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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#241

Post by sillybov3456 »

danielmarkbruce wrote: post #181
anon291 wrote: post #19

Earlier 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?

Everyone doesn't need to know or care in many cases. The FDIC insures deposits up to $250k. That covers the vast majority of accounts at most banks. So a run won't occur at most banks. There were hardly any runs in 2008 for this reason - the relatively few "run type things" which happened were where big interbank exposures existed. SVB's customers are weighted significantly more towards businesses who will have more…

FDIC insurance is similar in the sense that if the feds ever have to say "don't worry that JP Morgan or is going under, most of you will be covered within the FDIC limit", then we're fucked in so many other ways it doesn't matter. That is after all why we invented the term "systemically important".

Re: Bank run on Silicon Valley Bank

#242

Post by jnwatson »

recursivedoubts wrote: post #218
JohnFen wrote: post #191

Earlier quoted context omitted.

> The bank is telling two or more people they own (or, at least, have access to) the same dollar at the same point in time But they don't do that. Or, I've literally never seen them do that. What the bank tells me is what my current deposit is. That's the truth. They aren't representing that the amount they're listing is a specific dollar somewhere, they're telling me how much money I've given to them.

They are telling you you can have all that money immediately. And they are telling that to all the depositors. That's the lie. It's a bit abstracted due to aggregation, admittedly, but that's the lie. I use a single dollar just to make the idea concrete.

No responsible bank says that. They absolutely have the right to limit withdrawals, and they explicitly say that if you read the fine print.

Re: Bank run on Silicon Valley Bank

#243

Post by jongjong »

chollida1 wrote: post #82
antibasilisk wrote: post #55

[flagged]

I assume you are trolling, but in case you are not. How would you provide loans to help get businesses started? How would you provide loans to people to buy their first homes? How would you provide loans so people can afford to go to school? How would you provide loans to buy a vehicle so people can get to/from their job before they get a paycheck? How would farmers afford to buy land, equipment and plant crops befor…

Why does a business need a loan? They can just sell shares/equity to raise funds. It's better in every way; there's skin in the game. Why would anyone even want to loan money to a startups? If the startup founders go out of business and flee the country, the lender loses everything. The downside is unlimited. Yet if the startup does well and it becomes a billion dollar company, the lender will get maybe 20% return on their loan; the upside is limited. There is a reason why independent people invest their money in startups as opposed to loaning them money... It's only banks and big institutions which loan money to private equity to go towards startups; and it's never their own money... It's typically the public's money (as bank loans represent newly printed credit which dilutes the value of citizens' currency). Nobody in their right mind would loan their own cash to a startup at sub-8% annual ROI when inflation is 8%+... In the best possible case, you end up with the same amount of buying power as you started with; in the worst case, you lose everything.

As for car loans and home loans... Similar thing. If people couldn't get loans for houses, real estate prices would have to come down to an affordable level that people could save for. If people couldn't get a loan for a car which they need as part of their small business, they could sell equity in their business to raise money for the car.

The question above are circular. How would people get loans if loans didn't exist? They wouldn't, we don't need them and society would be better off.

Re: Bank run on Silicon Valley Bank

#244

Post by berkle4455 »

bink wrote: post #190
boringg wrote: post #147

Reminder - SVB is small bank - highest market cap was 50B -- trading at 5B. Low level of contagion. If it does fail - definitely will be felt by start ups with cash at the bank.

I think you're probably right, but "Low level of contagion" sounds exactly like what we heard in 2007.

Inflation is just transitory don't worry

Re: Bank run on Silicon Valley Bank

#245

Post by rvba »

jdminhbg wrote: post #109
ticviking wrote: post #93

Earlier quoted context omitted.

Savings. Frugality. Only consuming what we can actually afford. Investment with real skin in the game. If you have to take on much higher risk to get returns we will find ourselves being more careful about those returns actually happening.

> Savings. Those savings are gonna grow at a pretty slow rate if you can't lend with interest.

In the current system (that is 'better') inflation exceeds the interest on savings, so you lose money by keeping it in a bank.

In tons of countries compound interest is a fairy tale found only in "Economy 101" books...

Re: Bank run on Silicon Valley Bank

#246

Post by ttt333 »

makomk wrote: post #222
orangepurple wrote: post #154

Earlier quoted context omitted.

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.

Those government-mandated, ultra-safe capital reserves look like they're actually the big problem that's going to bring down banks right now. Banks have stuck a bunch of their reserves in really safe, predictable, high quality long-term bonds (particularly government issued ones). Because interest rates have gone up, those bonds are now worth substantially less than they were a year or so ago, meaning that the banks'…

respectfully, I'm not so sure. The decline in bonds applies to all fixed-rate securities. The only alternatives would have been just straight up cash (bad with inflation) or riskier, less-liquid assets (non-tradable loans with floating rates, for example). They are limited on the latter by risk weighting, and I'm not sure having looser risk controls on the asset side would really help confidence in the banking sector.

please feel free to disagree!

Re: Bank run on Silicon Valley Bank

#247

Post by JohnFen »

lvspiff wrote: post #226
JohnFen wrote: post #164

Earlier quoted context omitted.

> telling two or more people they own the same dollar at the same point in time. I don't remember a bank ever telling me this. I was taught how banks work way back in grade school. Surely everyone knows that banks don't literally hold the money you deposit in a vault somewhere. I honestly don't see where banks are lying about this.

They may not be explicitly stating it but if the bank has $100m in assets most likely they are holing ~10% of that in cash and the rest in loans/real estate/bonds. If 2 members of the bank each cash out $10m at the same time they have a problem - in other words two people were owning the same $ at the same time

> in other words two people were owning the same $ at the same time

But that's not what that means at all. It's not even implied, unless people are just not understanding what it is that banks do or how they work. But I don't see how anyone can fault the bank for that.

Re: Bank run on Silicon Valley Bank

#248

Post by diordiderot »

subroutine wrote: post #224
njarboe wrote: post #132

Earlier quoted context omitted.

If 30 year housing loans were not available, housing would be a lot cheaper.

Can't be cheaper than the materials and labor costs to build it. If house prices get too cheap house builders / contractors will stop building. This will pinch supply and keep house prices high enough that only cash rich (corps and banks) can afford them. Most people will have no choice but to rent indefinitely. Those who manage to save up some $400k may finally afford to buy a house just in time for retirement.

But if house prices (and therefore rents) go down, people will need lower salaries for an equally comfortable life, pushing labour costs down, making housing cheaper. Man economics is easy

Re: Bank run on Silicon Valley Bank

#249

Post by recursivedoubts »

JustLurking2022 wrote: post #159
recursivedoubts wrote: post #21

Daily 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 envi…

That's right. Banks would have to charge fees for the services they provide, or become more efficient, or both.

They certainly would become less of a profitable and shrink as a percentage of the economy. Which is good: smart folks would be incentivized to go into things like manufacturing and research, and produce actual value.

Re: Bank run on Silicon Valley Bank

#250

Post by coolspot »

cm2187 wrote: post #188
dublinben wrote: post #176

Earlier quoted context omitted.

Matt Levine is fond of this highly relevant quote by Bagehot: “Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone.” It seems that CEOs of banks haven't learned anything since 1873 when this was observed.

A variant of Thatcher's "Being powerful is like being a lady, if you have to tell people you are, you aren't".

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