Equity is getting zeroed out. Management was fired. Depositors were made whole almost immediately. SVB's assets are apparently not impaired; SVB would have held them to maturity had the bank run not happened, and now somebody else will instead. A bank made bad risk management decisions and got zeroed out; all the right incentives not to do that again are there. Meanwhile: the point of the FDIC system is for customers not to have to do this kind of risk assessment themselves.
It is remarkable how badly SVB managed to fuck this whole situation up. But SVB is gone, so it's not much fun calling them out. I feel like people are flailing looking for someone else to blame.
I work at a different bank. The rates charged to banks for FDIC insurance have been based on the assumption that the FDIC would cover depositor losses up to the insured limit. By choosing to cover all losses even above the insured limit, we have chosen to put the burden for paying for those losses on all of the other banks (and indirectly on those banks depositors). I suspect this means that you will not see the interest rate on savings accounts go up as much as it might have otherwise.
I'm not saying this outcome is terrible, perhaps it was the best solution for the system as a whole. But using an insurance fund to cover a kind of loss, the insurance was not sized to address is not a choice that has no impact.
If I were in charge of everything (perish the thought!) I would probably have insisted that the uninsured portion of the deposits take some haircut. If depositors had gotten back 90% or 98% of their deposits instead of 100%, it might have increased the chance in the future that institutions with 100 million+ bank accounts would pay more attention to the risk profile of the banks they choose to invest with. Banks are rewarded mostly in proportion to the risks that they take; having a force other than government regulation that pushes in the opposite direction can be very useful.
Do you have some reliable source about it?
(NOT a "look at it logically" or "here's how my health insurance works, why would the FDIC be different", or "do your own research" or anything else that's some random internet comment - I'm looking for real meat about this claim).
But isn't it likely to cause more bank runs if depositors lost money? So in a real sense, many other banks were saved from going under, by assuring depositors that their money is safe, whichever bank they're at.
My understanding is that other banks have massive unrealized losses as well, due to the steep interest rate increases. So they're all kind of vulnerable.
I'd also add that covering uninsured depositors isn't new behavior for FDIC, at least as I understand it. The mechanics of how it was done here are different than in previous instances.
> "Insured cash sweep is a safe and convenient service that provides FDIC insurance on large balances while giving you access to your money, as well as the ability to earn interest. Choose between demand accounts, which offer unlimited withdrawals, and money market accounts that permit up to six withdrawals per month."
I've heard some claims that SVB was offering incentives to depositors who kept their funds in one lump account, is this true and if so what's the benefit to SVB from doing that?
(Note that I’m not trying to suggest that you were not harmed, I just want to make sure that I understand the source of the harm.)
1) Is this outcome better than (expected) panic on the banks and bank runs? There still seem to be runs going on e.g. First Republic. Are the markets “calm” now?
2) Because insurance fund is not designed for the task it is currently experiencing, how the gap will be plugged?
3) Could this cause depositors move money from smaller banks to larger ones, and then larger banks just lend this money back to small banks w/some nice profit?
How much extra are they taking from your bank to cover the delta between what the FDIC will recover and what they have to pay out?
How were you harmed specifically?
> you will not see the interest rate on savings accounts go up as much as it might have otherwise.
Bullshit. Interest rates for savings accounts are and have been an absolute joke. Are they going to become a more hilarious joke? Probably but seriously, who cares?
> I'm not saying this outcome is terrible, perhaps it was the best solution for the system as a whole.
Yes, it is the best solution, otherwise you'd have written a completely different statement if the bank run went viral and you would have been really harmed.
No sensical person is concerned with the interest rate on savings, it is nearly zero and effectively negative.
I dont believe anyone should have a single account with 100 million dollars nor should banks allow that, but they do. Perhaps part of the problem is that the $250k coverage is a value that should adjust annually and coverage should be relative to each account as opposed to each account holder
There are all kinds of legal and practical reasons that this isn't really a fair comparison, but again, it's not really about the specific policies, it's about a sense of where the government's priorities are and its flexibility seeming to only bend in one direction.
Bet on every number but 0 on a roulette wheel
Not 0: you and your investors make 3 billion this year
0: you and your investors lose your 20 billion you have invested, and the government bails out your depositors who kept 200 billion with you
This stylized bet is a good deal for the investors and management and bad for the government. Sometimes investors lose everything but it's still a very good bet in expectation. This stylized example is a case of "privatized gains, socialized losses".
Then the question is: was SVB reckless? They could have been less reckless by covering their interest rate exposure, but the fed has an equity to deposits ratio requirement, and getting any equity to invest requires a return. IMO they should have either diversified their business or stopped opening new accounts for tech companies because when depositors are uninsured and concentrated in the same industry, that is risky.
First SVB was bailed out by FDIC funds which all banks pay into.
Second, to say 'privatized gains, socialized losses', you are assuming that banking is like gambling, with no value being created through the banking process.
Even if banks were being very very safe, they would still make money by lending out deposits. (Whether that is good or bad for society, is another question, which I would argue the answer to would be bad).
Great point. To rephrase a bit, they lost money...and then kept doubling down by not cutting their losses (?hoping things would turn?) They finally tried to do something about it, but it was too late to matter.
So Management has to invest in something and it has to have some interest. I would love to hear an investment thesis that would have been able to deploy over $100 billion in new capital during the low interest rate 2018-2021 time period that wouldnt have been ill prepared when rates drastically increased in 2022-2023.
Edit: after reading this article posted by lordfrito below I stand corrected. SVB executives knew the risk and took it anyway. But not for personal gain but to maximize firm value as it allowed higher profit which increased the valuation (so yes they benefited personally, but to a greater extent than just a few million in bonuses).
https://www.bloomberg.com/news/articles/2023-03-13/svb-failu...
It seemed self-evident to me, based on the explicitly stated limit on FDIC insurance, that if you had an amount of money over that limit, you really need to have a plan to deal with that risk, and people who failed to do so should suffer the consequences of their poor decisions. As things stand, the people who did spend the time and/or money to provision for that risk have suffered for it.
I think what many people are having a hard time with (myself as well, sort of...) is how the rules were changed out from under everyone in yet another example of how the rules don't apply to the politically connected.
If that were the case, they wouldn't have had to raise emergency funding last week. The assets were indeed impaired. Hiding the true values via AFS accounting treatment doesn't magically make the dire circumstances sustainable.
This misinformation needs to stop.
A distinction between held to maturity assets and market priced assets makes sense though, there should be some consideration in the calculation about term though for sure. The question of that though seems very complex to answer.
Further: the "market value" thing here is complicated. The reason there is separate available-for-sale and held-to-maturity accounting for bank assets is that, in the ordinary course, the assets are held --- the only reason you sell them is because of extrinsic distress. There isn't anything wrong with the agency MBS portfolio SVB had; they're worth less because if you have to sell them in Q1'2023, they compete with even more attractive bonds and are discounted accordingly. But if you just hold them, they pay back dollar for dollar, and that's what the bank normally does anyways.
The issue isn't that too big to fail happened, because its immaterial after the fact. Its that little punishment was actually done for bad management, and not only that, the situation is left worse because we have a banking concentration problem.
If you look at the number of banks chartered after 2008, its dropped to negligible amounts going into the business, and regulation has only been increasing. You have to lie to get a charter because no reasonable person would accept the personal liability without something in it for them. The requirements are that onerous.
Everything is now so big it will certainly fail, and that's what people are angry about. There is plenty of evidence over the past 100 years (and longer if you go further), that as sector concentration goes up, so does corruption, frauds, and other crimes that are largely based around deception at our loss. It becomes easier to increase the scope, and get away with it when setting up dominoes to fall (so you can profit on event's you manufacturered).
The fed aren't doing there jobs, and worse, it looks like they could never meet their original charter to begin with. They aren't government, they are private bankers.
So they try to justify bailouts as a way of saving the system, and really its just acting as a wealth transfer to the elite rich whose pockets they are lining via a money printer at the expense of the public taxed by inflation.
> Equity is getting zeroed out. Management was fired. Depositors were made whole almost immediately. SVB's assets are apparently not impaired; SVB would have held them to maturity had the bank run not happened, and now somebody else will instead.
Part of the problem is that the system that enabled them to end up in this situation is the erosion of Dodd-Frank. The systemic risk to depositors isn't going away. If pissant SVB (relative to it's contemporaries) can lobby congress effectively imagine what other banks are up to. Speculation? Sure you can say I'm speculating. But the apple doesn't fall far from the tree.
> Meanwhile: the point of the FDIC system is for customers not to have to do this kind of risk assessment themselves.
The issue of course is that the total balances required the FDIC to dip into special capital reserves in order to make the bold faced lie the taxpayer won't front this.
Anyone who knows the surface level details of a bank know that these FDIC "loans" are effectively collateralized by the taxpayer. Banks pay an assessment. With what money? The depositor's money. A perfect example of a hidden tax.
> But SVB is gone, so it's not much fun calling them out. I feel like people are flailing looking for someone else to blame.
Credit Suisse is in big trouble and getting a bailout. Several other banks have collapsed in the wake of SVB. The only people not worried have their heads buried so deep in the sand only their feet are showing. Calling Chicken Little because you believe it was only SVB and not a massive market level problem suddenly beginning to show it's head is not a very effective argument.
I'd ask you to consider the economy that allowed these levels of capital to even exist. Years of ZIRP and near-ZIRP allowing effectively free money. As it stands, the mainstream media currently blames the fed for this and implores it to once again lower rates. The problem of course is that there has been no sign of stoppage in market speculation and we are only now starting to see VCs really tighten their belts. History doesn't repeat itself but it often rhymes and terrible, borderline predatory, VC funding practices begin to approximate NINJA loans in the limit. There's no reason to believe it's just SVB and there are plenty of reasons to believe we have very serious economic concerns ahead of us. Only difference this time is the criminals responsible will be wearing Patagonia.
That being said, I could be wrong and not aware of the specific Dodd-Frank policy that, if followed, would have made SVB safer.
The fed doesn't need to lower rates necessarily, it could simply allow all member banks to exchange low interest rate long term bonds for new higher yield bonds and pay the Fed for the spread with a loan. That would reduce the liquidity risk if the member bank needs to sell some or all of its bond portfolio on short notice to fund depositor withdrawals, it would allow the Fed to hold the low rate securities to maturity while being fairly compensated by member banks.
Edit: after reading this article posted by lordfrito below I stand corrected. SVB executives knew the risk and took it anyway. But not for personal gain but to maximize firm value as it allowed higher profit which increased the valuation (so yes they benefited personally, but to a greater extent than just a few million in bonuses).
https://www.bloomberg.com/news/articles/2023-03-13/svb-failu...
My understanding is that SVB would have met the Tier 1 capital requirements even without the 2018 revisions to Dodd-Frank, for the reason digitaltrees said: The bonds it purchased are considered highly liquid and safe.
If you haven’t lived through a couple of these things then it’s perfectly understandable.
Back in ‘98 there was a huge monetary problem going on in SE Asia but pets.com could take a loss on every sale and make it up in volume. Everything was fine until it suddenly wasn’t.
In ‘08 cracks were starting to become obvious but housing prices never go down, keep selling $500k houses to someone making minimum wage. Everything was fine until it suddenly wasn’t.
Today you have massive layoffs in the tech sector but the CEOs are just trying to appease activists investors, nothing to worry about because tech companies never fail. That Dot Com Bust? Well, that was Web 1.0 and we have it all figured out this time, nothing to worry about. Everything is fine…
And depositors to their dismay are learning they are about as much loved as Wall street bankers, corporate execs and billionaires. More than any particular moral deficiency I think people are finding a general lack of self-awareness common among SV startup founders infuriating.
Exactly this. I even read a comment from such a founder saying essentially: "Why are people so angry, don't they know I oppose brogrammer culture?" As if brogrammer culture were the meat of of the reason why people are sick of the hypocrisy of the capital class, or even American startup culture specifically. Totally out of touch, completely clueless. Utterly tone deaf.
Particularly, the decision to change the rules in the middle of the game and make depositors over the FDIC limit completely whole again is clearly an unfair favor to the rich. Normal people don't get to have the rules changed mid-game in their favor. If all the depositors were merely semi-wealthy commoners with only $300k in their accounts, they would have only gotten $250k back. Nobody would expect the rules to be changed in that scenario. But if you're much richer than that, then the rules are apparently just guidelines. It isn't fair and that's why people are mad. Anybody confused by people being mad is completely out of touch, and voicing that confusion is only going to make people even madder.
That was amusing.
"S..See! A normal person!"
The only party that made out like bandits is the SVB management that piled on the risk in the first place -- but investors are ultimately responsible for letting them do that and investors have been punished.
While there wasn’t counterparty risk with those assets, there was duration risk. And their mistake seems to have been not selling those the instant the Fed publicly committed to killing inflation with higher interest rates. It should have been clear to them that their exposure to duration risk was rising, and they needed to restructure back in 2021 or early 2022 to mitigate that.
Disclaimer: was one of them, though not nearly as aggressive as I should have been.
This kind of assumes that the risk matrix of an executive is singularly indexed on the long term viability of their institution. But the short term gain of bad behavior is still in full effect. Bonuses for the years up to this crisis have already been paid and were probably inflated based on the banks over performance due to its riskier posture.
And the consequences have been softened. There's a very good chance that the people responsible here have had their guilt assuaged by the reduction in impact. They are probably less likely to become the kinds of pariah that they probably should because while we should always consider decisions in the context they are made, humans seem to always adjust their assessments to final consequences.
I'm in agreement that the decisions here on the part of the government are probably the wisest in this context. But this crisis does hint that perhaps we need to reconsider the structure of this system a bit.
1. Their reputation. How much less likely is it that a board of directors would think twice before hiring them to be a steward of shareholders' assets?
2. Their egos. How much less likely is it that people will be willing to invest time delivering projects whose value can be wiped out by poor risk management in the same way that SVBs has?
Most people are unaware they are loaning money to a bank when they open a bank account.
You've effectively said that bank deposits are now risk-free, meaning that the government is back-stopping 9.2 Trillion of deposits (40% of all deposits).
Can banks still provide a yield for these guaranteed deposits? Are they still able to loan out these deposits? What are the new capital requirements for these deposits, are depositors allow to take their money out when a bank run is happening?
We don't know
The upset seems centered around the perception that rules were changed ex post facto to protect political donors.
I get that impression from HN, from newspapers of all ilks and biases as well.
69% of SVB employees' donations were to Democrats over the past three years. <https://unusualwhales.com/news/svb-donations>
The bank donated $74 million to Black Lives Matter. <https://nypost.com/2023/03/15/svb-donated-73m-to-black-lives...>
But the bailout that people are complaining about is for all the other banks that aren't SVB. There are many insolvent banks out there that would otherwise have had to raise capital at punishment prices this year. Those banks are unambiguously better off with the Fed taking their underwater collateral at par, and this is a clear subsidy to (non-SVB) bank shareholders.
The surprising part is, if we were willing to do this, why not just revise the Fed's discount window rules? They discount from market value. Why not change that to face value for Treasuries?
Then add in some vocal VCs' hypocritical stance on bailouts coupled with Surveillance Valley's overarching hypocritical stance on freedom, and here we are.
It seems that in this day and age of instant communication and social media mobs, even three days is too long for the precise fate of deposits to remain unknown. IMO the right way to proceed is to calmly raise bank capital requirements, create a few new tiers of FDIC coverage (eg coverage on accounts between $250k and $10M is funded from assessment on accounts between $250k and $10M), and institute criminal penalties for executives of banks that go bust beyond their capital buffer (otherwise nothing reigns in TBTF accounts that have too much variance to be absorbed by higher FDIC tiers).
Does that have anything to do with this article at all? First few lines of this article: Banking is a confidence trick. Financial history is littered with runs, for the straightforward reason that no bank can survive if enough depositors want to be repaid at the same time. The trick, therefore, is to ensure that customers never have cause to whisk away their cash.
This article is about the possibility of the total loss of confidence in the banking industry leading to a run on a system that can't handle it. I understand the context you meant when you said things like "the system works, why is everyone upset", but I find those a pretty poor choice of words regardless with this much fear circulating.
This "somebody" is the government aka the central bank putting these bonds on their balance sheet. This is a new form of quantitative easing.
If the Fed did take them, it would be a drop in the ocean. The FED is already holding 2.7 trillion dollars of underwater mortgage-backed securities they bought.
They have six trillion dollars of other securities they are holding.
Nobody can do a bank run on the Fed and they control the interest rate, so despite their colossal unrealized losses, they can wait it out.
They have all the data. If I was CEO of a bank I'd want to be able to get up in the morning and have some idea how much risk and what types of risk my bank was assuming. Especially in a dynamic environment of Fed interest rate changes. I would think they would be doing it all the time. Isn't that what computers do? Simulate scenarios like - What does our bank look like if the Fed raises rates to %2 etc. It makes me feel like they truly just don't want to know so they can do whatever they want.
They're super involved, requiring a full-time department to prepare for and run. That's a multi-million dollar recurring expense a bank with tens of millions of dollars of profit may not be able to afford.
Many of the takes further complicate by implying that they had no assets. Which just feels like lying at this point.
Sure, if everyone had just waited for the 10 year bonds to mature to access their funds their bank was in perfect shape.
—edit—
Assuming they could come up with enough money to pay the over market interest rates on deposits while also seeing their money flows reversing because of VC capital drying up.
Re effective system: Maybe dinosaurs had to swallow rocks to digest their food, but we don't have to maintain this practice just so dinosaurs can keep existing. The system needs to be deprecated in favor of better tech that takes it out of the hands of dinosaurs. Legacy banking and gov/political class need to be replaced by a better solution.
Which is...?
Hell, even with just layoffs the outrage on this site has been deafening. I can see shareholders and employees of SVB rightly being pissed off. It's not your place to tell them they should not be.
I mean... yes it is. I'm against zeroing depositors of failed banks, because (for better or worse) we've decided that banks should work like restaraunts and you shouldn't have to do a complicated risk assessment about how safe one is before deciding to do business there. But shareholders are a different story. If you invest in a company and they do dumb things and lose your money, that's at least somewhat on you - you're supposed to know what the company is doing before you invest, and potentially push for management changes if they're doing stupid things. Insulating shareholders from the bad decisions of their companies is an utterly unacceptable degree of moral hazard.
But they're not.
The next banks all get to keep their equity because the fed is putting out a lifeline (the new BTFP facility) so that they won't be zero'd out the way SVB was.
This is what I'm mad about. FDIC insures to $250k in normal cases. It should not have been used to insure depositors for their full deposit amounts here.
Had a good chuckle at that part in particular. I think it's the plan that a lot of people are having a hard time with.
I mean, this comment almost wrote itself.
Presumably they were onto something, as they jointly received the Nobel prize for economics last year for this contribution.
What I am confused about is - if everything went "according to plan", then what did happen? Is it really all peter thiel's fault? Surely someone as smart as him saw something that made him do what he did, given that it was a pretty massive thing to do.
Of course they don't! Look at some charts of newspaper advertising revenue over the past few decades. There's one word that best describes it: apocalyptic.
Where did all that advertising revenue go? Google and Facebook!
Meanwhile, all the benevolent VC techbros had to do was collectively agree to just not withdraw all of their deposits from SVB en masse, and they couldn't even muster that. How deep is the rot in SV?
First, it's not a Prisoner's Dilemma if the parties can communicate with each other:
https://en.wikipedia.org/wiki/Prisoner%27s_dilemma
> Two members of a criminal gang, A and B, are arrested and imprisoned. Each prisoner is in solitary confinement with no means of communication with their partner.
Second, the traditional framing of the Prisoner's Dilemma disregards the aftermath, and the lasting reputational and trust consequences of betrayal, which would be substantial for any VC that failed to cooperate, or outright backstabbed the others.
https://www.microsoft.com/en-us/research/publication/byzanti...
1. What's going to happen to risk management at banks now that the government has shown themselves willing to backstop all deposits. Is there really any reason to spend money hedging risk?
2. What's going to happen to the bond market? Bonds are generally understood to change in price in a way that keeps yield equal to currently available fixed-income securities. However, with the Fed's new BTFP, the value of bonds is always par, apparently.
3. What are the banks going to do with their new liquidity? The Fed is essentially giving banks a fully collateralized $1 in exchange for $0.80. That's a lot of free money.
As to question 3, BTFP feels like a small dash of QE after pushing QT a little too hard and too fast. Banks will probably just put that extra cash into short term treasuries to shore up their balance sheet to protect against declining deposits. So I guess we should expect that extra cash to push short term yields down. Short term yields have already dropped a bit though, so maybe that is already priced in.
As for the QE/QT performed by the Fed. The Fed's balance sheet has already increased by 300 billion, which undoes like half a year of QT. JPMC estimates a total of 2T in liquidity. Not only will that undo all QT, it will bring the Fed balance sheet to new all time highs.
This is the closest the West can be to the East. We finally had the "rapprochement"!
Shareholder money is still on the line?
https://www.proshares.com/browse-all-insights/insights/bond-...
But even then: Some professor was on Bloomberg today wondering about the hedge strategy. The hedge providers may be at risk if all of the sudden there are a huge amount of sales there. But this only happens during heavy withdrawals...
In turn, VCs/founders/executives promoted SVB. And now they don't want to be their own counterparties on a bet gone wrong.
https://twitter.com/one4thecashbag/status/163533710637676953...
Maybe I'm just naive when it comes to how these systems work, but couldn't SVB have just... done nothing? Nobody was compelling them to purchase any bonds at the time. Sure they have pressure from stockholders to make money, but if the deck was so stacked against them as everyone seems to think it was, it seems like a financially-literate management (which I would expect out of a bank) would have had the idea to merely wait a bit to see what the Fed was going to do.
(Everyone and their mother was predicting a crash from 2020 to 2022, so it seems reasonable that a bank of all institutions could have made the call to be patient and see which way the wind blows...)
Again, maybe this is me just being naive, but "They should have just been patient" seems like a mantra applicable to a lot of companies lately. Car companies cancelling all their chip orders at the start of the pandemic, only to scramble and re-place them as demand surged; tech companies hiring like crazy in the face of a supposed talent crunch, only to have massive layoffs a year later. It seems like companies keep making "impulsive" decisions to try and capitalize on short-term trends without any eye for the long term strategic view.
Yes, "being patient" might mean they don't make as much money as they could have if they jumped at the first sign of a change, but... Do they have to? SVB could have continued making money hand over fist in the long run, but now they no longer exist. Google and Microsoft and all these corps could have saved a lot of corporate face and internal morale, had they just waited out the supposed hiring crisis that never quite seemed to materialize: now they have a pile of irritated employees and everyone I know at a major brand seems to be holding their breath for the next round of layoffs.
There's a trend of hyper-efficiency in the name of maximum profit that I feel like I've been seeing kind of everywhere, and that seems fine until the moment the music stops. Maybe I'm just the kind of person who naturally hedges their bets, but I'm constantly blown away by how rickety entire companies appear to be sometimes. What am I missing? Are there just insufficient incentives to be conservative with resources and decision making?
Not saying that to justify SVB or anything, as they're in the business of securing people's money long-term, and they made bad decisions that they had plenty of time to course correct for (rates have been continuously rising for well over a year, with a clear goal of lowering inflation to around 2%, and you can see how slowly that was lowering and predict roughly how high that would get).
Car companies also had a big faceplant moment with cancelling chip orders, but we were in the midst of a novel global pandemic that no one really knew how people were going to react to, or how big or how long it would last. Health officials were predicting around 100k total deaths in the US, and we blew way past that.
But for tech hiring I can clearly see why they were like 'let's take all this zero interest cash, get a bunch of people, use them to get a competitive advantage, and then when everything starts to unwind we'll just lay people off'. It's a shitty thing to do to people, but I get the reasoning.
I know they all claim they didn't see this coming and 'take full responsibility' or whatever in their layoff announcement/apology letters, but behind closed doors I bet they knew exactly what they were doing, at least the vast majority of them.
I've had quite a few opportunities in my life that I didn't really leap on 100% like I should have, and as a result those opportunities slipped by, and I didn't end up making that hay at all as a result, the opportunities passed and I'll have to find some other way to make that hay.
If you ask me, the real problem is the fact that 30 year fixed rate mortgages with super low rates were being handed out like candy. Who in their right mind would seriously hand out a 30 year loan with a fixed 2.6% interest rate? It didn't cross their mind that just maybe sometime in the next 30 years interest rates would go higher?
It was completely obvious to me that whoever owned those loans was going to be sorry sooner or later. Turns out it was sooner. And in the meantime we got ridiculous house price inflation to boot. Why did those loans exist? Not because they make sense, but because of government policies intended to promote homeownership and pump up property values.
The Greg Becker of the article (SVB CEO & president) was in SF Fed board of directors until Friday [1] and successfully lobbied for lax rules for banks like SVB. The current risk officer worked at NY Fed [2] and at Fitch Ratings (!) and Deutsche Bank [7]. Previous risk officer was director of Freddie Mac [3]. Yellen was the 11th President of the SF Fed [5] and the current president is her protégé [6].
They knew exactly what they were doing. The Fed looked the other way. They sold a lot of stock in the past month [8]. They are very well connected into the Fed and Treasury. I doubt anybody will get any kind of serious legal troubles.
[1] https://www.reuters.com/markets/us/ceo-failed-silicon-valley...
[2] https://www.svb.com/news/company-news/svb-hires-kim-olson-as...
[3] https://www.linkedin.com/in/laura-izurieta-1370144
[4] https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...
[5] https://en.wikipedia.org/wiki/Janet_Yellen
[6] https://en.wikipedia.org/wiki/Mary_C._Daly
[7] https://nypost.com/2023/03/13/silicon-valley-bank-execs-work...
[8] https://twitter.com/unusual_whales/status/163455502148748083
And this is just scratching the surface.
The rot is at the core, the Federal Reserve. My parents saved money in a savings account for their eventual retirement. It was a prudent and accepted way to do things. Over time, with Reagan and deregulation of everything that followed, their savings rate effectively dropped from 5-8% to zero. That income was expected to fund part of their retirement, and it was stolen from them in order to prop up wall-street.
Those zero and near-zero rates distorted fiscal reality in the US and elsewhere they've effectively broken the system. At some point, we'll be bailing out whole countries to keep kicking the can down the road, and that's when things will be too big to save and we get to The Great Simplification.
I only hope we've got alternatives to fossil fuels figured out at scale and somewhat in place, otherwise civilization could collapse in World Depression II.
> The prospect of unlimited deposit insurance, whether de facto or de jure, is leading to a large-scale reconsideration of views among even “moderate” banking scholars.
I imagine that's usually how real policy progress happens: interesting ideas are always getting thought up and proliferated, but it takes a big upheaval to move them over to being really possible.
[1]: https://www.crisesnotes.com/every-complex-banking-issue-all-...
Until we categorically prevent banks from attempting to "satisfy shareholders" with returns, these occurances will continue in one form or another.
Banks dont need to be sexy or shake up the industry. We need boring people in banking making okay-ish money.
Though DIF has only $500 million in assets and only services member banks in US state of Massachusetts.
I'm not an expert in this area, but in what way is this true? Interest rates are still quite low by historical standards. The 80s saw massive increases to a much higher level (approaching 20%) in a shorter amount of time. There were large jumps in the late 60s and early 70s as well.
Clearly not safe. IMHO anyone buying 10 year treasuries in the last several years is an idiot. Those rates were guaranteed to rise, as they could not fall below zero.
Next up: anyone who bought a house in the last few years is gonna get hurt. We knew rates would be rising, and hence prices falling. So far it's mostly sales volume dropping near zero, but soon...
And then when people are broke, many will raid their retirement investments. The stock market has benefitted for decades from people blindly (via 401k funds) dumping money into the market. More buyers than sellers equals rising prices. Guess what a jump in sellers causes...
And then after the market drops, people with money elsewhere will want to buy, resulting in one more shift of money from here to there.
The best spin I can think of is that they assumed HTM was sufficient to prevent a bank run, but it wasn't.
The bond market already is built to handle this, and we should stop treating demand deposits as this Schrödinger collateral. If you want to insure lending, insure the lending directly, not with consumer and business cash. I know there are no simple solutions to complex problems, but this all seems very unnecessary when you pull the system apart conceptually.
> codexb
Then commercial banking becomes a competition of who can best manage risk/return on deposits, provide a good UX, integrate with other value add financial services, have the best risk models for lending, etc. I just don’t see a point in a banking system where my deposits are going to be stored in something dead-simple like treasuries with the interest skimmed off, when I could easily do that myself.
The current system where I as a normal (not off-grid or doing some fringe thing like going all cash) consumer have to trust at least one bank with my money, only to get 0% interest in my checking and be exposed to risk, does not seem fair.
There are no completely safe investments.
SVB was killed by the boring part, not the startup banking risk.
Since 1971 everything (all relevant policies) were geared towards increasing the amount of debt in the system. It's no surprise that student debt, mortgage debt, credit card, auto loans and whatever else were ballooning.
Regular banks not making risky bets would go against it, so it will not be done.
