we're they specifically unsophisticated in the way they bought treasuries/other bonds? One could look at the zero risk weighting of treasuries and buy only those to satisfy capital requirements, but you'd think it would be obvious that you would end up with more exposure to interest rate risk than is prudent. Or is this truly such an improbable swing in interest rates coupled with demand for withdrawals that it is reasonable that they aren't expected to anticipate it ?
Bank run on Silicon Valley Bank
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Re: Bank run on Silicon Valley Bank
#152Earlier quoted context omitted.
Yes, but it’s pretty much always been problematic when a bank leader has had to make a statement akin to “We’re fine as long as there’s not a run”. That’s the kind of thing that only gets said when there’s some concern that there will be a run.
except when all of banks failed their stress tests, a) who remembers, b) who cared when it was announced?
All the banks passed their stress test this year
https://www.federalreserve.gov/newsevents/pressreleases/bcre...
Re: Bank run on Silicon Valley Bank
#153Re: Bank run on Silicon Valley Bank
#154Earlier quoted context omitted.
Yes, but it’s pretty much always been problematic when a bank leader has had to make a statement akin to “We’re fine as long as there’s not a run”. That’s the kind of thing that only gets said when there’s some concern that there will be a run.
except when all of banks failed their stress tests, a) who remembers, b) who cared when it was announced?
Regulators have been putting immense pressure on big banks to hold adequate capital reserves since 2008 and they have been especially turning up the heat for the last 5 years. Moreover, it is clear that regulators will never allow a US bank to hold more than 3% of assets as crypto ever again.
Re: Bank run on Silicon Valley Bank
#155SVB CEO to VCs: please don’t tell anyone to withdraw their money or we could be in trouble
VCs: [immediately texting after hearing the above from the CEO] attention all portfolio companies, SVB seems to be in trouble, don’t keep your money with them
Re: Bank run on Silicon Valley Bank
#156Ongoing discussion here: https://news.ycombinator.com/item?id=35086336
Re: Bank run on Silicon Valley Bank
#157So is this related to Silvergate?
its not related, but its the same problem.
They took the deposits and bough "safe" bonds (eg treasuries). Which they're allowed to carry on their books at cost, even though their market price drops as interest rates rise.
But in both SVB and silvergates cases the drop in the market value of their assets coincided with an increase in withdrawals. They were forced to sell some of these bonds to fund withdrawals, requiring them to realize the market price. The accounting distorted the value of their assets to an extent, and the withdrawals laid that distortion bare
Re: Bank run on Silicon Valley Bank
#158I almost signed up for them via Stripe Atlas recently but hadn’t pulled the trigger yet. Glad I didn’t
Re: Bank run on Silicon Valley Bank
#159Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long. As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time. If they locked deposits for a period of time they could safely (and morally) loan that money out without lying, and, in fact, there…
That's insanely unrealistic in the near zero interest rate era of the past decade and merely a really terrible idea with more normal rates.
Banks have some set of relatively fixed cost, in terms of systems and staff. In a low rate environment, there's virtually no margin to be made on short term lending. Stretching the duration for higher yield is the only way to get margin to cover expenses.
Even in a high rate environment, most of a bank's reserves tend to be short term - savings accounts, 1 year CDs, etc. The things people want to borrow for (e.g. houses, cars) tend to have a longer time horizon to pay off. So if you want banks to actually make those kinds of loans, duration matching doesn't work.
Re: Bank run on Silicon Valley Bank
#160Earlier quoted context omitted.
Perhaps I'm overly skeptical, but everyone should know that all banks have the risk of 'if everyone takes their money out, the bank won't be able to make it work', right?
If the Bank is federally insured, it's not a problem that the bank won't be able to make it work. That's why generally speaking bank runs only happen on uninsured banks in the US. SVB is not, as far as I can see, insured and should definitely be careful in their choice of words.
FDIC insurance is worthless for companies, as most would need more than $250k monthly just to make payroll.