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Silicon Valley Bank Failure [pdf]

am.jpmorgan.com

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Re: Silicon Valley Bank Failure [pdf]

#131

Post by bostik »

htag wrote: post #50
notyourwork wrote: post #14

Earlier quoted context omitted.

You’re missing the point. This isn’t a marketing piece. JPM doesn’t need to compare themselves to SVB for any reason, that’s like comparing David and Goliath. What’s purpose would that accomplish?

This is a marketing piece the same way an engineering blog post is a marketing piece. It demonstrates expertise and helps influence others. I can think of two audience members: * Those with cash in SVB, or another regional bank, and want to find a 'safer' bank. * The relatively uniformed that are nervous about banking.

It's definitely marketing but it's also a collected and analysed aggregation of real data. I read part of the last page as well, and there was an absolutely delightful sentence. To paraphrase:

"This document is an analysis by person X, based on his opinion. That opinion may change at any time."

That's a lovely, if corporatey way of paraphrasing the well-known quip "When facts change, I change my mind. What do you do?"

There's no doubt the document was prepared in a huge rush. Like any large bank, JPM would have had to get it out well before end of business on Friday. Wouldn't be surprised if they had to get it out before lunch! But that rush also means there would have had been far less time to polish it up, and indeed, the author points out that at least some of the industry figures were lifted as-is from an earlier report they had produced.

Re: Silicon Valley Bank Failure [pdf]

#132

Post by wcoenen »

chewz wrote: post #114
wcoenen wrote: post #94

Earlier quoted context omitted.

> Everyone who have ever managed bond portfolio knows that he must hedge interest rate risk. Just a thought: the UK gilt crisis in December was related to pension funds holding long term gilts. And these pension funds all properly hedge the interest rate risk, they normally don't care how rates evolve. However, the market value of the gilts was changing too fast for the hedging to work. My understanding is that money…

> the UK gilt crisis in December was related to pension funds holding long term gilts No, you got it wrong.. UK pension funds didn't have much gilts. UK pension funds had swaps on gilts and mostly assets equal to long term gilts (AAA rated). Like for example ownership of a parking lots in Germany, apartments in Norway - safe, steady cash flows. This is what chasing yields at zero interest rates does. Penions funds ne…

Thanks for the correction, I indeed misremembered where exactly the margin calls came from.

I guess the gist of the point I was trying to make still stands though. SVB was not the first fallout from rising yields on long duration assets. There is probably more improper hedging of duration risk out there.

Re: Silicon Valley Bank Failure [pdf]

#133

Post by belter »

s1artibartfast wrote: post #123
belter wrote: post #66

Earlier quoted context omitted.

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?

Venture capitalists usually don't come to startups with gold and startups don't pay their employees with gold so they need a bank.

That was not my argument. I tried to explain for the purposes of banking many alternatives were available. If it's credit they were looking for, banks only lend what you can offer as collateral. Funds come from the VCs.

Re: Silicon Valley Bank Failure [pdf]

#134

Post by nullc »

poof131 wrote: post #82

What 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 mana…

Smart guy meme: "The portion of our stablecoin reserves that don't exist can't be lost in a bank failure!"

Re: Silicon Valley Bank Failure [pdf]

#135

Post by s1artibartfast »

belter wrote: post #133
s1artibartfast wrote: post #123

Earlier quoted context omitted.

Venture capitalists usually don't come to startups with gold and startups don't pay their employees with gold so they need a bank.

That was not my argument. I tried to explain for the purposes of banking many alternatives were available. If it's credit they were looking for, banks only lend what you can offer as collateral. Funds come from the VCs.

I feel like there is some disconnect. Maybe I don't understand your question

I was answering why startups need a bank, and it isn't just for loans. The most basic needs for an account is so that you can 1) store the money you get from VCs, 2) pay your employees, 3) receive payments from customers.

Do you see why a company needs a bank account?

Without a bank you need to operate in cash and have a room somewhere full of physical cash with guards, ect.

Re: Silicon Valley Bank Failure [pdf]

#136

Post by chewz »

wcoenen wrote: post #132
chewz wrote: post #114

Earlier quoted context omitted.

> the UK gilt crisis in December was related to pension funds holding long term gilts No, you got it wrong.. UK pension funds didn't have much gilts. UK pension funds had swaps on gilts and mostly assets equal to long term gilts (AAA rated). Like for example ownership of a parking lots in Germany, apartments in Norway - safe, steady cash flows. This is what chasing yields at zero interest rates does. Penions funds ne…

Thanks for the correction, I indeed misremembered where exactly the margin calls came from. I guess the gist of the point I was trying to make still stands though. SVB was not the first fallout from rising yields on long duration assets. There is probably more improper hedging of duration risk out there.

> I guess the gist of the point I was trying to make still stands though.

Of course it does..

Re: Silicon Valley Bank Failure [pdf]

#137

Post by tome »

runeks wrote: post #115
m3kw9 wrote: post #96

Earlier quoted context omitted.

So their bond prices went down and made them bankrupt, how does the math work in simple terms?

In simple terms, a bond is a piece of paper that pays a dollar amount per year to the holder for N number of years, after which the initial price paid for the bond is returned to the holder. For example, a 10-year bond that pays $2 per year costs $100 today. That is, a piece of paper that pays $2 to the holder every year for 10 years, after which the holder gets its $100 back. Now, some time passes and the market thi…

> after which the initial price paid for the bond is returned to the holder

Probably better to say "face value". The initial price paid for the bond may well not be its face value.

Re: Silicon Valley Bank Failure [pdf]

#138

Post by tome »

morelisp wrote: post #86
ericpauley wrote: post #39

Earlier quoted context omitted.

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.

Yes, my reading is that he knows well, he just wants to socialise his insurance costs (including self-insurance, by splitting deposits across several institutions).

Re: Silicon Valley Bank Failure [pdf]

#139

Post by tome »

Waterluvian wrote: post #19
cm2187 wrote: post #4

I 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.

If the document is free and isn’t legally mandated, it’s marketing.

If you're not paying for your internet service, you're the product. If you're not paying for your research, you're reading a marketing document.

Re: Silicon Valley Bank Failure [pdf]

#140

Post by spacebanana7 »

runeks wrote: post #87
m3kw9 wrote: post #84

Earlier quoted context omitted.

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.

The system risk can be reduced when someone who’s positively exposed to rising rates trades exposure with someone who’s negatively exposed to rising rates.

For example, pension funds often benefit from rising rates because they plan on paying out future liabilities with current assets and landlords are negatively exposed to rising rates because they own a stream of income in the future. The trade of interest rate exposure between these parties helps both achieve more stability.

A real world example would be taxi drivers trading weather risk with ice cream vans. One party benefits from wet weather that stops people walking outside and the other benefits, so they can trade exposure in a way that makes the system more stable.

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