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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#461

Post by wpietri »

nordsieck wrote: post #457
wpietri wrote: post #454

Earlier quoted context omitted.

> 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?

I'm saying that your argument is bunk. People also lived without effective dental care for long periods of time. People lived without all sorts of things. If you want to show that something is unimportant, you have to do more than wave vaguely at recorded history as if it were all pretty great.

Re: Bank run on Silicon Valley Bank

#462

Post by favflam »

Fed should have mandated bigger reserves and done better stress testing before raising interest rates so fast. Anything long duration tanked like 20% in mark to market value.

SVB is probably not the last shoe to drop in this story.

Re: Bank run on Silicon Valley Bank

#463

Post by ThrustVectoring »

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.

Savings don't grow, not in real terms and on a societal scale. A miniscule fraction of real goods and services in the economy can get buried in the basement and saved for thirty years.

Re: Bank run on Silicon Valley Bank

#464

Post by hd95489 »

Narkov wrote: post #335
axlee wrote: post #268

Earlier quoted context omitted.

FTX's actions have nothing to do with what is happening with SVB, it's not even close. Why make a bad parallel?

The parallel is selling equity when you are in trouble is not ideal. Different reasons or sectors or whatever...but the principal is the same.

I mean it’s just as bad as buying it at the peak.

Re: Bank run on Silicon Valley Bank

#465

Post by Retric »

makomk wrote: post #288
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.

Higher interest rates decrease the value of long-duration bonds even in nominal terms. Think of it this way: because the interest rate on a bond is fixed at issue, and because newer bonds now have higher interest rates, your existing bonds have to be sold for less in order for someone to buy them over a newer higher-interest bond. This means that the banks' reserves have actually shrunk in value. This is made worse b…

That’s only relevant if you need to sell it or use mark to market accounting.

The US banking system has been given a great deal of regulatory leeway due to recent economic turbulence, including setting reserve requirements to 0%. So market value is only relevant if they need to sell before maturity.

Re: Bank run on Silicon Valley Bank

#466

Post by jongjong »

sanderjd wrote: post #407
jongjong wrote: post #353

Earlier quoted context omitted.

It's not about information. It's about social connections; that's how you get opportunities. Information and intelligence is worthless and a pretext. If I befriend Elon Musk and he makes one tweet about any of my existing projects, I'll be a millionaire within a year. 100% guaranteed. I wouldn't have to change anything or know anything more. Then I would have impostor syndrome instead. It's easy to claim that anyone…

You're wrong about whether fractional reserve banking is broadly good for people living in developed economies - it is - but you're unlikely to be talked out of this conspiracy kick you're on, so :shrug:. All the best to you!

Well it's not good for me and I'm merely a typical product of this system. The system will make plenty more of me. I was totally alone a few years ago, now I look like a moderate. Unfortunately, future contrarians may not be as curious, tolerant and understanding as me so they will probably end up blaming capitalism as a whole and demand communism... China will swoop in and 'liberate' the people. When this happen, I will be shrugging my shoulders in complete apathy due to moral exhaustion.

If intelligent people cannot separate the monetary system from capitalism, the average person won't either.

Re: Bank run on Silicon Valley Bank

#467

Post by pgwhalen »

pishpash wrote: post #397
lmm wrote: post #378

Earlier quoted context omitted.

> 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'…

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…

This is incorrect, as we learned from Silvergate. Customers pulled their deposits for reasons unrelated to the bank (in Silvergate’s case, the customers of the crypto exchanges wanted all their money back, so the crypto exchanges had to withdraw their deposits from Silvergate).

As Levine put it, it’s not an asset problem, it’s a liability problem.

Re: Bank run on Silicon Valley Bank

#468

Post by neural_thing »

danielmarkbruce wrote: post #310
JohnFen wrote: post #209

Earlier quoted context omitted.

> 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…

Or just use a Too Big To Fail bank. The government will never allow JPM/WF/BofA to go under, that'd wreck the economy.

Re: Bank run on Silicon Valley Bank

#469

Post by lend000 »

I am interested and a bit anxious to see whether this was one bank's incompetence or a systemic issue caused by unprecedentedly low rates incentivizing cash holders to seek riskier forms of yield.

Although, why anyone managing billions of dollars thought it was a good idea to lock up tons of money for a long period when interest rates were nil is beyond me. I'll gladly take their job at merely HALF their salary!

Re: Bank run on Silicon Valley Bank

#470

Post by borski »

SkyPuncher wrote: post #426
trogdor wrote: post #399

Earlier quoted context omitted.

>The FDIC insures deposits up to $250k Per depositor, per insured bank, per account category. It’s not that difficult to keep significant excess deposits insured.

Not difficult for the average person. Extremely difficult for a business running hundreds of thousands in transactions per month.

This. Entire companies exist to help try and solve this problem for businesses.
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