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Is there any parallelism between SVB's fall and Lehman's in 2008, in terms of contagion effects? I am sure that there are many people in my position holding a

Is there any parallelism between SVB's fall and Lehman's in 2008, in terms of contagion effects? I am sure that there are many people in my position holding a bunch of index funds trying to figure out if this is the beginning of something bigger or just a mouse fart that will be absorbed by whoever is SVB's creditor in the near future.

trts 4y ago
If other big or small banks were also holding long-term, illiquid assets that have rapidly declined in value along with the increase in Fed rate increases, then they have the same problem. SBV bought 10-year term mortgage backed securities to earn yield on their cash holdings. When the risk-free interest rate started to exceed the yield on these assets, the MBS value declined. As a result SBV became insolvent. Either it was an isolated, stupid move by a big bank who expected that interest rates would not rise, or they didn't care because of moral hazard.
- chatmasta 4y ago
  You can see some comparative data in this thread [0] (the author is also worth a follow). It looks like SVB was mostly an outlier but there are a few other banks with possibly similar issues. My understanding is that the FED also announced they will loan money to banks that need to cover a shortfall due to haircuts to bond values caused by rate hikes, but that's just according to a tweet [1] from Thomas Massie an hour ago. I don't know the details of that arrangement. [0] https://twitter.com/GRDecter/status/1634208659407351812 https://twitter.com/GRDecter/status/1634208659407351812 [1] https://twitter.com/RepThomasMassie/status/1635316221108449280 https://twitter.com/RepThomasMassie/status/16353162211084492...
  - disgruntledphd2 4y ago
    > My understanding is that the FED also announced they will loan money to banks that need to cover a shortfall due to haircuts to bond values caused by rate hikes, but that's just according to a tweet [1] from Thomas Massie an hour ago. I don't know the details of that arrangement. This was covered by a statement yesterday I think, as I read it in the FT this morning (on GMT).
- sanderjd 4y ago
  They had the same problem, until last night. Now they can use those long-duration bonds to get a free loan from the Fed for a year.
- dragonwriter 4y ago
  > If other big or small banks were also holding long-term, illiquid assets that have rapidly declined in value along with the increase in Fed rate increases, then they have the same problem. Except the Fed announced a liquidity loan program for banks in such situations based on the par value of the assets, which prevents them from having to firsale them at reduced value, take the markdown, and risk insolvency.
kortilla 4y ago
The collapse of Lehman wasn’t contagious. Everyone already had the same disease. The situations aren’t similar because everyone was fucked before Legman’s collapse. SVB wouldn’t have collapsed if people didn’t lose faith and start withdrawing. Lehman collapsed without withdrawals.
MilnerRoute 4y ago
This was just added to the top of Bloomberg's article: Some potentially soothing comments here from Brad McMillan, chief investment officer at Commonwealth Financial Network. "This situation is something to keep an eye on, but it is not the start of the next financial crisis. Unlike in 2008, the government has stepped in early and stepped in hard. While we can certainly expect market turbulence — and we are seeing it this morning — the systemic effects will be limited. We are not set for a rerun of the Great Financial Crisis. This is not the end of the world." Right this second, the S&P 500 is actually up by a very small amount.
- Grimburger 4y ago
  > Right this second, the S&P 500 is actually up by a very small amount. Sounds familiar: https://imgur.com/a/LA5TePE https://imgur.com/a/LA5TePE Also ignores the OP headline, stocks can't go down if they are in a trading halt.
  - deleted 4y ago
    [deleted]
- cced 4y ago
  > This is not the end of the world. Someone hasn't been following @Jason's Tweet fest this weekend.
somenameforme 4y ago
The cost of doing something and being wrong is minimal. The cost of doing nothing and being wrong is high.
- jerf 4y ago
  Sadly, that's not true. There's a menu of options right now and they all have steep costs and large potential benefits. There is no simple, easy, correct answer they can simply choose without any risk. That door closed a long time ago. (If you want to predict which of the things they will do, I would suggest paying attention to who bears the costs and who gets the benefits. The various choices differ most in that area. This is not entirely determinative, but it's been a pretty good guide for most of my lifetime.)

trts 4y ago

If other big or small banks were also holding long-term, illiquid assets that have rapidly declined in value along with the increase in Fed rate increases, then they have the same problem. SBV bought 10-year term mortgage backed securities to earn yield on their cash holdings. When the risk-free interest rate started to exceed the yield on these assets, the MBS value declined. As a result SBV became insolvent. Either it was an isolated, stupid move by a big bank who expected that interest rates would not rise, or they didn't care because of moral hazard.

chatmasta 4y ago
You can see some comparative data in this thread [0] (the author is also worth a follow). It looks like SVB was mostly an outlier but there are a few other banks with possibly similar issues. My understanding is that the FED also announced they will loan money to banks that need to cover a shortfall due to haircuts to bond values caused by rate hikes, but that's just according to a tweet [1] from Thomas Massie an hour ago. I don't know the details of that arrangement. [0] https://twitter.com/GRDecter/status/1634208659407351812 https://twitter.com/GRDecter/status/1634208659407351812 [1] https://twitter.com/RepThomasMassie/status/1635316221108449280 https://twitter.com/RepThomasMassie/status/16353162211084492...
- disgruntledphd2 4y ago
  > My understanding is that the FED also announced they will loan money to banks that need to cover a shortfall due to haircuts to bond values caused by rate hikes, but that's just according to a tweet [1] from Thomas Massie an hour ago. I don't know the details of that arrangement. This was covered by a statement yesterday I think, as I read it in the FT this morning (on GMT).
sanderjd 4y ago
They had the same problem, until last night. Now they can use those long-duration bonds to get a free loan from the Fed for a year.
dragonwriter 4y ago
> If other big or small banks were also holding long-term, illiquid assets that have rapidly declined in value along with the increase in Fed rate increases, then they have the same problem. Except the Fed announced a liquidity loan program for banks in such situations based on the par value of the assets, which prevents them from having to firsale them at reduced value, take the markdown, and risk insolvency.

kortilla 4y ago

The collapse of Lehman wasn’t contagious. Everyone already had the same disease. The situations aren’t similar because everyone was fucked before Legman’s collapse. SVB wouldn’t have collapsed if people didn’t lose faith and start withdrawing. Lehman collapsed without withdrawals.

MilnerRoute 4y ago

This was just added to the top of Bloomberg's article: Some potentially soothing comments here from Brad McMillan, chief investment officer at Commonwealth Financial Network. "This situation is something to keep an eye on, but it is not the start of the next financial crisis. Unlike in 2008, the government has stepped in early and stepped in hard. While we can certainly expect market turbulence — and we are seeing it this morning — the systemic effects will be limited. We are not set for a rerun of the Great Financial Crisis. This is not the end of the world." Right this second, the S&P 500 is actually up by a very small amount.

Grimburger 4y ago
> Right this second, the S&P 500 is actually up by a very small amount. Sounds familiar: https://imgur.com/a/LA5TePE https://imgur.com/a/LA5TePE Also ignores the OP headline, stocks can't go down if they are in a trading halt.
- deleted 4y ago
  [deleted]
cced 4y ago
> This is not the end of the world. Someone hasn't been following @Jason's Tweet fest this weekend.

somenameforme 4y ago

The cost of doing something and being wrong is minimal. The cost of doing nothing and being wrong is high.

jerf 4y ago
Sadly, that's not true. There's a menu of options right now and they all have steep costs and large potential benefits. There is no simple, easy, correct answer they can simply choose without any risk. That door closed a long time ago. (If you want to predict which of the things they will do, I would suggest paying attention to who bears the costs and who gets the benefits. The various choices differ most in that area. This is not entirely determinative, but it's been a pretty good guide for most of my lifetime.)