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Yes and no. I'm going to backpedal (a little bit). It will take the FDIC looking through all of their books to determine everything that happened - with bank

Yes and no. I'm going to backpedal (a little bit). It will take the FDIC looking through all of their books to determine everything that happened - with bank implosions like this there were probably people on the take who knew what was happening. I suspect that more than one person will go to prison for financial fraud. Take a look at this - https://www.macrotrends.net/stocks/charts/SIVB/svb-financial-group/total-assets https://www.macrotrends.net/stocks/charts/SIVB/svb-financial... So total assets of the bank doubled over a two year time period. That's bad. In the financial world having too much money is (typically) a big no-no, because it means that you have to invest that money in worse and worse performing assets (in this case assets with a worse risk profile). That's why a large number of successful small cap VC and hedge fund operations don't scale. It also means that in this case the firm had most of it's cash from institutional investors (so they weren't FDIC insured) - which makes them more liable to bank runs. I will agree with you that it looks like the firm primarily had a mismatch of ten year security treasury bills versus their responsibilities to clients. However, this is a symptom of the same problem - the bank, most especially since it was servicing mostly institutional clients - should not have been so overly sensitive to a single financial instrument. There should have been dollar cost averaging of buying securities over smaller time frames, as well as buying a mix of US treasuries with shorter maturities. There also should have been, and this seems obvious in retrospect, a mixed basket of international treasuries and other assets to counter the risk profile of institutional investors that are primarily in the technology space. If technology stocks mirror the broader US economy but with higher volatility, then there should have been other assets held that would be counter cyclical to technology firms, such as a mixed basket of industrial stocks and commodities. So I will say that you're right in that they weren't making riskier loans so much as they weren't diversifying their portfolio given the size of their asset base. Given that these were large sized institutional investors as opposed to FDIC insured clients, not investing in a mixed basket of asset classes is not good. You're effectively paying for the lower rate of return that a treasury bill has because it's insured against risk, without being able to take advantage of that insurance. This is true in a roundabout way - given that the Federal government has to bail out banks during a financial crisis their return to the investor reflects that risk (not only in absolute terms but in the way the yield tracks the overall economy). Most banks should stick to treasuries because they don't service institutional clients and so can take advantage of that insurance. That wasn't the case here. It doesn't look like diversifying their portfolio would even be possible given how fast their assets increased. I suspect that they started absorbing a large amount of crypto money because people didn't know where to put it and there should be some investigation into whether other banks are diversified enough. It looks like possibly corrupt banking leadership and probably ignorant clientele. The intelligence of people is often inversely proportional to how fast they can make money for nothing. In short, massive increases in assets is a huge red flag. Here's a Barron's article on the subject which has some more numbers - https://archive.ph/r2vEk https://archive.ph/r2vEk

patientplatypus 4y ago
I will add another note here, with respect to this - You're effectively paying for the lower rate of return that a treasury bill has because it's insured against risk, without being able to take advantage of that insurance. This is true in a roundabout way - given that the Federal government has to bail out banks during a financial crisis their return to the investor reflects that risk (not only in absolute terms but in the way the yield tracks the overall economy). Most banks should stick to treasuries because they don't service institutional clients and so can take advantage of that insurance. That wasn't the case here. I should mention that here the risk was that the Treasury yields were increasing faster than the Treasury notes on hand because the Federal Reserve had so aggressively tightened the Federal Funds Rate. This would cause investors to take their money out of the bank and invest the money in another bank that had a higher rate of return. However, in most banks this doesn't precipitate a bank run because if most investors are under the FDIC $250,000 limit then the customers know the bank is insured against default. Other banks that have large numbers of institutional investors that are over the FDIC $250,000 limit may also be in trouble, because they may also be liable to have bank runs, if they're primarily invested in older US Treasuries. In essence, what the Federal Reserve has done, wittingly or not, is to destabilize those banks that have large numbers of institutional investors but are operating primarily as traditional small-scale banks holding mostly US Treasuries. This may be a good thing in the long run as it would clear out those institutions that are effectively operating as asset management companies without diversifying their portfolios as they should. There are probably more than a couple more banks internationally that are holding ex-crypto funds that are not properly diversified. If other countries likewise quickly tighten their rates I wonder if there will be other banks that fail for similar reasons.
mlindner 4y ago
It sounds like you're agreeing with me in many more words. I can't figure out where the "and no" part is. The bank getting too much cash isn't something that they can avoid. That's out of their control. What happens after that is in their control and putting them in treasury bills is a reasonable stance to take.
- deleted 4y ago
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patientplatypus 4y ago

I will add another note here, with respect to this - You're effectively paying for the lower rate of return that a treasury bill has because it's insured against risk, without being able to take advantage of that insurance. This is true in a roundabout way - given that the Federal government has to bail out banks during a financial crisis their return to the investor reflects that risk (not only in absolute terms but in the way the yield tracks the overall economy). Most banks should stick to treasuries because they don't service institutional clients and so can take advantage of that insurance. That wasn't the case here. I should mention that here the risk was that the Treasury yields were increasing faster than the Treasury notes on hand because the Federal Reserve had so aggressively tightened the Federal Funds Rate. This would cause investors to take their money out of the bank and invest the money in another bank that had a higher rate of return. However, in most banks this doesn't precipitate a bank run because if most investors are under the FDIC $250,000 limit then the customers know the bank is insured against default. Other banks that have large numbers of institutional investors that are over the FDIC $250,000 limit may also be in trouble, because they may also be liable to have bank runs, if they're primarily invested in older US Treasuries. In essence, what the Federal Reserve has done, wittingly or not, is to destabilize those banks that have large numbers of institutional investors but are operating primarily as traditional small-scale banks holding mostly US Treasuries. This may be a good thing in the long run as it would clear out those institutions that are effectively operating as asset management companies without diversifying their portfolios as they should. There are probably more than a couple more banks internationally that are holding ex-crypto funds that are not properly diversified. If other countries likewise quickly tighten their rates I wonder if there will be other banks that fail for similar reasons.

mlindner 4y ago

It sounds like you're agreeing with me in many more words. I can't figure out where the "and no" part is. The bank getting too much cash isn't something that they can avoid. That's out of their control. What happens after that is in their control and putting them in treasury bills is a reasonable stance to take.

deleted 4y ago
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