Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

FDIC Takes over Silicon Valley Bank

fdic.gov

Post reply on HN
Print view View original

761–770 of 1001 posts

Re: FDIC Takes over Silicon Valley Bank

#761

Post by maskil »

NovemberWhiskey wrote: post #721
kypro wrote: post #671

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…

> 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 dollars of QE. One of the principle, statutory purposes of the Federal Reserve is to conduct monetary policy to achieve maximum employment and stable prices. That means it's the job of the Fed to manipulate interest rates.

Don't see how anyone could view the feds actions in the last few years and conclude that they had this as their mandate

Re: FDIC Takes over Silicon Valley Bank

#762

Post by dahfizz »

davidw wrote: post #415
somenameforme wrote: post #367

An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it's accurate): "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021. - As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!…

> 10+ year duration, with a weighted average yield of 1.56%. > the value of SVB’s MBS plummeted. How much 'plummeting' did they do in numerical terms? Something with those kinds of yields doesn't sound like it ought to be a super risky asset. The mortgage lending market tightened up a lot after the great recession...right?

You can't use your intuition about stock prices for bonds/fixed income. In FI, its all a numbers game. As rates go up, prices go down.

Re: FDIC Takes over Silicon Valley Bank

#763

Post by the88doctor »

somenameforme wrote: post #367

An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it's accurate): "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021. - As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!…

Even if SVB maintains their deposits, that IS a liquidity issue, it just isn't a solvency issue.

Re: FDIC Takes over Silicon Valley Bank

#764

Post by kazen44 »

NovemberWhiskey wrote: post #721
kypro wrote: post #671

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…

> 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 dollars of QE. One of the principle, statutory purposes of the Federal Reserve is to conduct monetary policy to achieve maximum employment and stable prices. That means it's the job of the Fed to manipulate interest rates.

mind you the alternave is far worse.

Having unstable prices for staple goods will lead to unrest very, very quickly, which in term results in a downturn in the econonmy, which in term leads to even more unstable prices and thus more unrest.

Re: FDIC Takes over Silicon Valley Bank

#765

Post by [deleted] »

hervature wrote: post #533
rsync wrote: post #445

Earlier quoted context omitted.

"97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%." I'd like to learn more about the dramatic drop in MBS - elsewhere, downthread, it is asserted that they have dropped 30-50% ? I understand the inverse relationship between bond price and yield ... ... but I am surprised that an asset yielding ~1.5% drops 30% in value when treasuries of similar duration rise to 3-4%. Are there other fac…

I will first try to explain with simplified numbers and then do the equivalent calculation somewhere else. Let's assume you buy a $100 bond with 0% rate for 10 years. For simplicity, let's assume it's a riskless bond. Now, let's suppose those same bonds now pay 5% a month later. Well, the smart thing to do would be to sell your 1-month old bond and buy the new one. Of course, everyone is doing the same thing so the p…

[deleted]

Re: FDIC Takes over Silicon Valley Bank

#766

Post by silisili »

ecopoesis wrote: post #602
bombcar wrote: post #176

Earlier quoted context omitted.

The thing that's strange is FDIC took control and setup a receiving bank for liquidation. That's not normal; FDIC works quite hard to find a bank willing to take over - usually they can work out what the "cost" is to take over, and FDIC pays the receiving bank that amount to "eat" the dying one. If they don't announce they have a bank to assume SVP by Monday, it's quite abnormal.

When was the last US bank failure where depositors lost money?

Appears to be 2020, from a cursory Google search.

https://money.stackexchange.com/questions/129772/has-anyone-...

The oft quoted 'nobody has lost money' is from the FDIC, and specifically says 'insured deposits.'

Re: FDIC Takes over Silicon Valley Bank

#767

Post by roguecoder »

bityard wrote: post #299
gumby wrote: post #161

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…

It seems like SVB was exploiting the lack of sophistication among early startups, and now it is going to bite all those startups in the ass.

Wealthfront offers me as an individual better tools for managing risk that it sounds like people who banked with SVB were getting.

Re: FDIC Takes over Silicon Valley Bank

#768

Post by q1w2 »

alfalfasprout wrote: post #685
opportune wrote: post #648

Earlier quoted context omitted.

This, these bonds/mbs are liquid instruments, they just lost value at market prices. When I make a deposit in a bank I am not purchasing a CD - I expect full liquidity. If the bank invested my deposit in something that lost money but should be worth my deposit amount in X years that is purely the bank’s fault, not my fault.

Here's the more mindblowing thing... not only are those MBS and treasuries completely liquid... they're correlated to interest rates! The fed has been forecasting interest rate hikes every single quarter. Every. Single. Quarter. They had plenty of time to roll over these investments at a slight loss. Heck, even reducing their exposure 50% would have been enough to not end up in this mess. Instead, they waited until i…

Exactly - they failed due to one of the most widely predicted trends. Literally everyone knew interest rates would go up.

They absolutely deserved to fail.

The government allowing them to fail is actually a sign of the system working.

Re: FDIC Takes over Silicon Valley Bank

#769

Post by harambae »

roguecoder wrote: post #730
kypro wrote: post #671

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…

... housing prices have continued to rise at wildly unsustainable rates, leading to record homelessness. Which is the exact opposite of what happened with the crypto market, where the Ponzi scheme collapsed. When the assets haven't even moved in the same direction, I don't know how you are going to blame federal policy to counteracted the recessionary impact of covid for moving them. Whereas the fed has caused signif…

There's always degrees of speculation that are going to vary - cryptocurrencies, tech stocks, consumer staple stocks, gold, commodities, real estate, etc.

No one expects that real estate will skyrocket and tank like shitcoins (even in 2008, the residential real estate market didn't bottom out until 2012). But that doesn't mean that Federal Reserve policy has been good.

I'd highly recommend the book (or audiobook) "The Lords of Easy Money: How the Federal Reserve Broke the American Economy" for anyone who is interested in a historical summary of the FOMC.

Re: FDIC Takes over Silicon Valley Bank

#770

Post by fecaldog »

javajosh wrote: post #699
joosters wrote: post #480

Earlier quoted context omitted.

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)

Not an expert, but was having some thoughts. Let debt be a graph where the nodes are people (with ledgers) and the edges are all of the form "alice rents $x from bob for y% APR". Actions that resolve/relax graph are payments of the form "alice pays bob $z", that lead to all balances being 0. Let the edges decay to null when balance is 0, such that a 'resolved graph' is simply a list of nodes with no edges, meaning 'n…

2. The people running the graph do not want the graph to die but want the edges to decay.

Thanks for this, I am now also having some thoughts.

Post reply on HN