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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#481

Post by FactKnower69 »

kurthr wrote: post #307
uoaei wrote: post #261

Earlier quoted context omitted.

This pre-supposes a pretty radical (yet normalized nowadays) economic philosophy: that growth per se is good. A more nuanced approach would be to value and triage lending opportunities according to how much they contribute to the heating up of the economy, and how much opportunity for future sustainability they provide.

I'll ask then. What happens to an organism when it stops growing? It's an exponential process and there are really only 2 states except for an infinitesimally small space between.

Good thing we live in an environment with infinite carrying capacity and natural resources, I could see things getting pretty dicey otherwise

Re: Bank run on Silicon Valley Bank

#482

Post by charrondev »

sillybov3456 wrote: post #241
danielmarkbruce wrote: post #181

Earlier quoted context omitted.

Everyone doesn't need to know or care in many cases. The FDIC insures deposits up to $250k. That covers the vast majority of accounts at most banks. So a run won't occur at most banks. There were hardly any runs in 2008 for this reason - the relatively few "run type things" which happened were where big interbank exposures existed. SVB's customers are weighted significantly more towards businesses who will have more…

FDIC insurance is similar in the sense that if the feds ever have to say "don't worry that JP Morgan or is going under, most of you will be covered within the FDIC limit", then we're fucked in so many other ways it doesn't matter. That is after all why we invented the term "systemically important".

Your acting as if the FDIC only exists to cover a massive systemic failure. In the event of something like that additional intervention may be need sure.

However, the FDIC covers all banks, and is generally involved with smaller banks fail and they are they to insure whatever balance the bank could not cover with its remaining assets when it failed.

I’m not actually aware though what the last incident they actually had to pay out was though. Looking through their historical data on bank failures every one I’ve seen says the insured accounts were assumed by another bank purchasing up the failing bank.

Re: Bank run on Silicon Valley Bank

#483

Post by amluto »

RC_ITR wrote: post #364
nradov wrote: post #358

Earlier quoted context omitted.

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 not what you’re assuming it to be. 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…

> SVB has a fine balance sheet for now, they’re just running out of easy things to sell.

Do they?

If SVB is sitting on a pile of Treasury bonds that mature in 20 years, they can “hold to maturity” and get their principal plus some very low interest rate. But this is useless! In a fantasy world in which all their depositors leave and they keep those bonds for 20 years, they are indeed worth that amount in 20 years, which has a rather lower net present value today, and maybe their investors care and maybe they don’t.

But this is, of course, a fantasy. Those bonds are collateral for deposits, SVB pays 4.5% APY on savings, and that 4.5% doesn’t materialize from the ether. In 20 years, 4.5% multiplies money by 2.4, those T-bonds will not multiply by 2.4, and SVB will slowly but surely end up in the hole. Unless they convince a very large fraction of their depositors to forego interest.

It boggles my mind that banks are apparently permitted to do accounting on a hold-to-maturity basis. Holding a bond to maturity avoids paying a spread and maybe has some tax effects. And that’s it. Otherwise you might as well sell it and buy a new one with the same present value.

(I am not an expert, and I’m going off HN comments for how these rules work. But if the banks really do get to say they plan to hold a fixed-income instrument to maturity and they can value it as something like face value, then I think the system is broken.)

Re: Bank run on Silicon Valley Bank

#484

Post by alexnewman »

Back in the day, the crypto community would all withdraw capital for the same week to verify what exchanges had it. The better they would do, the more deposits they’d get back the next week. People and companies could never do that safely

Re: Bank run on Silicon Valley Bank

#485

Post by theptip »

gberger wrote: post #362
twblalock wrote: post #334

Earlier quoted context omitted.

> 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.

Do you mind explaining why? I'm not familiar with hard vs soft money.

It’s a pretty involved topic. “ The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes” gives a good narrative that exemplifies some of the problems.

Re: Bank run on Silicon Valley Bank

#486

Post by [deleted] »

anon291 wrote: post #19
rippercushions wrote: post #15

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.

Perhaps I'm overly skeptical, but everyone should know that all banks have the risk of 'if everyone takes their money out, the bank won't be able to make it work', right?

[deleted]

Re: Bank run on Silicon Valley Bank

#487

Post by bluGill »

tempsy wrote: post #317
bluGill wrote: post #263

Earlier quoted context omitted.

Right, but gp was talking about people not businesses

no i wasn’t. i said an individual could easily have $250k in cash to show you that it is not a significant amount of money from a business perspective. nothing about what i said referred to keeping $250k in a non interest bearing account as being a smart decision for an individual

I'm confused then. What individuals keep 250k in cash? How does individuals have any bearing or relevance to businesses?

Re: Bank run on Silicon Valley Bank

#488

Post by slackfan »

abirch wrote: post #369
rippercushions wrote: post #15

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 have to convince people you're liquid, you've lost the argument. Similar to if you have to convince people you're sane, you've already lost

What a strange game, the only winning move is not to play.

Re: Bank run on Silicon Valley Bank

#489

Post by simple-thoughts »

favflam wrote: post #462

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.

Ah yes, the solution is more restrictions on banks to hold exactly the types of assets that are underwater! No, sorry you are wrong. The financial crisis that just started this week is due to banks holding securities that they are required to hold by law - the law considers mortgages and government debt to be safe yet it is now proven (and anyone with basic finance knowledge knew ahead of time) to be extremely unsafe due to interest rate risks. Bailouts incoming!

Re: Bank run on Silicon Valley Bank

#490

Post by dumbotron »

cm2187 wrote: post #188
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.

A variant of Thatcher's "Being powerful is like being a lady, if you have to tell people you are, you aren't".

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