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> [...] SVB was actually assuming quite a bit of risk. Honest question: compared to what? Did long duration assets (like bonds) comprise a greater proportion

by runeks 4y ago

> [...] SVB was actually assuming quite a bit of risk. Honest question: compared to what? Did long duration assets (like bonds) comprise a greater proportion of SVB's assets compared to, say, JP Morgan? Or is the case that JP Morgan is as insolvent as SVB, but JPM's depositors are less likely to withdraw their funds (because it's a big bank and it has primarily retail customers)? These are honest questions; I'm not suggesting JPM is in the same situation. However, I'd like to see some numbers.

JumpCrisscross 4y ago
> Did long duration assets (like bonds) comprise a greater proportion of SVB's assets compared to, say, JP Morgan? Yes. JPMorgan is subject to the Fed’s stress tests and Basel III, both of which test duration. (SVB successfully lobbied to be exempt from both.)
- nephanth 4y ago
  > SVB successfully lobbied to be exempt from both Ow the irony
- everybodyknows 4y ago
  Further to regulatory exemptions: >For systemically important banks, no adjustment for AFS is needed because all AFS unrealized gains and losses are already reflected in their reported capital ratios. As a result, only gains and losses in the HTM portfolio need to be included in our adjustment. For these four banks ... So, regulations turn a blind eye to HTM losses for any bank under $1T in assets: https://banks.data.fdic.gov/bankfind-suite/financialreporting?establishedEndRange=3%2F12%2F2023&establishedStartRange=01%2F01%2F1792&inactiveEndRange=3%2F12%2F2023&inactiveStartRange=01%2F01%2F1970&incomeBasis=YTD&institutionType=banks&limitEstablishedDate=false&limitInactiveDate=false&pageNumber=1&reportPeriod=20221231&resultLimit=25&sortField=ASSET&sortOrder=DESC&unitType=%24 https://banks.data.fdic.gov/bankfind-suite/financialreportin...
tel 4y ago
I'm not sure I completely follow the linked PDF, but it seems to be suggesting exactly that: So, the big question for investors and depositors is this: how much duration risk did each bank take in its investment portfolio during the deposit surge, and how much was invested at the lows in Treasury and Agency yields? As a proxy for these questions now that rates have risen, we can examine the impact on capital ratios from an assumed immediate realization of unrealized securities losses (see next page for a full explanation of our methodology). That’s what is shown in the first chart: again, SIVB was in investment duration world of its own as of the end of 2022, which is remarkable given its funding profile shown earlier. The argument seems to be exactly that SVB both had highly interest rate sensitive depositors and significant unhedged duration risk. Both led to correlated interest rate risk at SVB and both were unique in the US banking world. Another key comment by Cembalest As shown below, being flooded with deposits from fast-money VC firms and other corporate accounts at a time of historically low interest rates might have been more of a curse than a blessing. The chart shows that SVB's balance sheet expanded by 250% from 2019 to 2022 (compare JPM at ~40%, one of the lower banks listed and the next closest, Western Alliance at ~180% and Truist at ~150%).

by runeks 4y ago

JumpCrisscross 4y ago

> Did long duration assets (like bonds) comprise a greater proportion of SVB's assets compared to, say, JP Morgan? Yes. JPMorgan is subject to the Fed’s stress tests and Basel III, both of which test duration. (SVB successfully lobbied to be exempt from both.)

nephanth 4y ago
> SVB successfully lobbied to be exempt from both Ow the irony
everybodyknows 4y ago
Further to regulatory exemptions: >For systemically important banks, no adjustment for AFS is needed because all AFS unrealized gains and losses are already reflected in their reported capital ratios. As a result, only gains and losses in the HTM portfolio need to be included in our adjustment. For these four banks ... So, regulations turn a blind eye to HTM losses for any bank under $1T in assets: https://banks.data.fdic.gov/bankfind-suite/financialreporting?establishedEndRange=3%2F12%2F2023&establishedStartRange=01%2F01%2F1792&inactiveEndRange=3%2F12%2F2023&inactiveStartRange=01%2F01%2F1970&incomeBasis=YTD&institutionType=banks&limitEstablishedDate=false&limitInactiveDate=false&pageNumber=1&reportPeriod=20221231&resultLimit=25&sortField=ASSET&sortOrder=DESC&unitType=%24 https://banks.data.fdic.gov/bankfind-suite/financialreportin...

tel 4y ago

I'm not sure I completely follow the linked PDF, but it seems to be suggesting exactly that: So, the big question for investors and depositors is this: how much duration risk did each bank take in its investment portfolio during the deposit surge, and how much was invested at the lows in Treasury and Agency yields? As a proxy for these questions now that rates have risen, we can examine the impact on capital ratios from an assumed immediate realization of unrealized securities losses (see next page for a full explanation of our methodology). That’s what is shown in the first chart: again, SIVB was in investment duration world of its own as of the end of 2022, which is remarkable given its funding profile shown earlier. The argument seems to be exactly that SVB both had highly interest rate sensitive depositors and significant unhedged duration risk. Both led to correlated interest rate risk at SVB and both were unique in the US banking world. Another key comment by Cembalest As shown below, being flooded with deposits from fast-money VC firms and other corporate accounts at a time of historically low interest rates might have been more of a curse than a blessing. The chart shows that SVB's balance sheet expanded by 250% from 2019 to 2022 (compare JPM at ~40%, one of the lower banks listed and the next closest, Western Alliance at ~180% and Truist at ~150%).