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

A Bank of One's Own

nayafia.substack.com

Post reply on HN
Print view View original

111–120 of 130 posts

Re: A Bank of One's Own

#111

Post by salawat »

cscurmudgeon wrote: post #49
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.

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.

...So what have you done to help uplift the sullied masses?

If the answer is nothing, then you now know why.

Re: A Bank of One's Own

#112

Post by grey-area »

latchkey wrote: post #21
grey-area wrote: post #17

Earlier quoted context omitted.

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…

> 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…

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.

Re: A Bank of One's Own

#113

Post by JumpCrisscross »

csomar wrote: post #105
Panzer04 wrote: post #97

Earlier quoted context omitted.

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 forci…

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.

> 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.

Re: A Bank of One's Own

#114

Post by [deleted] »

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.

[deleted]

Re: A Bank of One's Own

#115

Post by JumpCrisscross »

solatic wrote: post #90
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.

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.)

Re: A Bank of One's Own

#116

Post by [deleted] »

hn_throwaway_99 wrote: post #80
pgwhalen wrote: post #62

Earlier quoted context omitted.

> 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 ba…

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 peop…

[deleted]

Re: A Bank of One's Own

#117

Post by [deleted] »

hn_throwaway_99 wrote: post #80
pgwhalen wrote: post #62

Earlier quoted context omitted.

> 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 ba…

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 peop…

[deleted]

Re: A Bank of One's Own

#118

Post by [deleted] »

cscurmudgeon wrote: post #49
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.

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.

[deleted]

Re: A Bank of One's Own

#119

Post by csomar »

Panzer04 wrote: post #108
csomar wrote: post #105

Earlier quoted context omitted.

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.

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…

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.

Re: A Bank of One's Own

#120

Post by alecco »

csomar wrote: post #89
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…

Wrong. They bought long term treasuries. Why? Who knows.

Any entry-level CFO/CRO knows they should've done either of:

    -
None of that was done. CEO was at SF Fed board. CRO was ex NY Fed. They know this. Why did this happen?
Post reply on HN