How deep is the rot in America’s banking industry? • Hacker News Board

Re: How deep is the rot in America’s banking industry?

#51

Post by jjoonathan » Thu, Mar 16, 2023, 6:07 PM UTC

basseq wrote: post #38

jjoonathan wrote: post #26

Earlier quoted context omitted.

Yeah, people are flailing. The only party that made out like bandits is the SVB management that piled on the risk in the first place -- but investors are ultimately responsible for letting them do that and investors have been punished.

I'm unclear how SVB management "made out like bandits". I assume they had a couple good years of nice salaries and bonuses, but now their equity is zero'd and they're out of a job. I presume they would have preferred to continue managing the bank as a going concern.

They chose to invest in those 10 year securities, proverbial pennies in front of the steamroller. I'm sure this was framed as a smart move at the time and they gave themselves big bonuses while investors were out to lunch. Ultimate responsibility does lie with investors, but management definitely hustled them and got away with it.

Re: How deep is the rot in America’s banking industry?

#52

Post by GabeIsko » Thu, Mar 16, 2023, 6:07 PM UTC

SilasX wrote: post #19

jgeada wrote: post #2

Bring back Glass Steagall and stop all this madness. Regular banking should be boring, not all that profitable and separated from speculation.

Buying long-term Treasurys and booking them as high-grade capital (whatever they call it) was legal under GS too, and was the cause of SVB's failure. SVB was killed by the boring part, not the startup banking risk.

Large venture capitalist depositors demanding to pull out billions of dollars because of relatively minor liquidity risk definitely contributed to the bank run though.

Re: How deep is the rot in America’s banking industry?

#53

Post by tptacek » Thu, Mar 16, 2023, 6:08 PM UTC

phkahler wrote: post #34

tptacek wrote: post #9

Earlier quoted context omitted.

By all accounts, SVB's banking was boring. They borrowed short and lent long, and their long bets were very safe. The problem wasn't that they too exciting bets; its that they played the standard playbook incompetently.

>> By all accounts, SVB's banking was boring. They borrowed short and lent long, and their long bets were very safe. Clearly not safe. IMHO anyone buying 10 year treasuries in the last several years is an idiot. Those rates were guaranteed to rise, as they could not fall below zero. Next up: anyone who bought a house in the last few years is gonna get hurt. We knew rates would be rising, and hence prices falling. So…

Safe, as in they're going to be paid back dollar for dollar. People are talking about SVB's assets as if they were toxic, rather than just not as attractive as other available bonds.

Re: How deep is the rot in America’s banking industry?

#54

Post by jandrese » Thu, Mar 16, 2023, 6:08 PM UTC

SkyMarshal wrote: post #40

jjoonathan wrote: post #26

Earlier quoted context omitted.

Yeah, people are flailing. The only party that made out like bandits is the SVB management that piled on the risk in the first place -- but investors are ultimately responsible for letting them do that and investors have been punished.

They didn’t even pile on the risk, at least not in the 2007/2008 sense. They bought long-dated 10yr US Treasuries (or was it MBS’s? I’ve heard both), since that was one of the lowest risk assets they could invest in and still get enough spread vs their deposits to remain a viable business. It’s strange days when that is considered piling on risk. While there wasn’t counterparty risk with those assets, there was durat…

The rumor I read is that SVB booked those treasuries in some weird way that prevented them from being sold but also prevented them from having to pay taxes on the treasures.

Otherwise you are totally right that it should have been no problem to cover the shortfall by selling off some of the treasuries, even though they would have had to take a haircut on them thanks to the Fed jacking the rates so fast.

Re: How deep is the rot in America’s banking industry?

#55

Post by kasey_junk » Thu, Mar 16, 2023, 6:09 PM UTC

SkyMarshal wrote: post #40

jjoonathan wrote: post #26

Earlier quoted context omitted.

Yeah, people are flailing. The only party that made out like bandits is the SVB management that piled on the risk in the first place -- but investors are ultimately responsible for letting them do that and investors have been punished.

They didn’t even pile on the risk, at least not in the 2007/2008 sense. They bought long-dated 10yr US Treasuries (or was it MBS’s? I’ve heard both), since that was one of the lowest risk assets they could invest in and still get enough spread vs their deposits to remain a viable business. It’s strange days when that is considered piling on risk. While there wasn’t counterparty risk with those assets, there was durat…

Their a&l committee told them to change their asset mix in 2020 and they didn’t to preserve their profits[0].

All bank risk assessment regimes measure both credit and interest rate risk. Measuring 1 in isolation is idiotic for now obvious reasons.

[0] https://www.bloomberg.com/news/articles/2023-03-13/svb-failu...

Re: How deep is the rot in America’s banking industry?

#56

Post by codexb » Thu, Mar 16, 2023, 6:09 PM UTC

toomuchtodo wrote: post #4

jgeada wrote: post #2

Bring back Glass Steagall and stop all this madness. Regular banking should be boring, not all that profitable and separated from speculation.

My hot take is that demand deposits should be only invested in (EDIT: short dated, thx codexb) US treasuries (a la Narrow Bank), backed by the Federal Reserve and if a bank (or anyone) wants to lend, they can issue bonds to borrow versus the Rube Goldberg mechanism we currently have of deposits, FDIC, and then the Fed still providing an unlimited guarantee anyway. The bond market already is built to handle this, and…

By all accounts, most of their demand deposits were invested in US treasuries. Those treasuries are just worth less now because of interest rate hikes and so even if they didn't have to do a fire sale on billions in treasuries, it still wouldn't be enough to cover deposits.

There are no completely safe investments.

Re: How deep is the rot in America’s banking industry?

#57

Post by basseq » Thu, Mar 16, 2023, 6:09 PM UTC

SkyMarshal wrote: post #43

basseq wrote: post #38

Earlier quoted context omitted.

I'm unclear how SVB management "made out like bandits". I assume they had a couple good years of nice salaries and bonuses, but now their equity is zero'd and they're out of a job. I presume they would have preferred to continue managing the bank as a going concern.

It’s probably a reference to reports of some SVB execs selling their stocks in the weeks before the failure.

Ah, likely. Though it doesn't seem like there's any evidence yet on insider trading or execs fully cashing out. They got lucky liquidating some single-digit % of their holdings, but still likely lost most. A 95% loss is better than a 100% loss, but still not "making out like a bandit".

Re: How deep is the rot in America’s banking industry?

#58

Post by SilasX » Thu, Mar 16, 2023, 6:10 PM UTC

jjoonathan wrote: post #26

tptacek wrote: post #18

People seem to have a really hard time with the idea that, in the SVB debacle, the system worked effectively and pretty much the way it was planned to. It's not even clear what people are upset about. There's an article on the front page of The Atlantic today about how angry we should be about SVB, and if you read it, it's hard to figure out who those angry people should be. Equity is getting zeroed out. Management w…

Yeah, people are flailing. The only party that made out like bandits is the SVB management that piled on the risk in the first place -- but investors are ultimately responsible for letting them do that and investors have been punished.

There are also the people who were able to buy USDC or DAI at a discount when there was worry that SVB's collapse would cascade to those stablecoins.

Disclaimer: was one of them, though not nearly as aggressive as I should have been.

Re: How deep is the rot in America’s banking industry?

#59

Post by jt2190 » Thu, Mar 16, 2023, 6:10 PM UTC

mcherm wrote: post #32

tptacek wrote: post #18

People seem to have a really hard time with the idea that, in the SVB debacle, the system worked effectively and pretty much the way it was planned to. It's not even clear what people are upset about. There's an article on the front page of The Atlantic today about how angry we should be about SVB, and if you read it, it's hard to figure out who those angry people should be. Equity is getting zeroed out. Management w…

I am one of those who has been harmed. I work at a different bank. The rates charged to banks for FDIC insurance have been based on the assumption that the FDIC would cover depositor losses up to the insured limit. By choosing to cover all losses even above the insured limit, we have chosen to put the burden for paying for those losses on all of the other banks (and indirectly on those banks depositors). I suspect th…

Just so I’m clear, you’re saying that you’ve been harmed because your savings account will pay a lower interest rate?

(Note that I’m not trying to suggest that you were not harmed, I just want to make sure that I understand the source of the harm.)

Re: How deep is the rot in America’s banking industry?

#60

Post by SilasX » Thu, Mar 16, 2023, 6:11 PM UTC

GabeIsko wrote: post #52

SilasX wrote: post #19

Earlier quoted context omitted.

Buying long-term Treasurys and booking them as high-grade capital (whatever they call it) was legal under GS too, and was the cause of SVB's failure. SVB was killed by the boring part, not the startup banking risk.

Large venture capitalist depositors demanding to pull out billions of dollars because of relatively minor liquidity risk definitely contributed to the bank run though.

That's irrelevant to the topic of this subthread, about Glass-Steagall and the regulations that would have prevented this.