A Bank of One's Own(nayafia.substack.com)
nayafia.substack.com
A Bank of One's Own
https://nayafia.substack.com/p/a-bank-of-ones-own
129 comments
It worries me that people assume SVB must have taken crazy risks on startups or crypto, when the actual mistakes were locking up so much money in long-term mortgage and Treasury bonds, and having clients who talk to each other.
From the bank’s perspective, uninsured depositors are essentially margin lenders who can call in their loan at any time.
If your lenders are all from one especially volatile and incestuous industry, you put yourself at especially high risk of experiencing a run and defaulting. You need to manage risk and investments accordingly.
They took a high-risk position with eyes wide open and have collapsed as a result.
If your lenders are all from one especially volatile and incestuous industry, you put yourself at especially high risk of experiencing a run and defaulting. You need to manage risk and investments accordingly.
They took a high-risk position with eyes wide open and have collapsed as a result.
Exactly. They should’ve bought short term t-bills to match deposit maturities.
But then how could they offer above market rate yields on their checking accounts, right?
But then how could they offer above market rate yields on their checking accounts, right?
Other people are arguing that SVB spent too much time focusing on fashionable, non-core issues rather than the business of actually running a bank.
Clearly they were not giving sufficient attention to the core business for one reason or another.
Clearly they were not giving sufficient attention to the core business for one reason or another.
Most people here are parrots. The FED raising the rate is the FED removing the liquidity from the market. Liquidity being removed from the market means no more credit, and possibly some people/funds losing money from their bank accounts. Actually, that's a certainty.
It seems that the institution that is most susceptible to this will be an institution in a field where most people are parrots and fast parrots too.
SVB did the "right" or safest thing by buying Treasury (the next safest will be to hold $200bn in cash). Treasury is the real money. Most people think of $1 in their account as $1 but it is not. Buying shorter-term treasury might have saved them or not.
These collapses will continue until the Fed thinks that enough liquidity have been removed from the market and inflation is stabilized again.
It seems that the institution that is most susceptible to this will be an institution in a field where most people are parrots and fast parrots too.
SVB did the "right" or safest thing by buying Treasury (the next safest will be to hold $200bn in cash). Treasury is the real money. Most people think of $1 in their account as $1 but it is not. Buying shorter-term treasury might have saved them or not.
These collapses will continue until the Fed thinks that enough liquidity have been removed from the market and inflation is stabilized again.
This isn't really an explanation of why they failed, just applying a macro explanation to a micro phenomenon.
The bank bought long-dated treasuries for the 2% yield (as opposed to short-term treasuries yielding next to nothing). The moment rates went up they were going to start losing a lot of money mark-to-market. This could be tolerated, except they also had an undiversified deposit base withdrawing money and forcing them to take the losses, and so they blew up.
The bank bought long-dated treasuries for the 2% yield (as opposed to short-term treasuries yielding next to nothing). The moment rates went up they were going to start losing a lot of money mark-to-market. This could be tolerated, except they also had an undiversified deposit base withdrawing money and forcing them to take the losses, and so they blew up.
Hmm, you just repeated what I said. Short or Long term is irrelevant here. They didn't make "risky" investments, they parked their money. They didn't do something unconventional. In 2020, it was perceived or assumed that zero interest rates are here to remain a la Japan and Europe. A 10 year outlook made sense at that time.
Of course, hindsight is an completely other thing and everyone has it once the events unfold.
Of course, hindsight is an completely other thing and everyone has it once the events unfold.
I suppose - I just find mentions of things like "liquidity" with no specificity pretty meaningless (plus "FED" for referring to the federal reserve; I truly don't understand why it's capitalized as if it's an acronym or something).
The thing is, they did make risky investments. Going heavy long-term treasuries is risky, because you lose money if you have to sell them early. Banks get some privileges when holding them on balance, but they are still assuming a lot of interest rate risk when they buy them. Shorter term treasuries would definitely have saved them, but also ruined their profit margins (at least in 2020~2022), so it's neither here nor there.
The thing is, they did make risky investments. Going heavy long-term treasuries is risky, because you lose money if you have to sell them early. Banks get some privileges when holding them on balance, but they are still assuming a lot of interest rate risk when they buy them. Shorter term treasuries would definitely have saved them, but also ruined their profit margins (at least in 2020~2022), so it's neither here nor there.
That's exactly my point, no? This is not about a bank mis-managing itself. Removing liquidity as in the supply of money is going to kill some people. The people who fall are not also necessarily the ones who are mis-managed. Someone out there is insolvent but until an il-liquidity event happens to them, they carry on operations for now.
The Fed (meaning, the authority in broad) will continue to remove liquidity and as a consequence kill businesses. This is not an unintended result. This is, in fact, the wanted result and what they are aiming for.
The Fed (meaning, the authority in broad) will continue to remove liquidity and as a consequence kill businesses. This is not an unintended result. This is, in fact, the wanted result and what they are aiming for.
> Short or Long term is irrelevant here. They didn't make "risky" investments, they parked their money
Long-term debt is more sensitive to interest rates. It’s also less liquid than the gold standard for liquidity, on-the-run Treasuries.
Long-term debt is more sensitive to interest rates. It’s also less liquid than the gold standard for liquidity, on-the-run Treasuries.
Wrong. They bought long term treasuries. Why? Who knows.
Any entry-level CFO/CRO knows they should've done either of:
Any entry-level CFO/CRO knows they should've done either of:
- <=2y treasuries
- some kind of money market account at a larger institution
- or at the very least get a rate swap to cover for rate hikes
It’s such a strange thing. Gov stims everything and the fed drops rates to nothing and it works. Cash flows are coming in. But there’s just so much cash and not enough borrowers so they buy one of the safest assets. The very same entities that created all the cash and low interest rates start rapidly changing the interest rates and then this happens.
Like I don’t want to defend the execs too much as they are the responsible people. But the gov and Fed did this. Erratic economic policy did this. It’s sad so many people think it’s a greedy bank. Being named Silicon Valley Bank doesn’t help.
Like I don’t want to defend the execs too much as they are the responsible people. But the gov and Fed did this. Erratic economic policy did this. It’s sad so many people think it’s a greedy bank. Being named Silicon Valley Bank doesn’t help.
> Like I don’t want to defend the execs too much as they are the responsible people. But the gov and Fed did this. Erratic economic policy did this. It’s sad so many people think it’s a greedy bank. Being named Silicon Valley Bank doesn’t help.
Classic libertarian chant assigning the success to the private individual and blame to the government. Everyone is dealing with the same macroeconomic environment. SVB execs don't get a pass for poor risk management and not understanding their customer base.
Classic libertarian chant assigning the success to the private individual and blame to the government. Everyone is dealing with the same macroeconomic environment. SVB execs don't get a pass for poor risk management and not understanding their customer base.
SVB clearly got greedy. They looked at their models and decided that they should use long-term vehicles with higher interest rather than short-term vehicles. The core problem they had was that interest rate risk prices have changed a lot over the last year and a half, largely due to the fed, and they severely underpriced that risk.
Long-term fixed-income investments lose a LOT of value when rates go up and gain a lot when rates go down, and the relationship is nonlinear and kind of hard to model since it's so dependent on people.
Long-term fixed-income investments lose a LOT of value when rates go up and gain a lot when rates go down, and the relationship is nonlinear and kind of hard to model since it's so dependent on people.
I wouldn’t say they were greedy exactly. They made the wrong assessment that QE would last forever. In which case a 10/30 year treasury yield @ 200 bps is still a good deal, at that time. If they were really greedy they would have gone all in on riskier assets.
The irony is, eventually they will be vindicated, when the Fed is forced to start QE all over again.
The irony is, eventually they will be vindicated, when the Fed is forced to start QE all over again.
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>I wouldn’t say they were greedy exactly. They made the wrong assessment that QE would last forever.
Ie. they got greedy.
Ie. they got greedy.
40% of the spending in the US economy is directly from government, substantially more is directed based on regulations by the US government and the leadership in that government is generally recognised as poor.
The odds of any given crisis being caused by government are good enough to justify it being the base-case assumption before any real evidence comes to light. Although in this case, the long stretch of time at near 0% interest rates and a culture of bailouts encouraging reckless financial decisions are probably going to turn out to be major factors.
The odds of any given crisis being caused by government are good enough to justify it being the base-case assumption before any real evidence comes to light. Although in this case, the long stretch of time at near 0% interest rates and a culture of bailouts encouraging reckless financial decisions are probably going to turn out to be major factors.
SVB got unlucky due to some unique structural problems (massive inflow of cash resulting in high proportion of portfolio with low rate assets backing the deposits and a client base that was shifting to withdrawals all at the same time due to difficulty raising capital).
The fed could have done a better job giving long term guidance and honestly should set up a facility to exchange debt when the interest rate risk couldn’t have been reasonably know.
The fed could have done a better job giving long term guidance and honestly should set up a facility to exchange debt when the interest rate risk couldn’t have been reasonably know.
> SVB got unlucky due to some unique structural problems
"Getting unlucky" in banking is making a few risky loans, getting defaulted on, and coming below projected growth for the quarter. The bank's revenue gets a hit, the shareholders takes a haircut, all part of the playbook, happens every now and then. What "getting unlucky" is not is not understanding interest rate risk so much that you blow your entire bank up. It's like calling someone who drove drunk and killed 16 pedestrian "little unlucky while turning a corner", absolutely not in the same ballpark.
"Getting unlucky" in banking is making a few risky loans, getting defaulted on, and coming below projected growth for the quarter. The bank's revenue gets a hit, the shareholders takes a haircut, all part of the playbook, happens every now and then. What "getting unlucky" is not is not understanding interest rate risk so much that you blow your entire bank up. It's like calling someone who drove drunk and killed 16 pedestrian "little unlucky while turning a corner", absolutely not in the same ballpark.
You’re missing the point. They had to do something with the deposits. There were so many deposits because of gov and Fed policy. There was no demand for loans because there was free money everywhere.
SBN isn’t the only bank in this position. I read a NYT article from 2021 describing this situation and like every bank is in this position.
Interest rates whipsawed from record lows to 20 year highs in 12 months. No one was ready for that. This is all because of gov and fed policy.
We will see a lot of banks failing in the coming weeks and months.
SBN isn’t the only bank in this position. I read a NYT article from 2021 describing this situation and like every bank is in this position.
Interest rates whipsawed from record lows to 20 year highs in 12 months. No one was ready for that. This is all because of gov and fed policy.
We will see a lot of banks failing in the coming weeks and months.
> They had to do something with the deposits. There were so many deposits because of gov and Fed policy. There was no demand for loans because there was free money everywhere.
Easy, buy treasury bills. What? They don't pay interest through the nose? Guess SVB is not getting double digit revenue growth this year, and you're not getting that big bonus. So sad. Anyway.
> SBN isn’t the only bank in this position. I read a NYT article from 2021 describing this situation and like every bank is in this position.
Link? Also I am quite sure most other banks had the good sense to understand that they need to hedge against interest rate risk.
> Interest rates whipsawed from record lows to 20 year highs in 12 months. No one was ready for that. This is all because of gov and fed policy.
Yes, and gov and fed policy was there to address acts of God (aka COVID) and Putin (aka the Russia-Ukraine war). Should we send a list of demands to them?
Easy, buy treasury bills. What? They don't pay interest through the nose? Guess SVB is not getting double digit revenue growth this year, and you're not getting that big bonus. So sad. Anyway.
> SBN isn’t the only bank in this position. I read a NYT article from 2021 describing this situation and like every bank is in this position.
Link? Also I am quite sure most other banks had the good sense to understand that they need to hedge against interest rate risk.
> Interest rates whipsawed from record lows to 20 year highs in 12 months. No one was ready for that. This is all because of gov and fed policy.
Yes, and gov and fed policy was there to address acts of God (aka COVID) and Putin (aka the Russia-Ukraine war). Should we send a list of demands to them?
1. They did buy treasury bills. Those lost value.
2. It’s literally impossible that other banks did a better job as the asset class for treasury and MBS is the same for every bank. The difference is that SVBs customers were more negatively affected by rising rates after also being more positively affected by low rates than other banks. So I don’t expect a systemic problem here but SVB was structurally unlucky.
3. The fed could have acted sooner to raise rates, that would have allowed a more gradual process. They could also have set up an exchange program as they are doing now. Plenty of banks bought long term treasuries that are underwater now but will recover in the long run. So if a member bank is facing liquidity problems it should be able to access the discount window or some similar facility to smooth the timing risk.
Let’s all remember it’s in everyone’s interest to have safe banks and a functioning financial system. When macro policy has unintended consequence there is nothing wrong with supporting the system.
2. It’s literally impossible that other banks did a better job as the asset class for treasury and MBS is the same for every bank. The difference is that SVBs customers were more negatively affected by rising rates after also being more positively affected by low rates than other banks. So I don’t expect a systemic problem here but SVB was structurally unlucky.
3. The fed could have acted sooner to raise rates, that would have allowed a more gradual process. They could also have set up an exchange program as they are doing now. Plenty of banks bought long term treasuries that are underwater now but will recover in the long run. So if a member bank is facing liquidity problems it should be able to access the discount window or some similar facility to smooth the timing risk.
Let’s all remember it’s in everyone’s interest to have safe banks and a functioning financial system. When macro policy has unintended consequence there is nothing wrong with supporting the system.
Making sure you don’t fail catastrophically if you get unlucky is the entire purpose of risk management, which SVB failed to do.
> The fed could have done a better job giving long term guidance
the fed can't give long term guidance, because they can't possibly predict shocks that would happen that require them to change the interest rate.
It's like asking mother earth to give a warning before an earthquake.
the fed can't give long term guidance, because they can't possibly predict shocks that would happen that require them to change the interest rate.
It's like asking mother earth to give a warning before an earthquake.
And, humorously, there were months of clamor for increased rates and months of warning from the US government before Russia invaded Ukraine. Bank risk managers can't pretend there wasn't lots of warning for both developments, starting at least ~15 months ago.
Or more literally, asking mother earth to give a warning before a global pandemic and Putin to give a warning before an invasion.
Of course they should be fired and not hired as executive leaders ever again. But the gov and the fed’s erratic policy and failure to change course early enough leading to the level of inflation we have and whipsaw interest rates need to shoulder some too.
Something like 50% of mortgages were written between 2020 and 2022. So many of these are about to be underwater due to the whipsaw.
There’s going to be a lot of failures in the coming months.
Something like 50% of mortgages were written between 2020 and 2022. So many of these are about to be underwater due to the whipsaw.
There’s going to be a lot of failures in the coming months.
Totally agree it’s the speed of the reversal in rates. Whipsaw is a great term.
I totally agree with this especially since it’s not clear that raising interest rates is even going to make a difference at bringing inflation down under the current circumstances given that it wasn’t wholly a monetary cause. Lack of supply of goods and good old fashion greed in aggressively companies testing pricing power are equally responsible.
> But the gov and Fed did this.
the Feds did what they had to.
The outcome of this fiasco is not a reason to conclude that ZIRP is wrong.
the Feds did what they had to.
The outcome of this fiasco is not a reason to conclude that ZIRP is wrong.
https://nongaap.substack.com/p/sivb-held-to-mortem-governanc...
claims they didn't have a Chief Risk Officer for most of 2022 however, so if true, might that have contributed to not seeing the approaching difficulty as mortgages became stressed?
claims they didn't have a Chief Risk Officer for most of 2022 however, so if true, might that have contributed to not seeing the approaching difficulty as mortgages became stressed?
This episode has taught me the random person on the street (on the left and the right) is horribly ignorant, has dirt-poor reading comprehension, and is seething with envy towards Silicon Valley.
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...So what have you done to help uplift the sullied masses?
If the answer is nothing, then you now know why.
If the answer is nothing, then you now know why.
The obvious fact is that we don’t need private banks to run our payment system or provide deposit accounts. It can be done perfectly well by allowing individuals to have accounts at the central bank through a postal savings system.
There is probably some value in having banks to do loan underwriting and allowing private credit creation but this whole thing if allowing private banks to run everything and then providing a federal guarantee of some deposits is absurd, just take that function away from the private sector.
There is probably some value in having banks to do loan underwriting and allowing private credit creation but this whole thing if allowing private banks to run everything and then providing a federal guarantee of some deposits is absurd, just take that function away from the private sector.
I agree. It’s not even clear that banks need customer deposits to create credit and loans anyway [1]. Just let them continue with their commercial credit/loan operations, and provide a postal savings system for zero-risk savings for the public. Seems like a much less calamity-prone system.
[1]:https://www.youtube.com/watch?v=3N7oD5zrBnc
[1]:https://www.youtube.com/watch?v=3N7oD5zrBnc
If basic customers could be served by a federal deposit system and more "unique" customers might look for private options that cater to their needs (basically all of SVB's customers), nothing that played out in SVB's collapse would have changed.
You reckon they would have been holding cash for payroll in SVB if they could have an account directly with the fed instead?
Consider the reasons why most of SVB's clients chose SVB instead of a larger, more traditional bank. The traditional banks work very slowly, are hyper-cautious with/outright deny businesses they don't understand, and if a startup did manage to get an account, its transaction maximums would be extremely limited relative to its growth. Now imagine the government is the custodian, and those problems presumably become 10x worse.
I looked up "why would a startup choose svb" and found that the reasons are those which could be fulfilled in a myriad ways:
https://au.finance.yahoo.com/news/silicon-valley-bank-served...
There was nothing especially "startuppy" about their traditional banking services.
https://au.finance.yahoo.com/news/silicon-valley-bank-served...
There was nothing especially "startuppy" about their traditional banking services.
Probably true for SVB, but still useful for the banking system overall.
Yep, precisely, Wray says as much in this lecture:
https://youtu.be/gI86w6bSmS0?t=445
https://youtu.be/gI86w6bSmS0?t=445
Banks depend on depositor's money to generate loans. How would loans be generated, then, if consumers kept their money with the central bank? Issuing debt is a key engine for economic growth. This would incur an extremely contractionary effect.
This isn't actually true in the modern system; loans are generated by the bank taking a loan from the Federal Reserve at that interest rate, and then applying a markup that covers the cost of KYC, due diligence, customer service, and of course the bank's profit.
> loans are generated by the bank taking a loan from the Federal Reserve at that interest rate
This is incorrect. Most bank assets are not Fed financed. (That’s the discount window and reverse repo operations.)
This is incorrect. Most bank assets are not Fed financed. (That’s the discount window and reverse repo operations.)
If the depositors were willing to accept a lower rate than the federal funds rate, the banks make a bigger profit from the loan interest spread.
Therefore, it is always an incentive for a bank to attract deposits.
Therefore, it is always an incentive for a bank to attract deposits.
By paying interest to attract depositors.
With banks paying almost nothing to depositors, I don’t see why we should be forced to use them. Give us the same deal they get with the Fed.
With banks paying almost nothing to depositors, I don’t see why we should be forced to use them. Give us the same deal they get with the Fed.
Loans create deposits. Always have always will.
Deposits don’t move banks. What happens is the ownership tag changes.
So when you “move” your money to an account at the central bank, the central bank necessarily takes over your old deposit in the bank you’re moving from. That becomes an asset of the central bank and they create a new deposit for you against that.
That’s how all bank transfers work at root.
Deposits don’t move banks. What happens is the ownership tag changes.
So when you “move” your money to an account at the central bank, the central bank necessarily takes over your old deposit in the bank you’re moving from. That becomes an asset of the central bank and they create a new deposit for you against that.
That’s how all bank transfers work at root.
The way any other creditor issues loans? Investors put money together, loan it out at interest to make a profit and cover losses.
That would be a fraction of the size of depositor back lending which would significantly reduce capital available for all kinds of uses. The current system is better specifically because it supplies guard rails that incentivize private investors and all savers to lend their money.
The venture capital and stock market are not capitalized with bank deposits, and that comprises the bulk of commercial startup capitalization and investment. What percentage of startup capitalization and investment comes from deposit-backed bank loans? I'd guess not much. None of the tech startups impacted by SVB's insolvency were capitalized by loans from checking deposits. Their deposit accounts were lent out to mostly non-business securities (mortgages and government bonds). Fractional reserve banking always will and always does result in bank runs.
The idea of separating deposit and investment banking goes back to the 1930s. It's known as "The Chicago Plan" (full reserve deposit banking). The IMF published a study that estimates no negative impact on economic growth.
https://en.wikipedia.org/wiki/Chicago_plan
https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The...
https://qr.ae/pGQXNx
The idea of separating deposit and investment banking goes back to the 1930s. It's known as "The Chicago Plan" (full reserve deposit banking). The IMF published a study that estimates no negative impact on economic growth.
https://en.wikipedia.org/wiki/Chicago_plan
https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The...
https://qr.ae/pGQXNx
When a company is capitalized that money gets deposited into an operating bank account. Many start ups used SVB, so all of their capital became a deposit at a bank. It doesn’t matter that the original source was a VC firm and wasn’t from other depositors. Because now the company can’t access its capital to pay employees.
This has nothing to do with separating deposits from investment activities, no one is alleging that SVB was speculating in stock or risky securities. They were placing deposits grade A securities as any regulatory body would sign off on.
This has nothing to do with separating deposits from investment activities, no one is alleging that SVB was speculating in stock or risky securities. They were placing deposits grade A securities as any regulatory body would sign off on.
> There is probably some value in having banks to do loan underwriting and allowing private credit creation but this whole thing if allowing private banks to run everything and then providing a federal guarantee of some deposits is absurd, just take that function away from the private sector.
Could you explain this better? I don't understand
Could you explain this better? I don't understand
I probably can't explain it better than Randall Wray from whom I got the information, in this lecture:
https://youtu.be/gI86w6bSmS0?t=445
https://youtu.be/gI86w6bSmS0?t=445
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Banks use some of those deposits to make loans to private parties. This is, on the whole, beneficial to society so we want it to continue.
You do not want the government, which is supervised by politicians, picking who gets loans.
You do not want the government, which is supervised by politicians, picking who gets loans.
I agree that having a banking system in any major degree at the whims of politicians could and likely is a bad idea.
I don’t think however having the Civil Service running a public bank would be a bad thing though. Career government employees are at the whims of politicians no more than private businesses are, has been my observation, and can when structurally enabled make good sound decisions.
I think having a public option for banking in this light would be positive
I don’t think however having the Civil Service running a public bank would be a bad thing though. Career government employees are at the whims of politicians no more than private businesses are, has been my observation, and can when structurally enabled make good sound decisions.
I think having a public option for banking in this light would be positive
Except if you look at mortgages as an example, the government already has a huge impact on who gets loans (via Fannie Mae and Freddie Mac, plus programs like USDA home loans). That influence is largely to expand access to people who would otherwise get cut out of the system.
They don’t.
Loans create deposits.
Deposits in a bank never go anywhere. All that happens as you “move” money around is the ownership tag changes. And that tends to change the price the bank has to pay on those deposits.
Loans create deposits.
Deposits in a bank never go anywhere. All that happens as you “move” money around is the ownership tag changes. And that tends to change the price the bank has to pay on those deposits.
> You do not want the government, which is supervised by politicians, picking who gets loans.
Yes that's why I said there's some value in having private credit creation. In fact, my comment was just lifted from this lecture by Randall Wray where he says precisely what you just said:
https://youtu.be/gI86w6bSmS0?t=445
Although correction to another comment I made: he does specifically say loans should be held by the issuer until maturity.
Yes that's why I said there's some value in having private credit creation. In fact, my comment was just lifted from this lecture by Randall Wray where he says precisely what you just said:
https://youtu.be/gI86w6bSmS0?t=445
Although correction to another comment I made: he does specifically say loans should be held by the issuer until maturity.
>There is probably some value in having banks to do loan underwriting and allowing private credit creation
but why would you ever put your money in a commercial bank when you can deposit at the federal reserve with 0 risk?
but why would you ever put your money in a commercial bank when you can deposit at the federal reserve with 0 risk?
Interest
I’m not an expert in the mechanics but I think there is also a way for private credit creation to run as a separate operation, similar to how loans were originated in the sub prime mortgage crisis and then immediately sold on. I’m not recommending that happen, but a similar system would allow private credit creation without the loan issuers being the primary deposit taking institution.
But yes private banks could also operate term deposits and pay interest to attract deposits to satisfy net flows of funds with other institutions.
But yes private banks could also operate term deposits and pay interest to attract deposits to satisfy net flows of funds with other institutions.
I can't edit my above comment anymore but going back to the original lecture in which I saw this he does specifically say that loans should be held to maturity by the issuer:
https://youtu.be/gI86w6bSmS0?t=445
Presumably to avoid exactly what happened in the sub-prime mortgage crisis :)
https://youtu.be/gI86w6bSmS0?t=445
Presumably to avoid exactly what happened in the sub-prime mortgage crisis :)
That would be nice. Presently, most private banks pay less interest to depositors than the Fed funds overnight rate.
Presumably you would get at least T-bill equivalent interest rates in a postal saving system, but that still leaves room for higher interest alternatives.
How do you handle fraud in this setup?
Lol.
> I'm perplexed, then, to see so many people gleefully celebrate the collapse of an institution that helped level the playing field for people from all backgrounds.
"Making loans to startups that otherwise wouldn't get a loan because they are too risky for traditional banks" does certainly grant more people access to the high-cost high-risk world of tech startups, but I dunno that it's a terribly compelling method to level the playing field because it does nothing to challenge the system itself, only gives new players a chance to spin the wheel.
The backlash against tech in general stems from the system itself and the things it prioritizes, like massive scale at all costs in service to investors being a vehicle for the rich to become richer. If you start from a position like "tech billionaires and their antics are a significant source of problems in the world" then a bank like SVB that lets more "normal" folks participate doesn't do anything to stop those said billionaires from _also_ profiting off these new incoming startups, except making the pool to choose from even bigger.
It's frustration with the system that drives these sentiments, not specifically SVB as the "secret backdoor for poors into the startup casino".
"Making loans to startups that otherwise wouldn't get a loan because they are too risky for traditional banks" does certainly grant more people access to the high-cost high-risk world of tech startups, but I dunno that it's a terribly compelling method to level the playing field because it does nothing to challenge the system itself, only gives new players a chance to spin the wheel.
The backlash against tech in general stems from the system itself and the things it prioritizes, like massive scale at all costs in service to investors being a vehicle for the rich to become richer. If you start from a position like "tech billionaires and their antics are a significant source of problems in the world" then a bank like SVB that lets more "normal" folks participate doesn't do anything to stop those said billionaires from _also_ profiting off these new incoming startups, except making the pool to choose from even bigger.
It's frustration with the system that drives these sentiments, not specifically SVB as the "secret backdoor for poors into the startup casino".
For the last two years on Youtube in France, we’ve had ads saying “DON’T HAVE MONEY? YOU CAN STILL BUY A HOME!”
It’s the 3.6 Roentgen of banking. Everyone with no money was able to buy. Startups are too many being created. Flooding the economy with Covid money made that everyone had way too much money. Everything is in flames, we’re just merely discovering it.
It’s gonna be a tough year.
It’s the 3.6 Roentgen of banking. Everyone with no money was able to buy. Startups are too many being created. Flooding the economy with Covid money made that everyone had way too much money. Everything is in flames, we’re just merely discovering it.
It’s gonna be a tough year.
I thought this was a great post. I've commented elsewhere that I'd be pissed at the moral hazard of unsecured depositors getting a federal bailout (though not if the feds just assist in finding a buyer or do as much as possible to ensure depositors can access their funds quickly), but at the same time I'm saddened by so much of the gleeful tribalism I see online (but not too saddened - many of the "dancing on your grave" posts stand out primarily for their stupidity).
SVB was uniquely positioned to help the startup ecosystem in a way that larger banks were not. I hope something similar replaces them (albeit with better risk controls for their asset portfolio).
SVB was uniquely positioned to help the startup ecosystem in a way that larger banks were not. I hope something similar replaces them (albeit with better risk controls for their asset portfolio).
The moral hazard of trusting a licensed bank? Do we want depositors to be hesitant to do that? The Fed won’t even allow “narrow banks” (that keep a 100% reserve ratio and cannot fail) because they think it’s crucial for our deposits to be available for loans and bonds.
> The moral hazard of trusting a licensed bank?
With deposits in excess of FDIC limits? Yes, absolutely. There are a number of options to manage cash more securely than just putting it all in a single bank.
Either one of 2 things must be true:
1. The FDIC 250k limit is real, and so deposits in excess of that limit must be subject to the risk of failure.
2. The FDIC 250k limit is fiction. If that's the case, then we should be honest and acknowledge that, and price any additional insurance accordingly.
Everyone clamoring for a bailout now wants to have their cake and eat it, too. They want the luxury of pretending like their deposits are insured without paying the premiums.
With deposits in excess of FDIC limits? Yes, absolutely. There are a number of options to manage cash more securely than just putting it all in a single bank.
Either one of 2 things must be true:
1. The FDIC 250k limit is real, and so deposits in excess of that limit must be subject to the risk of failure.
2. The FDIC 250k limit is fiction. If that's the case, then we should be honest and acknowledge that, and price any additional insurance accordingly.
Everyone clamoring for a bailout now wants to have their cake and eat it, too. They want the luxury of pretending like their deposits are insured without paying the premiums.
There's option 3: The limit is in practice "At least 250k" and the value of "At least" varies depending on the nature of the deposit, the institution it's in, and its failure mode.
There are no doubt certain banks that would be more palatable politically to backstop further. I could imagine a national bank with mostly retail depositors and few over-250k accounts is "prettier" politically than if you had a tightly focused regional player that had mostly corporate accounts. I could see politicians saying "Why should Iowa bail out the bad decisions of Bay Area investors? Nobody in Dubuque actually has an account there."
There are no doubt certain banks that would be more palatable politically to backstop further. I could imagine a national bank with mostly retail depositors and few over-250k accounts is "prettier" politically than if you had a tightly focused regional player that had mostly corporate accounts. I could see politicians saying "Why should Iowa bail out the bad decisions of Bay Area investors? Nobody in Dubuque actually has an account there."
> There's option 3: The limit is in practice "At least 250k" and the value of "At least" varies depending on the nature of the deposit, the institution it's in, and its failure mode.
Well, option three is basically what we have now, and my argument is that it's supremely fucked up. As you point out, it highlights how vague, unclear laws or backstops are ripe for corruption and political cronyism.
It also adds a new form of moral hazard: if you're going to blow up, make sure you blow up big. Some small little bank that is pretty contained? Sorry depositors, you're all screwed. But scream "contagion" enough times and use the "nice economy you got there - be a shame if someone were to ruin it" tactic, and get Washington to come to your rescue.
Well, option three is basically what we have now, and my argument is that it's supremely fucked up. As you point out, it highlights how vague, unclear laws or backstops are ripe for corruption and political cronyism.
It also adds a new form of moral hazard: if you're going to blow up, make sure you blow up big. Some small little bank that is pretty contained? Sorry depositors, you're all screwed. But scream "contagion" enough times and use the "nice economy you got there - be a shame if someone were to ruin it" tactic, and get Washington to come to your rescue.
Depositors who hold more than 250k in checking? The probably should be expected to be sophisticated capital managers rather than kept on safety wheels.
The alternative is scarier: infinite deposit insurance exposes government to larger and larger defaults requiring them to regulate banks down to which industries and loans they can work with or not.
The alternative is scarier: infinite deposit insurance exposes government to larger and larger defaults requiring them to regulate banks down to which industries and loans they can work with or not.
It is crucial because new loans generate growth and economic activity. The economy would seize up and enter a deep recession if regular savers stashed their money in 100% reserve ratio bank. (Many would if there was no government-backed deposit insurance for regular-sized amounts.)
I think the reason such institutions don't exist is that they are very unprofitable compared to regular banks and would be expensive to keep deposits in them.
I think the reason such institutions don't exist is that they are very unprofitable compared to regular banks and would be expensive to keep deposits in them.
The problem with narrow banks is that it would expose the fact that the Fed raising interest rates is causing significant instability.
I mean, if banks offer 5% interest and the fed raises interest to 4%, then there is no problem but if the Fed goes to 6%, it becomes a problem because people switch to the narrow bank. In other words, the banks in the real world cannot compete with banks that take government subsidies, so the subsidy must be carefully chosen instead of being raised arbitrarily.
I mean, if banks offer 5% interest and the fed raises interest to 4%, then there is no problem but if the Fed goes to 6%, it becomes a problem because people switch to the narrow bank. In other words, the banks in the real world cannot compete with banks that take government subsidies, so the subsidy must be carefully chosen instead of being raised arbitrarily.
It seems to me like too much of the current situation has jurisdictional gaming. We complain that banks no longer want to take the risk of their traditional role in small business loans and have a lot of economic distortion from that.
Silicon Valley apparently had better access to a bank that took risks and SVB seems to be the bank of over half of tech and public health startups..
Other jurisdictions should feel a bit cheated if their regulators didn't help their small business get the most out financing and FDIC bailouts.. Internationally, other countries have to question why they aren't giving some kind of handouts to gain more of the startup scene for occasional crises.
Really a fine mess.
Silicon Valley apparently had better access to a bank that took risks and SVB seems to be the bank of over half of tech and public health startups..
Other jurisdictions should feel a bit cheated if their regulators didn't help their small business get the most out financing and FDIC bailouts.. Internationally, other countries have to question why they aren't giving some kind of handouts to gain more of the startup scene for occasional crises.
Really a fine mess.
> I've commented elsewhere that I'd be pissed at the moral hazard of unsecured depositors getting a federal bailout
This is a very strange take that I disagree strongly with. There is no such moral hazard, and I would not call depositors being made whole any sort of bailout.
I would argue that one of the most important functions of the government, right alongside national security, is maintaining the illusion that bank deposits == money, and that they are callable on demand at par value for any individual or firm in the country.
This is a very strange take that I disagree strongly with. There is no such moral hazard, and I would not call depositors being made whole any sort of bailout.
I would argue that one of the most important functions of the government, right alongside national security, is maintaining the illusion that bank deposits == money, and that they are callable on demand at par value for any individual or firm in the country.
If that's the case, then the FDIC should get rid of the depository limit then, and price their insurance accordingly.
The point is, right now, and in previous failures, uninsured depositors were not made whole. And, if the feds weren't worried about contagion, then they absolutely would not bail out depositors. So the moral hazard is "if you're going to blow up, make sure you blow up big, and get enough powerful people to contact your congressmen, otherwise, you're screwed".
The point is, right now, and in previous failures, uninsured depositors were not made whole. And, if the feds weren't worried about contagion, then they absolutely would not bail out depositors. So the moral hazard is "if you're going to blow up, make sure you blow up big, and get enough powerful people to contact your congressmen, otherwise, you're screwed".
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> Several years into my time in San Francisco, someone explained to me how, as a partner at a venture capital firm, they were expected to commit personal capital to the fund, which is often several percentage points' worth of the total fund size.
So I have been out of this mess for a long time, but at least at some point, this was literally the definition of being "a partner" in a firm (investment or otherwise). It's not a title you get by working hard. You buy in if you want the gains, and that means you're also taking on the risk.
This whole essay feels like someone reckoning with the capitalist class, or difference between being rich and being wealthy, for the first time. "What do you mean risky investments don't always shake out fairly? That's not what I learned in my MBA!"
So I have been out of this mess for a long time, but at least at some point, this was literally the definition of being "a partner" in a firm (investment or otherwise). It's not a title you get by working hard. You buy in if you want the gains, and that means you're also taking on the risk.
This whole essay feels like someone reckoning with the capitalist class, or difference between being rich and being wealthy, for the first time. "What do you mean risky investments don't always shake out fairly? That's not what I learned in my MBA!"
Shout out to all the credit unions out there!
* Owned by those who bank there
* Non-profit organization -- "Excess" profit is typically returned to members as a dividend
* Savings from your accounts are used to invest in mortgages and bonds and securities in your community
* Deposits up to $250k are insured by the National Credit Union Share Insurance Fund (is all of this sounding familiar?)
signed, a happy credit union member
* Owned by those who bank there
* Non-profit organization -- "Excess" profit is typically returned to members as a dividend
* Savings from your accounts are used to invest in mortgages and bonds and securities in your community
* Deposits up to $250k are insured by the National Credit Union Share Insurance Fund (is all of this sounding familiar?)
signed, a happy credit union member
This. So much this.
I've been bootstrapping my startup with Regions bank for 3 years and it has been one unending nightmare after another.
It's been like having an active and hateful adversary at every single moment when you need help most.
I was extremely fortunate to be able to open an account with SVB late last year and it had been an enormous relief.
The unreasonable delays, hostile policies, nickel and diming, obvious incompetence, all gone.
Fast loading web experiences, instant transfers, employee credit cards, full service treatment, everything has been seamless with SVB.
My account is below the FDIC threshold, so I'm optimistic about Monday, but the loss is so huge and so much more than the money.
I've been bootstrapping my startup with Regions bank for 3 years and it has been one unending nightmare after another.
It's been like having an active and hateful adversary at every single moment when you need help most.
I was extremely fortunate to be able to open an account with SVB late last year and it had been an enormous relief.
The unreasonable delays, hostile policies, nickel and diming, obvious incompetence, all gone.
Fast loading web experiences, instant transfers, employee credit cards, full service treatment, everything has been seamless with SVB.
My account is below the FDIC threshold, so I'm optimistic about Monday, but the loss is so huge and so much more than the money.
"I'm perplexed, then, to see so many people gleefully celebrate the collapse of an institution..."
Huh? I live well outside SV, and have for over two decades, and I have encountered zero examples of this. Are people inside SV "gleefully celebrating"? So far, no one I have mentioned this to had heard of it happening before I told them.
Huh? I live well outside SV, and have for over two decades, and I have encountered zero examples of this. Are people inside SV "gleefully celebrating"? So far, no one I have mentioned this to had heard of it happening before I told them.
There are plenty of people meeting that description on Reddit and Twitter, though quite why anyone would take their opinions seriously is beyond me. They’re literal fandoms opining on something they didn’t know existed until a few days prior.
I understand Twitter is not real life, but yes, there are tons of gleeful "own the libs"-style posts there.
It’s mainly an online phenomenon.
> I've seen a number of people ask why so many startups banked with SVB, as if this should have been a red flag somehow. The answer is not that tech doesn't want to work with traditional banks, or because they were greedy and looking for better rates. They banked with SVB because it's one of only a handful of banks that was willing to align its financial products with the holistic levels of risk that are required to work in startups.
This is completely bullshit. Unless SVB was subsidizing loans to risky startup employees by lending assets at longer durations, the risks they were taking with those mismatched durations has nothing to do with altruism or philosophy. It’s just greed and lack of foresight to risk the rate hikes.
This is completely bullshit. Unless SVB was subsidizing loans to risky startup employees by lending assets at longer durations, the risks they were taking with those mismatched durations has nothing to do with altruism or philosophy. It’s just greed and lack of foresight to risk the rate hikes.
This it a little tangental but a lot of the times when I see a title that says "An X of One's Own" and then see the content I wonder if it relates at all to Virginia Woolf's A Room of One's Own.
For example I once read an Ikea blog post titled "A Storage Space of One's Own", and the content of the post was nothing at all to do with how women can achieve the same things as men if they are allowed the space to do so, the blog post was about Ikea's top five storage units.
This was one was suspect until the end, and then I think it wraps up quite nicely. All people should be allowed to flourish. And we should take that positive note away from it.
For example I once read an Ikea blog post titled "A Storage Space of One's Own", and the content of the post was nothing at all to do with how women can achieve the same things as men if they are allowed the space to do so, the blog post was about Ikea's top five storage units.
This was one was suspect until the end, and then I think it wraps up quite nicely. All people should be allowed to flourish. And we should take that positive note away from it.
This was a good read. I learned something.
But I can't help but think that part of the problem is the American lifestyle that does a poor job of allowing people to live both well and frugally while fully participating in life.
We have a gun to our head to own a car, to have a large home, etc. There's a cost to that, both individually and societally.
But I can't help but think that part of the problem is the American lifestyle that does a poor job of allowing people to live both well and frugally while fully participating in life.
We have a gun to our head to own a car, to have a large home, etc. There's a cost to that, both individually and societally.
> They banked with SVB because it's one of only a handful of banks that was willing to align its financial products with the holistic levels of risk that are required to work in startups.
I don't really understand what this means. What specifically did SVB offer that, say, Chase or BoA didn't?
I don't really understand what this means. What specifically did SVB offer that, say, Chase or BoA didn't?
A few years ago, I evaluated launching my startup in the US through Stripe-Atlas. SVB was the banking partner at that time. I did not go through with it. If I recall correctly Stripe-Atlas launched around 2017 or so. So, in the last 5 years, many startups that did not already have a banking relationship with another bank and had chosen Stripe-Atlas for launching would have likely lined up with SVB.
So, ease of banking access, for one thing, led to the unique mix of SVB clientele.
Edit: Currently, after SVB's demise there is Mercury and Novo, I believe, that are banking partners of Stripe-Atlas.
So, ease of banking access, for one thing, led to the unique mix of SVB clientele.
Edit: Currently, after SVB's demise there is Mercury and Novo, I believe, that are banking partners of Stripe-Atlas.
> My only other option, I learned, was to work with an employee equity "fund" – essentially, loan sharks – that lend money to startup employees if they don't have the cash to buy their options. In exchange, they would take more than 50% of my payout, if it ever came to pass. After weighing these options, I decided to choke down my fears, cash out my savings and buy myself one big chip, which I placed in front of the roulette wheel and held my breath as it spun.
> When a founder goes to the bank to get a mortgage, it's difficult to explain to someone at, say, Bank of America that yes, their savings and income don't look very impressive, but they do have a lot of equity in a promising company – which, by the way, isn't yet profitable, but it will be! (Maybe.) A Big Banker doesn't look at that story and see a potential high earner. They just see someone who is incredibly cash poor and risky.
> "Boo hoo," you might think. "Pity the poor venture capitalist who can't afford to buy into their fund." But this person did not come from a wealthy or privileged background. They were relatively young. They didn't have family who could advance them the cash.
They offer loans and financial products to employees, founders, and VCs (new to me), that are cash poor but have equity in presumably valuable companies. A relationship that is supposedly hard to forge with other banks.
> When a founder goes to the bank to get a mortgage, it's difficult to explain to someone at, say, Bank of America that yes, their savings and income don't look very impressive, but they do have a lot of equity in a promising company – which, by the way, isn't yet profitable, but it will be! (Maybe.) A Big Banker doesn't look at that story and see a potential high earner. They just see someone who is incredibly cash poor and risky.
> "Boo hoo," you might think. "Pity the poor venture capitalist who can't afford to buy into their fund." But this person did not come from a wealthy or privileged background. They were relatively young. They didn't have family who could advance them the cash.
They offer loans and financial products to employees, founders, and VCs (new to me), that are cash poor but have equity in presumably valuable companies. A relationship that is supposedly hard to forge with other banks.
I expect there is a story to be told about SVB's relations with the VC community. Clearly it was providing financial services structured for the startup ecosystem, and there is great value in that. Wanting a relationship with SVB makes sense. But allowing that relationship to prevent you from properly managing your risk is a mistake. It looks like a LOT of VCs made that mistake.
Ali Taylor, co-founder at Venture Studio:
“just got first founder email saying they are looking at moving their capital out of *all banks* due to contagion risk”
https://twitter.com/_ali_taylor/status/1634266779592585216
“just got first founder email saying they are looking at moving their capital out of *all banks* due to contagion risk”
https://twitter.com/_ali_taylor/status/1634266779592585216
> "After weighing these options, I decided to choke down my fears, cash out my savings and buy myself one big chip, which I placed in front of the roulette wheel and held my breath as it spun."
Wth man, you cant throw a bomb like that and not say what the outcome was!
Wth man, you cant throw a bomb like that and not say what the outcome was!
> But the only way they were able to participate in that world, and serve as a role model for others, was by quietly borrowing from a bank that understood what it meant to be a young venture capitalist with carry, but not enough savings.
Using borrowed money for venture capital seems very risky and not something that a bank should be celebrated for enabling.
Using borrowed money for venture capital seems very risky and not something that a bank should be celebrated for enabling.
It wasn't.
It made bad bets on bonds and lost $2 billion dollars of the $200+ billion dollars it held in deposits.
I must be missing something, because I fail to see how this is such a big deal, or why anyone will be taking much of a haircut on their deposits.
It made bad bets on bonds and lost $2 billion dollars of the $200+ billion dollars it held in deposits.
I must be missing something, because I fail to see how this is such a big deal, or why anyone will be taking much of a haircut on their deposits.
The prices SVB and other banks use for their assets are not marked to market.
Selling it all, today, would mean that they get back far less than the total deposits.
Selling it over time or parking it with a temp bad bank would be fine though and that is what fdic will probably do.
Selling it all, today, would mean that they get back far less than the total deposits.
Selling it over time or parking it with a temp bad bank would be fine though and that is what fdic will probably do.
That's to my point though: there's not going to be a fire sale.
Well let’s hope not, and let’s hope they arrange an orderly process by 9AM Monday. Friday was not great and appeared to take them by surprise.
Well, not everyone, given that the CEO's been selling shares :)
By them I meant the authorities who intervened midday which is unusual I think?
I do feel the svb ceo/cfo etc should face consequences for their actions, bonuses should be clawed back, but really those are not the important actions here - providing stability to the entire banking system and making sure hundreds of businesses do not close at once because of a bank run are far more important. Otherwise there is significant systemic risk.
I do feel the svb ceo/cfo etc should face consequences for their actions, bonuses should be clawed back, but really those are not the important actions here - providing stability to the entire banking system and making sure hundreds of businesses do not close at once because of a bank run are far more important. Otherwise there is significant systemic risk.
2 Billion is only what they lost on the ATM portfolio. What triggered the attempted capital raise.
The unrealized loses were a further 16Billion+.
18Billion lost of a capital base of 200Billion is clearly a big deal.
The unrealized loses were a further 16Billion+.
18Billion lost of a capital base of 200Billion is clearly a big deal.
Yes, that is different.
Wasn't mixing "normal" banking with investment banking banned in the US after 2007? Or this is something else that doesn't fall into that category?
Mixing commercial and investment banking was banned in 1933 by the Glass Steagall Act. The act was partially repealed in 1999 which allowed banks to engage in both commercial and investment banking again. As far as I know banks have been able to engage in both since then.
[deleted]
As an aside, this is a curious situation that points to capitalism (in its current form) being something of a continuation of aristocracy but by other means:
> "Some employees can't afford to buy their equity at all, so that when their startup is acquired or goes public, they earn nothing from the outcome, looking on in silence while their colleagues become millionaires. The people who find themselves in this situation are, of course, disproportionately those who work in lower-paying roles, and who don't have family or friends to borrow from."
A society in which each person is given something like a 'equity stake' at adulthood might work. It would be their decision as to how to use it - buy equity in a startup, pay for a college education, start a small business, etc. Maybe certain limitations on frivolous activities would make sense. It's similar to universal basic income, but more delivered in one chunk rather than as a pittance spread out over time. It would create a much more even playing field while still allowing for competitive success stories.
> "Some employees can't afford to buy their equity at all, so that when their startup is acquired or goes public, they earn nothing from the outcome, looking on in silence while their colleagues become millionaires. The people who find themselves in this situation are, of course, disproportionately those who work in lower-paying roles, and who don't have family or friends to borrow from."
A society in which each person is given something like a 'equity stake' at adulthood might work. It would be their decision as to how to use it - buy equity in a startup, pay for a college education, start a small business, etc. Maybe certain limitations on frivolous activities would make sense. It's similar to universal basic income, but more delivered in one chunk rather than as a pittance spread out over time. It would create a much more even playing field while still allowing for competitive success stories.
I'm confused.
RSUs cost nothing. ISOs are heavily discounted especially because they are offered years before IPO.
Yes there is a case where employees give up equity entirely, but I would guess this is < 15%. And when the 16th percentile is the aristocracy...
RSUs cost nothing. ISOs are heavily discounted especially because they are offered years before IPO.
Yes there is a case where employees give up equity entirely, but I would guess this is < 15%. And when the 16th percentile is the aristocracy...
Probably very few startup employees can't afford to exercise SOME options, but how many can exercise ALL of their options? Most probably fall somewhere in-between, hence the existence of the high-interest loans mentioned in the article.
> Silicon Valley Bank is not a bank for rich people.
Dataset needed.
Dataset needed.
An interesting take on SVB
sql-spy(2)
> I'm perplexed, then, to see so many people gleefully celebrate the collapse of an institution that helped level the playing field for people from all backgrounds.
It isn't about being gleeful. This bank took massive risks, which were enabled by Trump changing the laws (and they supported), which then allowed them to take even more risky bets (aka: level the playing field).
https://www.motherjones.com/politics/2023/03/silicon-valley-...
Now we get to see the fallout from all of that, which was even predicted by someone who was paying attention...
https://seekingalpha.com/article/4565388-svb-financial-blow-...
https://seekingalpha.com/article/4586033-svb-financial-blew-...
https://seekingalpha.com/article/4586342-svb-financial-today...
It isn't about being gleeful. This bank took massive risks, which were enabled by Trump changing the laws (and they supported), which then allowed them to take even more risky bets (aka: level the playing field).
https://www.motherjones.com/politics/2023/03/silicon-valley-...
Now we get to see the fallout from all of that, which was even predicted by someone who was paying attention...
https://seekingalpha.com/article/4565388-svb-financial-blow-...
https://seekingalpha.com/article/4586033-svb-financial-blew-...
https://seekingalpha.com/article/4586342-svb-financial-today...
This was a crisis of confidence.
Most other US banks are just as exposed to long term bonds and mortgages and have also been hung out to dry by the fed raising rates after a decade of zirp and we distorted yields and prices.
Yes this bank failed to hedge risk appropriately, but if customer confidence fails, all major US banks would be vulnerable to exactly the same situation.
IMO share/bond holders should lose if all but depositors should lose nothing/very little (which is perfectly possible and not too expensive). Otherwise the risk of contagion is very real.
Which fractional reserve bank is actually safe from a bank run without the implicit promise of an fdic backstop?
Most other US banks are just as exposed to long term bonds and mortgages and have also been hung out to dry by the fed raising rates after a decade of zirp and we distorted yields and prices.
Yes this bank failed to hedge risk appropriately, but if customer confidence fails, all major US banks would be vulnerable to exactly the same situation.
IMO share/bond holders should lose if all but depositors should lose nothing/very little (which is perfectly possible and not too expensive). Otherwise the risk of contagion is very real.
Which fractional reserve bank is actually safe from a bank run without the implicit promise of an fdic backstop?
> Most other US banks are just as exposed to long term bonds and mortgages
And maybe that is the crux of the issue here?
https://www.cnbc.com/2018/05/24/trump-signs-bank-bill-rollin...
“When the president signs this, we put community banks back in the mortgage lending business, which is really exciting for me,” Sen. Heidi Heitkamp, D-N.D., told CNBC on Wednesday.
"exciting"
> Which fractional reserve bank is actually safe from a bank run?
No FRB is 'safe', but the people who hold money in there are safe as long as they are managing their 250k risk...
https://www.intrafi.com/solutions/depositors/
And maybe that is the crux of the issue here?
https://www.cnbc.com/2018/05/24/trump-signs-bank-bill-rollin...
“When the president signs this, we put community banks back in the mortgage lending business, which is really exciting for me,” Sen. Heidi Heitkamp, D-N.D., told CNBC on Wednesday.
"exciting"
> Which fractional reserve bank is actually safe from a bank run?
No FRB is 'safe', but the people who hold money in there are safe as long as they are managing their 250k risk...
https://www.intrafi.com/solutions/depositors/
Customers who hold money at banks are not the problem - individual savers losing some cash savings is not systemic risk and substantial cash savings are rare anyway after 10 years of zirp.
Company bash balances are the problem here, which for any companies greatly exceed insured deposits and these cash deposits are required to meet payroll and other commitments if they are not making profit at present (most startups).
Hundreds of thousands losing their jobs because of multiple bank runs is the risk at this point, because of companies unable to pay workers/services and unable to raise more money.
Company bash balances are the problem here, which for any companies greatly exceed insured deposits and these cash deposits are required to meet payroll and other commitments if they are not making profit at present (most startups).
Hundreds of thousands losing their jobs because of multiple bank runs is the risk at this point, because of companies unable to pay workers/services and unable to raise more money.
First, I shook my head at the same sentence. The railway union whose potential strike was recently broken by the government and railroads levels the playing field (and works to evert things like the Ohio toxic train derailment). Silicon Valley Bank does not level the playing field.
The sob story about the partner at the VC firm did pull at my heart strings though.
The CEO of SVB spent half a million dollars to roll back banking regulation five years ago. Hoisted by his own petard...well not really - bonuses went out hours before the seizure and he was selling shares like crazy before the collapse.
Now David Sacks and all the tech bro libertarians want the taxpayer to bail out the SVB depositors beyond the FDIC limit.
The sob story about the partner at the VC firm did pull at my heart strings though.
The CEO of SVB spent half a million dollars to roll back banking regulation five years ago. Hoisted by his own petard...well not really - bonuses went out hours before the seizure and he was selling shares like crazy before the collapse.
Now David Sacks and all the tech bro libertarians want the taxpayer to bail out the SVB depositors beyond the FDIC limit.
Libertarions really are the house cats that think they are lions.