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> by most accounts, the fed is going to do another 50bps hike nex Is this one possibly one of the 'the Fed broke something' scenarios that might lead to quicke

> by most accounts, the fed is going to do another 50bps hike nex Is this one possibly one of the 'the Fed broke something' scenarios that might lead to quicker rate cuts ?

alfalfasprout 4y ago
Not really. It's like a child repeatedly telling you they're going to pour some cranberry juice in a container. Then pouring some. Then telling you exactly how much more they're going to pour next time. Then they pour that. Then again. And being surprised when it overflows and stains your carpet. SVB had plenty of warning to sell securities. They didn't even have to do it overnight. They had plenty of time to slowly roll-over their bonds and sell MBS. This wasn't a surprise "gotcha" by the fed.
opportune 4y ago
It depends on how much agency you ascribe to the SVB team, and things could very well have been more complicated than the commentariat gives them credit for, but this was all happening in slow motion over months/a year (with an extra year before then when the writing was more or less on the wall). SVB probably should have realized that continued interest rate cuts were gonna nuke their MBS, and sold them at a loss earlier, so they could recapitalize in safer instruments like short term treasuries. What I’m learning about reserve requirements is that this would have actually reduced their “assets in reserve” though because they were allowed to use the maturity price of the MBS for that accounting. So selling them at a loss and buying short term treasuries would have reduced the amount of assets in reserve by that calculation, even though it would have been the same amount of assets (at the time of the transaction) in mark-to-market value AND safer against further interest rate increases. I’m guessing this dilemma at some point got so bad that they literally could not recapitalize anymore without becoming insolvent, at which point their only option was to hold the MBS through further losses

> by most accounts, the fed is going to do another 50bps hike nex Is this one possibly one of the 'the Fed broke something' scenarios that might lead to quicker rate cuts ?

alfalfasprout 4y ago

Not really. It's like a child repeatedly telling you they're going to pour some cranberry juice in a container. Then pouring some. Then telling you exactly how much more they're going to pour next time. Then they pour that. Then again. And being surprised when it overflows and stains your carpet. SVB had plenty of warning to sell securities. They didn't even have to do it overnight. They had plenty of time to slowly roll-over their bonds and sell MBS. This wasn't a surprise "gotcha" by the fed.

opportune 4y ago

It depends on how much agency you ascribe to the SVB team, and things could very well have been more complicated than the commentariat gives them credit for, but this was all happening in slow motion over months/a year (with an extra year before then when the writing was more or less on the wall). SVB probably should have realized that continued interest rate cuts were gonna nuke their MBS, and sold them at a loss earlier, so they could recapitalize in safer instruments like short term treasuries. What I’m learning about reserve requirements is that this would have actually reduced their “assets in reserve” though because they were allowed to use the maturity price of the MBS for that accounting. So selling them at a loss and buying short term treasuries would have reduced the amount of assets in reserve by that calculation, even though it would have been the same amount of assets (at the time of the transaction) in mark-to-market value AND safer against further interest rate increases. I’m guessing this dilemma at some point got so bad that they literally could not recapitalize anymore without becoming insolvent, at which point their only option was to hold the MBS through further losses