2 ms·

There are other banks with similar long term treasury holding problems vs liabilities and assets on hand. Not the real big guys like Chase and co, but banks in

There are other banks with similar long term treasury holding problems vs liabilities and assets on hand. Not the real big guys like Chase and co, but banks in size to SVB. First Republic and Signature Bank are going to be clenching their buttholes next week as they are set to experience a bit of a bankrun too. Basically, look at the stock market, any bank that is now hit with a >50% decline in share price like those 2 named above is because people noticed the problem.

g42gregory 4y ago
Wow. I did not realized that. What SVB did, basically having a gigantic unhedged position on the interest rate through mismatched duration, is just plain crazy. It should have never happened in any bank with the basic risk controls. Not a rocket science at all. But if there are more banks out there with such unhedged positions, this is scary. I am guessing this is what the "Moral Hazard" looks like, that people were talking about during 2007-2008 financial crisis. Everybody is expecting a bailout and people are incentivized to take crazy risks.
- simple-thoughts 4y ago
  It’s a bit different from 2007-2008 because these assets that are causing problems are required by law to be held by these banks, in part from the regulations that came out of the previous crisis. Banks do have freedom with respect to duration but when small banks need funds for operations, are required to hold low yielding assets, and the short durations are at 0%, they really don’t have much of a choice.
- chenliw 4y ago
  Actually, most banks have mismatched duration. Accepting short term deposits in checking accounts and giving out longer term mortgage and business loans. SVB undertook a strategy that had a similar duration as issuing loans, and via a portfolio of govt treasuries - as safe and liquid as it gets (outside of interest risk). The broader concern, with hindsight, is they had an extremely correlated/flighty deposit base compared to most banks, and that meant they should NOT have copied what other banks did. They needed to keep duration on the loan book much shorter and have much more liquidity/equity cushion.

g42gregory 4y ago

Wow. I did not realized that. What SVB did, basically having a gigantic unhedged position on the interest rate through mismatched duration, is just plain crazy. It should have never happened in any bank with the basic risk controls. Not a rocket science at all. But if there are more banks out there with such unhedged positions, this is scary. I am guessing this is what the "Moral Hazard" looks like, that people were talking about during 2007-2008 financial crisis. Everybody is expecting a bailout and people are incentivized to take crazy risks.

simple-thoughts 4y ago
It’s a bit different from 2007-2008 because these assets that are causing problems are required by law to be held by these banks, in part from the regulations that came out of the previous crisis. Banks do have freedom with respect to duration but when small banks need funds for operations, are required to hold low yielding assets, and the short durations are at 0%, they really don’t have much of a choice.
chenliw 4y ago
Actually, most banks have mismatched duration. Accepting short term deposits in checking accounts and giving out longer term mortgage and business loans. SVB undertook a strategy that had a similar duration as issuing loans, and via a portfolio of govt treasuries - as safe and liquid as it gets (outside of interest risk). The broader concern, with hindsight, is they had an extremely correlated/flighty deposit base compared to most banks, and that meant they should NOT have copied what other banks did. They needed to keep duration on the loan book much shorter and have much more liquidity/equity cushion.