11 ms·

Most banks do not have most of their capital tied up for ten years; SVB had to sell their treasuries before the ten years at a loss. The only thing tying other

Most banks do not have most of their capital tied up for ten years; SVB had to sell their treasuries before the ten years at a loss. The only thing tying other banks who don't do that to SVB is random fear of a bank run.

mikeyouse 4y ago
If I’m a treasurer at a small firm, I’m just going to move my funds to the biggest bank I can find. Who has the time or energy to spend interrogating the asset mix and bond duration of the bank with your checking account?
- bigbillheck 4y ago
  > I’m just going to move my funds to the biggest bank I can find. Why would 2023 lead to you do that if 2008 had not?
  - mikeyouse 4y ago
    It felt like there was a distinction between the community bank with a few billion under management and banks like SVB with hundreds of billions under management. SVB-sized banks felt “safe” post-2008, apparently they’re not.
    - JumpCrisscross 4y ago
      > SVB-sized banks felt “safe” post-2008, apparently they’re not I don’t think SVB has ever had an investment-grade (EDIT: issuer) credit rating. Certainly not in the last year.
      - mikeyouse 4y ago
        It sure did, every part of their business was investment grade and as of last week it was rated A by Moodys. https://ir.svb.com/shareholder-and-bondholder-information/credit-ratings/default.aspx https://ir.svb.com/shareholder-and-bondholder-information/cr...
        JumpCrisscross 4y ago
        Sorry, flubbed. They were medium risk, not junk, but borderline investment.
    - paulddraper 4y ago
      Washington Mutual was bigger then SVB, even ignoring inflation
- shkkmo 4y ago
  Or better yet, keep less than 250k at each institution.
  - mikeyouse 4y ago
    The amount of coordination / bank reconciliation / overhead that would add is absolutely not worth it. It’s completely normal to have $10M+ in cash in a checking account for these companies, if I need to make payroll of $500k twice per month + pay vendors, accounts will necessarily have much more than the FDIC limit. I could find 40 community banks and shift funds around constantly or I could just put it all in JPM and actually worry about running my business.
    - makestuff 4y ago
      Also the big banks will do overnight sweeps as well to protect customers over the FDIC limit. I’m not sure if smaller banks do this as well, but I know JPM will do it for large customers. From the brokerage side interactive brokers will do it on any cash sitting in your account as well if you opt in.
    - scottLobster 4y ago
      Or you could split it between two banks and reduce your exposure by half. Four banks and you reduce it by 75%. That way a deathblow turns into a setback, and overhead is minimal. There are cash management services that will do this for you if you can't be personally bothered. Running a business means doing the maintenance keeping ship afloat as well as charting a course to exotic destinations.
      - mikeyouse 4y ago
        Those probabilities assume there’s an equal likelihood of going under for each bank which certainly isn’t true. I could just move it to half at WFB and half at JPM and cut my risk by substantially more than spreading it across random community banks.
      - gnicholas 4y ago
- prepend 4y ago
  > Who has the time or energy to spend interrogating the asset mix and bond duration of the bank with your checking account? The treasurer should have time as that’s part of her job.
  - mikeyouse 4y ago
    Just not remotely feasible. How many companies have dedicated treasury functions? It’s almost always part of the role/responsibilities of a CFO or VP Finance until much larger than the companies in question here. People have really odd ideas about what corporate finance roles entail.
    - prepend 4y ago
      I worked for a 50 person startup that only had $6M in VC funding. Our comptroller with staff of zero did this. It’s not terribly complicated. I would expect that even the smallest companies have someone responsible for finance. Or they can rent or contract out for it. But if there’s truly no one then that company has a huge mundane risk.
LatteLazy 4y ago
Are there any figures on "weighted average maturity" of bond holdings of banks? That seems like a key health indicator right now...
nullc 4y ago
> Most banks do not have most of their capital tied up for ten years; {{Citation needed}} Why would SVB be particularly special with respect to investments? They were all sharing the yield environment the the current effects of recent monetary policy.
- nullc 4y ago
  Answering myself, JPmorgan at least says SVB's asset mix was different: https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/silicon-valley-bank-failure-amv.pdf https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/ins...

mikeyouse 4y ago

If I’m a treasurer at a small firm, I’m just going to move my funds to the biggest bank I can find. Who has the time or energy to spend interrogating the asset mix and bond duration of the bank with your checking account?

bigbillheck 4y ago
> I’m just going to move my funds to the biggest bank I can find. Why would 2023 lead to you do that if 2008 had not?
- mikeyouse 4y ago
  It felt like there was a distinction between the community bank with a few billion under management and banks like SVB with hundreds of billions under management. SVB-sized banks felt “safe” post-2008, apparently they’re not.
  - JumpCrisscross 4y ago
    > SVB-sized banks felt “safe” post-2008, apparently they’re not I don’t think SVB has ever had an investment-grade (EDIT: issuer) credit rating. Certainly not in the last year.
    - mikeyouse 4y ago
      It sure did, every part of their business was investment grade and as of last week it was rated A by Moodys. https://ir.svb.com/shareholder-and-bondholder-information/credit-ratings/default.aspx https://ir.svb.com/shareholder-and-bondholder-information/cr...
      - JumpCrisscross 4y ago
        Sorry, flubbed. They were medium risk, not junk, but borderline investment.
  - paulddraper 4y ago
    Washington Mutual was bigger then SVB, even ignoring inflation
shkkmo 4y ago
Or better yet, keep less than 250k at each institution.
- mikeyouse 4y ago
  The amount of coordination / bank reconciliation / overhead that would add is absolutely not worth it. It’s completely normal to have $10M+ in cash in a checking account for these companies, if I need to make payroll of $500k twice per month + pay vendors, accounts will necessarily have much more than the FDIC limit. I could find 40 community banks and shift funds around constantly or I could just put it all in JPM and actually worry about running my business.
  - makestuff 4y ago
    Also the big banks will do overnight sweeps as well to protect customers over the FDIC limit. I’m not sure if smaller banks do this as well, but I know JPM will do it for large customers. From the brokerage side interactive brokers will do it on any cash sitting in your account as well if you opt in.
  - scottLobster 4y ago
    Or you could split it between two banks and reduce your exposure by half. Four banks and you reduce it by 75%. That way a deathblow turns into a setback, and overhead is minimal. There are cash management services that will do this for you if you can't be personally bothered. Running a business means doing the maintenance keeping ship afloat as well as charting a course to exotic destinations.
    - mikeyouse 4y ago
      Those probabilities assume there’s an equal likelihood of going under for each bank which certainly isn’t true. I could just move it to half at WFB and half at JPM and cut my risk by substantially more than spreading it across random community banks.
    - gnicholas 4y ago
prepend 4y ago
> Who has the time or energy to spend interrogating the asset mix and bond duration of the bank with your checking account? The treasurer should have time as that’s part of her job.
- mikeyouse 4y ago
  Just not remotely feasible. How many companies have dedicated treasury functions? It’s almost always part of the role/responsibilities of a CFO or VP Finance until much larger than the companies in question here. People have really odd ideas about what corporate finance roles entail.
  - prepend 4y ago
    I worked for a 50 person startup that only had $6M in VC funding. Our comptroller with staff of zero did this. It’s not terribly complicated. I would expect that even the smallest companies have someone responsible for finance. Or they can rent or contract out for it. But if there’s truly no one then that company has a huge mundane risk.

LatteLazy 4y ago

Are there any figures on "weighted average maturity" of bond holdings of banks? That seems like a key health indicator right now...

nullc 4y ago

> Most banks do not have most of their capital tied up for ten years; {{Citation needed}} Why would SVB be particularly special with respect to investments? They were all sharing the yield environment the the current effects of recent monetary policy.

nullc 4y ago
Answering myself, JPmorgan at least says SVB's asset mix was different: https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/silicon-valley-bank-failure-amv.pdf https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/ins...