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This logic is counterintuitive to me “As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital.

This logic is counterintuitive to me “As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital.”. Startups are not depositing the money in SVB to invest it, they are storing it for future use. Why the pressure to generate yield and grow the loan book “fast enough”? https://twitter.com/AhmadBaracat/status/1634293096639787008?s=20 https://twitter.com/AhmadBaracat/status/1634293096639787008?...

adam_arthur 4y ago
There was no explicit need or requirement for SVB to buy MBS at 1% yield, yes. Poor management handling too much money. They also could have hedged the interest rate risk. Likely there will be policy change as a result of this. Banks over some AUM requiring stricter regulations The Fed is complicit in encouraging moral hazard through distortion of the bond market. Pretty much every crisis in the modern era is precipitated by fed policy from years earlier
bryfb 4y ago
"The yield they wanted to see on this capital" I imagine is some combination of money needed to run operations of the bank, interest paid on the deposits and profit. They could have just stored the money in the proverbial vault. But if they do that, then they have to charge the depositors a fee to be a customer. And competition has pushed in the other direction. And probably more importantly that whole "profit" goal.
brightstep 4y ago
Because the bank, like all capitalist entities, exists to make a profit. Why else?
- ahmedbaracat 4y ago
  Can they make profit by charging customers a monthly fee in return for their services instead of investing the money?
zenlikethat 4y ago
Because if you lose 7% of capital on $180 billion in real terms that’s an awkward conversation with your boss?
- HDThoreaun 4y ago
  Bank accounts were paying .1% interest at this time. SVB could've bought 1 year bonds and made .5-1% easily. That's a billion dollars...
  - zenlikethat 4y ago
    They didn't think they were gonna sell the assets before maturity. In that case, buying those makes sense.

adam_arthur 4y ago

There was no explicit need or requirement for SVB to buy MBS at 1% yield, yes. Poor management handling too much money. They also could have hedged the interest rate risk. Likely there will be policy change as a result of this. Banks over some AUM requiring stricter regulations The Fed is complicit in encouraging moral hazard through distortion of the bond market. Pretty much every crisis in the modern era is precipitated by fed policy from years earlier

bryfb 4y ago

"The yield they wanted to see on this capital" I imagine is some combination of money needed to run operations of the bank, interest paid on the deposits and profit. They could have just stored the money in the proverbial vault. But if they do that, then they have to charge the depositors a fee to be a customer. And competition has pushed in the other direction. And probably more importantly that whole "profit" goal.

brightstep 4y ago

Because the bank, like all capitalist entities, exists to make a profit. Why else?

ahmedbaracat 4y ago
Can they make profit by charging customers a monthly fee in return for their services instead of investing the money?

zenlikethat 4y ago

Because if you lose 7% of capital on $180 billion in real terms that’s an awkward conversation with your boss?

HDThoreaun 4y ago
Bank accounts were paying .1% interest at this time. SVB could've bought 1 year bonds and made .5-1% easily. That's a billion dollars...
- zenlikethat 4y ago
  They didn't think they were gonna sell the assets before maturity. In that case, buying those makes sense.