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A Bank of One's Own

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Re: A Bank of One's Own

#121

Post by nemo44x »

polygamous_bat wrote: post #98
digitaltrees wrote: post #85

Earlier quoted context omitted.

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 cou…

> 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.…

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.

Re: A Bank of One's Own

#122

Post by polygamous_bat »

nemo44x wrote: post #121
polygamous_bat wrote: post #98

Earlier quoted context omitted.

> 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.…

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…

> 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?

Re: A Bank of One's Own

#123

Post by polygamous_bat »

chii wrote: post #103
digitaltrees wrote: post #85

Earlier quoted context omitted.

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 cou…

> 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.

Or more literally, asking mother earth to give a warning before a global pandemic and Putin to give a warning before an invasion.

Re: A Bank of One's Own

#124

Post by lend000 »

dools wrote: post #110
lend000 wrote: post #63

Earlier quoted context omitted.

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.

Re: A Bank of One's Own

#125

Post by dools »

lend000 wrote: post #124
dools wrote: post #110

Earlier quoted context omitted.

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 10…

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.

Re: A Bank of One's Own

#126

Post by dools »

personomas wrote: post #106
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…

> 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

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

Re: A Bank of One's Own

#127

Post by cpgxiii »

chii wrote: post #103
digitaltrees wrote: post #85

Earlier quoted context omitted.

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 cou…

> 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.

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.

Re: A Bank of One's Own

#128

Post by digitaltrees »

polygamous_bat wrote: post #122
nemo44x wrote: post #121

Earlier quoted context omitted.

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…

> 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…

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.

Re: A Bank of One's Own

#129

Post by digitaltrees »

alxmng wrote: post #94
digitaltrees wrote: post #83

Earlier quoted context omitted.

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 mo…

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.

Re: A Bank of One's Own

#130

Post by tpoacher »

> "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!

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