Anonymous wrote:

Anonymous wrote:So this SVB situation is going over my head.

I follow @yourrich.bff on IG. She did a great job of explaining what happened to SVB, in a very simple, easy to understand way

https://www.instagram.com/p/CpqU7Mag4vS/

She almost gets it right.

She is just parroting the many articles available online to explain WHAT happened with a partial understanding and explanation of WHY it happened.

Anonymous wrote:So this SVB situation is going over my head.

I follow @yourrich.bff on IG. She did a great job of explaining what happened to SVB, in a very simple, easy to understand way

https://www.instagram.com/p/CpqU7Mag4vS/

Anonymous wrote:SVB was well enough capitalized that the why and the what are the same thing

Nope ! This is not an issue of being adequately or inadequately capitalized.

This issue is exactly that stated in the thread tile: "I don't know how banks work." And, clearly, the officers and directors of SVB do not know & understand how banks work.

Capitalization is just one part of a bank's operations. Adequate capitalization is different than PROPER capitalization.

SVB would have been "well enough capitalized" (to use your words) if the maturity date of the investments (long-term government treasuries) matched the maturity date of the deposits. But, checking accounts and savings accounts are on-demand accounts without a specific maturity date. So SVB's excessive investment in long-term bonds was poor management of the bank's deposits relative to the liquidity rights of the bank's depositors.

SVB was well enough capitalized that the why and the what are the same thing

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:SVB's directors took a gamble that the Federal Reserve would not raise interest rates [by investing depositors' money in low yielding, long-term US Government Treasury bonds.

When depositors wanted their money to invest elsewhere for a higher return or to use in their businesses, SVB had to sell these long-term government bond investments at a loss because interest rates had risen substantially--just as the federal reserve repeatedly told the world that it would do.

In short, the officers and directors of SVB put all of their eggs in one basket and this gamble did not pay off. And the entire world--except for SVB officers and directors--knew that such a gamble of placing a large bet on low yielding, long-term government treasuries was destined for failure.

They also had way too much depositer risk. Highly concentrated interconnected depositers withdrew tens of billions of dollars all at the same time. Any bank would fail if 1/3 of their deposits were pulled on a single day.

Wow ! You really do not understand. Just wow.

PP described exactly what happened to SVB. There was a small whiff of trouble, but nothing that is unusual. Unfortunately for SVB, they heavily relied on on VC funded tech start up. Once the VC funds started advising their companies to pull funds, it turned into a bank run

Good Lord.

We see things on a different level.

You and the previous poster to whom you refer are describing WHAT happened while I am sharing WHY it happened.

If you want to avoid the same result, the WHAT does NOT matter, the WHY does.

Simple example: Car crash. What happened = damage to car bumpers. Why it happened = brake failure. If you just know what happened, it is likely to happen again; but, if you know why something happened, the problem can be corrected so that the situation is far less likely to occur again.

There are a couple of threads regarding tattoos that warrant mentioning in this thread.

The tattoo threads ask for readers opinions about tattoos.

I dislike tattoos, but in the SVB situation, I see a need for tattoos that would serve the public interest.

Each teller at SVB and all officers and directors of SVB should have clearly visible forehead tattoos that read STOOPID in order to give fair warning to the public.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:SVB's directors took a gamble that the Federal Reserve would not raise interest rates [by investing depositors' money in low yielding, long-term US Government Treasury bonds.

When depositors wanted their money to invest elsewhere for a higher return or to use in their businesses, SVB had to sell these long-term government bond investments at a loss because interest rates had risen substantially--just as the federal reserve repeatedly told the world that it would do.

In short, the officers and directors of SVB put all of their eggs in one basket and this gamble did not pay off. And the entire world--except for SVB officers and directors--knew that such a gamble of placing a large bet on low yielding, long-term government treasuries was destined for failure.

They also had way too much depositer risk. Highly concentrated interconnected depositers withdrew tens of billions of dollars all at the same time. Any bank would fail if 1/3 of their deposits were pulled on a single day.

Wow ! You really do not understand. Just wow.

PP described exactly what happened to SVB. There was a small whiff of trouble, but nothing that is unusual. Unfortunately for SVB, they heavily relied on on VC funded tech start up. Once the VC funds started advising their companies to pull funds, it turned into a bank run

Anonymous wrote:

Anonymous wrote:SVB's directors took a gamble that the Federal Reserve would not raise interest rates [by investing depositors' money in low yielding, long-term US Government Treasury bonds.

When depositors wanted their money to invest elsewhere for a higher return or to use in their businesses, SVB had to sell these long-term government bond investments at a loss because interest rates had risen substantially--just as the federal reserve repeatedly told the world that it would do.

In short, the officers and directors of SVB put all of their eggs in one basket and this gamble did not pay off. And the entire world--except for SVB officers and directors--knew that such a gamble of placing a large bet on low yielding, long-term government treasuries was destined for failure.

They also had way too much depositer risk. Highly concentrated interconnected depositers withdrew tens of billions of dollars all at the same time. Any bank would fail if 1/3 of their deposits were pulled on a single day.

Wow ! You really do not understand. Just wow.

Anonymous wrote:SVB's directors took a gamble that the Federal Reserve would not raise interest rates [by investing depositors' money in low yielding, long-term US Government Treasury bonds.

When depositors wanted their money to invest elsewhere for a higher return or to use in their businesses, SVB had to sell these long-term government bond investments at a loss because interest rates had risen substantially--just as the federal reserve repeatedly told the world that it would do.

In short, the officers and directors of SVB put all of their eggs in one basket and this gamble did not pay off. And the entire world--except for SVB officers and directors--knew that such a gamble of placing a large bet on low yielding, long-term government treasuries was destined for failure.

They also had way too much depositer risk. Highly concentrated interconnected depositers withdrew tens of billions of dollars all at the same time. Any bank would fail if 1/3 of their deposits were pulled on a single day.

Also, do not blame the failure of SVB bank on depositors demands for their funds--otherwise known as a "run on the bank".

If, as a business or individual, one can safely invest their money at an interest rate of less than one (1%) percent or at at an interest rate of five (5%) percent without any additional investment risk whatsoever, any rational investor will move their money from the 1% account to the 5% account. Banks know this. Banks also know that interest rates change. So, if there was a "run on the bank" at SVB, it was caused by the incredible stupidity of the officers and directors of SVB bank.

Blame the failure of SVB on the incredibly lazy, stupid investment practices of SVB's officers and directors.

SVB's directors took a gamble that the Federal Reserve would not raise interest rates [by investing depositors' money in low yielding, long-term US Government Treasury bonds.

When depositors wanted their money to invest elsewhere for a higher return or to use in their businesses, SVB had to sell these long-term government bond investments at a loss because interest rates had risen substantially--just as the federal reserve repeatedly told the world that it would do.

In short, the officers and directors of SVB put all of their eggs in one basket and this gamble did not pay off. And the entire world--except for SVB officers and directors--knew that such a gamble of placing a large bet on low yielding, long-term government treasuries was destined for failure.

Anonymous wrote:So this SVB situation is going over my head.

The SVB situation is quite simple.

The bank placed itself in a precarious situation due to stupidity.

The management of the bank by its officers and board of directors is, in polite terms, referred to as "poor management".

The idiots running/managing the bank funds invested in long term, low interest rate government bonds in a rising interest rate environment.

Somewhat doubtful that more regulation can eliminate the type of lazy, half-witted stupidity exhibited by the managers and directors of this bank.

SVB bank officers spent the last month focusing on preparations for a LGBTQ+ celebration rather than focusing on the safe, proper, and efficient running of the bank.

When interest rates rose--just as the federal reserve had been telling the financial markets for many, many months--any low interest rate long term bond investments would be sold at significant losses in order to meet liquidity demands of the bank's depositers.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Apparently neither do the financial regulators.

Blame Trump-era roll-back of the regulations that would have prevented this.

In the case of SVB they would not have. They would not have been caught in the adverse interest rate scenario and they would have more than met the liquidity requirement.


Regulation is not a magic bullet.

You keep saying that but it is not true.

Ponzi

Historian Heather Cox Richardson does a great job of explaining what happened and why it happened, in plain English:

https://heathercoxrichardson.substack.com/p/march-12-2023?utm_source=substack&utm_medium=email