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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#451

Post by airstrike »

oa335 wrote: post #431
airstrike wrote: post #415

Earlier quoted context omitted.

I'd say that's a crude reductionist view. See https://www.jstor.org/stable/2118406 to name one paper but there's tons of research on the link between capital markets and economic growth

What part of that crude or reductionist? Technological progress being the sole driver of growth is the dominant view in macroeconomics. Even the paper you link attests to that.

It's reductionist because "technological progress" is too broad a stroke. "Productivity" is not directly observable or measured, right?

Access to inexpensive capital is a key driver of technological progress.

Robust capital markets allow for more efficient allocation of savings into business ventures, driving productivity forward

Re: Bank run on Silicon Valley Bank

#452

Post by Grimburger »

kencausey wrote: post #178
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.

Or that very simply banks are never 100% liquid.

They'd be lucky to have 5% of their liabilities.

Re: Bank run on Silicon Valley Bank

#453

Post by givemeethekeys »

tito wrote: post #357

SVB is our bank, I got in touch with a member of the senior team there and got the following message to share. (My own interpretation is I'm comfortable and I'm not planning to pursue it further at the moment): As you know, we are limited in what we can share until the transaction formally closes next week but in the meantime I’m attaching concise information on the strength of our business, based on our recent mid-q…

With the massive exodus of deposits though, their ratios change quite drastically. Maybe it wasn't a big issue yesterday, but as of today, they've got a huge problem on their hands.

Re: Bank run on Silicon Valley Bank

#454

Post by wpietri »

nordsieck wrote: post #302
PragmaticPulp wrote: post #202

Earlier quoted context omitted.

This is kind of like saying we can eliminate most automobile fatalities by eliminating cars and making everyone walk or take the train everywhere. 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. Single-minded optimization for single edge cases is really easy in fantasy worlds, but in the real world people…

> 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…

> People lived with hard-ish money systems for extremely long periods of time.

True, but most of human history was also pretty awful. If subsistence agriculture is your idea of a good time, nobody's going to stop you. But it's definitely not what most people want.

Re: Bank run on Silicon Valley Bank

#455

Post by Retric »

lmm wrote: post #378
Retric wrote: post #252

Earlier quoted context omitted.

Interest on loans should by increase a banks reserves every year barring massive defaults. The ROI for the actual reserves aren’t particularly relevant by comparison. Similarly from a reserve standpoint they don’t need to worry about inflation as they need to pay back deposits in nominal terms not what the money is worth when withdrawn.

> Similarly from a reserve standpoint they don’t need to worry about inflation as they need to pay back deposits in nominal terms not what the money is worth when withdrawn. The issue is that the sale value of their reserves has dropped below that nominal value. If you take in $1000 of deposits that you're paying 1% interest on and your reserve against that is a 10-year $1000 T-bill with a 2% coupon, you'd think you'…

This is why there is a difference between a banks assets and their liquid assets.

If the T-Bill has a maturity beyond 90 days it doesn’t qualify as a liquid asset.

Re: Bank run on Silicon Valley Bank

#456

Post by sidibe »

HFguy wrote: post #435
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.

How would you pay for university? How would you buy a house? How would a company build a factory?

You would have to use the money you inherited or were given annually from your parents more carefully so that you have it to spend on the things you really need or where you see a big opportunity. It's a sacrifice but it's all worth it in the end to get rid of fractional lending, which I find confusing and distasteful.

Re: Bank run on Silicon Valley Bank

#457

Post by nordsieck »

wpietri wrote: post #454
nordsieck wrote: post #302

Earlier quoted context omitted.

> 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…

> People lived with hard-ish money systems for extremely long periods of time. True, but most of human history was also pretty awful. If subsistence agriculture is your idea of a good time, nobody's going to stop you. But it's definitely not what most people want.

> True, but most of human history was also pretty awful. If subsistence agriculture is your idea of a good time, nobody's going to stop you. But it's definitely not what most people want.

I can't tell - are you arguing that soft money is a necessary precondition to industrialization?

Re: Bank run on Silicon Valley Bank

#458

Post by danielmarkbruce »

ericd wrote: post #425
danielmarkbruce wrote: post #417

Earlier quoted context omitted.

Your employees don't accept t-bills as payment. Your suppliers don't accept them either. To do business, you need money in a bank account. Not all your money, but a decent chunk of money needs to be there for day to day.

Sure, you need some, but many small businesses leave it all in a bank. It's easy to just set up recurring buys of 4 week t-bills that you can halt at any time, payroll is predictable, and suppliers are commonly on net 30-90.

Yup, and you stop using a bank which is in trouble.

Re: Bank run on Silicon Valley Bank

#459

Post by Retric »

coliveira wrote: post #419
Retric wrote: post #252

Earlier quoted context omitted.

Interest on loans should by increase a banks reserves every year barring massive defaults. The ROI for the actual reserves aren’t particularly relevant by comparison. Similarly from a reserve standpoint they don’t need to worry about inflation as they need to pay back deposits in nominal terms not what the money is worth when withdrawn.

The parent commenter is right, and the problem is the mark-to-market rule. This means that the value of the asset must be the current trading value, which goes down as the rates go up. The result is that bank reserves will go down substantially in nominal terms, sometimes faster than they can recoup the value of these investments.

That’s a regulatory rule which can be suspended not the underlying economic reality. “On April 9, 2009, FASB issued an official update to FAS 157[35] that eases the mark-to-market rules when the market is unsteady or inactive.” https://en.wikipedia.org/wiki/Mark-to-market_accounting

We’re currently in some interesting times: “As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.“. https://www.federalreserve.gov/monetarypolicy/reservereq.htm

Re: Bank run on Silicon Valley Bank

#460

Post by [deleted] »

lmm wrote: post #448
pishpash wrote: post #397

Earlier quoted context omitted.

Why would customers be pulling deposits unless you are offering lower than market interest rate? If T-bills are 3%, they can pay depositors 2% now and so whatever condition kept the customers there at -1% risk premium would still keep them there. No run on the bank. And given they are T-bills, duration is minimal, so $1000 might be worth $990 even before coupons. Whoop-de-doo! There would only be a problem if the ban…

> Why would customers be pulling deposits unless you are offering lower than market interest rate? Any number of reasons, particularly if all your customers are in the same industry. If you're "Silicon Valley Bank" and there's a downturn in Silicon Valley, well, here you are.

[deleted]
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