank isnt far off other banks exposure to tech and the larger commerical paper that is extremely leveraged with high vacancy rates. There are other dominoes and haircuts to come…..

    You are correct the banking system needs trust….but i wouldnt start trusting any other institutions as “to big to fail”.

    This is 2008 all over again…instead, we have ALL of real estate overvalued and underperforming. Not just housing. Homeowners are distressed more and more and CC balances are hitting records in addition to massive mortgages…..

    I dont think we are done seeing failures and other runs on banks……

    I recall the same being said about Bear Stearns (i.e. this is a one off – not to worry)…..of course account holders of WaMu were assured all is well…..howd that work out.

    I keep hearing…it cant happen again because of xyz….but greed is greed and allowing the risky bets to occur still in tech and real estate has been propped up by zero rate interest rates….those are gone…..and the house of debt collapses just like Credit Default swaps in 2008.

  2. Of course there will be more failures, but this one was uniquely positioned to fail.

    Commercial real estate lending-heavy banks could face problems. High rates are a problem even for banks heavy in Treasiries like SVB becaise once they start selling those long dated treasuries purchased at lower rates they need to mark portfolios to market instead of just listing them as held to maturity.

    But there’s not any reason to think we will see failures like during the GFC or S&L crisis.

  3. @ Gary — SVB wasn’t a victom mof high interest rates. They were a victim of their own GREED. It’s nice to finally see a big over-leveraged company be allowed to fail.

  4. @Gene – they were a pretty normal bank as far as I can tell, which wound up with a mismatch between short term deposits and long term assets (treasuries) which became worth less when interest rates rose. Their capital became worth less, so they had a problem with required ratios, and they had to sell at big losses. things would have been fine in a zero interest rate world! we’re not in that world anymore!

  5. Watch again, Auntie Mame, 1958:

    What happened?

    – Nothing.

    Except nothing’s worth

    anything anymore.

    – Hello.

    – Now, don’t you worry.

    It can’t affect us. We own solid stuff

    like Bank of the United States.

    Missy Dennis, stockbroker want to say

    hello before he jump out of window.

    How bad is it, Arthur?

    Not Bank of the United States.

    Atwater Kent too?

    Mame, I’m afraid you’re wiped out.

    We all are.

  6. Brex is probably being hit by higher interest rates having knocked down the value of its holdings such that it has to cut its costs to attract/retain deposits. Thus the rewards cutbacks.

    Other “regional” and small banks may be in sort of the same situation as SVB of having not diversified their own holdings enough to avoid putting their depositors at risk (save for FDIC and the like). Even across rural parts of the US, there seems to have been a surge of young small banks popping up during the last ten years or so. And surely these banks didn’t pop up because their owners/executives have an altruistic desire to serve those communities already served by other banks.

  7. “By Monday there’s a reasonable chance that Silicon Valley Bank will be taken over by another bank, and even that uninsured deposits will be made whole. In any case, depositors will have access to cash soon.”

    Riiiiight. Only way depositors are made whole is by a govt bailout. No bank is gonna a pay a dollar and get back a quarter.

  8. John, no bank is paying anything for that. Banks that take over deposit accounts also take over deposits and other assets (e.g. loans). The FDIC started the liquidation process soon enough to have the appropriate assets for all insured deposits (and almost all noninsured deposits too). No government money is needed.. yet.

  9. @Issac

    The job market was atrocious in 2008-2009 while it has been strong even under Biden and inflation. The big banks are highly capitalized and have stringent rules to pass CCAR stress tests. They don’t concentrate in lending and holding loans but make money in 5 different segments like wealth management, investment banking, consumer banking, global markets, and etc. It’s the smaller banks that are at risk. High housing prices have been the norm for 7 years and that’s been normalized.

    Tech has been hit hard since early 2022. Most of the job losses are concentrated in Silicon Valley. Other sectors of the economy have been strong, including oil.

  10. A weak book certainly was a factor, but bad management was most likely the cause. It clumsily reacted to declining liquidly by attempting a secondary offering of $1.25B in common stock and $500M in convertible preferred shares. That set off alarm bells and the run was on.

  11. The unemployment rate is artificially low as it no longer includes those that stopped looking for employment and is being propagandized to seem low by the media. Interest rates are killing the housing market but it’s a slow bleed out this time. Many people who bought houses in many (not all) markets are either underwater or will be soon. It’s a slower version of 2008/09 unless some other banks start to fall or the stock market tanks suddenly.

  12. @ John — High housing prices have not been normalized. They’ve barely budged from their absurd levels. Look at Ziilow. We have a long way to go in this tightening process. Maybe prices will significantly improve in 18 months or so.

  13. All these companies, like airlines, devalue their magic beans. By the time you have enough for what you thought was enough for your “reward”, you no longer have enough because they moved the goalpost.

    To chase after points and miles instead of pocketing cash back is a fool’s errand.

  14. @JohnL: At 12/31/2022 , among other assets, SVB had $91 billion in “held to maturity” 97% US govt agency securities , $81 bill with a maturity in excess of 10 years. That hasn’t been sold, only the “available for sale ” was reported sold.
    The question on the HTM is when it was purchased, and at what rate. I.E, what’s the market value?
    If $42 billion in deposits left the bank Thursday, assuming there was no other reduction in deposits this year, there would be $120 bill in deposits. My guess is total deposits are less.

    In addition, loans outstanding at 12/31/22 were $74 billion.
    There was $16 bill in capital.
    FOCUS ! This isn’t Tether! Playing hide your assets and liabilities seems the way to go with crypto bros

  15. @ Gary — Yellem announced no bailout for SVB. Thank goodness. The government must stop bailing everyone out. This why Millenials think they don’t need to pay back their student loans. I pray SCOTUS blocks the loan forgiveness nonsense.

  16. I wish people knew what they were talking about. SVB wasn’t “overleveraged”. They were also in the least risky assets they could possibly be exposed to. I know this will shock the “muh greed” types, but tbills aren’t risky. This is entirely a function of increasing rates coupled with a run of the mill bankrun. The whole banking sector is only insured to about 10%.

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