801–810 of 889 posts
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Please don't post flamebait and/or unsubstantive comments to HN. We're trying for something different here. If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html and taking the intended spirit of the site more to heart, we'd be grateful. (We detached this subthread from https://news.ycombinator.com/item?id=35087135 .)
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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…
For most banks, it is fine to assume a 20 year deposit window because deposits are fungible and for most of recent history deposit bases have gone up.
SVB was wrong for not assuming that the 2021 deposit spike was (in hindsight obviously) a short term blip, but you can look at their loan book on page 19 of [0].
It's not immediately clear to me that there's some sort of systemic risk in VCs/PE firms not paying back their loans, but given how circular the tech ecosystem is, maybe we get there.
[0]https://s201.q4cdn.com/589201576/files/doc_financials/2022/q...
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> “Every banker knows that if he has to prove that he is worthy of credit, however good may be his arguments, in fact his credit is gone.” Is that terribly worded or is it just me? I figure it’s supposed to be poetic but I find it tedious. I think it could be simplified like this: “A banker who argues his creditworthiness has none.” I realize it’s a quote but holy shit.
I find "creditworthiness" to be an exceptionally inelegant turn of phrase.
I figure you’re just being snarky but still.
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> 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.
I'm not sure where you're getting this information. Natural disasters, including earthquakes, are perils that can definitely be insured. This is possible because the regional insurers can buy catastrophe reinsurance to protect the insurance company from extreme losses that are beyond the company's ability to absorb. I don't know much about earthquakes, but in Florida hurricane / flood insurance is heavily subsidized by the government in order to make home ownership affordable / possible in coastal areas.
Insurance is a highly regulated industry. The government regularly comes to "nanny" insurance companies and tells them what to do on a daily basis. So, again, I'm not sure what you're trying to say. The regulator in the US is called NAIC, it's the insurance equivalent of the Fed for banks in the US.
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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 requi…
Bonds carry risk. The value declined, thus they don’t have the money. If the bond issuer defaults then they wouldn’t receive money back on any timeline. Thus calling it a duration mismatch is misleading. More accurately, they took on a level of duration and credit risk, and it didn’t pay off.
Their portfolio only had an unrealized loss, if they held they would have been whole. They were forced to sell long duration assets before they matured.
This is the very definition of a duration mismatch. Short duration money got called back while the long duration money was below par. if they could hold the long duration to maturity they would be whole with no losses.
Not sure what I'm failing to explain.
SVB is our bank, I got in touch with a member of the senior team there and got the following message to share. (My own interpretation is I'm comfortable and I'm not planning to pursue it further at the moment): As you know, we are limited in what we can share until the transaction formally closes next week but in the meantime I’m attaching concise information on the strength of our business, based on our recent mid-q…
>Moody If the subprime crisis taught us anything it was that ratings go for marginally usefull to utterly useless the second sht gets real and there is actual stress in the system
The problem in 2008 was that splitting an investment into a senior "low-risk" one and a higher-risk one led to higher ratings overall than the initial investment warranted. Do you have any evidence that something like this is happening here, or that this is a systemic problem?
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Tell me, when is the last time you went to the grocery store and they accepted a bank reserve? Bank reserves are useless. https://en.wikipedia.org/wiki/Eurodollar
People downvoting you are clueless. Different assets have different moneyness depending on how they can be used. A credit card limit is more moneylike than bank reserves are.
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I’m not saying the T bond is useless. I’m saying that the fact that it’s nominally worth a specific amount in the future if I hold it is useless. This has nothing to do with liquidity. If I had a 0 interest, $100 T bond maturing in 30 years, I cannot sell it today for $100. But anyone who lent me $90, nonrecourse, using it as collateral and asking for only a moderate profit is nuts because this bond is not worth $90…
> this bond is not worth $90 Not to a retail investor looking at short term returns (and irrationally obsessed with Inflation! due to media consumption), but to a bank with regulatory deposit requirements and a longer term outlook? Seems not unreasonable. Anyway it doesn't have to be worth the full face value. It just needs to be worth enough to back a short term loan big enough to honor current withdrawal demands.
I wonder if this is the problem.
> to a bank with regulatory deposit requirements and a longer term outlook?
Maybe with some generally accepted accounting principle, but not by any sensible business standard.
If that bond trades for $80, no one would buy it for $90. It’s worth $80. Similarly, if you already own it, it’s not magically worth more.
And if you are a bank with a long term outlook, you expect interest rates to hold near current levels, and you pay 4.5% APY to depositors, your long term outlook of paying 4.5% to deposits where that deposit money is locked up in a very safe bond earning 1.8% APY, you are losing a lot of money, very safely, in the long term. Almost exactly as much as you would lose by booking the loss right away and investing in something else.
Other than tax or regulatory arbitrage, complex accounting is no substitute for actual profits and losses :)
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Well sure, but one could theoretically imagine banks which are prohibited to lend money from their customers' current accounts and only make loans based on their CDs - and one aspect of that is that they'd have to offer much better terms for CDs since they would be in much higher demand.
> and one aspect of that is that they'd have to offer much better terms for CDs since they would be in much higher demand. Why? CDs are insured by the FDIC. That gives people the same amount of confidence in all CDs no matter what bank they get them from.
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Please link examples.
I found various examples of notch making "ancap" arguments and getting flagged. They're examples of comments getting flagged due to their expression of unpopular viewpoints, although frankly they were lacking in quality argumentation so they're not the greatest examples of his point.