741–750 of 1001 posts
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> - The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield. Let's be clear, the issue wasn't that the Fed raised rates to a historically average level, it was that they were manipulating the bond market in 2021 with trillions of dolla…
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If you don't understand the sentiment, I recommend that you read about what happens in a "run on the bank". Too many large withdrawals at the same time results in a liquidity crisis. No bank in the country has enough reserves to pay all of its customer accounts at the same time; it's part of our system of fractional reserve banking. A massive spike in withdrawals forces a bank to sell long term securities in a disadv…
I think we all understand why VCs telling people to get their money out caused or accelerated the collapse. But what was any individual VC supposed to do, tell their startups to just go down with the ship? It's the same dynamic as the toilet paper shortages at the beginning of covid: most people weren't panic buying because they thought that there wouldn't be enough toilet paper to go around if everyone kept cool, th…
TP was a result of people shifting from commercial toilet paper to home toilet paper, and supply chains not keeping up. Not from panic buying, fwiw.
https://www.washingtonpost.com/national/coronavirus-toilet-p...
(there are other better sources i'm sure)
What I don't understand is why do banks work this way? Imagine you were designing the bank from scratch having no knowledge of the current banking system. How would you do it? The most obvious thing would be if a customer deposits money, you would hold 100% of the money 1 to 1 exactly how they deposited it. Then the bank could make money by providing services to their customers. If I had to bet, most people who have…
Banks don't lend out deposits. They don't take deposits and lend out 90% or so. Fractional reserve banking is a model of how banking works but it's a wrong model. In reality banks make loans (which create deposits). They try to attract deposits from other banks because they need enough bank reserves to cover liquidity issues (like customers transferring money to other banks). When a bank transfers deposits to another…
Not completely wrong, after all.
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At first glance, bank balance sheets are unintuitive and feel 'the wrong way round'. When someone deposits $1m at a bank, the bank doesn't have $1m more assets, it has $1m more liabilities. (Yes, this is a gross over-simplification)
They have both $1m more assets and $1m liabilities. But that does not reflect risk. For instance, now they take those $1m in cash and use them to make risky loans or investments. At face value the balance sheet is the same because they still have $1m in asset... except that the risk that this asset turns into eff all has significantly increased.
Theoretically they had assets, but most of them were just internal magic beans.
Earlier quoted context omitted.
> - The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield. Let's be clear, the issue wasn't that the Fed raised rates to a historically average level, it was that they were manipulating the bond market in 2021 with trillions of dolla…
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Bank going bust should mean stakeholders in the lending business losing their money. The whole federal reserve system can be preserved. Just raise capital to meet the minimum and don't use money from people who just want an account.
I suspect all depositors will be made whole. The bank had a liquidity crisis; it had reserves in excess of its liabilities. Every bank borrows short term (you can walk up and withdraw your money at any time) but lends long (e.g. mortgages, though SVB writes few of those). The recent management grabbed some very long federal bonds; as rates have risen the resale value of those long term assets (paying a lower interest…
Agreed. Lots of people here in the comments are making assumptions about a system they don't understand. Depositors with > $250k aren't necessarily going to "take a haircut," for the reason you mentioned, plus a few others. Additionally: 1. Any financial advisor who recommended to these startups that they should keep >250k in a regular bank account should be fired. It's totally possible (and regularly done) to spread…
So it seems like they mismanaged their assets and their liabilities, taking on a lot of expensive deposits while investing at low yield. What I don't get is all this pro-SVB, anti-VC sentiment, how "some VC's yelled fire in a crowded theater" and caused the poor bank to collapse. Isn't it just common sense though, to protect your money? The bank fucked up by doing risky reckless things, it got exacerbated because the…
I think you'll find a lot of the people complaining are people who got hit and are bitter about it.
e.g. some CFO's seem to be complaining about VCs - the CFOs likely didn't do their job, one part of it is "treasury/cash management". Some VCs are complaining about other VCs - probably they weren't paying attention and their portfolio companies got hammered.
Remember - SVB dusted ~$15 bill on their long term bond bet, it was almost their entire equity base. Pulling your money out was the only sensible action.