361–370 of 889 posts
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There is no reserve ratio. We got rid of it in March 2020. https://www.federalreserve.gov/monetarypolicy/reservereq.htm
So if I open a bank with a couple million dollars I can make an infinite number of loans??
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> Yes, it would solve one type of problem. But nobody wants your solution because it’s an unreasonable trade off for everyone to solve an extremely rare edge case. Can you explain why this is bad? People lived with hard-ish money systems for extremely long periods of time. > The concepts of assets and liabilities are well understood in the business world. Banks aren’t “lying” and fractional reserve banking does not m…
> Can you explain why this is bad? People lived with hard-ish money systems for extremely long periods of time. The problems those systems caused are the reason we created the Fed and soft money. Hard money ruined many lives, caused many panics, and is an intellectually bankrupt idea that only cranks are still devoted to.
From https://techcrunch.com/2023/03/09/silicon-valley-banks-share... : Becker said the bank has “ample liquidity” to support its clients “with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge.” Pro tip: if you're CEO of a bank that's facing a bank run, don't tell the press that you'll be in trouble if everybody takes their money out.
> if you're CEO of a bank that's facing a bank run Or just don't mess with money that belongs to customers. Be the world's first reliable bank.
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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.
What is there to learn? That's not an actionable statement. A bank can follow a lower risk strategy and accept lower profits, but that's not necessarily what shareholders want. Some risk of failure is acceptable.
The point is that a bank run is a liquidity event (i.e. we still own more than what we owe, it’s just hard to turn it into cash fast enough).
SVB has a fine balance sheet for now, they’re just running out of easy things to sell.
The quote is referencing liquidity events, where the problem is everyone wants their money because they’re nervous about the bank, but the only thing that can hurt the bank is them taking out their money (because then the bank is in fire sale mode).
A CEOs job in this time (something SVB CEO did not do) is to project confidence. That’s literally all they can do.
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This is so misguided. Just raising interest rates by a few points has resulted in many thousands of people losing their livelihoods in under a year, because companies could no longer justify taking out loans. What you're suggesting is eliminating loans altogether . This is a fun dorm room thought experiment, but it's not even hyperbolic to say that if it were actually pursued, it would result in a huge number of deat…
Modern Islamic countries without usury manage to feed their citizens so although I would agree that banning loans would cause a lot of pain in the modern economy, I can't see how it would cause mass starvation.
I'm really curious why banks like this are popular in the first place. I get why startups would want to lend from them, but what is the advantage of parking cash in a "startup-focused" bank? The rest of the business is exciting/risky enough, wouldn't you want your banking to be as boring as possible?
Well, just as an example SVB gave my startup a bank account and a no personal recourse credit card days after we'd formed the corporation. No way you'd get that from BofA. They understand the startup ecosystem in a way that big banks don't. Now there's some competition from startup-focused banks like Brex and Mercury, but a five years ago SVB was one of the only games in town.
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CDs?
CDs are definitely not the same as checking and savings accounts though. Most people don't even have any CDs, and the people who do have them also have accounts where they can withdraw money immediately. I've never seen a bank that only offers CDs. That's probably because such a bank wouldn't survive.
Because the rates suck, but that hasn’t always been the case.
The bank’s leadership made some bad financial decisions but then scored a massive “own goal” in how they communicated all that to the market and their customers.
From https://techcrunch.com/2023/03/09/silicon-valley-banks-share... : Becker said the bank has “ample liquidity” to support its clients “with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge.” Pro tip: if you're CEO of a bank that's facing a bank run, don't tell the press that you'll be in trouble if everybody takes their money out.
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> SVB's customers are weighted significantly more towards businesses who will have more than $250k in the bank. If you have that much money, FDIC is not adequate for you (and isn't intended to be). There are other mechanisms for those sorts of depositors. Surely, those businesses got solid financial advice and are using them, right?
The mechanism is to watch the banks you have money in. A company still has to pay it's bills. To pay bills, you need some money in a bank, it's unavoidable. So, let's say you are a company with 4 banks accounts. Each has $500k in it. One of them is SVB. You probably just move the $500k into one of the other bank accounts. It's no big deal per se, but you do it. That's a run on the bank if lots of companies do the sam…