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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

#261

Post by Scoundreller »

UncleOxidant wrote: post #98
cplusplusfellow wrote: post #12

Earlier quoted context omitted.

Self inflicted wounds this time, though. There is nothing wrong with a bank purchasing 80bln of MBS with their depositors money. The issue becomes when the fed suddenly raises rates faster than any time in their history while still failing to fight inflation (which is a result of having a stronger economy).

Not the Fed's fault. SVB's fault for going all-in on 10year duration MBS. If they had mixed in a good amount of shorter duration tbonds/tbills they would've been fine.

It’s also a clientele mix issue.

If you have a healthy mix of business and retail clients, payday is a wash. If it’s a lot of business customers; every payday is like a predictable mini bank run.

If you have a small number of large, correlated and communicating players, you have a huge bank run risk.

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

#262

Post by fidgewidge »

MrBuddyCasino wrote: post #259
TooSmugToFail wrote: post #2

SVB used an exemption from Basel III, which allowed it to run a riskier business, and eventually led to its implosion. Basel III was introduced to force banks to be more conservative, and thus more safe. Downside: this also means bank is going to be less profitable. European banks were forced to implement Basel III, while the US bankers managed to lobby a loophole for certain types of banks. And sure enough, SVB leve…

This btw is Jay Ersapah, Head of Financial Risk at SVB. Apparently DEI & LGBTQ issues were more important than making sure their assets & obligations are balanced: https://twitter.com/the_real_fly/status/1634035956188688385

At SVB UK, which is isolated apparently. Not that it reduces the impact of the image ...

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

#263

Post by morelisp »

monodeldiablo wrote: post #250
nradov wrote: post #199

Earlier quoted context omitted.

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.

The FDIC insurance won’t make the rest whole, the bankruptcy process will. The assets are not fundamentally toxic and someone will buy them, with a haircut.

Play stupid games, win 70 cents on your dollar.

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

#264

Post by youngtaff »

otikik wrote: post #247
phone8675309 wrote: post #222

Earlier quoted context omitted.

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.

Or perhaps the other lesson is VCs shouldn’t create a run on the bank they holds their funds and the companies they invest in funds

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

#265

Post by HyperSane »

TooSmugToFail wrote: post #2

SVB used an exemption from Basel III, which allowed it to run a riskier business, and eventually led to its implosion. Basel III was introduced to force banks to be more conservative, and thus more safe. Downside: this also means bank is going to be less profitable. European banks were forced to implement Basel III, while the US bankers managed to lobby a loophole for certain types of banks. And sure enough, SVB leve…

Glass-Steagall needs to be brought back. It was incredibly effective at preventing situations like this.

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

#266

Post by HyperSane »

boppo1 wrote: post #212
JackFr wrote: post #194

Earlier quoted context omitted.

Agree. SVB was not small, but an order of magnitude smaller than the large money center banks (Citi, BofA, JPMChase). That being said, nearly every other bank of that size submitted Dodd Frank Stress Test results to the Fed in 2022. https://www.federalreserve.gov/publications/files/2022-dfast... Somehow SVB avoided this. I don’t see this as systemic at all. The FDIC will make depositors whole and the owners and manag…

97% of depositors exceeded the FDIC limit.

Then they should have understood the risk they were taking.

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

#267

Post by LadyCailin »

catiopatio wrote: post #253
monodeldiablo wrote: post #249

Earlier quoted context omitted.

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.

> Those numbers at the bottom of a cheque? Yeah, they include your account number. Yes, as well as the routing number. > There's no inherent information risk to giving out an account number … Of _course_ there is. In the US, the account + routing number is sufficient to perform a ACH transfer, write checks against that account, etc. The risk is enormous . > Especially when one considers the accompanying fraud risk th…

>> Those numbers at the bottom of a cheque? Yeah, they include your account number. > Yes, as well as the routing number. >> There's no inherent information risk to giving out an account number … >Of _course_ there is. In the US, the account + routing number is sufficient to perform a ACH transfer, write checks against that account, etc. The risk is enormous.

So… how does writing a check remove this risk then? That was the original point, that writing a check is safer than giving out your account number.

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

#268

Post by stephen_g »

chii wrote: post #205
AnimalMuppet wrote: post #141

Earlier quoted context omitted.

There is no downside to society if banks are less profitable. There is a definite downside to the banks , though. And given the chance, at least some banks will try to get out of that downside.

if banking was less profitable, all else being equal, you'd expect that there'd be less banking activities including loans. Less loans means less economic activity from what those loans are funding (such as business loans, or construction loans etc).

Why would you expect that? It doesn’t seem to follow at all… If banking was less profitable, they’d more likely want to try and increase volume (issuing more loans) to try to make up for it and make more profit.

(Which is why bank regulation is incredibly important, because without strong regulation banks often do start to chase profit by lending to more and more risky customers, and when that unwinds you get what happened in 2008)

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

#269

Post by jnmandal »

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.

I disagree. The poster has an interesting point and contrarian perspective. Is it a grandiose metaphor? Probably. Can we learn from the discourse? Definitely.

Even if the hyperbolic claim you made was true (it's not - see below if you want), why should we all be polite, pious disciples of Silicon Valley? It's ok to critique things, even when they provide some good.

N.B. I think it's more accurate to say the actual majority of tech we use is born from government funded research à la the entrepreneurial state. One should not confuse R&D with commercialization.

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

#270

Post by fshbbdssbbgdd »

HyperSane wrote: post #265
TooSmugToFail wrote: post #2

SVB used an exemption from Basel III, which allowed it to run a riskier business, and eventually led to its implosion. Basel III was introduced to force banks to be more conservative, and thus more safe. Downside: this also means bank is going to be less profitable. European banks were forced to implement Basel III, while the US bankers managed to lobby a loophole for certain types of banks. And sure enough, SVB leve…

Glass-Steagall needs to be brought back. It was incredibly effective at preventing situations like this.

Glass-Steagal separated commercial banks from investment banks. As far as I can tell, SVB was just a commercial bank and the way it went bust has nothing to do with conduct that would have been prohibited under Glass-Steagal.
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