121–130 of 152 posts
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.
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no, it was very different at SVB. SVB was loaning money to startups on the basis of exclusivity contracts where those startups were required to hold the money in SVB accounts, so they were basically paying SVB to create the illusion of having liquidity. that is a whole different game.
that is true for some customers not all and not the primary reason why it failed. and the problem is you know nothing about the financial health of the small banks that are white label providers so how can you say you’re confident in the management of these individual banks that Mercury is contracting with? you don’t know anything about them.
so, if mercury has a 1M FDIC guaranteed, then you can move 1M per day through their systems with 100% guarantee, but the risk that a bank fails on one particular day is very small, so maybe you can move 10M a day through them, with effectively no risk.
10M a day is 3.5B a year. very few companies are doing transactions on that level, so mercury scales up very well.
I think we’re too accustomed to startups here to recognize that SVB was actually assuming quite a bit of risk. We acknowledge most banks don’t want to touch startups and that startups will have a harder time banking in the future. Yet I don’t see much consideration for the fact that there is a good reason most banks see startups as risky. It’s just explained away as “they don’t understand .” Also consider the past 10…
What bank ever refused a Startup if what they are looking for is just banking? And what do startups want with a bank? Are they not capitalized by the VC's?
I think we’re too accustomed to startups here to recognize that SVB was actually assuming quite a bit of risk. We acknowledge most banks don’t want to touch startups and that startups will have a harder time banking in the future. Yet I don’t see much consideration for the fact that there is a good reason most banks see startups as risky. It’s just explained away as “they don’t understand .” Also consider the past 10…
We just need tokenised tbills. We will be building a better financial system for sure.
Maybe a stupid question: if banks can collapse from a bank run, shouldn’t the entire model be questioned? A bank run is simply when a threshold number of customers decide to withdraw their cash, with every right to do so. With social media + frictionless mobile banking, the entire notion of teetering your model on mitigating the risk of a “bank run” seems anti-customer, regressive, and unsustainable.
> How can a business model rely on this? Customers also want to earn easy, high interest, that's the main issue. You're taking a risk (albeit a small one) with your deposits; your money is being lent by the bank and they pay you interest in return. If you only want your cash to be held safely, put it in a safety deposit box.
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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.
So their bond prices went down and made them bankrupt, how does the math work in simple terms?
The difference between the 10 year and 3 month bonds - https://ycharts.com/indicators/10_year_3_month_treasury_spre...
You'll note that you can get more money buy buying a 3 month bond rather than a 10 year bond.
So, now if you want to sell a 10 year $100 bond, you'll need to sell it for less than what a 3 month $100 bond costs to buy... which is $100.
https://ycharts.com/indicators/3_month_t_bill (look at 3 year chart range) and https://ycharts.com/indicators/10_year_treasury_rate (again, look at 3 year range).
The 10 year $100 bond is still going to pay out at a profit... in 10 years. But there's more valuable things that one can do with $100 in the shorter term so any sales of that before it pays out will be done at a loss.
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.
I don't see the same red flags in FRB's filings that were present in SVB's filings. SVB had almost half their assets in held-to-maturity securities. FRB has 12%. SVB had triple the short-term credit from FHLBs compared to FRB.
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If you get any kind of loan from SVB, you're required to keep your cash with SVB. I think it was entirely reasonable for Series B and earlier startups to keep all their money in SVB. It was wrong, in hindsight, but reasonable. Bank failure is not the thing that's going to kill most startups. SVB just failed spectacularly, and it sure seems like it's not going to put anyone out of business.
“If you get any kind of loan from SVB, you’re required to keep your cash with SVB”. Really? How would this be enforceable or even discoverable?
It's kind of like the terms of service on a home mortgage loan.
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I don't see the same red flags in FRB's filings that were present in SVB's filings. SVB had almost half their assets in held-to-maturity securities. FRB has 12%. SVB had triple the short-term credit from FHLBs compared to FRB.
It doesn't have the HTM red flags around unrealized gains but it has similar red flags about a panic-prone undiversified and uninsured depositor base. Solvency is irrelevant when depositors panic and start a run on the bank anyway.
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The last ten years have been a wild, Bacchanalian orgy of loose money. It is now time for Bilious[0] to appear. [0] https://discworld.fandom.com/wiki/Bilious
Good ref, I had no clue of bilious existence. Yes, reality eventually back fires. It's not like the fed figured they should turn around because "inflation". It may simply be that they can't keep printing since it has become much harder to dump it anymore on (global) producers. See the geopolitics, Finance101 isn't enough to grasp the magnitude and seriousness of what's been going on lately.
It has evolved, a lot over the years. And with it, the prevalent valuation of companies has changed, likewise by a LOT (generally going up, by a lot).
So you'll have to be more precise? There are many valuation philosophies, from Nprofit, to value of the physical assets of a company, Nrevenue, Discounted cash flow analysis, Growth stock ... which "reality", exactly, do you mean?
Some people even see the "in the end, we're all dead", as the "reality" at the end of the stock market. Eventually, they're probably right.