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In this case, IMO it was more than a potential problem. On a mark-to-market basis SVB was certainly undercapitalized and possibly insolvent last week. Had the
by cameldrv 4y ago
In this case, IMO it was more than a potential problem. On a mark-to-market basis SVB was certainly undercapitalized and possibly insolvent last week. Had there been no run, over the next year, SVB would have had three choices over the next year or so:
1. Keep deposit rates near zero, in which case depositors would progressively realize that they could be making 4.5% on their money elsewhere and withdraw their funds. This ends up being exactly the same as the bank run that happened, just in slower motion.
2. Raise deposit rates, in which case, they would start losing money until they were forced to sell assets to pay depositors their interest. Those HTM assets would then be marked to market and the bank would be officially undercapitalized and taken over by the FDIC.
3. Raise capital or sell the bank. They tried raising capital unsuccessfully. Given this, it's questionable whether they would have been successful at selling the bank because it's unclear whether the bank had a positive value.
- remote_phone 4y agoOn a mark to market basis ALL banks are undercapitalized. What do you think the banks did in the last several years besides buy bonds at 1.5%? That’s why there’s a distinction because it gives an invalid view as well. Plus there’s a footnote in the 10K that gives the value at fair value.
- baq 4y agoIf a bank has a risk officer (turns out a big if after all) it should get some interest rate swaps
- landemva 4y agoSVB's risk officer had a masters degree in public administration. That hire was there to fill the org chart while the bosses continued to cash out options and take home their pay. Keep the paydays going.
- fshbbdssbbgdd 4y agoWho’s the counterparty for those swaps? They sound systemically important.
- baq 4y agoThey’re OTC so probably the biggest bank IR desks. Of course they must hedge on their own etc.
- cameldrv 4y agoThis is not true. Go look at the balance sheets of all of the major banks.
- gruez 4y ago> On a mark to market basis ALL banks are undercapitalized. What do you think the banks did in the last several years besides buy bonds at 1.5%? Source? A report by JP Morgan contradicts your claim 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... (see "Impact of unrealized securities losses on capital ratios", all banks are comfortably above water).