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The collapse of SVB exposes the largest crack in the economy

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Re: The collapse of SVB exposes the largest crack in the economy

#241

Post by tgv »

soundsgoodtome wrote: post #224
1vuio0pswjnm7 wrote: post #150

The author myopically tries to extrapolate this incident to "the economy" and "other industries". SVB's customers panicked. But who are SVB's customers. For the most part, VC, PE and non-profitable "tech" startups. Not surprising they would panic. They produce nothing themselves, conduct surveillance, sell advertising services, pay employees from funding rounds and call this a "business model". This is not "the econo…

Hey can we save this kind of comment for Reddit? Literally the majority the tech you use today was born from companies that were unprofitable and leveraged VC funds at some point. I don’t know about you, but I come to HN for discourse that I could not get on race-to-the-bottom social media sites.

Well, Intel, Apple and Microsoft, to name a few, have (nearly) always been profitable. But isn't VC supposed to invest in things that are likely to return a profit? There's some risk, which is offset against the ROI, but I don't see a good reason to invest in companies that run a loss.

Re: The collapse of SVB exposes the largest crack in the economy

#242

Post by rich_sasha »

guhcampos wrote: post #90

This whole discussion around bonds makes me feel like I'm either too stupid or too smart, because it does not make sense to me that SVB would not have any sort of hedging around government bonds? I don't know much about US bonds, but Brazil issues 3 types of bonds: fixed rate, inflation-indexed floating rates and interest-indexed floating rates. It's common sense between investors you need to hold a mix of the 3 to h…

Every bank in existence fundamentally borrows short-term at a low, floating rate, and lends back out long term at a higher rate. The lending rate can be fixed or floating.

This kind of thing is bank risk management 101. For example, in Europe, banks tend not to lend out long term at all at a fixed rate, precisely for reasons like this.

Broadly this is called "duration marching" IIRC, duration being the name of sensitivity to interest rates. Ideally a bank would have no duration risk - they don't care if rates are going up or down. You can achieve it with a variety of tools: IR swaps, issuing long-term deposits/bonds, floating rate loans etc.

You're right, if SVB in 2021 just bet the farm that interest rates will stay so low for a decade, this is basically moronic.

Re: The collapse of SVB exposes the largest crack in the economy

#243

Post by paulclinger »

x3n0ph3n3 wrote: post #230
throwing_away wrote: post #229

Earlier quoted context omitted.

Could a tech company have split their accounts into separate $250k accounts? I'm not sure if the bank would offer that.

No, FDIC insurance applies to account owners, not accounts. Fun fact, if you're married, you can actually turn that into 3 * FDIC insurance limit. - Account 1: You - Account 2: Your spouse - Account 3: Jointly you and your spouse

Even more: single, joint, retirement, revocable and irrevocable trust accounts all fall into different categories and are insured independently for each account owner in each bank (the joint account is 250k for all co-owners): https://www.fdic.gov/resources/deposit-insurance/financial-p...

Re: The collapse of SVB exposes the largest crack in the economy

#244

Post by edulix »

x3n0ph3n3 wrote: post #230
throwing_away wrote: post #229

Earlier quoted context omitted.

Could a tech company have split their accounts into separate $250k accounts? I'm not sure if the bank would offer that.

No, FDIC insurance applies to account owners, not accounts. Fun fact, if you're married, you can actually turn that into 3 * FDIC insurance limit. - Account 1: You - Account 2: Your spouse - Account 3: Jointly you and your spouse

Or you could hold short-term t-bills for any extra money over the FDIC insurance limit. Then you are good unless the US Gov goes bankrupt, which is a non-zero risk but much lower and different.

Re: The collapse of SVB exposes the largest crack in the economy

#245

Post by taneq »

anonporridge wrote: post #198
phkahler wrote: post #32

Earlier quoted context omitted.

Taxes fund the government. Bonds are just a way to avoid managing a budget.

Na, taxes create demand for currency, which maintains the currency's value. Then you just print or borrow the currency into existence to fund the government. People are forced to acquire the currency to pay their taxes or risk being assaulted by the violence of state and dispossessed of a lot of their stuff and/or freedom.

Is this MMT? There was a flurry of articles about it a couple of years ago, airily explaining that it’s fine for all the governments to print unlimited money now because they can just curb any inflation by raising taxes.

Ignoring the fact that elected governments do not, of course, do that.

Re: The collapse of SVB exposes the largest crack in the economy

#246

Post by cm2187 »

aqme28 wrote: post #190
cm2187 wrote: post #180

Earlier quoted context omitted.

Yes and no. LCR is basically requiring you to keep in cash and liquid assets the equivalent of a 30 day bank run. And it should work. A european bank had very large bank run last year and survived without even breaching its regulatory minimums. But that still leaves the bank in a weak position after the bank run, and you can't predict the exact magnitude of a run.

What is a "30 day" bank run? How is a bank run measured in time?

All institutional investors take their money back as soon as they are legally allowed, no new financing available, and for other clients, assumptions are made, calibrated by the regulator on previous bank runs. And you net that with the bank getting its money back as soon as available (with a limit on the netting between inflows and outflows at 75% of outflows).

Re: The collapse of SVB exposes the largest crack in the economy

#247

Post by otikik »

phone8675309 wrote: post #222
boppo1 wrote: post #212

Earlier quoted context omitted.

97% of depositors exceeded the FDIC limit.

That stinks, and I feel for them. Let's hope people will learn a lesson from this - never keep all your eggs in one basket.

What about this other lesson: bankers need to be punished harder.

Re: The collapse of SVB exposes the largest crack in the economy

#248

Post by phlakaton »

caddemon wrote: post #234
phlakaton wrote: post #195

Earlier quoted context omitted.

So I would say it's safe in one way (if you hold it to the end, you'll get your money back plus interest), unsafe in another (its value on the market before then is not guaranteed). I disagree that the Fed set an expectation for indeterminate 0% interest. I'm sure that's what sugar addicts in the market told themselves, but I think the Fed was clearly, if gingerly, trying to dig themselves out of a 0% hole, having st…

You get back your money plus a garbage interest rate relative to what you could've gotten if your money were available now though. That is why it is cheaper, it's not like it's an irrational market dip due to a panic, where the time-value will eventually recover. Unless interest rates go back down very soon the time-value on this thing is definitely a loss. And yeah as a bank it's an extremely stupid move to put 40%…

I agree the blame lies with SVB. I'm getting the sense some would like to lay this at the feet of the Fed instead, which...

Re: The collapse of SVB exposes the largest crack in the economy

#249

Post by monodeldiablo »

astrange wrote: post #147
talideon wrote: post #129

Earlier quoted context omitted.

OK, how about mentioning something that isn't typical in the EU while still adhering to Basel III. Plenty of time here... Meanwhile, how close is the US to making Chip-and-PIN a thing? And who still uses cheques these days?!

We have chip-and-nothing, or contactless, which is better than Chip-and-PIN. (Note Apple Pay and similar are basically chip-and-PIN because it's authenticated by the phone passcode.) > And who still uses cheques these days?! US uses them for business-to-customer payments, especially unsolicited ones, because we don't want to give random businesses we don't know our bank account numbers.

Those numbers at the bottom of a cheque? Yeah, they include your account number.

There's no inherent information risk to giving out an account number that justifies an outdated paper-based system. Especially when one considers the accompanying fraud risk thereof.

The instant I moved to Europe, I realized just how far behind consumer banking is in the US. It's pitiful.

Re: The collapse of SVB exposes the largest crack in the economy

#250

Post by monodeldiablo »

nradov wrote: post #199
saurik wrote: post #124

Earlier quoted context omitted.

And how did that work out for them? Are many of the people who were using SVB yesterday happy about their decision today? If they could go back in time and give up whatever that innovation was, and not be praying that they still have their money next week, are you saying most of them would be happy where they are? The problem here is that the system just isn't transparent enough: you put your money in a bank and I gu…

The system is sufficient transparent. SVB was a publicly traded company. Customers who cared about risk could just read the reports. In the end any bank can fail. https://ir.svb.com/financials/sec-filings/default.aspx The depositors will get their money back, with perhaps a small delay. Which is more than you can say for scams like cryptocurrency.

Depositors will get their insured money back. Is there a commitment from the FDIC to make all depositors whole? If so, that's not typical.
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