5 ms·

Can anyone help me understand why would any bank practice proper risk management after this? SVB took on risk by catering to high risk clients (startups). Grow

by spaceman_2020 4y ago

Can anyone help me understand why would any bank practice proper risk management after this? SVB took on risk by catering to high risk clients (startups). Growth metrics were great as a result. And stock performed spectacularly (up nearly 6x from April 2020 lows at ath). More conservative banks like JPM, however, saw modest growth. If you're a banker and your salary is tied to stock performance, why not just adopt the SVB playbook, take on riskier clients, show strong growth, cash out your stock options, and when it all ends, just walk away without any guilt since the government will bail out your customers anyway?

chernevik 4y ago
It won't. A bank will have to justify its investments to its regulators. And if those regulators have any helpful suggestions about "under-banked sectors" that could use additional capital, management will be very attentive.
furyofantares 4y ago
> More conservative banks like JPM, however, saw modest growth. Also they continue to exist.
- spaceman_2020 4y ago
  Why should that be any concern if you’re not the founder and are just exec #107?
  - furyofantares 4y ago
    It is probably a concern to the founders or others with the most power, as you imply. Sure, I guess once we get to, let's see you said exec #107? That's pretty far down, they're maybe not too different than any other employee, though they still might not want their stock to vanish and they still might wish to continue their current career path etc.
tome 4y ago
> why would any bank practice proper risk management after this? The incentive for depositholders to exercise oversight has been removed, but the incentive for shareholders seems strong now!
t3rmi 4y ago
This looks like the playbook for small scale banks now. Just gamble and say oops I fkd up, can the govt pretty please make my clients whole? 2 years later bam start the same bank again 2.0.

chernevik 4y ago

It won't. A bank will have to justify its investments to its regulators. And if those regulators have any helpful suggestions about "under-banked sectors" that could use additional capital, management will be very attentive.

furyofantares 4y ago

> More conservative banks like JPM, however, saw modest growth. Also they continue to exist.

spaceman_2020 4y ago
Why should that be any concern if you’re not the founder and are just exec #107?
- furyofantares 4y ago
  It is probably a concern to the founders or others with the most power, as you imply. Sure, I guess once we get to, let's see you said exec #107? That's pretty far down, they're maybe not too different than any other employee, though they still might not want their stock to vanish and they still might wish to continue their current career path etc.

tome 4y ago

> why would any bank practice proper risk management after this? The incentive for depositholders to exercise oversight has been removed, but the incentive for shareholders seems strong now!

t3rmi 4y ago

This looks like the playbook for small scale banks now. Just gamble and say oops I fkd up, can the govt pretty please make my clients whole? 2 years later bam start the same bank again 2.0.