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SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC

theintercept.com

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Re: SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC

#81

Post by reese_john »

InTheArena wrote: post #21

This seems pretty knee-jerk, especially given, that the current glances that the business was probably too conservatively managed. The problem here was not holding safe assets - but the value of the government bonds depreciating dramatically because of the rising interest rates and a flush supply of higher interest rates due to massive government deficit spending. It’s also a reflection of the extremely aggressive ma…

> You can make a very solid argument at the risk here is actually risk that was forced into these companies by the government.

I don't think so, this is a failure of proper risk management, specifically interest rate risk.

Banks, with a proper risk management system, routinely do stress tests to assess their exposure to different scenarios and hedge accordingly.

Re: SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC

#82

Post by bequanna »

InTheArena wrote: post #21

This seems pretty knee-jerk, especially given, that the current glances that the business was probably too conservatively managed. The problem here was not holding safe assets - but the value of the government bonds depreciating dramatically because of the rising interest rates and a flush supply of higher interest rates due to massive government deficit spending. It’s also a reflection of the extremely aggressive ma…

> the business was probably too conservatively managed. The problem here was not holding safe assets

Duration, duration, duration.

Their failure to recognize this as a risk even with “safe” assets is the problem. Hedging interest rate risk is not uncommon or difficult.

Re: SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC

#83

Post by fallingknife »

asimpletune wrote: post #76
InTheArena wrote: post #21

This seems pretty knee-jerk, especially given, that the current glances that the business was probably too conservatively managed. The problem here was not holding safe assets - but the value of the government bonds depreciating dramatically because of the rising interest rates and a flush supply of higher interest rates due to massive government deficit spending. It’s also a reflection of the extremely aggressive ma…

It was 0% interest rates before then that actually caused problems. Raising rates should have happened sooner but trump threatened to fire Powell if he did.

Not true. Powell raised rates, and then Trump threatened to fire him. Powell continued to raise rates anyway. The Fed takes no shit from the president or congress.

edit: HN is rate limiting me, but to see why the commenter below is wrong, just zoom out the chart he linked to 5 years view.

Re: SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC

#84

Post by linuxftw »

andrewstuart wrote: post #3

Weaken regulations, trains and banks crash, but hey small government, slash the red tape.

It's okay for banks and trains to crash. If you have more than $250k in a single bank, you should have insurance on that cash.

If a train spills chemicals, they should be liable for a satisfactory resolution, including buying a property that was polluted, or paying for the cleanup and any depreciation of the property.

Re: SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC

#85

Post by OrvalWintermute »

Regnore wrote: post #54
InTheArena wrote: post #21

This seems pretty knee-jerk, especially given, that the current glances that the business was probably too conservatively managed. The problem here was not holding safe assets - but the value of the government bonds depreciating dramatically because of the rising interest rates and a flush supply of higher interest rates due to massive government deficit spending. It’s also a reflection of the extremely aggressive ma…

I wouldn’t consider over-investing in assets that are extremely volatile from a short-term liquidity perspective “conservatively managed”. The timeline liquidity of your assets is one of many forms of risk that needs to be managed by a bank.

The overinvestment into US debt put them at extreme risk for interest rate related devaluation, which is exactly what happened.

Even if they were going to go heavy with US debt, investment professionals normally use bond laddering for with fixed income funds to reduce that interest rate risk to the portfolio. They did not even do basic laddering!

Re: SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC

#86

Post by OrvalWintermute »

cratermoon wrote: post #60

It appears the emerging consensus among the apologists is that SVB failed because the federal government, or the Fed specifically, over-regulated them by making them take certain positions, then pulled the rug out from under the by raising interest rates. In short, it wasn't the fault of the people running the bank. In other news: https://www.nbcnews.com/business/business-news/etsy-delays-p...

I don't think there is any consensus on this issue.

They clearly mismanaged their portfolio, since the Fixed Income approach towards interest rate risk is to hedge, and to use Bond Laddering, and utilize diversification.

They did the exact opposite at the same time they permitted deposits to flow into the bank unchecked. This is a crisis of their own making 100%

Re: SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC

#87

Post by arrosenberg »

lettergram wrote: post #69

Lol somehow always blaming “deregulation” and politicians I’ll tell you what, it’s not regulators that caused this. IMO Banks need less regulation (and more smaller banks) and need to fail more (and have more jail time). It’s the banking executives and business analysis team at fault here. Just like it’s the startups error for failing to have multiple bank accounts. Some advice, be robust and self reliant. Assume eve…

> IMO Banks need less regulation

> and have more jail time

Regulations are how you get jail time.

Re: SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC

#88

Post by tzs »

andrewstuart wrote: post #11
hedora wrote: post #8

Earlier quoted context omitted.

In fairness, the train crash had bipartisan support.

[flagged]

It seems reasonably likely they would have also been cut if Clinton had been president, due to the review requirement that was built into the regulations themselves.

The 2015 law that required ECP brakes also required before they went into effect the government ask the National Academy of Sciences (NAS) to review the safety assumptions that the regulations had been based on and report whether or not those assumptions were correct, and revise or rescind the regulations accordingly.

NAS completed that report in early 2017 and it said that it was unable to conclude that ECP brakes were safer. There simply had not been enough actual tests to generate the data needed to reach a conclusion.

Given that NAS report it is hard to see how any administration could have justified not rescinding the regulation.

Re: SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC

#89

Post by onos »

OrvalWintermute wrote: post #85
Regnore wrote: post #54

Earlier quoted context omitted.

I wouldn’t consider over-investing in assets that are extremely volatile from a short-term liquidity perspective “conservatively managed”. The timeline liquidity of your assets is one of many forms of risk that needs to be managed by a bank.

The overinvestment into US debt put them at extreme risk for interest rate related devaluation, which is exactly what happened. Even if they were going to go heavy with US debt, investment professionals normally use bond laddering for with fixed income funds to reduce that interest rate risk to the portfolio. They did not even do basic laddering!

Can anyone provide a link that carefully outlines this? Eg did they just recently buy a ton of ten year bonds? That would sound nuts as everyone knows rates are rising right now. Would love to see details.

Re: SVB Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC

#90

Post by OrvalWintermute »

ajross wrote: post #52
skwirl wrote: post #50

If SVB collapsed because of corruption in the federal government, then that just makes a stronger case for federal institutions doing whatever they need to do to make the depositors whole. The solution to failing to protect depositors is not to snuff them out, it's to make things right.

Where on earth do you get "corruption in the federal government" from that article? It's explicitly saying that they were lobbying to weaken regulation. That's transparently circular. You're saying government oversight is bad because the government can be convinced not to oversee, in which case we get bad results from the lack of oversight! In this particular case, it's unclear exactly what oversight could have preve…

I think the govt may have been able to help with this issue.

But it would have taken the govt getting into the whole risk & diversification & bond laddering & liquidity issues at a very granular level. You know, the whole shindig about huge risks to the banking sector and responses? That, all over again.

I'll say from my perspective they were under-regulated. We can't have dumb banks throwing all their deposits into Fixed-Income with similar maturities putting their deposits at extreme risk of devaluation and interest rate risk with no hedging or laddering, and no good response to liquidity demands.

I question the professionalism of the bank's investment crew given we knew about the interest rate rise several years ago. NIRP/ZIRP could never continue indefinitely and they knew it, and we knew it.

We knew it!

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