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SVB lobbied the government to relax some Dodd-Frank provisions
- throwaway742 4y ago[flagged]
- chitowneats 4y ago[flagged]
- bpodgursky 4y agoWould a stress test have mattered here? The loans weren't the problem. > The stress test is a forward-looking quantitative evaluation of bank capital that demonstrates how a hypothetical macroeconomic recession scenario would affect firm capital ratios There was no recession and no loan loss. The bank was capitalized fine (albeit with underperforming treasury assets given interest rate increases) until it got $40 billion in withdrawals in a day. This headline implies that being labeled as systemically important would have flagged what went wrong here, and it's not clear that this is true.
- beebmam 4y agoWho exactly withdrew $40 billion in a day? Is this public info, or will it be?
- gruez 4y agoA few days ago a VC warned all the companies in its portfolio that SVB was in trouble and they should withdraw all their funds. That's probably what OP was talking about.
- loeg 4y agoA bunch of customers. I don't know if a list will ever be published or why. https://fortune.com/2023/03/11/silicon-valley-bank-run-42-billion-attempted-withdrawals-in-one-day/ https://fortune.com/2023/03/11/silicon-valley-bank-run-42-bi... > Customers immediately tried to pull their money, including many of the venture-capital firms the bank had cultivated over decades. Peter Thiel’s Founders Fund, Coatue Management, Union Square Ventures and Founder Collective all advised their startups to pull their cash from the bank, people familiar with the matter said.
- consumer451 4y agoOur (my) favorite villain for one: > Peter Thiel’s Founders Fund, Coatue Management, Union Square Ventures and Founder Collective all advised their startups to pull their cash from the bank, people familiar with the matter said. https://fortune.com/2023/03/11/silicon-valley-bank-run-42-billion-attempted-withdrawals-in-one-day/ https://fortune.com/2023/03/11/silicon-valley-bank-run-42-bi...
- bcrosby95 4y agoIt's funny that the very same people that caused a run on the bank are likely lobbying the government to make the companies they invested in whole.
- AlchemistCamp 4y agoThat’s not how bank runs work. The people who run first get their money out. It’s the ones who didn’t start the bank run that lose their money.
- deleted 4y ago[deleted]
- FireBeyond 4y agoYeah, I'm sure Thiel has some friends at the executive/C-level of SVB, if not the board, given all the business he pushes their way...
- amluto 4y ago> The bank was capitalized fine (albeit with underperforming treasury assets given interest rate increases) That’s an “albeit” you could drive the second largest bank failure ever though. If I have $100k of net assets and I lose $10k due to interest rate increases, I’m fine. If I have $100k but I lose $150k due to interest rate increases, then I’m only fine if I have some other source of income before whatever debt I have comes due. SVB was only capitalized fine in a universe in which they could maintain a large non-interest-bearing deposit volume, and make adequate profit on it, for long enough to erase the hole in their balance sheet before their bonds matured and they would inevitably be forced to realize their loss. Or if their implicit gamble that rates would go back down would pay off. (Of course, the latter also reduces the income from said non-interest-bearing deposits.) I don’t know how bank stress tests work, but I sure hope they would notice that the bank’s liabilities exceeded their assets even assuming said assets could be sold calmly and at favorable prices. And no, “I’ll hold them to maturity so they’re worth 20% more than they are actually worth” should not be part of that calculation.
- stbede 4y ago> I don’t know how bank stress tests work, but... SVB would have passed stress tests because they did what all banks were supposed to do. They invested in "safe" long term treasuries. The only economic environment hypothetical they would fail is, "what happens if there is a bank run and you are forced to realize losses". But what bank can survive a bank run? The Dodd-Frank stress tests don't try to ensure banks can survive bank runs, do they? When banks invest in the long run, your assets can depreciate in value temporarily to get through short term business cycles. By investing long, a bank's balance sheet will be the average of both assets that aged poorly and assets that aged well. The average should reflect the long term growth of the economy. The treasuries purchased in the last 2 years depreciated a lot in value and most of SVB's growth happened in the last two years, so there current balances are skewed heavily towards assets purchased right before the interest rate hikes began. If SVB were able to continue operating for say another 10 years, they would be fine even if interest rates never returned to near 0 levels. Additional treasuries would be purchased and the fraction of the balance sheet that consisted of 2020-2022 treasuries would shrink. The rest of the portfolio would probably increase in value. Treasuries purchased today are cheap and have a large upside as rates start coming down, even if rates don't fall all the way to 0. The gains from cheap treasuries purchased towards the end of 2022 and after have potential to dramatically grow in value. There really isn't any evidence that SVB behaved irresponsibly nor that stricter regulation under Dodd-Frank would have made a difference. If SVB had been inclined to invest in riskier types of investments, Dodd-Frank would have pressured SVB to buy treasuries.
- zhte415 4y agoPerhaps, perhaps not. A stress test tests more than general recession but sector or segment concentrated losses. One that included maturity exposure may have failed, depends on the test.
- scheme271 4y agoIf the hold to maturity holdings were marked to market, it would have been apparent that there were problems. At the very least, SVB would have had to acknowledge that their holdings were not worth nearly as much as they used to be. I think the larger banks in the US are required to do this with their holdings. The FT indicated that if the US required all it's banks to adhere to the Basel III regulations instead of just the large ones, SVB would not have had the same issues either.
- cowl 4y ago> The bank was capitalized fine (albeit with underperforming treasury assets given interest rate increases) until it got $40 billion in withdrawals in a day. You, like many others, are counfounding the trigger (Panic Withdrawls) with the cause (Lack of Diversification and bad risk-management in general). And the withdrawls come after their sale of assets at a loss of 2Billion+ "following a larger-than-expected decline in deposits" (This was their declaration for the fire sale, so no it was not capitalised so fine). Ofcourse this type of operation would cause panic and 40Billion in withdrawls after this type of declaration was to be expected and accounted for.
- AH4oFVbPT4f8 4y agoPrior to joining SVB as Chief Administrative Officer, Gentile worked as Chief Financial Officer at Lehman Brothers' Global Investment Bank. Gentile left Lehman in 2007, just one year before it went bankrupt in 2008.
- toomuchtodo 4y agoHe was CAO of SVB Securities, a previously independent bank acquired by SVB in 2019, becoming one of three subsidiaries owned by SVB. Unlike SVB, it continues to operate.
- aaomidi 4y agoFollowing the collapse of Silicon Valley Bank in March 2023, the management of SVB Securities planned to buy back their firm from the parent group. Not really sure how much of an influence they had in the lobbying, but still hilarious.
- throwaway742 4y ago[flagged]
- saurik 4y agoI took the comment you are replying to and I literally copy and pasted it into Google. https://www.foxbusiness.com/economy/silicon-valley-bank-exec-was-lehman-brothers-cfo-prior-to-2008-collapse.amp https://www.foxbusiness.com/economy/silicon-valley-bank-exec...
- kvetching 4y agoJust because he's a Gentile doesn't mean he's bad at banking. It's really inappropriate to bring anti-semitic terminology into the discussion.
- dang 4y agoWe already asked you once before not to post like this. Please don't do it again.
- sql-spy 4y ago[flagged]
- deleted 4y ago[deleted]
- bobleeswagger 4y ago[flagged]
- deleted 4y ago[deleted]
- chrisbolt 4y agoDupe? https://news.ycombinator.com/item?id=35108732 https://news.ycombinator.com/item?id=35108732
- djbusby 4y agoThere are so many threads on the SVB implosion. HN needs a Megathread feature for this.
- gruez 4y agoWas there a piece of repealed regulation that would have prevented SVB's collapse? Or is this just generic airing out of all of SVB's dirty laundry now that they're pariahs?
- comte7092 4y agoThis regulation would have required that they undergo more rigorous stress testing by the fed. Would it have prevented a bank run by a bunch of spooked VCs? We’ll never know, but one would imagine it would have put them in a better financial position.
- JumpCrisscross 4y ago> have prevented a bank run by a bunch of spooked VCs Yes. If SVB weren’t insolvent, they could have borrowed at the Fed’s discount window to settle liabilities.
- threeseed 4y agoThe Economic Growth, Regulatory Relief, and Consumer Protection Act [1] which was introduced in 2018 "increase the asset threshold at which certain enhanced prudential standards shall apply, from $50 billion to $250 billion". Apparently SVB had assets of ~$220 billion in 2022 [2]. [1] https://www.congress.gov/bill/115th-congress/senate-bill/2155 https://www.congress.gov/bill/115th-congress/senate-bill/215... [2] https://fortune.com/2023/03/11/silicon-valley-bank-svb-ceo-greg-becker-dodd-frank-trump-rollback-systemically-important-fdic/ https://fortune.com/2023/03/11/silicon-valley-bank-svb-ceo-g...
- jjoonathan 4y ago[flagged]
- gruez 4y agoWould "enhanced prudential standards" have caught the interest rate risk that SVB was exposed to? I dug into this a bit, and it looks like the stress tests[1] that they prescribe seems to be around loan losses, not interest rate risk. [1] https://www.ecfr.gov/current/title-12/chapter-II/subchapter-A/part-252#p-252.15(a) https://www.ecfr.gov/current/title-12/chapter-II/subchapter-...
- afavour 4y agoFeels like a never ending cycle. Economic calamity occurs. New regulations brought in. The very next day the industry starts lobbying to have those regulations removed. They find receptive ears and achieve their goal. Economic calamity occurs.
- cde-v 4y agoReplace "find receptive ears" with "pay for receptive ears" then you got it.
- anticensor 4y agoIt has parts of both. Not everyone becomes more receptive by payment.
- nr2x 4y agoAnd the wealth gets more concentrated in the process.
- notch898a 4y agoAs pointed out elsewhere on HN there is a bank with essentially 0% of risk from going bankrupt by means of improper/mismatched investment. The concept is "narrow banking" and involves pass-through deposit to the central bank. The government refuses to issue a banking license. In this case I'd argue over-regulation is the reason why you can't have this form of safer bank.
- kortilla 4y agoThey aren’t achieving those goals though?
- tjpnz 4y agoArguments are made that those particular regulations would've never had any impact/made the problem worse. Rinse, wash, repeat.
- andreygrehov 4y agoLobbying is a legal form of corruption.
- wnevets 4y agoWe should have all seen this coming, Jim Cramer just last month said we should all buy stock in SVB [1] [1] https://www.foxnews.com/media/cnbcs-jim-cramer-eviscerated-touting-silicon-valley-bank-weeks-disastrous-collapse https://www.foxnews.com/media/cnbcs-jim-cramer-eviscerated-t...
- brianwawok 4y agoIsn’t the fund that shorts everything cramer says to buy doing above average?
- hypothesis 4y agoYou never know nowadays… What’s the ticker?
- w-ll 4y ago$SJIM (Inverse Cramer Tracker ETF) https://finance.yahoo.com/quote/SJIM https://finance.yahoo.com/quote/SJIM And also $LJIM (Long Cramer Tracker) https://finance.yahoo.com/quote/LJIM https://finance.yahoo.com/quote/LJIM
- sjs382 4y agohttps://www.marketwatch.com/investing/fund/sjim https://www.marketwatch.com/investing/fund/sjim
- gruez 4y agoIf you're talking about SJIM, that fund's inception date is literally 12 days ago. "Doing above average" in that timespan doesn't say much. Also, according to the chart on fund's website, it's actually down since its inception. https://www.crameretfs.com/sjim#info https://www.crameretfs.com/sjim#info
- deltree7 4y agoPeople who are anti-Cramer are as worse as people who follow Jim Cramer. Real successful investors pick useful nuggets, ignore or don't care about Jim Cramer.
- vuln 4y agoWith reps like this doesn't seem you really need to lobby that hard. I’m working with my CA colleagues to address the Silicon Valley Bank crisis. We must make sure all deposits exceeding the FDIC $250k limit are honored. Banking is about confidence. If depositors lose confidence on the safety of their deposits over 250k then we are in trouble. https://twitter.com/RepSwalwell/status/1634258231718494208/ https://twitter.com/RepSwalwell/status/1634258231718494208/
- adra 4y agoYeah, I mean take your funds and put them under your mattress, because like where else is it safer? It totally sucks that your clients chose to put your funds in a highly geographically and industry central bank that failed for understandable reasons. We also don't bail out the West Texas Bank for oil barons either when their bank fails.
- jghn 4y ago> We must make sure all deposits exceeding the FDIC $250k limit are honored Why? Depositors know what the insurance limit is. One could choose to not leave more than 250K in a bank, and/or they could choose to find a way to hedge their risk.
- djbusby 4y agoSocialism for the wealthy. Rugged capitalism for the rest.
- notch898a 4y agoHey if you don't want the return on your deposits spent on fraudulently represented "insurance" which of course is paid to the same people (government) demanding FDIC/NCUA insurance before chartering a retail bank, simply keep your money under a mattress. You see you don't have to pay the tax, it's an insurance because it's an optional thing and instead you can choose to have the money stolen by cops by the side of the road in "civil asset forfeiture." Of course if anybody else took your money representing it as bailing out everyone under 250k, but actually was fraudulently representing it and you found out you were forced to pay "insurance" to bail out accounts over 250k, well then we'd just call it insurance fraud.
- b1c1jones 4y ago“Those who cannot remember the past are condemned to repeat it.” – George Santayana, The Life of Reason, 1905.
- mannykannot 4y agoI remember it, and yet here we are, once again...
- theFletch 4y agoWere they successful?
- pugworthy 4y agoI'm struck by how many comments imply a certain amount of, "It was obvious" to this whole story. Yet a lot of startups clearly were all in with SVB. So what's the real lesson here for a startup?
- pickovven 4y agoThere's not really a lesson here about running a start-up for founders. However there's definitely a lesson here about how societies work that Silicon Valley could better internalize.
- gtop3 4y ago> So what's the real lesson here for a startup? Be careful of what hard dependencies you choose. The more dependent you are on a third party, or the more dependencies you have, the higher your black swan risk is. Of course, dependencies are a requirement to do business.
- nonethewiser 4y agoExcept in this case you want more “dependencies.” Not only to reduce risk but to maximize FDIC insurance.
- ashwagary 4y ago>Be careful of what hard dependencies you choose. >Except in this case you want more “dependencies.” More specifically, if you must have 3rd party dependencies, make sure you fully understand the risks, distribute exposure to adequately minimize central points of failure, and have failover procedures in place to reduce possible downtime. The technical crowd that successfully run high-uptime web infrastructure with demanding SLAs generally understand this idea very well.
- toast0 4y agoa) when you raise millions of dollars, don't set it in one account, figure out how to get deposit insurance. Many banks offer programs to spread deposits across many institutions, so it's not like you necessarily need to administer a lot of accounts directly. b) don't bank where Peter Thiel and his friends bank. Cause they're panicy. Probably try to avoid anything he and his friends use heavily without commitments, where them pulling out will cause major immediate issues.
- tomerbd 4y agoAnother result of low interest rate. SVB thought he was smart to buy longer term bonds, so he would get higher interest + inflation and interest rates thought differently.
- dylan604 4y agoI'm I just so out of touch with pronouns that referring to SVB as he sounds odd?
- marsven_422 4y ago[dead]
- barbarbar 4y agoWhat other banks have the same issue?
- sexy_seedbox 4y agoWe will find out on Monday.
- jpgvm 4y agoLikely plenty. Most of the smaller banks without sophisticated risk management likely haven't hedged against interest rate risk or adjusted their bond portfolios as interest rates rose. Unfortunately none of the regulatory frameworks even take interest rate risk into account, likely because of a 30 year bull run in bonds made everyone complacent to it. Generally speaking they only really monitor stress under a certain amount of bad debt (i.e failed loans) and risk level of assets held. T Bills get basically perfect zero risk score despite being heavily exposed to interest rate risk.
- JumpCrisscross 4y ago> none of the regulatory frameworks even take interest rate risk into account This is false. The Fed’s stress tests and Basel III specifically measure duration.
- jpgvm 4y agoThey measure duration risk on short term assets but not long term assets like SVBs bonds which are (for better or worse) classified under different rules that allow them to be held to maturity without needing to account for mark-to-market losses for capital assessment purposes. As a result stress tests which measure various interest rate scenarios, deposit withdrawals and increased bad debt ratios aren't overly affected by these long duration bonds. That is all good and well as long as these assets truly are held to maturity and forced selling doesn't take place. Then again, maybe it's fine. These tests are meant to ensure the banks can handle changing economic conditions. They aren't meant to be able to protect banks against a bank run of this scale.
- 4y ago
- fractalb 4y agoI think I understood now what a recession is. It's a period of time where in all the companies show their true colors.
- gadders 4y ago"When the tide goes out you find out who was swimming naked."
- fareesh 4y agoIs there a reason why the election of a new government did not result in the return of the previous regulations? Was the Congress and White House not able to change the rule?
- alecco 4y agoThe Greg Becker of the article (SVB CEO & president) was in SF Fed board of directors until Friday [1]. The current risk officer worked at NY Fed [2]. Previous risk officer was director of Freddie Mac [3]. Yellen was the 11th President of the SF Fed [5] and the current president is her protégé [6]. They knew exactly what they were doing. The Fed looked the other way. They sold a lot of stock in the past month [7]. They are very well connected into the Fed and Treasury. I doubt anybody will get any kind of serious legal troubles. [1] https://www.reuters.com/markets/us/ceo-failed-silicon-valley-bank-no-longer-director-sf-fed-2023-03-10/ https://www.reuters.com/markets/us/ceo-failed-silicon-valley... [2] https://www.svb.com/news/company-news/svb-hires-kim-olson-as-chief-risk-officer https://www.svb.com/news/company-news/svb-hires-kim-olson-as... [3] https://www.linkedin.com/in/laura-izurieta-1370144 https://www.linkedin.com/in/laura-izurieta-1370144 [4] https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/ https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris... [5] https://en.wikipedia.org/wiki/Janet_Yellen https://en.wikipedia.org/wiki/Janet_Yellen [6] https://en.wikipedia.org/wiki/Mary_C._Daly https://en.wikipedia.org/wiki/Mary_C._Daly [7] https://twitter.com/unusual_whales/status/163455502148748083 https://twitter.com/unusual_whales/status/163455502148748083