5 ms·

It worries me that people assume SVB must have taken crazy risks on startups or crypto, when the actual mistakes were locking up so much money in long-term mort

It worries me that people assume SVB must have taken crazy risks on startups or crypto, when the actual mistakes were locking up so much money in long-term mortgage and Treasury bonds, and having clients who talk to each other.

lazyeye 4y ago
Other people are arguing that SVB spent too much time focusing on fashionable, non-core issues rather than the business of actually running a bank. Clearly they were not giving sufficient attention to the core business for one reason or another.
swatcoder 4y ago
From the bank’s perspective, uninsured depositors are essentially margin lenders who can call in their loan at any time. If your lenders are all from one especially volatile and incestuous industry, you put yourself at especially high risk of experiencing a run and defaulting. You need to manage risk and investments accordingly. They took a high-risk position with eyes wide open and have collapsed as a result.
- cjalmeida 4y ago
  Exactly. They should’ve bought short term t-bills to match deposit maturities. But then how could they offer above market rate yields on their checking accounts, right?
cscurmudgeon 4y ago
This episode has taught me the random person on the street (on the left and the right) is horribly ignorant, has dirt-poor reading comprehension, and is seething with envy towards Silicon Valley.
- salawat 4y ago
  ...So what have you done to help uplift the sullied masses? If the answer is nothing, then you now know why.
- deleted 4y ago
  [deleted]
nemo44x 4y ago
It’s such a strange thing. Gov stims everything and the fed drops rates to nothing and it works. Cash flows are coming in. But there’s just so much cash and not enough borrowers so they buy one of the safest assets. The very same entities that created all the cash and low interest rates start rapidly changing the interest rates and then this happens. Like I don’t want to defend the execs too much as they are the responsible people. But the gov and Fed did this. Erratic economic policy did this. It’s sad so many people think it’s a greedy bank. Being named Silicon Valley Bank doesn’t help.
- polygamous_bat 4y ago
  > Like I don’t want to defend the execs too much as they are the responsible people. But the gov and Fed did this. Erratic economic policy did this. It’s sad so many people think it’s a greedy bank. Being named Silicon Valley Bank doesn’t help. Classic libertarian chant assigning the success to the private individual and blame to the government. Everyone is dealing with the same macroeconomic environment. SVB execs don't get a pass for poor risk management and not understanding their customer base.
  - nemo44x 4y ago
    Of course they should be fired and not hired as executive leaders ever again. But the gov and the fed’s erratic policy and failure to change course early enough leading to the level of inflation we have and whipsaw interest rates need to shoulder some too. Something like 50% of mortgages were written between 2020 and 2022. So many of these are about to be underwater due to the whipsaw. There’s going to be a lot of failures in the coming months.
    - digitaltrees 4y ago
      Totally agree it’s the speed of the reversal in rates. Whipsaw is a great term.
  - pclmulqdq 4y ago
    SVB clearly got greedy. They looked at their models and decided that they should use long-term vehicles with higher interest rather than short-term vehicles. The core problem they had was that interest rate risk prices have changed a lot over the last year and a half, largely due to the fed, and they severely underpriced that risk. Long-term fixed-income investments lose a LOT of value when rates go up and gain a lot when rates go down, and the relationship is nonlinear and kind of hard to model since it's so dependent on people.
csomar 4y ago
Most people here are parrots. The FED raising the rate is the FED removing the liquidity from the market. Liquidity being removed from the market means no more credit, and possibly some people/funds losing money from their bank accounts. Actually, that's a certainty. It seems that the institution that is most susceptible to this will be an institution in a field where most people are parrots and fast parrots too. SVB did the "right" or safest thing by buying Treasury (the next safest will be to hold $200bn in cash). Treasury is the real money. Most people think of $1 in their account as $1 but it is not. Buying shorter-term treasury might have saved them or not. These collapses will continue until the Fed thinks that enough liquidity have been removed from the market and inflation is stabilized again.
- Panzer04 4y ago
  This isn't really an explanation of why they failed, just applying a macro explanation to a micro phenomenon. The bank bought long-dated treasuries for the 2% yield (as opposed to short-term treasuries yielding next to nothing). The moment rates went up they were going to start losing a lot of money mark-to-market. This could be tolerated, except they also had an undiversified deposit base withdrawing money and forcing them to take the losses, and so they blew up.
  - csomar 4y ago
    Hmm, you just repeated what I said. Short or Long term is irrelevant here. They didn't make "risky" investments, they parked their money. They didn't do something unconventional. In 2020, it was perceived or assumed that zero interest rates are here to remain a la Japan and Europe. A 10 year outlook made sense at that time. Of course, hindsight is an completely other thing and everyone has it once the events unfold.
    - Panzer04 4y ago
      I suppose - I just find mentions of things like "liquidity" with no specificity pretty meaningless (plus "FED" for referring to the federal reserve; I truly don't understand why it's capitalized as if it's an acronym or something). The thing is, they did make risky investments. Going heavy long-term treasuries is risky, because you lose money if you have to sell them early. Banks get some privileges when holding them on balance, but they are still assuming a lot of interest rate risk when they buy them. Shorter term treasuries would definitely have saved them, but also ruined their profit margins (at least in 2020~2022), so it's neither here nor there.
pixelesque 4y ago
https://nongaap.substack.com/p/sivb-held-to-mortem-governance https://nongaap.substack.com/p/sivb-held-to-mortem-governanc... claims they didn't have a Chief Risk Officer for most of 2022 however, so if true, might that have contributed to not seeing the approaching difficulty as mortgages became stressed?

lazyeye 4y ago

Other people are arguing that SVB spent too much time focusing on fashionable, non-core issues rather than the business of actually running a bank. Clearly they were not giving sufficient attention to the core business for one reason or another.

swatcoder 4y ago

From the bank’s perspective, uninsured depositors are essentially margin lenders who can call in their loan at any time. If your lenders are all from one especially volatile and incestuous industry, you put yourself at especially high risk of experiencing a run and defaulting. You need to manage risk and investments accordingly. They took a high-risk position with eyes wide open and have collapsed as a result.

cjalmeida 4y ago
Exactly. They should’ve bought short term t-bills to match deposit maturities. But then how could they offer above market rate yields on their checking accounts, right?

cscurmudgeon 4y ago

This episode has taught me the random person on the street (on the left and the right) is horribly ignorant, has dirt-poor reading comprehension, and is seething with envy towards Silicon Valley.

salawat 4y ago
...So what have you done to help uplift the sullied masses? If the answer is nothing, then you now know why.
deleted 4y ago
[deleted]

nemo44x 4y ago

It’s such a strange thing. Gov stims everything and the fed drops rates to nothing and it works. Cash flows are coming in. But there’s just so much cash and not enough borrowers so they buy one of the safest assets. The very same entities that created all the cash and low interest rates start rapidly changing the interest rates and then this happens. Like I don’t want to defend the execs too much as they are the responsible people. But the gov and Fed did this. Erratic economic policy did this. It’s sad so many people think it’s a greedy bank. Being named Silicon Valley Bank doesn’t help.

polygamous_bat 4y ago
> Like I don’t want to defend the execs too much as they are the responsible people. But the gov and Fed did this. Erratic economic policy did this. It’s sad so many people think it’s a greedy bank. Being named Silicon Valley Bank doesn’t help. Classic libertarian chant assigning the success to the private individual and blame to the government. Everyone is dealing with the same macroeconomic environment. SVB execs don't get a pass for poor risk management and not understanding their customer base.
- nemo44x 4y ago
  Of course they should be fired and not hired as executive leaders ever again. But the gov and the fed’s erratic policy and failure to change course early enough leading to the level of inflation we have and whipsaw interest rates need to shoulder some too. Something like 50% of mortgages were written between 2020 and 2022. So many of these are about to be underwater due to the whipsaw. There’s going to be a lot of failures in the coming months.
  - digitaltrees 4y ago
    Totally agree it’s the speed of the reversal in rates. Whipsaw is a great term.
- pclmulqdq 4y ago
  SVB clearly got greedy. They looked at their models and decided that they should use long-term vehicles with higher interest rather than short-term vehicles. The core problem they had was that interest rate risk prices have changed a lot over the last year and a half, largely due to the fed, and they severely underpriced that risk. Long-term fixed-income investments lose a LOT of value when rates go up and gain a lot when rates go down, and the relationship is nonlinear and kind of hard to model since it's so dependent on people.

csomar 4y ago

Most people here are parrots. The FED raising the rate is the FED removing the liquidity from the market. Liquidity being removed from the market means no more credit, and possibly some people/funds losing money from their bank accounts. Actually, that's a certainty. It seems that the institution that is most susceptible to this will be an institution in a field where most people are parrots and fast parrots too. SVB did the "right" or safest thing by buying Treasury (the next safest will be to hold $200bn in cash). Treasury is the real money. Most people think of $1 in their account as $1 but it is not. Buying shorter-term treasury might have saved them or not. These collapses will continue until the Fed thinks that enough liquidity have been removed from the market and inflation is stabilized again.

Panzer04 4y ago
This isn't really an explanation of why they failed, just applying a macro explanation to a micro phenomenon. The bank bought long-dated treasuries for the 2% yield (as opposed to short-term treasuries yielding next to nothing). The moment rates went up they were going to start losing a lot of money mark-to-market. This could be tolerated, except they also had an undiversified deposit base withdrawing money and forcing them to take the losses, and so they blew up.
- csomar 4y ago
  Hmm, you just repeated what I said. Short or Long term is irrelevant here. They didn't make "risky" investments, they parked their money. They didn't do something unconventional. In 2020, it was perceived or assumed that zero interest rates are here to remain a la Japan and Europe. A 10 year outlook made sense at that time. Of course, hindsight is an completely other thing and everyone has it once the events unfold.
  - Panzer04 4y ago
    I suppose - I just find mentions of things like "liquidity" with no specificity pretty meaningless (plus "FED" for referring to the federal reserve; I truly don't understand why it's capitalized as if it's an acronym or something). The thing is, they did make risky investments. Going heavy long-term treasuries is risky, because you lose money if you have to sell them early. Banks get some privileges when holding them on balance, but they are still assuming a lot of interest rate risk when they buy them. Shorter term treasuries would definitely have saved them, but also ruined their profit margins (at least in 2020~2022), so it's neither here nor there.

pixelesque 4y ago

https://nongaap.substack.com/p/sivb-held-to-mortem-governance https://nongaap.substack.com/p/sivb-held-to-mortem-governanc... claims they didn't have a Chief Risk Officer for most of 2022 however, so if true, might that have contributed to not seeing the approaching difficulty as mortgages became stressed?