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Bank Run

JuiceCrewAllStar said:
it seems like a lot of it comes down expectations around due diligence before banking with someone

do most comptrollers do a lot of digging into the assets and liabilities of their banks?
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Why bother if the government's going to totally bail you out if the bank goes under ? Your other option is paying your employees cash out of your vault every Friday.
 
Liquid Karma said:
That idiot has a masters from MIT. And while he may have some stupid ass positions, he's distilled it down just fine above. Having nearly 60% of your assets in low yield, long term bonds at a time when rates are way higher created a perfect storm for people to want to pull their money. And now, the government is going to backstop their failure of risk management at our expense. Brilliant.
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Going to MIT doesn't mean he knows jack shit about this. He didn't distill anything down correctly. Read the tweet. It doesn't say what you just said - at all.

He's calling out the customers of SVB not SVB.
 
Who are the wealthy speculators in this scenario?
 
Liquid Karma said:
That idiot has a masters from MIT. And while he may have some stupid ass positions, he's distilled it down just fine above. Having nearly 60% of your assets in low yield, long term bonds at a time when rates are way higher created a perfect storm for people to want to pull their money. And now, the government is going to backstop their failure of risk management at our expense. Brilliant.
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I’d add that tweet to the apparent non-idiot’s pile of stupid ass positions.
 
How come the bank had to take losses to cover initial money owed? Did they have that much tied up in long term bonds and no other assets worth anything? Like the bond thing makes sense if you were forced to sell the bonds because nobody is buy them when you can get a better deal from new bonds but why did they only have bonds to move?
 
If a bank doesn’t fit into the $250B stress test, what prevents them from taking unnecessary risks to drive profit? If the bank fails, all of the depositors get their money and the executives could’ve already taken years of bonuses and stock gains from these profits before the collapse.

Seems like a win for everyone except the foundation for our system of finance. Am I missing something?
 
Louis Gossett Jr said:
How come the bank had to take losses to cover initial money owed? Did they have that much tied up in long term bonds and no other assets worth anything? Like the bond thing makes sense if you were forced to sell the bonds because nobody is buy them when you can get a better deal from new bonds but why did they only have bonds to move?
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SVB’s loan portfolio is much more difficult to sell off because it’s so niche. Not a lot of banks out there staffed to take on those loans. Much different than a bank that has a bunch of CRE loans that fit nicely into universal risk metrics that can easily be offloaded.
 
Louis Gossett Jr said:
How come the bank had to take losses to cover initial money owed? Did they have that much tied up in long term bonds and no other assets worth anything? Like the bond thing makes sense if you were forced to sell the bonds because nobody is buy them when you can get a better deal from new bonds but why did they only have bonds to move?
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There was a run on the bank, I assume they sold their most liquid assets (that they were able to sell) first and the bonds were next.
 
bym051d said:
If a bank doesn’t fit into the $250B stress test, what prevents them from taking unnecessary risks to drive profit? If the bank fails, all of the depositors get their money and the executives could’ve already taken years of bonuses and stock gains from these profits before the collapse.

Seems like a win for everyone except the foundation for our system of finance. Am I missing something?
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Well the shareholders of the bank lose their shirts as well as creditors of the bank so yeah that is pretty key too. This is not a bank bailout.

In SVB’s case these weren’t even super profitable risks that made tons of money before going sideways. It was an own-goal.
 
Louis Gossett Jr said:
How come the bank had to take losses to cover initial money owed? Did they have that much tied up in long term bonds and no other assets worth anything? Like the bond thing makes sense if you were forced to sell the bonds because nobody is buy them when you can get a better deal from new bonds but why did they only have bonds to move?
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57% of their portfolio was tied up in bonds. They were massively illiquid.
 
06deacon said:
Well the shareholders of the bank lose their shirts as well as creditors of the bank so yeah that is pretty key too. This is not a bank bailout.

In SVB’s case these weren’t even super profitable risks that made tons of money before going sideways. It was an own-goal.
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Why do executives who cash out their shares ahead of time care about other shareholders? Clawback is the only thing to worry about.
 
bym051d said:
If a bank doesn’t fit into the $250B stress test, what prevents them from taking unnecessary risks to drive profit? If the bank fails, all of the depositors get their money and the executives could’ve already taken years of bonuses and stock gains from these profits before the collapse.

Seems like a win for everyone except the foundation for our system of finance. Am I missing something?
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I think I read they paid out bonuses the day before the collapse, which feels criminal.
 
Liquid Karma said:
I think I read they paid out bonuses the day before the collapse, which feels criminal.
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It feels criminal, but I'm not sure it is. It was a scheduled bonus payment, which I bet is for last year's performance.
 
bym051d said:
It feels criminal, but I'm not sure it is. It was a scheduled bonus payment, which I bet is for last year's performance.
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I'm sure you're right, it's just more of an optics thing.
 
bym051d said:
Why do executives who cash out their shares ahead of time care about other shareholders? Clawback is the only thing to worry about.
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Ok well you asked what you were missing so I added in two very huge things you missed.

I guess if you’re looking at it from a perspective of “the handful of executives planned to jump off a bus with bags of cash while steering it towards a cliff” then idk.
 
06deacon said:
Ok well you asked what you were missing so I added in two very huge things you missed.

I guess if you’re looking at it from a perspective of “the handful of executives planned to jump off a bus with bags of cash while steering it towards a cliff” then idk.
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And that's why this is a discussion.

Without regulation, there's little to prevent bad actors from gaming the system for profit.
 
In this case I don’t think regulation was needed to prevent greed, just incompetence.

I guess marginally they were greedy by not absorbing the cost to hedge their HTM portfolio better but it’s not like they were all in on crypto (Hi SBNY!) and if it went bust they’d just say oh well.

Long term the more profitable outcome for all these execs would be to not collapse a bank. I think they just done goofed.
 
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