SVB Bank Run: Fed Calling Emergency Meeting

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The taxpayers will ultimately backstop these bad bonds owned by banks without proper hedging protocol

Uh, only if the fed turns around and tries to sell the bond on the open market. If they just hold it to duration (which they almost certainly will), then they haven't lost anything.

Exactly.

It is amazing the legnths the right is going to right now to cause misinformation and uncertainty in our financial markets.

It's like they want a crash to hurt Biden.

While there’s clearly right-wing noise (and a few folks yelling ‘fire’), fact is that they were going to be taking loses on long-dated assets regardless. HTM was never a viable path out of this, at least absent lower rates.

I still don’t understand SVB’s strategy. They had a robust corporate treasury….wtf were they thinking? Everyone knew the Fed was about to embark on a long journey of interest rate hikes and SVB decided to load up on long dated assets after 3x their deposits in 18 months. They didn’t even try to hedge their interest rate risk with derivatives.

It like they did all of this on purpose. I still can’t figure it out.

They got a massive influx of deposits in 2020 during ZIRP and thanks to ZIRP. They turned around and put those deposits into treasuries at one of the worst times possible. There are almost 4,500 FDIC insured banks; I'm be shocked if some of them didn't make terrible risk management decisions from time to time. This one likely would have flown under the radar if SVB was just a normal community bank, but once VC funds told their companies to pull out, it was over

The VC money tsunami acted like leverage: all decisions were genius in good times…and foolish in bad times. Given their role in being essentially treasury for the VC ecosystem makes me wonder if anyone at the bank understood they had super-easy fee income if they kept assets low-key.

It seems like they were being as conservative as the could, but risk management doesn't pay well and often gets ignored. I'd bet a lot of money that someone high up thought that treasuries = safety and they either ignored opposing views or those views just weren't aired

It's not clear that even a proactive risk assessment would have caught that long term US bonds would cause the bank to fail. Bonds are very low risk. And at the time they bought them, this would have looked to be among the most conservative options.

Im an R and listening to R news and the take is basically "well they were driven by ESG and focused too much on woke stuff." That may well be true, but the investments were in long term US bonds, not used as venture capital. I'm going to need to see a fuller case against these bankers. Some risk is acceptable-- it is part of life. I havent seen any case made yet that their investments were unwise.

They didn’t hedge their 11-figure one-way interest rate risk. That’s their “unwise” investment.

It was only a 5% loss. No bank can survive a bank run like they experienced.

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.)

They sold $20b and took a realized loss of $1b. That's what led to the attempted share sale.

That was their entire AFS portfolio and the loss they took on its sale. The HTM securities couldn't be sold without cratering the bank.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The taxpayers will ultimately backstop these bad bonds owned by banks without proper hedging protocol

Uh, only if the fed turns around and tries to sell the bond on the open market. If they just hold it to duration (which they almost certainly will), then they haven't lost anything.

Exactly.

It is amazing the legnths the right is going to right now to cause misinformation and uncertainty in our financial markets.

It's like they want a crash to hurt Biden.

While there’s clearly right-wing noise (and a few folks yelling ‘fire’), fact is that they were going to be taking loses on long-dated assets regardless. HTM was never a viable path out of this, at least absent lower rates.

I still don’t understand SVB’s strategy. They had a robust corporate treasury….wtf were they thinking? Everyone knew the Fed was about to embark on a long journey of interest rate hikes and SVB decided to load up on long dated assets after 3x their deposits in 18 months. They didn’t even try to hedge their interest rate risk with derivatives.

It like they did all of this on purpose. I still can’t figure it out.

They got a massive influx of deposits in 2020 during ZIRP and thanks to ZIRP. They turned around and put those deposits into treasuries at one of the worst times possible. There are almost 4,500 FDIC insured banks; I'm be shocked if some of them didn't make terrible risk management decisions from time to time. This one likely would have flown under the radar if SVB was just a normal community bank, but once VC funds told their companies to pull out, it was over

The VC money tsunami acted like leverage: all decisions were genius in good times…and foolish in bad times. Given their role in being essentially treasury for the VC ecosystem makes me wonder if anyone at the bank understood they had super-easy fee income if they kept assets low-key.

It seems like they were being as conservative as the could, but risk management doesn't pay well and often gets ignored. I'd bet a lot of money that someone high up thought that treasuries = safety and they either ignored opposing views or those views just weren't aired

It's not clear that even a proactive risk assessment would have caught that long term US bonds would cause the bank to fail. Bonds are very low risk. And at the time they bought them, this would have looked to be among the most conservative options.

Im an R and listening to R news and the take is basically "well they were driven by ESG and focused too much on woke stuff." That may well be true, but the investments were in long term US bonds, not used as venture capital. I'm going to need to see a fuller case against these bankers. Some risk is acceptable-- it is part of life. I havent seen any case made yet that their investments were unwise.

I’m guessing PP wasn’t involved in finance the last time interest rates were rising quickly. This was to be expected and they did manage the cash tsunami poorly.

They bought these in 2020 when the market was tanking.

Ive never been involved in investment banking, so this may seem like a simple mistake to a pro. But no one is laying out the case that they should have foreseen hyperinflation. There may be a case, but no one is making it.

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.

Ok, but was this foreseeable in 2020?

Not necessarily, but when the Fed first signaled rate hikes they could have done a lot to offset the high-duration HTM portfolio and strengthen their overall position. Like take on some negative duration swaps where they pay fixed and receive floating. But those kinds of trades would reduce earnings and since management’s compensation is based on earnings, they naturally chose not to do that.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The taxpayers will ultimately backstop these bad bonds owned by banks without proper hedging protocol

Uh, only if the fed turns around and tries to sell the bond on the open market. If they just hold it to duration (which they almost certainly will), then they haven't lost anything.

Exactly.

It is amazing the legnths the right is going to right now to cause misinformation and uncertainty in our financial markets.

It's like they want a crash to hurt Biden.

While there’s clearly right-wing noise (and a few folks yelling ‘fire’), fact is that they were going to be taking loses on long-dated assets regardless. HTM was never a viable path out of this, at least absent lower rates.

I still don’t understand SVB’s strategy. They had a robust corporate treasury….wtf were they thinking? Everyone knew the Fed was about to embark on a long journey of interest rate hikes and SVB decided to load up on long dated assets after 3x their deposits in 18 months. They didn’t even try to hedge their interest rate risk with derivatives.

It like they did all of this on purpose. I still can’t figure it out.

They got a massive influx of deposits in 2020 during ZIRP and thanks to ZIRP. They turned around and put those deposits into treasuries at one of the worst times possible. There are almost 4,500 FDIC insured banks; I'm be shocked if some of them didn't make terrible risk management decisions from time to time. This one likely would have flown under the radar if SVB was just a normal community bank, but once VC funds told their companies to pull out, it was over

The VC money tsunami acted like leverage: all decisions were genius in good times…and foolish in bad times. Given their role in being essentially treasury for the VC ecosystem makes me wonder if anyone at the bank understood they had super-easy fee income if they kept assets low-key.

It seems like they were being as conservative as the could, but risk management doesn't pay well and often gets ignored. I'd bet a lot of money that someone high up thought that treasuries = safety and they either ignored opposing views or those views just weren't aired

It's not clear that even a proactive risk assessment would have caught that long term US bonds would cause the bank to fail. Bonds are very low risk. And at the time they bought them, this would have looked to be among the most conservative options.

Im an R and listening to R news and the take is basically "well they were driven by ESG and focused too much on woke stuff." That may well be true, but the investments were in long term US bonds, not used as venture capital. I'm going to need to see a fuller case against these bankers. Some risk is acceptable-- it is part of life. I havent seen any case made yet that their investments were unwise.

I’m guessing PP wasn’t involved in finance the last time interest rates were rising quickly. This was to be expected and they did manage the cash tsunami poorly.

They bought these in 2020 when the market was tanking.

Ive never been involved in investment banking, so this may seem like a simple mistake to a pro. But no one is laying out the case that they should have foreseen hyperinflation. There may be a case, but no one is making it.

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.

Ok, but was this foreseeable in 2020?

Not necessarily, but when the Fed first signaled rate hikes they could have done a lot to offset the high-duration HTM portfolio and strengthen their overall position. Like take on some negative duration swaps where they pay fixed and receive floating. But those kinds of trades would reduce earnings and since management’s compensation is based on earnings, they naturally chose not to do that.

So negligent. There are small agricultural banks that hedge their commodity risks with derivatives, but somehow a $200 billion bank with $115 billion in interest rate risk laden securities could only manage to do $5 billion in gross notional interest rate derivatives.

[Anonymous]

How about we learn from history?

[Anonymous]

Anonymous wrote:

How about we learn from history?

I’m not a Trumpian or a supporter of loose regulations, but regulations aren’t meant to create a perfect system where nothing goes wrong. Regulations are burdensome and they require a lot of time and money to fulfill them, and a lot of taxpayer money to hire analysts to review them. There’s nothing inherently wrong with saying, the overall banking industry is positioned well, let’s subject the big banks to these regulations and let the ones who pose less systemic risk not do them if they don’t want to.

In this case, a couple of poorly managed banks failed. The FDIC stepped in and did their jobs and the taxpayer will likely not pay a cent.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

How about we learn from history?

I’m not a Trumpian or a supporter of loose regulations, but regulations aren’t meant to create a perfect system where nothing goes wrong. Regulations are burdensome and they require a lot of time and money to fulfill them, and a lot of taxpayer money to hire analysts to review them. There’s nothing inherently wrong with saying, the overall banking industry is positioned well, let’s subject the big banks to these regulations and let the ones who pose less systemic risk not do them if they don’t want to.

In this case, a couple of poorly managed banks failed. The FDIC stepped in and did their jobs and the taxpayer will likely not pay a cent.

I bet it costs a lot less than the various bailouts and corresponding economic losses.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The taxpayers will ultimately backstop these bad bonds owned by banks without proper hedging protocol

Uh, only if the fed turns around and tries to sell the bond on the open market. If they just hold it to duration (which they almost certainly will), then they haven't lost anything.

Exactly.

It is amazing the legnths the right is going to right now to cause misinformation and uncertainty in our financial markets.

It's like they want a crash to hurt Biden.

While there’s clearly right-wing noise (and a few folks yelling ‘fire’), fact is that they were going to be taking loses on long-dated assets regardless. HTM was never a viable path out of this, at least absent lower rates.

I still don’t understand SVB’s strategy. They had a robust corporate treasury….wtf were they thinking? Everyone knew the Fed was about to embark on a long journey of interest rate hikes and SVB decided to load up on long dated assets after 3x their deposits in 18 months. They didn’t even try to hedge their interest rate risk with derivatives.

It like they did all of this on purpose. I still can’t figure it out.

They got a massive influx of deposits in 2020 during ZIRP and thanks to ZIRP. They turned around and put those deposits into treasuries at one of the worst times possible. There are almost 4,500 FDIC insured banks; I'm be shocked if some of them didn't make terrible risk management decisions from time to time. This one likely would have flown under the radar if SVB was just a normal community bank, but once VC funds told their companies to pull out, it was over

The VC money tsunami acted like leverage: all decisions were genius in good times…and foolish in bad times. Given their role in being essentially treasury for the VC ecosystem makes me wonder if anyone at the bank understood they had super-easy fee income if they kept assets low-key.

It seems like they were being as conservative as the could, but risk management doesn't pay well and often gets ignored. I'd bet a lot of money that someone high up thought that treasuries = safety and they either ignored opposing views or those views just weren't aired

It's not clear that even a proactive risk assessment would have caught that long term US bonds would cause the bank to fail. Bonds are very low risk. And at the time they bought them, this would have looked to be among the most conservative options.

Im an R and listening to R news and the take is basically "well they were driven by ESG and focused too much on woke stuff." That may well be true, but the investments were in long term US bonds, not used as venture capital. I'm going to need to see a fuller case against these bankers. Some risk is acceptable-- it is part of life. I havent seen any case made yet that their investments were unwise.

I’m guessing PP wasn’t involved in finance the last time interest rates were rising quickly. This was to be expected and they did manage the cash tsunami poorly.

They bought these in 2020 when the market was tanking.

Ive never been involved in investment banking, so this may seem like a simple mistake to a pro. But no one is laying out the case that they should have foreseen hyperinflation. There may be a case, but no one is making it.

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.

Ok, but was this foreseeable in 2020?

Not necessarily, but when the Fed first signaled rate hikes they could have done a lot to offset the high-duration HTM portfolio and strengthen their overall position. Like take on some negative duration swaps where they pay fixed and receive floating. But those kinds of trades would reduce earnings and since management’s compensation is based on earnings, they naturally chose not to do that.

So negligent. There are small agricultural banks that hedge their commodity risks with derivatives, but somehow a $200 billion bank with $115 billion in interest rate risk laden securities could only manage to do $5 billion in gross notional interest rate derivatives.

That's a hugely different type or risk.

In this case their risk was people withdrawing large amounts of deposits. The duration risk on their treasuries could only be triggered by a massive immediate historic liquidity event. Something on the scale of tens of billions. The risk part of their portfolio was relatively safe since it was built on doing win-win financial favors for venture capital. They thought they were part of the team. Turns out that they're not.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The taxpayers will ultimately backstop these bad bonds owned by banks without proper hedging protocol

Uh, only if the fed turns around and tries to sell the bond on the open market. If they just hold it to duration (which they almost certainly will), then they haven't lost anything.

Exactly.

It is amazing the legnths the right is going to right now to cause misinformation and uncertainty in our financial markets.

It's like they want a crash to hurt Biden.

While there’s clearly right-wing noise (and a few folks yelling ‘fire’), fact is that they were going to be taking loses on long-dated assets regardless. HTM was never a viable path out of this, at least absent lower rates.

I still don’t understand SVB’s strategy. They had a robust corporate treasury….wtf were they thinking? Everyone knew the Fed was about to embark on a long journey of interest rate hikes and SVB decided to load up on long dated assets after 3x their deposits in 18 months. They didn’t even try to hedge their interest rate risk with derivatives.

It like they did all of this on purpose. I still can’t figure it out.

They got a massive influx of deposits in 2020 during ZIRP and thanks to ZIRP. They turned around and put those deposits into treasuries at one of the worst times possible. There are almost 4,500 FDIC insured banks; I'm be shocked if some of them didn't make terrible risk management decisions from time to time. This one likely would have flown under the radar if SVB was just a normal community bank, but once VC funds told their companies to pull out, it was over

The VC money tsunami acted like leverage: all decisions were genius in good times…and foolish in bad times. Given their role in being essentially treasury for the VC ecosystem makes me wonder if anyone at the bank understood they had super-easy fee income if they kept assets low-key.

It seems like they were being as conservative as the could, but risk management doesn't pay well and often gets ignored. I'd bet a lot of money that someone high up thought that treasuries = safety and they either ignored opposing views or those views just weren't aired

It's not clear that even a proactive risk assessment would have caught that long term US bonds would cause the bank to fail. Bonds are very low risk. And at the time they bought them, this would have looked to be among the most conservative options.

Im an R and listening to R news and the take is basically "well they were driven by ESG and focused too much on woke stuff." That may well be true, but the investments were in long term US bonds, not used as venture capital. I'm going to need to see a fuller case against these bankers. Some risk is acceptable-- it is part of life. I havent seen any case made yet that their investments were unwise.

I’m guessing PP wasn’t involved in finance the last time interest rates were rising quickly. This was to be expected and they did manage the cash tsunami poorly.

They bought these in 2020 when the market was tanking.

Ive never been involved in investment banking, so this may seem like a simple mistake to a pro. But no one is laying out the case that they should have foreseen hyperinflation. There may be a case, but no one is making it.

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.

Ok, but was this foreseeable in 2020?

Not necessarily, but when the Fed first signaled rate hikes they could have done a lot to offset the high-duration HTM portfolio and strengthen their overall position. Like take on some negative duration swaps where they pay fixed and receive floating. But those kinds of trades would reduce earnings and since management’s compensation is based on earnings, they naturally chose not to do that.

So negligent. There are small agricultural banks that hedge their commodity risks with derivatives, but somehow a $200 billion bank with $115 billion in interest rate risk laden securities could only manage to do $5 billion in gross notional interest rate derivatives.

That's a hugely different type or risk.

In this case their risk was people withdrawing large amounts of deposits. The duration risk on their treasuries could only be triggered by a massive immediate historic liquidity event. Something on the scale of tens of billions. The risk part of their portfolio was relatively safe since it was built on doing win-win financial favors for venture capital. They thought they were part of the team. Turns out that they're not.

I can agree to disagree. They were running huge interest rate risk. And by stuffing most of their securities into HTM, they were running huge liquidity risk because they could not sell even one security without bringing on insolvency . Not managing these kinds of risk risks is what can cause run risk to emerge.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The taxpayers will ultimately backstop these bad bonds owned by banks without proper hedging protocol

Uh, only if the fed turns around and tries to sell the bond on the open market. If they just hold it to duration (which they almost certainly will), then they haven't lost anything.

Exactly.

It is amazing the legnths the right is going to right now to cause misinformation and uncertainty in our financial markets.

It's like they want a crash to hurt Biden.

While there’s clearly right-wing noise (and a few folks yelling ‘fire’), fact is that they were going to be taking loses on long-dated assets regardless. HTM was never a viable path out of this, at least absent lower rates.

I still don’t understand SVB’s strategy. They had a robust corporate treasury….wtf were they thinking? Everyone knew the Fed was about to embark on a long journey of interest rate hikes and SVB decided to load up on long dated assets after 3x their deposits in 18 months. They didn’t even try to hedge their interest rate risk with derivatives.

It like they did all of this on purpose. I still can’t figure it out.

They got a massive influx of deposits in 2020 during ZIRP and thanks to ZIRP. They turned around and put those deposits into treasuries at one of the worst times possible. There are almost 4,500 FDIC insured banks; I'm be shocked if some of them didn't make terrible risk management decisions from time to time. This one likely would have flown under the radar if SVB was just a normal community bank, but once VC funds told their companies to pull out, it was over

The VC money tsunami acted like leverage: all decisions were genius in good times…and foolish in bad times. Given their role in being essentially treasury for the VC ecosystem makes me wonder if anyone at the bank understood they had super-easy fee income if they kept assets low-key.

It seems like they were being as conservative as the could, but risk management doesn't pay well and often gets ignored. I'd bet a lot of money that someone high up thought that treasuries = safety and they either ignored opposing views or those views just weren't aired

It's not clear that even a proactive risk assessment would have caught that long term US bonds would cause the bank to fail. Bonds are very low risk. And at the time they bought them, this would have looked to be among the most conservative options.

Im an R and listening to R news and the take is basically "well they were driven by ESG and focused too much on woke stuff." That may well be true, but the investments were in long term US bonds, not used as venture capital. I'm going to need to see a fuller case against these bankers. Some risk is acceptable-- it is part of life. I havent seen any case made yet that their investments were unwise.

I’m guessing PP wasn’t involved in finance the last time interest rates were rising quickly. This was to be expected and they did manage the cash tsunami poorly.

They bought these in 2020 when the market was tanking.

Ive never been involved in investment banking, so this may seem like a simple mistake to a pro. But no one is laying out the case that they should have foreseen hyperinflation. There may be a case, but no one is making it.

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.

Ok, but was this foreseeable in 2020?

Not necessarily, but when the Fed first signaled rate hikes they could have done a lot to offset the high-duration HTM portfolio and strengthen their overall position. Like take on some negative duration swaps where they pay fixed and receive floating. But those kinds of trades would reduce earnings and since management’s compensation is based on earnings, they naturally chose not to do that.

So negligent. There are small agricultural banks that hedge their commodity risks with derivatives, but somehow a $200 billion bank with $115 billion in interest rate risk laden securities could only manage to do $5 billion in gross notional interest rate derivatives.

That's a hugely different type or risk.

In this case their risk was people withdrawing large amounts of deposits. The duration risk on their treasuries could only be triggered by a massive immediate historic liquidity event. Something on the scale of tens of billions. The risk part of their portfolio was relatively safe since it was built on doing win-win financial favors for venture capital. They thought they were part of the team. Turns out that they're not.

I can agree to disagree. They were running huge interest rate risk. And by stuffing most of their securities into HTM, they were running huge liquidity risk because they could not sell even one security without bringing on insolvency . Not managing these kinds of risk risks is what can cause run risk to emerge.

So then what about Signature?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

How about we learn from history?

I’m not a Trumpian or a supporter of loose regulations, but regulations aren’t meant to create a perfect system where nothing goes wrong. Regulations are burdensome and they require a lot of time and money to fulfill them, and a lot of taxpayer money to hire analysts to review them. There’s nothing inherently wrong with saying, the overall banking industry is positioned well, let’s subject the big banks to these regulations and let the ones who pose less systemic risk not do them if they don’t want to.

In this case, a couple of poorly managed banks failed. The FDIC stepped in and did their jobs and the taxpayer will likely not pay a cent.

I bet it costs a lot less than the various bailouts and corresponding economic losses.

Cost to who? This is not costing the taxpayers. It is costing other banks. And if those banks think the costs are too high, they can advocate to increase regulations. Right now they consistently lobby to reduce regulations, but maybe this event will change their calculus. I doubt it though.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The taxpayers will ultimately backstop these bad bonds owned by banks without proper hedging protocol

Uh, only if the fed turns around and tries to sell the bond on the open market. If they just hold it to duration (which they almost certainly will), then they haven't lost anything.

Exactly.

It is amazing the legnths the right is going to right now to cause misinformation and uncertainty in our financial markets.

It's like they want a crash to hurt Biden.

While there’s clearly right-wing noise (and a few folks yelling ‘fire’), fact is that they were going to be taking loses on long-dated assets regardless. HTM was never a viable path out of this, at least absent lower rates.

I still don’t understand SVB’s strategy. They had a robust corporate treasury….wtf were they thinking? Everyone knew the Fed was about to embark on a long journey of interest rate hikes and SVB decided to load up on long dated assets after 3x their deposits in 18 months. They didn’t even try to hedge their interest rate risk with derivatives.

It like they did all of this on purpose. I still can’t figure it out.

They got a massive influx of deposits in 2020 during ZIRP and thanks to ZIRP. They turned around and put those deposits into treasuries at one of the worst times possible. There are almost 4,500 FDIC insured banks; I'm be shocked if some of them didn't make terrible risk management decisions from time to time. This one likely would have flown under the radar if SVB was just a normal community bank, but once VC funds told their companies to pull out, it was over

The VC money tsunami acted like leverage: all decisions were genius in good times…and foolish in bad times. Given their role in being essentially treasury for the VC ecosystem makes me wonder if anyone at the bank understood they had super-easy fee income if they kept assets low-key.

It seems like they were being as conservative as the could, but risk management doesn't pay well and often gets ignored. I'd bet a lot of money that someone high up thought that treasuries = safety and they either ignored opposing views or those views just weren't aired

It's not clear that even a proactive risk assessment would have caught that long term US bonds would cause the bank to fail. Bonds are very low risk. And at the time they bought them, this would have looked to be among the most conservative options.

Im an R and listening to R news and the take is basically "well they were driven by ESG and focused too much on woke stuff." That may well be true, but the investments were in long term US bonds, not used as venture capital. I'm going to need to see a fuller case against these bankers. Some risk is acceptable-- it is part of life. I havent seen any case made yet that their investments were unwise.

I’m guessing PP wasn’t involved in finance the last time interest rates were rising quickly. This was to be expected and they did manage the cash tsunami poorly.

They bought these in 2020 when the market was tanking.

Ive never been involved in investment banking, so this may seem like a simple mistake to a pro. But no one is laying out the case that they should have foreseen hyperinflation. There may be a case, but no one is making it.

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.

Ok, but was this foreseeable in 2020?

Not necessarily, but when the Fed first signaled rate hikes they could have done a lot to offset the high-duration HTM portfolio and strengthen their overall position. Like take on some negative duration swaps where they pay fixed and receive floating. But those kinds of trades would reduce earnings and since management’s compensation is based on earnings, they naturally chose not to do that.

So negligent. There are small agricultural banks that hedge their commodity risks with derivatives, but somehow a $200 billion bank with $115 billion in interest rate risk laden securities could only manage to do $5 billion in gross notional interest rate derivatives.

That's a hugely different type or risk.

In this case their risk was people withdrawing large amounts of deposits. The duration risk on their treasuries could only be triggered by a massive immediate historic liquidity event. Something on the scale of tens of billions. The risk part of their portfolio was relatively safe since it was built on doing win-win financial favors for venture capital. They thought they were part of the team. Turns out that they're not.

What you wrote makes 0 sense. The bank run was triggered by them having high interest rate risk. Thiel & his coven saw weakness and decided to pounce.

[Anonymous]

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Anonymous wrote:The taxpayers will ultimately backstop these bad bonds owned by banks without proper hedging protocol

Uh, only if the fed turns around and tries to sell the bond on the open market. If they just hold it to duration (which they almost certainly will), then they haven't lost anything.

Exactly.

It is amazing the legnths the right is going to right now to cause misinformation and uncertainty in our financial markets.

It's like they want a crash to hurt Biden.

While there’s clearly right-wing noise (and a few folks yelling ‘fire’), fact is that they were going to be taking loses on long-dated assets regardless. HTM was never a viable path out of this, at least absent lower rates.

I still don’t understand SVB’s strategy. They had a robust corporate treasury….wtf were they thinking? Everyone knew the Fed was about to embark on a long journey of interest rate hikes and SVB decided to load up on long dated assets after 3x their deposits in 18 months. They didn’t even try to hedge their interest rate risk with derivatives.

It like they did all of this on purpose. I still can’t figure it out.

They got a massive influx of deposits in 2020 during ZIRP and thanks to ZIRP. They turned around and put those deposits into treasuries at one of the worst times possible. There are almost 4,500 FDIC insured banks; I'm be shocked if some of them didn't make terrible risk management decisions from time to time. This one likely would have flown under the radar if SVB was just a normal community bank, but once VC funds told their companies to pull out, it was over

The VC money tsunami acted like leverage: all decisions were genius in good times…and foolish in bad times. Given their role in being essentially treasury for the VC ecosystem makes me wonder if anyone at the bank understood they had super-easy fee income if they kept assets low-key.

It seems like they were being as conservative as the could, but risk management doesn't pay well and often gets ignored. I'd bet a lot of money that someone high up thought that treasuries = safety and they either ignored opposing views or those views just weren't aired

It's not clear that even a proactive risk assessment would have caught that long term US bonds would cause the bank to fail. Bonds are very low risk. And at the time they bought them, this would have looked to be among the most conservative options.

Im an R and listening to R news and the take is basically "well they were driven by ESG and focused too much on woke stuff." That may well be true, but the investments were in long term US bonds, not used as venture capital. I'm going to need to see a fuller case against these bankers. Some risk is acceptable-- it is part of life. I havent seen any case made yet that their investments were unwise.

I’m guessing PP wasn’t involved in finance the last time interest rates were rising quickly. This was to be expected and they did manage the cash tsunami poorly.

They bought these in 2020 when the market was tanking.

Ive never been involved in investment banking, so this may seem like a simple mistake to a pro. But no one is laying out the case that they should have foreseen hyperinflation. There may be a case, but no one is making it.

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.

Ok, but was this foreseeable in 2020?

Not necessarily, but when the Fed first signaled rate hikes they could have done a lot to offset the high-duration HTM portfolio and strengthen their overall position. Like take on some negative duration swaps where they pay fixed and receive floating. But those kinds of trades would reduce earnings and since management’s compensation is based on earnings, they naturally chose not to do that.

So negligent. There are small agricultural banks that hedge their commodity risks with derivatives, but somehow a $200 billion bank with $115 billion in interest rate risk laden securities could only manage to do $5 billion in gross notional interest rate derivatives.

That's a hugely different type or risk.

In this case their risk was people withdrawing large amounts of deposits. The duration risk on their treasuries could only be triggered by a massive immediate historic liquidity event. Something on the scale of tens of billions. The risk part of their portfolio was relatively safe since it was built on doing win-win financial favors for venture capital. They thought they were part of the team. Turns out that they're not.

What you wrote makes 0 sense. The bank run was triggered by them having high interest rate risk. Thiel & his coven saw weakness and decided to pounce.

Pp said the same as you but with more explanation.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:The taxpayers will ultimately backstop these bad bonds owned by banks without proper hedging protocol

Uh, only if the fed turns around and tries to sell the bond on the open market. If they just hold it to duration (which they almost certainly will), then they haven't lost anything.

Exactly.

It is amazing the legnths the right is going to right now to cause misinformation and uncertainty in our financial markets.

It's like they want a crash to hurt Biden.

While there’s clearly right-wing noise (and a few folks yelling ‘fire’), fact is that they were going to be taking loses on long-dated assets regardless. HTM was never a viable path out of this, at least absent lower rates.

I still don’t understand SVB’s strategy. They had a robust corporate treasury….wtf were they thinking? Everyone knew the Fed was about to embark on a long journey of interest rate hikes and SVB decided to load up on long dated assets after 3x their deposits in 18 months. They didn’t even try to hedge their interest rate risk with derivatives.

It like they did all of this on purpose. I still can’t figure it out.

They got a massive influx of deposits in 2020 during ZIRP and thanks to ZIRP. They turned around and put those deposits into treasuries at one of the worst times possible. There are almost 4,500 FDIC insured banks; I'm be shocked if some of them didn't make terrible risk management decisions from time to time. This one likely would have flown under the radar if SVB was just a normal community bank, but once VC funds told their companies to pull out, it was over

The VC money tsunami acted like leverage: all decisions were genius in good times…and foolish in bad times. Given their role in being essentially treasury for the VC ecosystem makes me wonder if anyone at the bank understood they had super-easy fee income if they kept assets low-key.

It seems like they were being as conservative as the could, but risk management doesn't pay well and often gets ignored. I'd bet a lot of money that someone high up thought that treasuries = safety and they either ignored opposing views or those views just weren't aired

It's not clear that even a proactive risk assessment would have caught that long term US bonds would cause the bank to fail. Bonds are very low risk. And at the time they bought them, this would have looked to be among the most conservative options.

Im an R and listening to R news and the take is basically "well they were driven by ESG and focused too much on woke stuff." That may well be true, but the investments were in long term US bonds, not used as venture capital. I'm going to need to see a fuller case against these bankers. Some risk is acceptable-- it is part of life. I havent seen any case made yet that their investments were unwise.

I’m guessing PP wasn’t involved in finance the last time interest rates were rising quickly. This was to be expected and they did manage the cash tsunami poorly.

They bought these in 2020 when the market was tanking.

Ive never been involved in investment banking, so this may seem like a simple mistake to a pro. But no one is laying out the case that they should have foreseen hyperinflation. There may be a case, but no one is making it.

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.

Ok, but was this foreseeable in 2020?

Not necessarily, but when the Fed first signaled rate hikes they could have done a lot to offset the high-duration HTM portfolio and strengthen their overall position. Like take on some negative duration swaps where they pay fixed and receive floating. But those kinds of trades would reduce earnings and since management’s compensation is based on earnings, they naturally chose not to do that.

So negligent. There are small agricultural banks that hedge their commodity risks with derivatives, but somehow a $200 billion bank with $115 billion in interest rate risk laden securities could only manage to do $5 billion in gross notional interest rate derivatives.

That's a hugely different type or risk.

In this case their risk was people withdrawing large amounts of deposits. The duration risk on their treasuries could only be triggered by a massive immediate historic liquidity event. Something on the scale of tens of billions. The risk part of their portfolio was relatively safe since it was built on doing win-win financial favors for venture capital. They thought they were part of the team. Turns out that they're not.

They had a ‘historic liquidity event’ because they had 1) a ridiculous book of assets and 2) ridiculous funding in the form of mondo (uninsured) deposits that could jump ship at any time. Two horrible management decisions that created (short-term) massive profits and big management bonuses.

[Anonymous]

Bankers: Deregulate!
Also Bankers: save us, federal government!

There are no libertarians in fox holes.

[Anonymous]

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How about we learn from history?

I’m not a Trumpian or a supporter of loose regulations, but regulations aren’t meant to create a perfect system where nothing goes wrong. Regulations are burdensome and they require a lot of time and money to fulfill them, and a lot of taxpayer money to hire analysts to review them. There’s nothing inherently wrong with saying, the overall banking industry is positioned well, let’s subject the big banks to these regulations and let the ones who pose less systemic risk not do them if they don’t want to.

In this case, a couple of poorly managed banks failed. The FDIC stepped in and did their jobs and the taxpayer will likely not pay a cent.

I bet it costs a lot less than the various bailouts and corresponding economic losses.

+1 In the IT world, we have internal "regulations" for a reason. It's burdensome; it's annoying, but it's there for a reason, namely to safeguard the internal infrastructure, financials, and customer information.

Similarly, the banking industry absolutely needs regulation for all the same reasons.