4 ms·

SVB has around $200B under management. The bank run on Thursday pulled $41B out of it. That is 20% of their total AUM. That is an insane bank run. No bank i

SVB has around $200B under management. The bank run on Thursday pulled $41B out of it. That is 20% of their total AUM. That is an insane bank run. No bank is setup for that kind of bank run.

eru 4y ago
> No bank is setup for that kind of bank run. Banks in Scotland's free banking era used to have a capital cushion of around 1/3 of their balance sheet. Not saying that this kind of capital cushion is viable in today's regulatory environment. Just to give an example of existing real world banks that were set up for that kind of bank run. In any case, I agree that scarcely any bank today would be set up for that kind of run. That still doesn't absolve SVB. They put themselves in a position where it's rational for their depositors to run.
shawabawa3 4y ago
Are you sure about that? I would make me very nervous if every single bank had ~50% of it's balance sheet in rock bottom rate 10Y bonds that have dropped in value 30+% in the last year I'm pretty sure most banks have assets > liabilities even after rate hikes, which is the root cause with SVB, not the bank run
- bhouston 4y ago
  > I would make me very nervous if every single bank had ~50% of it's balance sheet in rock bottom rate 10Y bonds that have dropped in value 30+% in the last year This is a separate issue. SVB is likely insolvent because of their MBS issue. But their liquidity available last week is significantly less than their assets.
gizmondo 4y ago
Correct me if I'm wrong, but nowadays any (sufficiently large?) solvent bank can just borrow from the Fed and survive such a run.
- bhouston 4y ago
  > Correct me if I'm wrong, but nowadays any (sufficiently large?) solvent bank can just borrow from the Fed and survive such a run. Why didn't SVB borrow then? I understand they were the 18th largest US bank last week. And they had more assets than just 47B that was the bank run. But the FDIC took them over because they didn't have the liquidity to serve the needs of the bank run as of Thursday night. I think that you can not just arbitrarily borrow from the fed, there are limits.
  - eru 4y ago
    It's because they weren't solvent.
    - bhouston 4y ago
      I think that isn't how it works. The fed just yesterday added the ability for banks to borrow nearly unlimited amounts against their assets. I do not think this existed previously. It is an emergency measure.
      - gizmondo 4y ago
        You missed the important part - they added the ability to borrow while valuing collateral at cost. Previously it had to be valued at market price, which was not sufficient for SVB (because it was insolvent on the mark-to-market basis).

SVB has around $200B under management. The bank run on Thursday pulled $41B out of it. That is 20% of their total AUM. That is an insane bank run. No bank is setup for that kind of bank run.

eru 4y ago

> No bank is setup for that kind of bank run. Banks in Scotland's free banking era used to have a capital cushion of around 1/3 of their balance sheet. Not saying that this kind of capital cushion is viable in today's regulatory environment. Just to give an example of existing real world banks that were set up for that kind of bank run. In any case, I agree that scarcely any bank today would be set up for that kind of run. That still doesn't absolve SVB. They put themselves in a position where it's rational for their depositors to run.

shawabawa3 4y ago

Are you sure about that? I would make me very nervous if every single bank had ~50% of it's balance sheet in rock bottom rate 10Y bonds that have dropped in value 30+% in the last year I'm pretty sure most banks have assets > liabilities even after rate hikes, which is the root cause with SVB, not the bank run

bhouston 4y ago
> I would make me very nervous if every single bank had ~50% of it's balance sheet in rock bottom rate 10Y bonds that have dropped in value 30+% in the last year This is a separate issue. SVB is likely insolvent because of their MBS issue. But their liquidity available last week is significantly less than their assets.

gizmondo 4y ago

Correct me if I'm wrong, but nowadays any (sufficiently large?) solvent bank can just borrow from the Fed and survive such a run.

bhouston 4y ago
> Correct me if I'm wrong, but nowadays any (sufficiently large?) solvent bank can just borrow from the Fed and survive such a run. Why didn't SVB borrow then? I understand they were the 18th largest US bank last week. And they had more assets than just 47B that was the bank run. But the FDIC took them over because they didn't have the liquidity to serve the needs of the bank run as of Thursday night. I think that you can not just arbitrarily borrow from the fed, there are limits.
- eru 4y ago
  It's because they weren't solvent.
  - bhouston 4y ago
    I think that isn't how it works. The fed just yesterday added the ability for banks to borrow nearly unlimited amounts against their assets. I do not think this existed previously. It is an emergency measure.
    - gizmondo 4y ago
      You missed the important part - they added the ability to borrow while valuing collateral at cost. Previously it had to be valued at market price, which was not sufficient for SVB (because it was insolvent on the mark-to-market basis).