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A Bank of One's Own

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Re: A Bank of One's Own

#81

Post by cjalmeida »

swatcoder wrote: post #44
erik_seaberg wrote: post #10

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.

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?

Re: A Bank of One's Own

#82

Post by cjalmeida »

mise_en_place wrote: post #72
pclmulqdq wrote: post #64

Earlier quoted context omitted.

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…

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.

>I wouldn’t say they were greedy exactly. They made the wrong assessment that QE would last forever.

Ie. they got greedy.

Re: A Bank of One's Own

#83

Post by digitaltrees »

alxmng wrote: post #74
88913527 wrote: post #68

Earlier quoted context omitted.

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.

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.

Re: A Bank of One's Own

#84

Post by digitaltrees »

nemo44x wrote: post #50
erik_seaberg wrote: post #10

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.

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 resp…

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.

Re: A Bank of One's Own

#85

Post by digitaltrees »

polygamous_bat wrote: post #53
nemo44x wrote: post #50

Earlier quoted context omitted.

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 resp…

> 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 d…

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.

Re: A Bank of One's Own

#86

Post by digitaltrees »

nemo44x wrote: post #57
polygamous_bat wrote: post #53

Earlier quoted context omitted.

> 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 d…

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 fa…

Totally agree it’s the speed of the reversal in rates. Whipsaw is a great term.

Re: A Bank of One's Own

#87

Post by nostromo »

88913527 wrote: post #68
dools wrote: post #27

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 providin…

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.

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.

Re: A Bank of One's Own

#88

Post by lbayes »

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.

Re: A Bank of One's Own

#89

Post by csomar »

erik_seaberg wrote: post #10

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.

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.

Re: A Bank of One's Own

#90

Post by solatic »

88913527 wrote: post #68
dools wrote: post #27

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 providin…

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.
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