+1 has nothing to do with ESG, DEI, being “woke” or any other right wing be-afraid-of-this terms. |
We don't have hyper-inflation. They should have forseen some inflation and rate hikes. But this really needs to be repeatedly said. There is no mix of securities that would have allowed them to survive the bank run. This bank run wasn't thousands of relatively small deposit holders. It was a couple dozen at best large scale deposit holders. $42 billion in one day. One third of their total deposits. No bank holds one third of their deposits in cash. |
We’ve not had anything like hyperinflation. We have had rapid interest rate increases after a very long period of ZIRP. The rate increases were guaranteed to produce losses in portfolios with long-duration (aka the cash is set to come back years into the future) portfolios. And Bloomberg has reports claiming that employees were concerned by the bank’s long-duration assets, but management, which gets bonuses based on short-term profitability, refused to change course. |
The big irony there was that SVB was known for their customer service. Helping out start ups when needed and facilliatating venture capitalists. Those exact same people that they did favors for turned around and destroyed SVB through a coordinated bank run. The kicker? Most of those deposits went to Brex a venture capital funded bank startup. |
So then is it really a deficit in their risk assessment? I mean if no bank could survive it, why are pp's calling for them to be criminally charged? It honestly just sounds like a sh-- sandwich, not a bad call on SVB's part. |
From the year end 2022 financials: Securities maturing 1 year or <: $1 billion >1 year to 5 years: $15 billion > 5 years: $101 billion |
Ok, but was this foreseeable in 2020? |
Depositors sticking with their banks was one of the few bright spots of the GFC. |
Yup, as I had guessed: ridiculous amounts of long-maturity bonds and not a lot of short stuff. |
More than that. Their locked up HTM securities equaled $91 billion in amortized cost. The fair value was $75 billion--almost a 20% embedded loss they would have had to realize if they sold even one of those securities for liquidity. That was approximately equal to their equity capital and would have made them instantly insolvent. (End of year numbers.) |
Mostly politics but it was also a variable that SVB could control. SVB couldn't predict or control the coordinated bank run. They could however control their duration risk. People like easy analytical explanations and it is really hard to comprehend the amount of money that was withdrawn and that only a handful of people were behind it. |
They sold $20b and took a realized loss of $1b. That's what led to the attempted share sale. |
That when rates raise the longer assets will lose money? 100% predictable, it’s in finance textbooks. But managers that want big bonuses can juice shorter-term profits making the bank more vulnerable when rates do rise. The Bloomberg article makes it sound like the denial stretched from 2021 into the present. https://www.bloomberg.com/news/articles/2023-03-13/svb-failure-sparks-blame-game-over-trump-era-regulatory-rollback?sref=frV97TwV |
The coordinated bank run is a risk of having an extra-concentrated deposit base. It’s a flaw in the business model. |
No bank can withstand a withdrawal of 30% of it deposits in one day. However, I think this ignores that the reason for the withdrawals in the first place. People suddenly realizing how much interest rate risk the bank had taken on and the embedded securities losses. I think the planned capital raise caused people to look closely at the financials and those raised the concerns. |