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Bank run on Silicon Valley Bank

techcrunch.com

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Re: Bank run on Silicon Valley Bank

#51

Post by mason55 »

recursivedoubts wrote: post #21

Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long. As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time. If they locked deposits for a period of time they could safely (and morally) loan that money out without lying, and, in fact, there…

> Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long.

Yes but this is a valuable service for the economy and so society has decided that it's worth the cost of insuring the risk of a bank run in exchange for the economic benefit of banks doing this.

Re: Bank run on Silicon Valley Bank

#52

Post by pera »

cdibona wrote: post #14

They're not allowing approval of wires via SMS or their app, and no one is picking up the phone there and most numbers are fast busy. Smells deeply bad. I had an account at a bank that went under a few decades ago and it took a while for ... bofa? to pick up the pieces.

Yeah sounds like textbook bank run or cryptocurrency exchange collapse, it's bizarre that this kind of things keep happening every few years.

Re: Bank run on Silicon Valley Bank

#53

Post by KirillPanov »

WJW wrote: post #42
recursivedoubts wrote: post #21

Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long. As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time. If they locked deposits for a period of time they could safely (and morally) loan that money out without lying, and, in fact, there…

While that would obviously solve the (relatively minor, all things considered) problem of bank runs, the demand for long term loans is not nearly as large as the supply of long term money. Maturity transformation provides real value to the economy by consolidating short term deposits into things like mortgages and long term business loans. Imagine if you could only get 3-year mortgages, after which the entire cost of…

> the demand for long term loans is not nearly as large as the supply of long term money.

It is when the loans are priced correctly.

This is a clear and obvious sign that the price of long term loans is wrong.

Re: Bank run on Silicon Valley Bank

#54

Post by sethhochberg »

thesimon wrote: post #35
recursivedoubts wrote: post #21

Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long. As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time. If they locked deposits for a period of time they could safely (and morally) loan that money out without lying, and, in fact, there…

> If they locked deposits for a period of time they could safely (and morally) loan that money out without lying Are fixed deposits not common in the US?

Not very common. Most consumer and business checking and savings accounts are demand deposit accounts here.

The default path for slightly higher interest on a fixed term in the US tends to be certificates of deposit. They’re similar but functionally more like a bond you purchase than an account you can deposit into regularly.

Re: Bank run on Silicon Valley Bank

#56

Post by mvial »

The main limitation is that liquidity risk regulation are not adequate. As recent example shows the reality is that risk is underestimated under the fake premise of accounting rules. Asset liability mismatch is the survival risk for a bank. Once you start creating an imbalance that forces to take action by seliing assets it is just creating a negative cycle. Also now people will ralize that treasury is not risk free.

Re: Bank run on Silicon Valley Bank

#57

Post by fallingknife »

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.

Every bank is screwed if everybody takes all their money out. And everybody already knows it.

Re: Bank run on Silicon Valley Bank

#58

Post by ericpauley »

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?

Re: Bank run on Silicon Valley Bank

#60

Post by FormerBandmate »

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.

This is how every bank has always worked since banks were invented
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