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Bank run on Silicon Valley Bank

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Re: Bank run on Silicon Valley Bank

#771

Post by imtringued »

ta1243 wrote: post #443
regpertom wrote: post #433

Earlier quoted context omitted.

How could they issue loans? 10 x 10$ deposits means you can loan 100$? Where as the modern way is more like 100$ in deposits means you can lend out 1000$ because chances are everyone won’t not pay it back? And then can’t you say that since you’ve lent out 1000$ and chances are you’ll get paid back, you’ve basically got 1104.56$ and so can lend out 10k$? And then you bundle those together and sell them to each other d…

Doesn't stop a run 10 people put $10 in your bank. You give someone a loan for $50 and leave $50 in the vault. 7 of your customers take $10 out, you are screwed.

This doesn't apply to certificates of deposit as depositors agree to not withdraw their money until a specified point in time.

Re: Bank run on Silicon Valley Bank

#772

Post by imtringued »

danielmarkbruce wrote: post #544
astrange wrote: post #537

Earlier quoted context omitted.

Employees will take risky stuff like equity as payment, but the IRS won't take it for their payroll taxes.

The number of employees who take equity as a significant portion (>50%) of their comp rounds to zero.

I wouldn't want to get paid in equity if the IRS didn't accept it for tax payments either. If you accept 100% of your compensation in equity you are bankrupt because you can't pay your taxes.

This is a chicken and egg situation.

Re: Bank run on Silicon Valley Bank

#773

Post by calderknight »

3np wrote: post #339
notch898a wrote: post #313

Earlier quoted context omitted.

My anecdotal experience is jokes/poorly supported takes get downvotes. If you want to get flagged, the best way to do that is to make an irrefutable strong argument that ruffles political or economic feathers of a popular ideology on HN. There's nothing that enrages people here more than an unpopular but sound argumen they don't like, so they flag it to make it go away. If they can quickly disprove you or make you to…

Please link examples.

https://news.ycombinator.com/item?id=34242491

Re: Bank run on Silicon Valley Bank

#774

Post by nemo44x »

asimpletune wrote: post #767
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…

No doubt but my concern is that it spreads and suddenly healthy organisms begin collapsing because whoever they relied on is suddenly insolvent because of who they relied on, etc.

Re: Bank run on Silicon Valley Bank

#775

Post by Danieru »

makomk wrote: post #705
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…

This doesn't work either. Remember, the reason that the market value of the T-bills in their reserves has dropped is that the interest rate on them is lower than the current interest rate that people can get by buying them now, so the bank likely cannot afford to pay their customers a market interest rate of 1% below that. The only way for the hold-to-maturity value of their reserves to actually be realised is if cus…

You nailed it I think.

Right now there will be a lot of chatter if the root cause was industry concentration, mark to market, junior VCs scaring gulible founders, or as you pointed out: duration risk.

I think in five years the common narrative will be about duration risk.

To spell out what you hinted at: SVB will collapse at some point in the next few years. The only scenario they survive is if they survive this bank run, and then soonsih the fed lowers interest rates by a ton.

Otherwise even without this bank run SVB will still slowly be forced to sell off more and more HTM assets. Core reason being they cannot cashflow wise offer market rate interest on deposits. Clients _would_ move their money to better paying banks, not everyone but too many.

Thus this bank run only accelerates the inevitable. The interest broader note is how other bigger banks have or have not managed their exposure to duration. And special eyes towards the Japanese MegaBanks, double so if the bank of Japan does raise rates.

Re: Bank run on Silicon Valley Bank

#776

Post by brutusborn »

selimthegrim wrote: post #703
brutusborn wrote: post #595

Earlier quoted context omitted.

I must have missed this one in my Inbox - I look forward to it too haha But to be serious, I'm not arguing that the Islamic system is "better", just that it removes certain risks that unrestricted lending cause. I don't think the solution is to ban lending but instead to be aware of the risks and make sure your regulation and enforcement is adequate. I hate knee jerk dismissal of alternative policies, so I felt I nee…

Believe me I wish there was no hunger in those places too

I definitely misspoke there: I meant that they have no debt and no mass starvation. I’m aware there’s a lot of poverty in the Islamic world, but it’s not because Usury is illegal.

Re: Bank run on Silicon Valley Bank

#777

Post by ticviking »

notch898a wrote: post #239
stickfigure wrote: post #233

Earlier quoted context omitted.

What you've just created is a world in which the only people who can afford to buy a home are people with rich families they can borrow money from. Congratulations, you've concentrated wealth in even fewer hands.

Low interest rate debt turned housing into a lending arms race to see how deep you can bury yourself. There are other ways. Like buying one brick at a time. It's a real thing in places where access to lending is less common.

I've lived in homes built that way. They're always a little janky, but usually much higher quality overall because they're built for a family and not for quick turnaround.

I know guys who are literally growing the timber for their dream home while they live in a singlewide. Lifestyle inflation in the USA is caused in large part by access to this easy debt, and it routinely ruins people in the bottom half of the income distribution.

Re: Bank run on Silicon Valley Bank

#778

Post by itsthejb »

blippage wrote: post #726
MengerSponge wrote: post #576

Earlier quoted context omitted.

It's really amazing that both Thatcher and Reagan came to power at around the same time, delivered such fabulous witticisms, and caused very similar societal harm.

One thing I noticed is that political thinking tends to come in waves. Not just for countries individually, but globally. Sure, there are plenty of exceptions, but each age seems to have its own zeitgeist in the world's collective consciousness. Currently, for example, there is Wokeism in general, with particular emphasis on transgenderism. Transgenderism only "affects" a very small percentage of the population, nobo…

Isn’t this just evidence of the Overton Window? The amount of promotion needed to push any particular cause is significantly lower than people intuit. And following on from this, once that cause has hit the mainstream, the amount of coverage it gets leads to people further overestimating its true significance. After that point it just snowballs

I think what we’ve discovered is that, thanks to the Internet, that’s a strategy that’s significantly easier to employ than ever before. In the past ups at least need to have mainstream media outlets onboard. Nowadays you can do that with a hashtag

Re: Bank run on Silicon Valley Bank

#779

Post by spaceman_2020 »

senttoschool wrote: post #642
spaceman_2020 wrote: post #551

Earlier quoted context omitted.

This is the point where you realize most modern startups are built on the same shaky promises as crapto.

What? Not even remotely the same.

"our unprofitable startup that sells to other unprofitable startups which is also coincidentally funded by the same VCs and needs annual cash infusions just to pay the bills is surely built on strong financial foundations, unlike all those pesky crypto companies that sometimes actually make profits".

Re: Bank run on Silicon Valley Bank

#780

Post by amluto »

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…

There’s duration in the sense of borrowing short and lending long, and there’s duration in the sense of taking on the corresponding interest rate risk. The US model of fixed-rate mortgages is a bit of an oddity — banks will often lend long with adjustable-rate instruments.

If a bank has $100 of deposits and has lent out $90 on a 30-year adjustable rate basis, the bank is exposed to potentially liquidity issues, default risk, and second-order effects like changes in the yield curve. But if the bank lends that $90 as a fixed rate mortgage or buys a 30-year T bond, they are directly exposed to interest rate changes.

(Also, as I understand it, and this is far outside my expertise: banks usually try repackage their debt and sell it to investors. The banks presumably can’t carry those 30 year fixed mortgages on their books without accounting for interest rate risk. Why are T bonds special?)

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