141–150 of 493 posts
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I don’t understand. If you hold a bond to maturity you get it’s NPV. Valuing it at NPV vs mark to market has more to do with your plan than any sort of fundamental truth - they’re both legitimate ways of valuing it. The mark to market only comes relevant if you’re experiencing a run, which they were holding sufficient regulatory liquidity for. They should have hedged their rates risk a bit better, especially as infla…
> I don’t understand. If you hold a bond to maturity you get it’s NPV. Valuing it at NPV vs mark to market has more to do with your plan than any sort of fundamental truth - they’re both legitimate ways of valuing it. Correct. So, if you have customers and you put THEIR money into a bond and say you're holding it to maturity, but then your customers want their money, what exactly was the plan?
The author ignores that behind the downfall of SVB was a climate of excess liquidity on the markets, a bonanza created by the authorities that made SVB see itself with a glut of funds. Now, SVB, loaded with money, could have tried loaning it like crazy, but instead, decided to go the conservative way and buy bonds. Someone could argue that they could have foreseen that this abundance of liquidity in the markets, alon…
Well, I’d argue that they should have hedged their rates risk especially as inflation started to tick up. They just don’t have good risk managers. But that said, if there hadn’t been a run the causal issues would have been a foot note in a quarterly filing. Everyone is acting as if SVB were Lehman or Bear Sterns. They just got caught with their pants down and everyone ran over to take a picture and post it on Twitter…
It was worse than not having good risk managers... They didn't have a CRO at all for 8 months, until 2 months ago.
> In the run-up to all this, SVB’s proxy statement, filed earlier this month, reveals that the firm’s chief risk officer stepped away from her role early last year, and the bank did not hire a replacement until this past January.
https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...
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Depositors aren't though, which is the issue. FDIC will cover losses that weren't actually insured (above $250K). The money doesn't come out of the "taxpayer" but instead from the banks, but guess from where the banks get money from?
That's like saying that any time any one makes a loss, it's everyone _else's_ loss, because guess where their money comes from. What do you suggest should happen here?
Any account used for business operating expenses needs to be mandated to have premium insurance on it. That same insurance should be available for all depositors.
The next time this happens if you do not have that insurance you receive your receivership certificate and wait for your dividends. Like everyone else.
The author ignores that behind the downfall of SVB was a climate of excess liquidity on the markets, a bonanza created by the authorities that made SVB see itself with a glut of funds. Now, SVB, loaded with money, could have tried loaning it like crazy, but instead, decided to go the conservative way and buy bonds. Someone could argue that they could have foreseen that this abundance of liquidity in the markets, alon…
They could have taken a look at inflation and the glut of liquidity and bought shorter dated bonds but instead they locked them money up for 3-10 years at paltry interest rates.
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Depositors aren't though, which is the issue. FDIC will cover losses that weren't actually insured (above $250K). The money doesn't come out of the "taxpayer" but instead from the banks, but guess from where the banks get money from?
They are getting it from liquidating the assets of the Bank. There are three parties who are "owed" here. The depositors, holders of debt and investors. Depositors are being made whole. Anyone who holds secured debt will get what's left. Owners of unsecured debt and investors are left out. Which is fine by me.
> Owners of unsecured debt and investors are left out. Which is fine by me.
The distinction I attempted to make in my comment was that there are actually something like four parties in this case: Holders of debt, investors, insured deposits and uninsured deposits. I find it absurd the FDIC is going to realize a loss to cover uninsured deposits, because that's simply not what they should do if they followed their own standard. Remember, even though it's state-owned the FDIC is a company, Americans should be worried if the FDIC takes actions that could ultimately put in risk money that _is_ actually insured. If they run dry, they will have to tap into the government's pockets and that's when shit truly hits the fan.
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Wrong. The business model of banking is managing the money to an appropriate duration. Locking it up isn't a business model.
Demand deposits can be immediately be recalled, so where exactly do you suggest they park it? In the central bank -- no bueno they've denied banking license for narrow banking. Margin lending that allows recall at any moment? I can think of some options but frankly I'd rather have my money in a bank that over-extends themselves on treasuries than most the alternatives. At least I'd most likely get 90+% of my money ba…
The Fed kept making it clear that it was raising rates, and it seems like SVB just slipped quietly into that good night without lifting a finger to save itself. Which is bizarre and confusing and there must be more to the story (and details are coming out, like the risk manager role remaining open for nine months), but it does seem like crazy risks were taken. But not in pursuit of additional gains, like we are used to seeing, but it's looking more like negligence or a misunderstanding of their position.
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SVB locking money they might need access to is the FEDS fault do I understand you correctly? Did they hold a gun to their head? I'm not saying they're doing anything different than their competitors, but that's a stupid excuse. The only thing that's broken is the financial system. A customer should be aware when depositing money that that money might be locked away, and agree to those terms, and get a cut. This is SV…
Why/how does the IRS care if you store it under your bed? Serious question.
And if you escape civil action by IRS, the fed or local government can simply take it as civil asset forfeiture without accusing you of wrongdoing.
.gov really really hates big piles of printed currency and if they find out you have it the temptation for them to take it can become overwhelming to various entities that survive off of the taking.
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I don’t understand. If you hold a bond to maturity you get it’s NPV. Valuing it at NPV vs mark to market has more to do with your plan than any sort of fundamental truth - they’re both legitimate ways of valuing it. The mark to market only comes relevant if you’re experiencing a run, which they were holding sufficient regulatory liquidity for. They should have hedged their rates risk a bit better, especially as infla…
> I don’t understand. If you hold a bond to maturity you get it’s NPV. Valuing it at NPV vs mark to market has more to do with your plan than any sort of fundamental truth - they’re both legitimate ways of valuing it. Correct. So, if you have customers and you put THEIR money into a bond and say you're holding it to maturity, but then your customers want their money, what exactly was the plan?
Earlier quoted context omitted.
You just explained the businness model of banking.
Wrong. The business model of banking is managing the money to an appropriate duration. Locking it up isn't a business model.
Borrow short, lend long. The latter necessitates 'locking money up'.
A well-managed bank will properly manage the risk of the short loans getting called.
A poorly-managed bank will go all-in on getting short loans from people who are likely all going to call them in at the same time (startups), while putting their entire lending portfolio into lending long in an environment where long-term loans are dropping in value.