Having been through the S&L crisis in the '80's and the Great Recession in 2008, I find myself wondering why our current banking laws can't protect the economy. How great will the fallout be? And why must we go through this again?
The fallout won't be great if FDIC can find a buyer by tomorrow and the depositors are made whole. Else it opens a can of worms where anyone who has more than $250K account in a small will pull money and put it with "Systematically important" ones like JP Morgan or Bank of America!
We must go through it again because of poor risk management and probably greed :(
Great piece, thank you! Hopefully things calm down and it doesn't spread. Having said that, I'm reading elsewhere that while this likely isn't systemic, some deeper investigation and reflection needed into SVB as a learning moment. Apparently, they made a lot of questionable moves in the years leading up to this event as well.
Its unlikely to affect the systematically important banks but we are seeing chinks in the armor for small banks that did not have enough diversification.
A question that I haven't seen discussed: Why didn't SVB try the discount window? Or explore a sale to other institutions? It seems they were just caught completely flat footed.
We think mainly because it happened way too fast for anyone to do anything. Think about it - They got $42B redemption request in one day (compared to their total deposit of $150B). No way any bank can process anywhere near that much and not go under.
So do I understand correctly that, had the run not happened, SVB would be okay right now, because:
"The bank had mark-to-market losses of $15.9B as of Q3’22 (still unrealized"
... urealised mark-to-market losses.
and: "SVB sold a $21 billion bond portfolio on Wednesday - forcing them to realize a $1.8 billion loss"...
they realised this loss because the bonds, with treasury yield rising, had deteriorated in value, but this loss would not have been consequential if not....
if then the run on deposits hadn't happened. So it was that that killed them.
Yes. The run only happened because the depositors got spooked and the VC "thoughtleaders" asked them to pull money asap. Else the stock would have taken a hit given the $1.8 billion loss but it would have been business as usual.
This was very informative and easy to understand. It’s interesting how this kind of situation seems to repeat every now and then without learning from the past.
Great piece
“How did you go bankrupt?" Two ways. Gradually, then suddenly.” ― Ernest Hemingway, The Sun Also Rises.
Having been through the S&L crisis in the '80's and the Great Recession in 2008, I find myself wondering why our current banking laws can't protect the economy. How great will the fallout be? And why must we go through this again?
The fallout won't be great if FDIC can find a buyer by tomorrow and the depositors are made whole. Else it opens a can of worms where anyone who has more than $250K account in a small will pull money and put it with "Systematically important" ones like JP Morgan or Bank of America!
We must go through it again because of poor risk management and probably greed :(
Great piece, thank you! Hopefully things calm down and it doesn't spread. Having said that, I'm reading elsewhere that while this likely isn't systemic, some deeper investigation and reflection needed into SVB as a learning moment. Apparently, they made a lot of questionable moves in the years leading up to this event as well.
Its unlikely to affect the systematically important banks but we are seeing chinks in the armor for small banks that did not have enough diversification.
A question that I haven't seen discussed: Why didn't SVB try the discount window? Or explore a sale to other institutions? It seems they were just caught completely flat footed.
We think mainly because it happened way too fast for anyone to do anything. Think about it - They got $42B redemption request in one day (compared to their total deposit of $150B). No way any bank can process anywhere near that much and not go under.
Great piece and very well explained- thank you.
So do I understand correctly that, had the run not happened, SVB would be okay right now, because:
"The bank had mark-to-market losses of $15.9B as of Q3’22 (still unrealized"
... urealised mark-to-market losses.
and: "SVB sold a $21 billion bond portfolio on Wednesday - forcing them to realize a $1.8 billion loss"...
they realised this loss because the bonds, with treasury yield rising, had deteriorated in value, but this loss would not have been consequential if not....
if then the run on deposits hadn't happened. So it was that that killed them.
Yes. The run only happened because the depositors got spooked and the VC "thoughtleaders" asked them to pull money asap. Else the stock would have taken a hit given the $1.8 billion loss but it would have been business as usual.
This was very informative and easy to understand. It’s interesting how this kind of situation seems to repeat every now and then without learning from the past.
Thank you! Yup. The regulators should not have missed such an obvious red flag
Informative read with simple language. I hope things get better...