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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#731

Post by blippage »

simonh wrote: post #681
dijit wrote: post #661

Earlier quoted context omitted.

Honestly, I'm not an economist, even worse I was not a fully functioning and critical thinking adult before the Thatcher era, you could well be right but I find it really hard to believe. For example the UK has also had subsequent Conservative victories for the last 12 years or so but every single argument made in 2010 about their approach has been proven true. To the detriment of every person in the UK. So it doesn'…

I can't argue with you on the recent Conservative track record, they're a pale shadow of the party they once were. The only thing that's saved them is that Labour under Corbyn was plainly, obviously such an utter catastrophe in the making the Cons couldn't help looking good. There certainly was an aspect of that back in the 80s. In the early years Labour was lead by Michael Foot, basically a likeable version of Corby…

Thatcher is what I like to call a "Marmite politician": either you absolutely loved her, or absolutely hated her. She was a politician of her time, by which I mean she was exactly the politician we needed at the time that we needed it. I doubt that any other politician could have achieved what she did in the UK. Everybody else would be too willing to compromise.

Re: Bank run on Silicon Valley Bank

#732

Post by hnthrowaway0315 »

toss1 wrote: post #379
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.

Meanwhile, Peter Theil is openly encouraging everybody to tell each other that SVB is sinking and to pull their money [0]. What a guy. [0] Thiel Fund, Venture Firms Advise Companies to Pull Money From SVB

Probably selling short

Re: Bank run on Silicon Valley Bank

#733

Post by asimpletune »

amluto wrote: post #483
RC_ITR wrote: post #364

Earlier quoted context omitted.

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, wh…

> 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.

But they wouldn't continue to pay 4.5% interest for 20 years would they? This is just a brief moment of high interest rates, so I think that's the main detractor from this argument. In other words, it's not like 4.5% APY on savings is anywhere close to the norm.

Re: Bank run on Silicon Valley Bank

#734

Post by asimpletune »

Retric wrote: post #465
makomk wrote: post #288

Earlier quoted context omitted.

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.

> So market value is only relevant if they need to sell before maturity.

Which is exactly what needs to happen when depositors ask for their money back.

Re: Bank run on Silicon Valley Bank

#735

Post by kasey_junk »

jcbrand wrote: post #696
brianmcc wrote: post #672

Just to be clear for everyone: banks don't keep 100% deposits in a big vault, where a full-customer-withdrawal can and should be expected and permitted. Banks even at their simplest "Main Street local level", need to keep, say, 15% or 20% of their deposited funds available, as determined centrally e.g. the Fed or the Bank of England. The rest by design is to be lent out, that's how banks offer loans, mortgages etc. S…

> The rest by design is to be lent out, that's how banks offer loans, mortgages etc. When banks lend out money, they don't lend out existing deposits, they create new (debt-based) money from nothing and this new money is fractionally backed by deposits. With 10% fractional reserves, if they have $100 in deposits, they can lend out $1000, thereby creating $900 of new money from nothing.

The US average loan to deposit ratio sits around .8. SVB is at around .45.

Loan to deposit ratio is orthogonal to reserve ratios, which is orthogonal to capital requirements.

It’s not that banks are loaning out more than their deposits that creates new money, it’s that they are loaning out money _at all_ that does.

Re: Bank run on Silicon Valley Bank

#736

Post by chii »

riskneutral wrote: post #538
bagels wrote: post #229

In retrospect, it seems pretty bad to bank somewhere that is tied to one industry for precisely the reason that when the industry starts facing trouble, the money disappears, and doubly so for our risky industry.

> In retrospect, it seems pretty bad to bank somewhere that is tied to one industry for precisely the reason that when the industry starts facing trouble, the money disappears, and doubly so for our risky industry It's baffling that banking regulators in the US allow such a racket to exist in the first place. It would be as of "Silicon Valley Insurance Co" were to insure every home in the Bay Area and no other homes…

> in an earthquake prone area.

which is why insurance companies generally don't insure against earthquakes. The gov't doesn't need to come and nanny the company to tell them not to do something.

These specialty banks like SVB are servicing accredited entities, who should have enough sophistication to know what risks they are taking putting enormous amounts of deposits into a single bank.

Re: Bank run on Silicon Valley Bank

#737

Post by ptero »

redwood wrote: post #712
Danieru wrote: post #572

Earlier quoted context omitted.

It costs what, a transfer, a bit of explaining to the accountants, and a few days lost interest, to protect your company if SVB pulls through. If you risk it and SVB goes into receivership: you might fail to make payroll. You might not have money for the taxman. You might default on liabilities. These are not balanced risks. Any executive which does not pull their company's money to surefire safety is being negligent…

It's musical chairs once the panic sets in... that's why folks are trying to discourage panic. Another bank will likely swoop in, probably no need to panic

Musical chairs for assets currently in SVB or at other banks?

If SVB, it is probably too late to stop it, that game has already started and once a bank run starts only a miracle (or a powerful external actor) can stop it. If other banks I do not see a risk of contagion. And should the contagion spread to major banks feds will certainly step in (to save our core banking system, blah blah). My 2c.

Re: Bank run on Silicon Valley Bank

#738

Post by asimpletune »

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.

Yeah, this is how it's similar to silvergate. The main issue silvergate had was a lack of diversification of their liabilities, I.e. their depositors were all crypto. So when crypto hit a liquidity crises, it cascaded to silvergate. The same thing could theoretically happen to SVB, although that would look very bad on tech, since tech shouldn't really be an industry unto itself. Ideally, tech is just technology, and its application is across any industry.

Re: Bank run on Silicon Valley Bank

#739

Post by Retric »

asimpletune wrote: post #734
Retric wrote: post #465

Earlier quoted context omitted.

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.

> So market value is only relevant if they need to sell before maturity. Which is exactly what needs to happen when depositors ask for their money back.

Not typically.

Banks generally have liquid reserves to handle significant fluctuations in deposits. If that’s insufficient they have incoming cash flow and the option to borrow money to make up the difference rather than instantly selling assets.

Thus in practice extracting 5% over a week is fine but there’s a threshold that will kill any bank.

Re: Bank run on Silicon Valley Bank

#740

Post by somedude895 »

senttoschool wrote: post #645
dmix wrote: post #541

Earlier quoted context omitted.

https://www.youtube.com/watch?v=KIh6NEBL8BU Edit: the video was relatively optimistic given the subject matter, at least for bank customers, not the owner. Assuming there's a market for buyers in such a case. I'm curious if and how the "secret online bidding process" the FDIC runs to find bidders doesn't leak out to the owners of banks. It's possible the banker in the photo heard about it via word of mouth when it wa…

The end of this video is the juiciest part: Maybe we shouldn't allow mega banks like BoA, Chase, etc. to exist because they pose systematic risk to the economy and have to be bailed out by tax payers if they fail.

The narrative that tax payers essentially gifted money to the big bad banks and evil investors is plain wrong. Most of the bailout money the large financial institutions like BoA or Chase received was ultimately paid back. Also what's often conveniently forgotten by the Occupy Wall Street crowd is that many pension funds also got bailed out.
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