Why is there no disincentive? SVP management are out of a job and the owners (shareholders) lost something like $20B in equity value. Seems like a disincentive to me.
Silicon Valley Bank has failed
- Thread starter twenty02
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Why is there no disincentive? SVP management are out of a job and the owners (shareholders) lost something like $20B in equity value. Seems like a disincentive to me.
To go the numbers of bank failures:
Years | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Bank Failures | 4 | 11 | 3 | 4 | 0 | 0 | 3 | 25 | 140 | 157 | 92 | 51 | 24 | 18 | 8 | 5 | 8 | 0 | 4 | 4 | 0 | 0 | 2 |
Total Assets (Millions) | 2,358.6 | 2,705.4 | 1,045.2 | 163.1 | 0 | 0 | 2,602.5 | 373,588.8 | 170,909.4 | 96,514.0 | 36,012.2 | 12,055.8 | 6,101.7 | 3,088.4 | 6,727.5 | 278.8 | 6,530.7 | 0 | 214.1 | 458.0 | 0 | 0 | 319,400.0 |
I think you are exactly right.
My son-in-law trades bonds for a major bank. He graduated IU in 2016, so all he's ever known are 0% interest rates. I tried to talk to him one time around 2 or 3 years ago about how deficit spending was going to cause problems down the road and started talking about M1 and all that boring shit. He looked at me and - honest to God - said "That doesn't apply any more.". I think my mouth just fell open - I didn't know how to respond. Now this is a smart kid - Wells Scholar.
So yeah - I think most thought 0% interest rates were here to stay.
Since when is it illegal to run a business poorly and go bankrupt?
When you are regulated by the government and you cost investors and depositors millions.
I've been at a competitor of those banks . . . Keybank particularly before they expanded west. I hear you. Competition to try to become a regional monopoly . . . .
I noticed that Fifth Third was #17 on your list . . . any insight regarding those folks?
When it's your money or investors money you've gotten through appropriate disclosures, it's not and shouldn't be illegal. But with the FDIC, all we've heard all our lives is that your accounts are safe . . .
. . . until they aren't. $250,000 ought to cover "losses", but not on accounts that are kept for payroll . . . in that case, someone ought to be looking at jail time. Either the banker or the company keeping payroll monies in an underinsured, at risk account.
Then there's that little business about selling stock right before the shit hits the fan.....
JDB, this documentary (with which you might find faulty) explains it better than I can.
Jail time for a failed bank?
At what point does all lending dry up then, if taking on any loan risk not only opens you up to losing your job but also going to prison?
Can't financial advisors go to jail for not performing their fiduciary responsibilities?
What's the difference?
And then there's the bonuses right before the lights go off.
Yeah, usually in these situations, it's not straight-up incompetency. There's usually some hanky-panky going on.
I would tend to agree. Do they need to go to jail? Probably not. Do they need to be held personally liable? Still really sticky.
I can see Twenty's point that we don't want to kill the golden goose (let's face it, it's been pretty damn good so far) but walking away with 20 milllion instead of 60 million hardly seems a penalty.
If the bank has to act like a fiduciary - and I don't know if they do - then they should go to jail if there is a hint of personal gain by bailing out when the ship is sinking.
I agree, it's a fine line, but people don't start to pay attention until they're faced with potential prison time. And even then, many will take the chance.
From what I've read they only had one person on the board with banking experience (and apparently none with common sense).
I tend to disagree. To me there are degrees of being reckless and after a certain point people need to go to jail and held liable. From what I have read the people at SVB were not even thinking about risks.
Two years ago if you had $500,000 to invest in CDs would you have put it all in long term CDs paying 1 to 2%? Nobody in their right mind would do something like that.
yeah, i'm not smart enough to understand any of it relative to what investments might be smart (Dogecoin anybody?).
There's a ton of grey area here but I agree that smart people, well versed in this field, should be able to look at a situation and make a determination of whether or not the bank was acting with some kind of gross negligence (a line which can probably only be determined through years of regulation and litigation).
It's not, but it is illegal to inaccurately mistate the operating condition of your business, all while profiteering with inside information ahead of a collapse of epic proportions.
Greg is a blackeye for Kelley and Indiana as far as I'm concerned and I hope he gets hit with civil and possibly criminal cases.
I haven't read through its filings and statements (nor do I plan to), but I'll be shocked if there weren't gross mistatements and misrepresentations.
the failures in 2008 had enough outright fraud involved, that people absolutely should have gone to prison.
as for SVB, we don't know everything yet, but if insider trading was involved in stock sales, that is cell worthy.
not everyone was getting 0% money.
Joe Citizen and small business was paying 13-20+ percent for money the banks they were borrowing from were getting for almost zero percent.
and doing so because of monopolistic collusion price fixing in the card market.
what a racket to get that kind of markup while never having to stock one shelf or ship anything.
that said, what's really sad about the rate increases by the Fed and that idiot POS Powell, is that the increases were done in the name of fighting "inflation", when the price gouging going on had little to do with Fed rates, or even easy money for some, and a lot to do with effective monopolies and monopolistic practices, ie lack of market competition, by industries driving the price gouging feeding frenzy.
since the media and much of big tech are heavily monopolized both horizontally and vertically themselves, and much of their ad base are monopolies, they spew and amplify the false narrative regarding the real source of the price gouging, since anti trust is the last thing they want anyone looking into.
needless to say, it wasn't personal. just business.
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Did I say that? Where?
What I said was that somebody screwed up really badly and ought to go to jail. Here's what I said, in pertinent part:
. . . in that case, someone ought to be looking at jail time. Either the banker or the company keeping payroll monies in an underinsured, at risk account.
I still think that. Neither the banker nor the company keeping payroll monies in an at risk account is a fiduciary. Why not? Seems to me that they ought to have fiduciary obligations with respect to depositors. They're looking for someplace safe to park their money . . . that's the reason they put it in a bank.
Instead the depositors can only to rely on a governmental bailout . . . which likely ain't gonna be offered to the next bank to go under.
Absent that, they'd only have an iffy lawsuit to file . . . most likely in bankruptcy court. Whoop-to-do.
I don't have much interaction with 5/3. Their IB and leveraged (sponsor) finance group was gutted during the financial recession and early 2010s. I've heard they were more active and aggressive in 2021-2022 building up the loan book in the middle market, which makes sense given the asset jump from 2018 to 2020 (nice market share gains).
I see the stock is down 30%+ since March 7, but looking at their earnings history, it's been a pretty solid, stable bank from what I see.
What I think JDB was trying to say - and I don't want to put words in his mouth - is that Democrats passed the Dodd-Frank legislation to tighten the regulatory controls over banks and their investment practices. Then in 2018 Congress repealed those controls . . . while staring at a potential sweep by the GOP in the midterm elections . . . with at least one of the authors of the legislation lobbying against its application to SVB. smh
BTW, I got this information from the Frontline program you linked.
That may well be accurate...I haven't read enough about the specific circumstances here. Not sure what was materially misstated. Seems the insolvency condition was reported in accordance with GAAP rules, when it came to the HTM bonds.
Insider trading, different animal entirely and I imagine would be at least investigated.
Think both JDB and I would love to see you replace Elizabeth Warren on the Senate Banking Committee.
As I recall you had a mole within the banking industry during the 2008 banking crisis in the form of a friendly female employee at a Wells Fargo bank.
Here's my question. Everyone knew interest rates were going to be going up. Someone like me never would have thought about how that might hurt a bank's balance sheet. The difference between face value and mark-to-market is something I learned about in this thread. But I get the impression there should have been people at SVB who understood this stuff. So, like I said, a question: What could/should they have done? Would it have been possible to dump some of their bonds at a much smaller loss early on, and then reinvest that money in new bonds as interest rates went up? Or maybe changed investment strategies altogether to try to hedge against their bond-heavy exposure? Or were they pretty much screwed the minute inflation started going haywire?
They should have bought interest rate swaps from the start... basically insurance from other banks.
Or just lowered their duration exposure across their entire bond portfolio.
Probably some combination of both.
I'm too drunk after watching such a great evening of basketball to write my own post, so here is this..
Interest Rate Swap: Definition, Types, and Real-World Example
An interest rate swap is a forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount.
I sure don't know all the details and how to manage all the risks but from what I've read I would have known better than to do what SVB was doing and that was having a lot of their money invested in long term bonds. They were investing as though interest rates would always be low and that they could pay the consumer next to nothing as far as interest rates were concerned. What percentage should be short term and what percentage should be mid and long term is where I have no idea what should be done.
I do know that I've read for years that if you, as an investor, have money to invest and want to invest in CDs that you should ladder them. For example, buy 1,2,3,4, and 5 year term CDs and when the 1 year term CD matures you invest it in a 5 year CD. I've not always done that because I'm willing to gamble sometimes and bet long term. However, I recently cashed in some CDs where I had guessed wrong and paid the early withdrawal. penalty because I could pay the penalty and still come out ahead.
It’s up 36% for the week. Maybe the Texan knows a little more than you? I assume he always had better grades in preschool🤣
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