Reply to SVB Bank Run: Fed Calling Emergency Meeting

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]So there are all of these libertarians etc calling on the Fed/FDIC to basically take over and secure the bank.

Keep in mind, this i only happening because Trump totally gutted regulations that would have prevented this from happening. So we are going to get a massive bailout for Silicon Valley Bank and yet people complain about a few thousand dollars in bailouts for student loans.[/quote]

For one, the FDIC already took over the bank around 24 hours ago

Two, this is not caused by Trump gutting regulations. The cause was interest rate risk- recall people deposit money at banks and they turn around and lend money, in this case in the form of MBS and treasuries. The fed kept interest rates too low for too long and then they hiked rates precipitously, which caused huge losses for the bank on those securities that were purchased when interest rates were much lower[/quote]

SVB would have been subject to a Dodd-Frank requirement for a stress test that likely would have uncovered this risk, but Trump and GOP congress removed that requirement for banks of this size in 2018.[/quote]

Uncover risk? How about we uncover that FDIC can only cover 3 to 4 percent of holdings if many banks go at once? Is Dodd-Frank going to fix FDIC?[/quote]

So you want to increase deposit insurance fees on banks? Go for it, I’ll support you.[/quote]

No, I want the reserve requirements to be much higher than a few percentage points.

IOW, rely less on bailouts and don't cause the problem in the first place.[/quote]

Reserve requirements and the percentage of insured deposits are two entirely separate things.[/quote]

Of course. Did I say otherwise? Do I stutter?

I want the reserve requirements on accounts for the banks raised. The amount they have to hold back and not lend.

Deposit insurance does not need to be changed.[/quote]

Eh, I don’t think raising reserve requirements would’ve done much. It wouldn’t have been politically feasible to raise them as much as necessary to prevent SVB’s bank run. Remember, the last year the story has been about how well the banks weathered COVID. Credit quality wasn’t an issue, large banks are in an excellent liquidity position.

The SVB story is about a bank that couldn’t properly risk manage hot money flows, while skirting necessary stress testing and liquidity requirements that would’ve prevented the bank run due to midsized bank de-regulation in 2018. [/quote]

The stress tests for interest rate risk were not severe enough to have caught SVB, and the bank would have passed the liquidity requirements easily--60% of its balance sheet was in securities, mostly governments.[/quote]

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