Silicon Valley Bank has failed
- Thread starter twenty02
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There are no words for how much I love the business card scenes
You know that’s a really good book too
Everyone knows Mrs. Hathaway ran things.
My lbs are increasing fast this year. Kids, stress, no time for sleep let alone working out
No because the same principles of finance apply. The only way you make money is asset appreciation vs buying an asset that generates cash flow.
Yep. In a flight to quality, investors sell riskier assets and buy less risky assets (treasuries, JGBs, gold).
Here's a good take. Hedging (an obvious and important risk management tool for banks) was not used by SVB.
Alfonso Peccatiello on LinkedIn: #svb #siliconvalleybank | 390 comments
SVB not only did some horrific risk management, but there was also a big moral hazard at play. Let me explain. As a result of LCR regulation, banks all over… | 390 comments on LinkedIn
That’s why banks hedge (!) the lion share of the interest rate risk coming from their HQLA investments.
The problems with SVB?
SVB had a gigantic investment portfolio as a % of total assets at 57% (average US bank: 24%) and 78% was in Mortgage-Backed Securities (Citi or JPM: around 30%) and most importantly they DID NOT hedge interest rate risk at all!
The duration of their huge portfolio before and after interest rate hedges was…the same?!
Effectively, there were NO hedges.
This means SVB was not applying basic risk management practices, and exposing its investors and depositors to a gigantic amount of risk.
Economically speaking, a $120 bn bond portfolio with a 5.6y non-hedged duration means that every 10 bps move higher in 5-year interest rate lost the bank almost $700 million.
100 bps? $7 billion economic loss.
200 bps? $14 billion economic loss.
Basically the entire bank’s capital wiped out.
Would that have been different if they were subject to the old Dodd Frank scrutiny with their "stress tests"?
I’m not boring enough personality-wise to know all of the compliance requirements.
I'm surprised. Could have fooled me.
Just think, a supposed tough regulator and banking committee legislator backed and advised (as a fiduciary) this joke of a bank
It's quite likely there only thing CO.H understands about this is that it happened with a Democrat in office.
I'm going to assume, no. Barney Frank was on the board of one of the banks that failed 😬
Advocating for more insurance... what a world!
The problem lies where depositors are effectively acting as creditors, but unable to conduct appropriate due diligence on a bank to understand the risk.
A
anon_6hv78pr714xta
Guest
The development of insurance was a good thing for society and still is. But yes, it is not costless.
Talk about bad looks:
Barney Frank Pushed to Ease Financial Regulations After Joining Signature Bank Board
The former congressman and co-sponsor of the Dodd-Frank bill says there is no evidence that the change enabled bank’s failure.
www.wsj.com
He didn’t register as a lobbyist, but appeared frequently on television and in opinion pieces and newspaper articles to weigh in on the 2018 plan to roll back pieces of his namesake bill.
He told The Wall Street Journal in 2017 that the $50 billion threshold in Dodd-Frank was “arbitrary” and “seemed like a much bigger number” than it was.
And in a March 2018 op-ed for CNBC, he wrote that the limit was “a mistake” and that a higher amount—he suggested $100 billion—“could in fact provide a more competitive environment, lessening, even marginally, the foundation of the mega banks.”
Shhhhhhhhh...some of us have liberal arts degrees a-hole.
Concur. And costs are the good years of any claims adjuster.
(Gen X + Claims Adjuster) = the most jaded people in history
Frank suggested an increase from 50 to 100. They jumped it to 250. His own bank would have still been covered.Talk about bad looks:
Barney Frank Pushed to Ease Financial Regulations After Joining Signature Bank Board
The former congressman and co-sponsor of the Dodd-Frank bill says there is no evidence that the change enabled bank’s failure.
He didn’t register as a lobbyist, but appeared frequently on television and in opinion pieces and newspaper articles to weigh in on the 2018 plan to roll back pieces of his namesake bill.
He told The Wall Street Journal in 2017 that the $50 billion threshold in Dodd-Frank was “arbitrary” and “seemed like a much bigger number” than it was.
And in a March 2018 op-ed for CNBC, he wrote that the limit was “a mistake” and that a higher amount—he suggested $100 billion—“could in fact provide a more competitive environment, lessening, even marginally, the foundation of the mega banks.”
Dude, I have standards.Always pegged you as a SPEA guy
Not high ones, but still.
Yep. Never fail to take advantage of a crisis.
One party uses the crisis to do the "right thing", and the other party uses the crisis to authorize new spending.
Nope, my guess is the outcome would have been the same. But depositors would have had more information on which to make a decision whether to deposit their funds there.
That said, I'm not a fan of mark to market rules. It's only an accurate depiction of an asset bases' value temporarily - a snapshot - not a realistic depiction of the overall asset bases' value over time. It can reflect liquidity . . . but not value.
Perhaps requiring mark to market rules as part of a 10K would be a good idea, to reflect a company's liquidity, which is a factor in determining the company's current valuation.
You're right. I guess I'm too used to thinking in terms of classical economics to understand the appeal of Bitcoin. If the dollar collapses, I may see Bitcoin more clearly of necessity. It may be the only viable currency left.
How can this happen? The debt ceiling standoff is a good start.
Interesting. I just assumed at some point I’d give my bitcoin to my daughter to use on Minecraft or something
That plus the failure of SVB makes rate increases less likely by the FED. How the FED sees the dynamics of the failure of SVB and the failure's impact on inflation will help determine the frequency, size and duration of FED rate increases.
Then they'd be accused of profiteering off the bank operations and the "system" being rigged in their favor.
They can't win; goes with the territory.
Jamie is probably right, though; the debt ceiling will get raised.
The question is what is the appetite for more US government debt? Investors might be less interested these days than they have been for the last 40 years.
I acknowledge that values change considerably (why I'm against taxation of paper gains vs. capital gains). But in this case, MtM would have demonstrated that SVB had liquidity problems. It may not have changed anything, only precipitated the run on the bank sooner.
I do also recognize that MtM accounting creates a host of outcomes, favorable and unfavorable. On one hand investors get access to more timely liquidity and current balance sheet values. On the other, I presume it can create some major gains and losses rather quickly, which are detrimental to stability.
Don't under rate yourself. 🤣
This mess shows me one thing... the Safe and Sound ratings are no better than a coin flip. I was just reading that First Republic May be the next bank to fold and I looked up their Safe and Sound rating and guess what.... they get an A.
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