The collapse of SVB exposes the largest crack in the economy
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Re: The collapse of SVB exposes the largest crack in the economy
#2SVB used an exemption from Basel III, which allowed it to run a riskier business, and eventually led to its implosion.
Basel III was introduced to force banks to be more conservative, and thus more safe. Downside: this also means bank is going to be less profitable.
European banks were forced to implement Basel III, while the US bankers managed to lobby a loophole for certain types of banks. And sure enough, SVB leveraged this loophole.
For those interested, FT Alphaville describes this in ample detail:
Silicon Valley Bank is a very American mess https://on.ft.com/3ywMURD
Re: The collapse of SVB exposes the largest crack in the economy
#3https://twitter.com/DavidSacks/status/1634292056821764099
Looking at the comments here, it's possible that this may trigger a run on banks.
Re: The collapse of SVB exposes the largest crack in the economy
#4https://twitter.com/DavidSacks/status/1634292056821764099 Looking at the comments here, it's possible that this may trigger a run on banks.
There is no evidence of this
Re: The collapse of SVB exposes the largest crack in the economy
#5https://twitter.com/DavidSacks/status/1634292056821764099 Looking at the comments here, it's possible that this may trigger a run on banks.
Why?
My money at VMFXX is almost entirely composed of safe Fed Repos with average maturity of 2-weeks. VUSXX is mostly Treasury Bills, again of maturity averaging like 2-weeks. My money at SWVXX is composed of AAA-rated bank notes, of similar 2-weeks-ish maturity average.
The idea of a bank, like SIVB, being composed of largely 30-year mortgages and 10Y or 30Y Treasury Bonds is insane. The bank deserves to die after taking such high duration risks. There should be _NO_ bailout. I can barely believe a bank was so stupid to keep customer deposits backed by something so risky.
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We've been preparing our financial system for the last 15 years (since 2008) for the next financial storm. We've got "stress tests" to see that various banks have severed contamination between each other, at least in theory. Lets see how good our preparations have held up.
No point giving up and bailing things out before we've even tested our new financial system regulations. We can afford to let some banks go under. Only if the contagion has a chance of spreading everywhere should we consider the last-ditch effort of a bailout.
Re: The collapse of SVB exposes the largest crack in the economy
#6https://twitter.com/DavidSacks/status/1634292056821764099 Looking at the comments here, it's possible that this may trigger a run on banks.
As a rule let's not use Twitter comments as indicators of anything, but most I see seem to either be enjoying the chaos or confused as to how SVB's bad decisions leading it to fail will lead to other banks failing.
Re: The collapse of SVB exposes the largest crack in the economy
#7https://twitter.com/DavidSacks/status/1634292056821764099 Looking at the comments here, it's possible that this may trigger a run on banks.
Is that universally a bad thing? Are all US Banks so thinly capitalized that none of them could survive a run? If so, then doesn't that make one question why you'd ever keep money in a Bank in the first place?
I get that the FDIC insurance is supposed to make you whole as long as you have less than $250K in a bank. But then you have to ask if the FDIC can actually cover that for several banks at a time - particularly at a time when the debt ceiling has not been raised and so Treasury can probably ill afford additional unplanned spending.
Re: The collapse of SVB exposes the largest crack in the economy
#8https://twitter.com/DavidSacks/status/1634292056821764099 Looking at the comments here, it's possible that this may trigger a run on banks.
The subtext here is David Sacks and his friends are investors in Silicon Valley companies. Lots of Silicon Valley companies are depositors of SVB and could lose money if there is a haircut on assets over $250k, or at least will lose temporary access to their cash. David Sacks wants SVB to be bailed out by a major bank so those deposits are made good. He’s talking about a wider economic impact because that’s an argument that such a bailout is necessary for the country, not just local VCs.
Re: The collapse of SVB exposes the largest crack in the economy
#9> A 10Y T-Bill purchased on the first trading day of 2021 is now worth less than $0.80 on the dollar
Just one note for those that aren't fully aware, the treasuries were only down approx 20% because they were forced to sell before the 10yr maturity. If they could have held the entire term they would get back 100%.
Re: The collapse of SVB exposes the largest crack in the economy
#10So between the tech angle and the housing-related investment vehicles, are we remixing 2000 with 2008 now?