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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#761

Post by stocknoob »

cj wrote: post #491
borski wrote: post #477

Earlier quoted context omitted.

This is literally the definition of fractional reserve banking, used by almost every bank worldwide.

You're right, but that doesn't necessarily make it a good thing. As a consumer (or a business client in the case of SVB), how does it benefit you that the bank doesn't simply hold your deposits in a figurative safe somewhere? At a minimum, I wish I could say it benefits us by banking being free. Lending could be opt-in. There could exist banks who charge a premium for simply being the custodian of your money. (These…

You’re looking for a brokerage.

Re: Bank run on Silicon Valley Bank

#762

Post by amluto »

asimpletune wrote: post #733
amluto wrote: post #483

Earlier quoted context omitted.

> 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.

> This is just a brief moment of high interest rates

You are welcome to make that bet for your personal finances or on behalf of your company. You should not make that bet with someone else’s money unless they have signed up for it.

Re: Bank run on Silicon Valley Bank

#763

Post by dmix »

somedude895 wrote: post #740
senttoschool wrote: post #645

Earlier quoted context omitted.

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.

Ironically the only consequences after 2008 was new banking rules which shuttered hundreds of small banks and reduced the market even further to 5 mega banks, who could much more easily handle the new requirements that were designed for large banks but applied equally to all bank sizes.

These calls for regulations always seem to result in that sort of thing happening.

They didn't really want "too big to fail" laws they wanted "don't ruffle the status quo, even if it harms the market long term".

In the Youtube the FDIC selling a 50yr old small independent bank to a $9 billion dollar megafirm was the real message of the video. Even if that bank was ultimately at fault for engaging in the gov-incentivized mortgage bonanza, in the years following the new rules plenty of other healthy smaller banks got swept up by bigger banks when the rules made them infeasible businesses.

Re: Bank run on Silicon Valley Bank

#764

Post by asimpletune »

acd wrote: post #714

The higher central bank interest rates is affecting Future discounted cash flow and valuations startups. I wrote a blog entry about it last year where I predicted a lot of non profitable startups would be effected about it. The king without clothes fairy tale of startup unicorns is starting to hit reality of financing capital at high interest rates. Many startups have not had sound viable business models which yields…

Can you share your blog entry?

Re: Bank run on Silicon Valley Bank

#765

Post by owenmarshall »

dkrich wrote: post #678
CGamesPlay wrote: post #674

Earlier quoted context omitted.

But isn't this the point of FDIC? Even if SVB becomes insolvent, your account value is insured by the federal government? I'm not very familiar with all of this, so please help me understand what I'm missing.

Up to $250k

Adding on to this as explanation for GP:

Funds over the FDIC limit aren’t just surrendered; instead, you become a creditor to the failed institution. The FDIC works to recover those funds - good loans are sold to other institutions, payments due are collected, furniture and real estate is sold, the usual.

So a percentage of your money may be paid to you over several years time. Good luck managing free cash flow in the meantime.

Re: Bank run on Silicon Valley Bank

#766

Post by imtringued »

panarky wrote: post #629
femto113 wrote: post #506

Earlier quoted context omitted.

HTM accounting isn't the problem, it's one tool among many and has its uses. SVB's mistake was buying long term paper just as the country was heading into a rising rate environment. This has already put them in a hole they probably can never dig themselves out of (selling stock is clearly not gonna work). I think the only non-disastrous path forward here is an acquisition by another bank big enough to just absorb tha…

Borrowing short and lending long has been the traditional function of banks for hundreds of years. They profit from the interest rate spread between what they pay on short-term liabilities (mainly deposits) and what they receive on long-term assets (usually business or housing loans). It's hilarious that banks serving crypto and startup ecosystems aren't failing because their crypto and startup loans went bad, they'r…

>they're failing because of the duration risk from holding long-term Treasurys on their balance sheet.

That is the number one reason why banks go bankrupt...

It's not hilarious, duration risk is the biggest risk a bank has to deal with and it gets worse the more and more people keep their money as demand deposits. This is why the Fed does QE, the duration of deposits has shrunk so low, that the banks can't buy treasuries as the duration of the treasuries has become too long in relation to instantaneous demand deposits that can switch from bank to bank. The only solution that the Fed came up with, is to do the duration transformation themselves by buying long duration treasuries and giving instantly transferrable central bank reserves with no duration risk. This works because the system as a whole cannot go bankrupt, but individual banks can. If you take your money out of the bank, the CB reserves just get turned into cash. If you transfer between banks, the recipient bank now holds the reserves.

Also, plenty of crypto specific banks did fail because their loans went bad.

Re: Bank run on Silicon Valley Bank

#767

Post by asimpletune »

nemo44x wrote: post #747

So we are a little over a year into this aggressive monetary tightening policy and we are seeing banks begin to appear to fail with base money demand issues like this SVB crisis. This happened in 1930 a year after the crash started and again in 2009 a year after the events of 2008. Fed policy will be interesting in the near term. I know they are fighting inflation but they may have to concede this is a battle that wi…

I think the problem is that inflation is bad for everyone, whereas if rates rise it hurts only the weakest players in the financial system. It's a bit like a controlled forrest burn.

Still though, it's too early to say. If there was a more widespread contagion and a panic, then I guess it could be bad.

To me though the real culprit is the super lower interest rates we had just a few years ago. Without that, we would not be seeing any of this.

Re: Bank run on Silicon Valley Bank

#768

Post by chollida1 »

EVa5I7bHFq9mnYK wrote: post #675
chollida1 wrote: post #11

Shares just fell 60%, not this year, but today, which is the biggest drop I can think of. This is after a $1.25B common stock offering in an attempt to shore up its cash reserves. Keep in mind they are raising cash by selling equity with their shares at $100 when they were at $500 a less than a year ago. That's pawn shop levels of selling. To say they are in trouble is like saying it would be tough to sell a house th…

>> your long duration assets drop alot in value so you can't easily liquidate them That conjecture seems wrong. Sure, 2% 30-y treasuries dropped a lot in value, but you still can easily liquidate them.

When we speak of liquidity in the business its not can you sell your asset, its can you sell your asset without moving the price.

In 2008 you could sell your MBS at any time, it was just for 10 cents on the dollar, that's not liquidity as we use the term.

They sold a chunk of long duration assets for a 1.2B loss because they had to sell them. That's a big loss for the quality of assets they were selling.

That is what is mean by hard to liquidate. Its true you can always sell anything. It's can you get a price that keeps you solvent that is the liquidity issue.

SIVB wasn't selling 2 and 30 year treasuries, they were selling MBS.

Re: Bank run on Silicon Valley Bank

#769

Post by chollida1 »

adam_arthur wrote: post #16
chollida1 wrote: post #11

Shares just fell 60%, not this year, but today, which is the biggest drop I can think of. This is after a $1.25B common stock offering in an attempt to shore up its cash reserves. Keep in mind they are raising cash by selling equity with their shares at $100 when they were at $500 a less than a year ago. That's pawn shop levels of selling. To say they are in trouble is like saying it would be tough to sell a house th…

Re: your duration point, these loans can be sold, either on the open market or a private exchange. Calling it a duration mismatch is a bit misleading. They took on duration risk and their loans lost value is more accurate. Otherwise they would just sell the loans (which they stated they did, but clearly it wasn’t enough thus the equity raise)

I'd say it was a duration mismatch.

Remember my point was it was a 1-2 punch.

1) their duration mismatch their long term assets lost value, this isn't a problem if you can hold to maturity as you'll get all your money back.

2) people flocked to the bank to pull money out as tech went down, their deposits really fell as those companies needed the cash to fund operations and layoffs.

When the demand deposits were required back before the duration of their assets this required them to sell when the assets were already marked down.

Does this make my point clearer?

Re: Bank run on Silicon Valley Bank

#770

Post by imtringued »

geysersam wrote: post #680
somenameforme wrote: post #503

Earlier quoted context omitted.

Especially in contemporary times banks make money in an immense amount of ways that don't involve touching customer funds: debit transaction fees, international exchange rate "adjustments", ATM fees, the million 'special processing fee' type fees, and so on. In other countries I've even had to pay a fee when depositing, which was quite odd. Of course this all is going to pale in comparison to the amount that banks ma…

I don't believe the claim that non-fractional reserve banking would actually slow economic growth. Is real economic growth even determined by anything but technological development? Of course, the economy can be made to "grow" by some slight of hand, like having a high inflation rate while pretending that we don't. Or by depleting natural resources. But that's not the kind of growth we want.

>Is real economic growth even determined by anything but technological development?

That is just the end result, the question is how do you get there? How do you organize an economy to reach that outcome in the most optimal way?

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