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I've seen this argument made a few times, and it's nonsense. SVB didn't fail because they paid out 4.5% APY on their money market accounts; that's pretty safe f

by makomk 4y ago

I've seen this argument made a few times, and it's nonsense. SVB didn't fail because they paid out 4.5% APY on their money market accounts; that's pretty safe for them because they can easily earn that much from low-risk bonds and Treasuries and as I understand it that doesn't have the duration mismatch problems that affected their normal, boring, no-or-minimal-interest demand deposit accounts. (Also, I'm pretty sure people weren't earning that kind of interest for the past few years - the interest rate increases that made it possible are really recent.) It's related to the cause of their failure, but only in the sense that the fact interest rates increased so much that it was viable to offer that kind of money market account caused outflows from other accounts - it didn't particularly matter whether it was SVB or any other bank, or even potentially corporations just buying bonds directly.

hartator 4y ago
> 4.5% APY on their money market accounts It's not on their money market accounts, but regular deposits. If they didn't pay that big of an interest, they won't have been in this position now. Maybe half as bad. But, depositors did profit for this.
- makomk 4y ago
  The account I've seen people pointing to that paid that was definitely a money market account. Also, there's an interesting chart doing the rounds on Twitter showing that during the time period they dug themselves into this mess most of the deposits held there weren't being paid interest at all: https://twitter.com/mattyglesias/status/1635431225945890816 https://twitter.com/mattyglesias/status/1635431225945890816 Once again, the problem isn't that they were paying unreasonably high interest by taking risks and the customers were benefitting from this - this isn't Icesave in 2008 - it's that due to global interest rate rises people and businesses were no longer as willing to hold large amounts of money there at zero interest and they couldn't afford to pay market interest rates to everyone to keep deposits at the bank.
  - hartator 4y ago
    This is not true. 4.5% APY for deposits is still in their own website: https://www.svb.com/business-banking/business-checking https://www.svb.com/business-banking/business-checking
    - makomk 4y ago
      Huh? It says right there on the page you linked: "A startup money market account with a competitive APY of 4.50%". Yes, that is on the marketing page for their business checking account, but it's not the checking account that has the 4.5% interest rate.
      - hartator 4y ago
        Higher on the page: > Free checking for your first three years¹, 4.50% annual percentage yield (APY)² on savings Which is different from money market funds and way higher than anything out there.

by makomk 4y ago

hartator 4y ago

> 4.5% APY on their money market accounts It's not on their money market accounts, but regular deposits. If they didn't pay that big of an interest, they won't have been in this position now. Maybe half as bad. But, depositors did profit for this.

makomk 4y ago
The account I've seen people pointing to that paid that was definitely a money market account. Also, there's an interesting chart doing the rounds on Twitter showing that during the time period they dug themselves into this mess most of the deposits held there weren't being paid interest at all: https://twitter.com/mattyglesias/status/1635431225945890816 https://twitter.com/mattyglesias/status/1635431225945890816 Once again, the problem isn't that they were paying unreasonably high interest by taking risks and the customers were benefitting from this - this isn't Icesave in 2008 - it's that due to global interest rate rises people and businesses were no longer as willing to hold large amounts of money there at zero interest and they couldn't afford to pay market interest rates to everyone to keep deposits at the bank.
- hartator 4y ago
  This is not true. 4.5% APY for deposits is still in their own website: https://www.svb.com/business-banking/business-checking https://www.svb.com/business-banking/business-checking
  - makomk 4y ago
    Huh? It says right there on the page you linked: "A startup money market account with a competitive APY of 4.50%". Yes, that is on the marketing page for their business checking account, but it's not the checking account that has the 4.5% interest rate.
    - hartator 4y ago
      Higher on the page: > Free checking for your first three years¹, 4.50% annual percentage yield (APY)² on savings Which is different from money market funds and way higher than anything out there.