Going by stock market losses, some of these charts, and Twitter sentiment, looks like SBNY, WAL, and FRC are next on the chopping block for bank runs.
Silicon Valley Bank Failure [pdf]
81–90 of 152 posts
Re: Silicon Valley Bank Failure [pdf]
#82What I find most disingenuous in this whole saga is the conflating of small business payroll depositors with all depositors. Circle & USDC rely on the interest rate earned on the stablecoin deposits for their business and SVB was providing that with poor risk management. With a $3B deposit (or more since they likely moved money out and partially caused the collapse), Circle should have been doing additional risk management beyond SVB, not just collecting interest. Now taxpayers are supposed to cover that failure?
Re: Silicon Valley Bank Failure [pdf]
#83I am surprised they show JPM in all their comparison charts (typically research doesn't cover their own employer). By showing JPM as an outlier on the opposite of the spectrum to SVB, it feels a little bit like a marketing document.
JPM is a massive bank, they don’t need to market.
it is just a subtle reminder of how massively superior they are to all of their competition
Re: Silicon Valley Bank Failure [pdf]
#84This is rather silly explanation of what happend, especially from JP Morgan... Everyone who have ever managed bond portfolio knows that he must hedge interest rate risk. And every bank is doing that. SVB didn't. Since April 2022 till January 2023 SVB had vacant position of Credit Risk Officer.. And the explanation is simple - SVB's former head of risk, Laura Izurieta had left after 1Q2022 when looses from bond portfo…
what’s the point of needing to hedge if you let the bonds expire and get the payment. You wouldn’t lose anything right?
Re: Silicon Valley Bank Failure [pdf]
#85"The liabiity issue: extreme reliance on institutional/VC funding rather than traditional retail deposits While capital, wholesale funding and loan to deposit ratios improved for many US banks since 2008, there are exceptions. As shown in the first chart, SIVB was in a league of its own: a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of…
That's actually quite concerning, if you read between the lines.
What they're saying is: "JPM is just as insolvent as SIVB. The only difference is that JPM's customers are less likely to withdraw their funds."
Re: Silicon Valley Bank Failure [pdf]
#86Earlier quoted context omitted.
> Depositors can and should assume that regulations prevent banks from assuming outsize risk like this Small depositors, yes. Institutional depositors, no. Not all banks are equal. SVB was borderline investment grade before it collapsed. Treasury advice strikes me as low-hanging fruit VCs could have guided their companies on. Instead, most universally recommended SVB because the priority was reducing friction, not ri…
Exactly. 250k to me seems like a very logical threshold to expect at least some sophistication. Deposit sweeps get you to 3M many places after which it seems perfectly reasonable to expect people to manage treasuries. If Bogleheads can do it VCs can. Then again, you have people like Mark Cuban who clearly don’t know about basic cash management ( https://twitter.com/mcuban/status/1634413306948603905 ), so maybe Americ…
The alternative take would be that Cuban knows exactly how it works but sees a chance to push for what's essentially a federal startup subsidy because his fanboys don't know.
Re: Silicon Valley Bank Failure [pdf]
#87This is rather silly explanation of what happend, especially from JP Morgan... Everyone who have ever managed bond portfolio knows that he must hedge interest rate risk. And every bank is doing that. SVB didn't. Since April 2022 till January 2023 SVB had vacant position of Credit Risk Officer.. And the explanation is simple - SVB's former head of risk, Laura Izurieta had left after 1Q2022 when looses from bond portfo…
what’s the point of needing to hedge if you let the bonds expire and get the payment. You wouldn’t lose anything right?
SVB just went bankrupt pursuing that strategy...
That being said, I don't think it's possible for all banks to hedge interest rate risk. The risk, to the system as a whole, doesn't go away just because it's transferred to someone else.
Re: Silicon Valley Bank Failure [pdf]
#88Does any one knows if VCs have contracts with startups where they have to deposit X amount weekly or monthly? Now if they can't because of the SVB debacle, can the startups sue them? This would put these VCs in even worse situation - not only they could be out of their money deposited at the bank but now they owe even more money to the startups.
The VCs don't "owe" money to the startups: they "buy" equity with their money. The VCs aren't "out" the money deposited by the startup at SVB; that money was already exchanged for equity in the startup. The VCs aren't happy because they and the startup both expected that the money-equity exchange meant that the startup would have working capital, so potentially the value of the equity that they got has fallen. This i…
Yes they buy equity but do they always pay upfront? I would imagine that they have some contracts structured in a way that allows them to pay in rates based on performance etc. Also, what if some vc signed contract last week with payment due this week and they can't pay. I dont expect a lot of cases like that but i suspect few did.
Re: Silicon Valley Bank Failure [pdf]
#89This is rather silly explanation of what happend, especially from JP Morgan... Everyone who have ever managed bond portfolio knows that he must hedge interest rate risk. And every bank is doing that. SVB didn't. Since April 2022 till January 2023 SVB had vacant position of Credit Risk Officer.. And the explanation is simple - SVB's former head of risk, Laura Izurieta had left after 1Q2022 when looses from bond portfo…
> Everyone who have ever managed bond portfolio knows that he must hedge interest rate risk. And every bank is doing that. How are other banks hedging interest rate risk? And how is the opposite end of this hedge hedging their position?
Interest rate swaps maybe. Svb would be on the side that is getting a floating rate payment, while they pay a fixed one to the other side, so when the rates increase it would offset the loss in bond price. Thing is I’m not sure if they need to hedge if the bonds are for 1 year because they will get the money back anyways
Re: Silicon Valley Bank Failure [pdf]
#90Good analysis. Everyone should be very worried about these charts. In short, a lot of banks are sitting on assets that have significant unrealized losses, which is very similar to the situation leading up to 2008. If there is some event down the road that forces the banks to dip into their HTM assets to cover withdrawals or losses, then we could be looking at yet another systemic crisis. The cause will be different. But the banks are in a precarious position. Perhaps more importantly, this puts a ceiling on what the Fed can do to fight inflation. If they keep jacking rates the magnitude of the unrealized losses will increase.