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Bank Run

MichDeac25 said:
I'm not in banking but doesn't basically every bank not keep all of its money liquid? As in no bank is capable of withdrawing all of its customers' money in a single day?
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Banks only have to keep so much capital in reserve by law. No bank is beyond failure in theory. The issue here was the duration of the investments into which SVB placed a lot of their capital and what happened to the value of those bonds when interest rates rose. Dumb choice.

And it appears SVB isn't the only financial institution sitting on investments the regulators don't require them to mark to market.

US banks sitting on unrealized losses of $620 billion

www.msn.com
 
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In theory these banks should be able to buy interest rate hedges. They're just greedy so don't and lose. And why would they now that the fed will back up all the depositors.
 
DeacMan said:
I think very little to none of this has to do with Dodd Frank. To my knowledge Dodd Frank didn't make people mark bond investments to market. I'm sure that will be changing. Also, the fact we have regulators saying a few days ago that the rise in interest rates was creating no systemic risk is pretty astounding in light of what has happened.
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As I understand it, Trump lifting Dodd Frank’s $50bn “stress test” threshold to $250bn made all the difference here.

And it’s certainly good Dodd Frank ensured banks would pay fees that will end up covering depositors.
 
TownieDeac said:
As I understand it, Trump lifting Dodd Frank’s $50bn “stress test” threshold to $250bn made all the difference here.

And it’s certainly good Dodd Frank ensured banks would pay fees that will end up covering depositors.
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There has never been anything that prevented banks from mismatching assets relative to capital needs. So while that's a nice talking point, it''s sort of BS. The real issue here is they invested in a very "safe" investment so long as they held it to maturity. The problem is capital needs grew as the value of that investment if they needed to sell it plummeted bc interest rates had risen. And it sounds like they are not alone in terms of this potential exposure. In short, what got them was not regulated.
 
DeacMan said:
The above makes no sense.

You're a small company. You've taken your capital used to meet payroll and operate at a Federally regulated bank. The bank invests in 10 year bonds for some unknown reason - not exactly risky but also not wise if they're may need to raise capital and the value of those bonds drops bc, say, interest rates spike. Their deposits dry up due to lack of market investment. Their outflows stay relatively high because their customers have to pay operating expenses. Interest rates spike. The bonds they invested in drop in value. That is how this crisis unfolded. Their mistake was investing in longer term bonds. And it was a doozy.

The government isn't protecting SVB with this bailout. It is protecting the customers of the bank - i.e. it's depositors.

Crypto? BTC Is up over 250% since Covid hit in March, 2020. ETH is up over 650%. And defi platforms like AAVE have worked exactly like they're supposed to work. Meanwhile FTX wasn't regulated at all and horribly managed and SVB which was highly regulated collapsed bc of bad investment choices by their management.
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Yes, the deposits dried up because of inflation and market conditions and SVC was built on more VC backed firms than other banks. All involved have been used to essentially free money for the last decade plus and SVC didn't know what to do when inflation went up. And yeah, they made a mistake of investing too heavily in low-yield bonds and couldn't recoup well when they needed the fluid funding.

We're bailing out the depositors. Cool. Why even have a $250k limit then? Just ensure everything. Make that the policy and put the regulations and fees in place to support it.

Is your contention this is just a big "whoopsie" and there's nothing we can and should do about it?

BTC is also down 50% in the past year. It's a volatile "currency." How many SVC customers were leveraged in that and how did it affect the crisis?

How did SVC's last stress test go?
 
bym051d said:
Yes, the deposits dried up because of inflation and market conditions and SVC was built on more VC backed firms than other banks. All involved have been used to essentially free money for the last decade plus and SVC didn't know what to do when inflation went up. And yeah, they made a mistake of investing too heavily in low-yield bonds and couldn't recoup well when they needed the fluid funding.

We're bailing out the depositors. Cool. Why even have a $250k limit then? Just ensure everything. Make that the policy and put the regulations and fees in place to support it.

Is your contention this is just a big "whoopsie" and there's nothing we can and should do about it?

BTC is also down 50% in the past year. It's a volatile "currency." How many SVC customers were leveraged in that and how did it affect the crisis?

How did SVC's last stress test go?
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Why a 250K limit? Bc that's what the government decided whenever they decided.

There would be massive problems if the Fed didn't step in here. We're talking hundreds, maybe thousands of companies who couldn't make payroll. We're talking payroll providers who could no longer operate impacting hundreds if not thousands of other companies. And your attitude is fuck em all?

The idea there are a bunch of startups "levered" in crypto is about the dumbest thing I've read on these boards unless there are a bunch of startups whose core business is to be "levered" in crypto. The reason we have a crisis is bc those startups deposited their cash where they should have deposited it - in the bank.
 
DeacMan said:
The idea there are a bunch of startups "levered" in crypto is about the dumbest thing I've read on these boards unless there are a bunch of startups whose core business is to be "levered" in crypto. The reason we have a crisis is bc those startups deposited their cash where they should have deposited it - in the bank.
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You're kinda a dick.
 
DeacMan said:
The idea there are a bunch of startups "levered" in crypto is about the dumbest thing I've read on these boards unless there are a bunch of startups whose core business is to be "levered" in crypto. The reason we have a crisis is bc those startups deposited their cash where they should have deposited it - in the bank.
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I am guessing you don't read your own posts.
 
What svcs clients were doing had nothing to do with this which is kind of the point of the post he sounded dickish in.

This is “It’s a wonderful life” in real life.
 
DeacMan said:
There has never been anything that prevented banks from mismatching assets relative to capital needs. So while that's a nice talking point, it''s sort of BS. The real issue here is they invested in a very "safe" investment so long as they held it to maturity. The problem is capital needs grew as the value of that investment if they needed to sell it plummeted bc interest rates had risen. And it sounds like they are not alone in terms of this potential exposure. In short, what got them was not regulated.
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Sorry, but this is asinine. If a bank can get shut down simply because interest rates go up, maybe it is a policy problem, and a systemic one at that.

The macro problem seems to be, for a long time now, that there’s too much money and not enough good investment vehicles for it. It’s why bullshit like crypto and NFTs can pop up, people needing to invent new, nonexistent entities to put money into. The constant need for growth requires some examination here.

But instead of looking at the foundations, regulators immediately start looking the other way every time we get on slightly sure footing again and just signal to VCs “keep building that house of cards higher and higher again!”
 
TownieDeac said:
As I understand it, Trump lifting Dodd Frank’s $50bn “stress test” threshold to $250bn made all the difference here.

And it’s certainly good Dodd Frank ensured banks would pay fees that will end up covering depositors.
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www.nytimes.com

Silicon Valley Bank Fails After Run on Deposits

The Federal Deposit Insurance Corporation took control of the bank’s assets on Friday. The failure raised concerns that other banks could face problems, too.
www.nytimes.com www.nytimes.com


Some banking experts on Friday pointed out that a bank as large as Silicon Valley Bank might have managed its interest rate risks better had parts of the Dodd-Frank financial-regulatory package, put in place after the 2008 crisis, not been rolled back under President Trump.
In 2018, Mr. Trump signed a bill that lessened regulatory scrutiny for many regional banks. Silicon Valley Bank’s chief executive, Greg Becker, was a strong supporter of the change, which reduced how frequently banks with assets between $100 billion and $250 billion had to submit to stress tests by the Fed.
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TownieDeac said:
Sorry, but this is asinine. If a bank can get shut down simply because interest rates go up, maybe it is a policy problem, and a systemic one at that.
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I’m going to agree and disagree with this. It wasn’t that interest rates going up caused the bank to fail, it was decisions the bank had made that made them susceptible to interest rate increases and what that can cause (deposit inflows going down requiring more liquidity to fund customers deposit outflows).

How’d they have the ability to make that sort of bad decision though. Stress testing would have probably made that decision harder to justify.
 
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