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People say that this SVB fail is isolated and idiosyncratic but I see a lot of stress in the system. If there's no solution to this debacle by Monday this is g

People say that this SVB fail is isolated and idiosyncratic but I see a lot of stress in the system. If there's no solution to this debacle by Monday this is going to keep cascading with no predictable trajectory of where it ends.

bitanarch 4y ago
The person who said SVB's situation is "idiosyncratic" is an employee of Wells Fargo - of course he would say that. Generally, banks run on confidence on the system - if any of the bank regulators or any of the major banks even flinch a little bit in front of the media right now, 10 more banks would probably fail tomorrow.
- brookst 4y ago
  Do you think it’s possible that someone working for Wells Fargo might actually know something about banking? Like, for instance, that 56% of SVB’s assets were long term fixed interest rate vehicles, compared to, IDK, 28% of Wells Fargo’s? [0] 0. https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run https://www.bloomberg.com/opinion/articles/2023-03-10/startu...
  - SilasX 4y ago
    Why do you think 28% vs 56% prevents insolvency when those assets took a 20% loss from rising interest rates?
    - vkou 4y ago
      Because held-to-maturity treasuries don't have to be marked down unless you start selling them, and because if you hold them to maturity, they will be worth exactly what they say on the tin. SVB's problem is that it can't hold them to maturity, it has to sell them today at firesale prices, because they already sold everything they have that's not marked held-to-maturity.
      - bagels 4y ago
        The same exact thing can happen to Wells.
        brookst 4y ago
        35 year old dies BASE jumping. “The same exact thing could happen to grandma!” Yes, it could, but it’s not especially meaningful to say that the same thing that happened to X could happen to Y if Y were tbe same as X. Seriously, read Matt Levine’s stuff about SVB. It was a different bank with different customers, different Fed regulations, different depositors, and a unique asset portfolio problem.
        bagels 4y ago
        The different customers is probably the most important difference really, because it'd be harder to cause a run vs the VCs telling their portfolio to get money out en masse on the same day.
        SilasX 4y ago
        Great, let’s pick up that metaphor. 35 year old dies BASE jumping. 34 year old BASE jumper says, “yeah he was taking on too much risk — that’s way too old to be BASE jumping.” 56% of assets in long term fixed rate loans is fatal. 26% is also fatal. The latter is not in a position to criticize the former’s excessive risk taking. A 5.6% hole in your balance sheet (20% loss on 28%) is still very bad for an institution that needs to satisfy demand deposits.
    - lottin 4y ago
      The percentages don't matter. Banks set aside a certain amount of capital for the only purpose of absorbing losses. A bank that is well-run will have allocated the right amount of capital in proportion to the risks that it has taken.
      - SilasX 4y ago
        The same could have been said of SVB. And, surprise, they didn’t set aside a loss buffer equal to 5.6% of deposits either, just to cover that part of the portfolio, because that’s not feasible.
        lottin 4y ago
        The job of any bank including SVB is to manage financial risk. If they can't do that, it means they can't do their job, and they deserve to go out of business.
        SilasX 4y ago
        What do you think your comments are adding to the discussion here? You’re going in circles and I don’t see the coherent point. The original criticism was that WF criticized SVB while still holding a sufficiently dangerous fraction of their portfolio in the same assets. If you’re not speaking to that criticism but just giving vague generalities about how banks need to manage risk right, then you don’t need to make a comment at all. Edit: Hit my comment rate limit so... Sorry, I don't see the answer -- again, you were just speaking in vague generalities about how "banks need to manage risk right". Doesn't get to the argument you need, which is "this why WF can suffer a 5.6% loss on its loan portfolio but still satisfy demand deposits, and why it's a difference in kind, not degree, from an 11.2% loss happening to SVB". The point was never that the percentage doesn't ever matter at all, but that both WF and SVB hold way too much in fixed rate long-term loans. So if we're really going to go there, I think the substantive points went over your own head. When you're ready to say something more informative than "it's a bank's job to manage risk", I'll be ready to learn from it and appreciate the insight you're bringing.
    - brookst 4y ago
      Nothing in the world “prevents insolvency”. But different investment strategies present different risks. For a bank with a high correlation between deposits and low interest rates, having more investments with strong alpha to low interest rates presents more risk. So, 28% is less risky than 56%, and Wells Fargo’s depositors have very different profiles than SVB, and WF is subject to the Fed’s liquidity rules that SVB was not. So, while there is no such thing as risk-free anything, they are such totally different animals that the only reason to act like WF is lying / making PR noises not based in reality is the underwhelming observation that they both have “bank” in their name. It’s a very low quality, knee-jerk, low-effort comment. That’s all. (I really dislike WF so if the new HN ethos is to make wild unfounded claims just because we don’t like a company, I guess I could get on the bandwagon.)
      - SilasX 4y ago
        I would say your comment is the low quality one, when the thread just sketched out[1] why WF’s “safe” level ought to be similarly fatal, and you’re just restating the obvious with a lecture about how 28% is safer than 56%, which was never in dispute. And for the kicker, you threw in an aside, which I hope is a joke, that we should say false things just because we don’t like the target. [1] Yes, my comment wasn’t explicit, but if you put in some effort and read the context or a sibling comment, you’ll see the justification.
  - bitanarch 4y ago
    If there's a general panic in the market and absolutely everyone demands cold, hard USD - no percentage will save them. Let's say you're the person who's speaking for Wells Fargo at that moment - you absolutely don't want to give the public any reason to test whether 28% is safe or not. 3 months later, when people are no longer panicking, and cooler heads want to start discussing what're the safety measures to put onto banks - maybe. But seriously not right now. Let's say you quote the 28% number to say your bank is maybe safer than SVB - but the moment the reporter asks whether 28% is safe enough or not, or how about another bank that have more or less, you'd probably realize you shouldn't have said too much already. So, at this moment... if you're a spokesperson for a bank or a bank regulator - "We're safe. SVB is a special case" is pretty much the only appropriate response right now.
  - ignoramous 4y ago
    > Do you think it's possible that someone working for Wells Fargo might actually know something about banking? Replace Wells Fargo with SI or SVB and you have your answer (which is, it isn't how much they know about the economy, but what they're really cooking with it).
- fallingknife 4y ago
  Matt Levine at Bloomberg, who really knows what he is talking about and doesn't work at a bank, explains here why the situation at SVB is fairly unique https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run https://www.bloomberg.com/opinion/articles/2023-03-10/startu...
lxm 4y ago
Matt Levine’s newsletter today assumes FDIC will forcefully step in to avoid repercussions down the road https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run https://www.bloomberg.com/opinion/articles/2023-03-10/startu... > One obvious question is: If you are “another, healthy bank” working through this weekend to buy SVB and assume its deposits, how much would you pay for the assets, which were worth $212 billion in December? 8 I am pretty sure the answer is higher than $8 billion, the amount of insured deposits: The FDIC will not be on the hook for the insured deposits. The $15 billion of FHLB advances are also quite senior and will presumably be no problem to pay back. > I would also guess — not investing or banking advice! — that the answer will also turn out to be higher than $188 billion, which is the total amount of deposits plus FHLB advances. I say this not because I have done a detailed analysis of SVB’s assets but because it seems bad for the FDIC to wind up a big high-profile bank in a way that causes significant losses for depositors, including uninsured depositors. There was a run on SVB in part because there hasn’t been a big bank run in a while, and people — venture capitalists, startups — were naturally worried that they might lose their deposits if their bank failed. Then the bank failed. > If it turns out to be true that they lose their deposits, there could be more bank runs
elif 4y ago
Part of me wonders what exactly were the toxic assets that pulled SVB under, and my gut feeling can't stop thinking it is that SVB is more exposed to startups than your average bank.. and that the next dominos, so to speak, will be startups seeking lending from banks. Mass layoffs, finance pulling out, feels very dot com bubble bursty to me.
- packetlost 4y ago
  Yeah, this feels very dotcom 2.0 ish. Capital has been drying up a lot over the last year or so and this is the type of thermonuclear event that flattens industries. I'm glad I have a good amount of savings.
- polio 4y ago
  What do you mean by "toxic assets"? My understanding is that the assets were long-term treasuries issued in 2021. They'd declined in value, as expected, because of interest rate increases that occurred afterwards. SVB is now unable to sell those bonds without losing money, and so would have to wait until maturity to get their money back.
BeFlatXIII 4y ago
Gene drives, mathematical induction, and cognition hazards for bank failures. I hope at least one of those is a reasonable analogy.

bitanarch 4y ago

The person who said SVB's situation is "idiosyncratic" is an employee of Wells Fargo - of course he would say that. Generally, banks run on confidence on the system - if any of the bank regulators or any of the major banks even flinch a little bit in front of the media right now, 10 more banks would probably fail tomorrow.

brookst 4y ago
Do you think it’s possible that someone working for Wells Fargo might actually know something about banking? Like, for instance, that 56% of SVB’s assets were long term fixed interest rate vehicles, compared to, IDK, 28% of Wells Fargo’s? [0] 0. https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run https://www.bloomberg.com/opinion/articles/2023-03-10/startu...
- SilasX 4y ago
  Why do you think 28% vs 56% prevents insolvency when those assets took a 20% loss from rising interest rates?
  - vkou 4y ago
    Because held-to-maturity treasuries don't have to be marked down unless you start selling them, and because if you hold them to maturity, they will be worth exactly what they say on the tin. SVB's problem is that it can't hold them to maturity, it has to sell them today at firesale prices, because they already sold everything they have that's not marked held-to-maturity.
    - bagels 4y ago
      The same exact thing can happen to Wells.
      - brookst 4y ago
        35 year old dies BASE jumping. “The same exact thing could happen to grandma!” Yes, it could, but it’s not especially meaningful to say that the same thing that happened to X could happen to Y if Y were tbe same as X. Seriously, read Matt Levine’s stuff about SVB. It was a different bank with different customers, different Fed regulations, different depositors, and a unique asset portfolio problem.
        bagels 4y ago
        The different customers is probably the most important difference really, because it'd be harder to cause a run vs the VCs telling their portfolio to get money out en masse on the same day.
        SilasX 4y ago
        Great, let’s pick up that metaphor. 35 year old dies BASE jumping. 34 year old BASE jumper says, “yeah he was taking on too much risk — that’s way too old to be BASE jumping.” 56% of assets in long term fixed rate loans is fatal. 26% is also fatal. The latter is not in a position to criticize the former’s excessive risk taking. A 5.6% hole in your balance sheet (20% loss on 28%) is still very bad for an institution that needs to satisfy demand deposits.
  - lottin 4y ago
    The percentages don't matter. Banks set aside a certain amount of capital for the only purpose of absorbing losses. A bank that is well-run will have allocated the right amount of capital in proportion to the risks that it has taken.
    - SilasX 4y ago
      The same could have been said of SVB. And, surprise, they didn’t set aside a loss buffer equal to 5.6% of deposits either, just to cover that part of the portfolio, because that’s not feasible.
      - lottin 4y ago
        The job of any bank including SVB is to manage financial risk. If they can't do that, it means they can't do their job, and they deserve to go out of business.
        SilasX 4y ago
        What do you think your comments are adding to the discussion here? You’re going in circles and I don’t see the coherent point. The original criticism was that WF criticized SVB while still holding a sufficiently dangerous fraction of their portfolio in the same assets. If you’re not speaking to that criticism but just giving vague generalities about how banks need to manage risk right, then you don’t need to make a comment at all. Edit: Hit my comment rate limit so... Sorry, I don't see the answer -- again, you were just speaking in vague generalities about how "banks need to manage risk right". Doesn't get to the argument you need, which is "this why WF can suffer a 5.6% loss on its loan portfolio but still satisfy demand deposits, and why it's a difference in kind, not degree, from an 11.2% loss happening to SVB". The point was never that the percentage doesn't ever matter at all, but that both WF and SVB hold way too much in fixed rate long-term loans. So if we're really going to go there, I think the substantive points went over your own head. When you're ready to say something more informative than "it's a bank's job to manage risk", I'll be ready to learn from it and appreciate the insight you're bringing.
  - brookst 4y ago
    Nothing in the world “prevents insolvency”. But different investment strategies present different risks. For a bank with a high correlation between deposits and low interest rates, having more investments with strong alpha to low interest rates presents more risk. So, 28% is less risky than 56%, and Wells Fargo’s depositors have very different profiles than SVB, and WF is subject to the Fed’s liquidity rules that SVB was not. So, while there is no such thing as risk-free anything, they are such totally different animals that the only reason to act like WF is lying / making PR noises not based in reality is the underwhelming observation that they both have “bank” in their name. It’s a very low quality, knee-jerk, low-effort comment. That’s all. (I really dislike WF so if the new HN ethos is to make wild unfounded claims just because we don’t like a company, I guess I could get on the bandwagon.)
    - SilasX 4y ago
      I would say your comment is the low quality one, when the thread just sketched out[1] why WF’s “safe” level ought to be similarly fatal, and you’re just restating the obvious with a lecture about how 28% is safer than 56%, which was never in dispute. And for the kicker, you threw in an aside, which I hope is a joke, that we should say false things just because we don’t like the target. [1] Yes, my comment wasn’t explicit, but if you put in some effort and read the context or a sibling comment, you’ll see the justification.
- bitanarch 4y ago
  If there's a general panic in the market and absolutely everyone demands cold, hard USD - no percentage will save them. Let's say you're the person who's speaking for Wells Fargo at that moment - you absolutely don't want to give the public any reason to test whether 28% is safe or not. 3 months later, when people are no longer panicking, and cooler heads want to start discussing what're the safety measures to put onto banks - maybe. But seriously not right now. Let's say you quote the 28% number to say your bank is maybe safer than SVB - but the moment the reporter asks whether 28% is safe enough or not, or how about another bank that have more or less, you'd probably realize you shouldn't have said too much already. So, at this moment... if you're a spokesperson for a bank or a bank regulator - "We're safe. SVB is a special case" is pretty much the only appropriate response right now.
- ignoramous 4y ago
  > Do you think it's possible that someone working for Wells Fargo might actually know something about banking? Replace Wells Fargo with SI or SVB and you have your answer (which is, it isn't how much they know about the economy, but what they're really cooking with it).
fallingknife 4y ago
Matt Levine at Bloomberg, who really knows what he is talking about and doesn't work at a bank, explains here why the situation at SVB is fairly unique https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run https://www.bloomberg.com/opinion/articles/2023-03-10/startu...

lxm 4y ago

Matt Levine’s newsletter today assumes FDIC will forcefully step in to avoid repercussions down the road https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run https://www.bloomberg.com/opinion/articles/2023-03-10/startu... > One obvious question is: If you are “another, healthy bank” working through this weekend to buy SVB and assume its deposits, how much would you pay for the assets, which were worth $212 billion in December? 8 I am pretty sure the answer is higher than $8 billion, the amount of insured deposits: The FDIC will not be on the hook for the insured deposits. The $15 billion of FHLB advances are also quite senior and will presumably be no problem to pay back. > I would also guess — not investing or banking advice! — that the answer will also turn out to be higher than $188 billion, which is the total amount of deposits plus FHLB advances. I say this not because I have done a detailed analysis of SVB’s assets but because it seems bad for the FDIC to wind up a big high-profile bank in a way that causes significant losses for depositors, including uninsured depositors. There was a run on SVB in part because there hasn’t been a big bank run in a while, and people — venture capitalists, startups — were naturally worried that they might lose their deposits if their bank failed. Then the bank failed. > If it turns out to be true that they lose their deposits, there could be more bank runs

elif 4y ago

Part of me wonders what exactly were the toxic assets that pulled SVB under, and my gut feeling can't stop thinking it is that SVB is more exposed to startups than your average bank.. and that the next dominos, so to speak, will be startups seeking lending from banks. Mass layoffs, finance pulling out, feels very dot com bubble bursty to me.

packetlost 4y ago
Yeah, this feels very dotcom 2.0 ish. Capital has been drying up a lot over the last year or so and this is the type of thermonuclear event that flattens industries. I'm glad I have a good amount of savings.
polio 4y ago
What do you mean by "toxic assets"? My understanding is that the assets were long-term treasuries issued in 2021. They'd declined in value, as expected, because of interest rate increases that occurred afterwards. SVB is now unable to sell those bonds without losing money, and so would have to wait until maturity to get their money back.

BeFlatXIII 4y ago

Gene drives, mathematical induction, and cognition hazards for bank failures. I hope at least one of those is a reasonable analogy.