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Well, I’d argue that they should have hedged their rates risk especially as inflation started to tick up. They just don’t have good risk managers. But that sai

Well, I’d argue that they should have hedged their rates risk especially as inflation started to tick up. They just don’t have good risk managers. But that said, if there hadn’t been a run the causal issues would have been a foot note in a quarterly filing. Everyone is acting as if SVB were Lehman or Bear Sterns. They just got caught with their pants down and everyone ran over to take a picture and post it on Twitter.

el_nahual 4y ago
I saw on another HN thread that when a bank has bonds designated as "hold to maturity" they are not allowed to hedge against rate risk--because there isn't any! The bonds will be held til expiration for purposes of the coupon, not to trade.
ralph84 4y ago
Why hedge when we privatize the profits and socialize the losses? SVB execs sold tens of $millions in stock before the failure. Are the execs going to be forced to return the compensation they received for showing higher profits by not hedging?
- psychlops 4y ago
  Don't forget they also paid bonuses the morning they failed.
  - fnordpiglet 4y ago
    This is the time of the year when banks pay bonuses for the prior years work. My understanding is it was scheduled annually at the same time and happened to occur the day they went insolvent. Frankly I’m down with Nancy in client confirm generation getting her bonus. The senior managers all got fired and their comp clawed back, so seems legit.
    - psychlops 4y ago
      I've no problems with Nancy, she's pretty cool. Firing isn't really enough, loss of license and industry bans should be on the table as well as criminal investigations for fraud and negligence of custodial funds.
    - jgon 4y ago
      You seem pretty emphatic that senior managers have had their compensation clawed back but have posted absolutely zero proof that this is the case. Care to show any reason we should believe you?
- fnordpiglet 4y ago
  Yes. It’s called clawback provisions. They were summarily fired and their compensation was clawed back. And how are the losses being socialized? The assets of the bank are collateralizing the lines of credit they’re getting to stay solvent. It won’t cost anyone a thin penny, other than bank management and shareholders.
  - nerdponx 4y ago
    I imagine taxpayers did pay at least something in the form of treasury and fed employees working over the weekend and getting paid overtime. Or is that not how it works?
    - ip26 4y ago
      Are police wages “socializing the cost of crime”? I consider enforcement necessary overhead.
      - nerdponx 4y ago
        I'd say they are. And I agree with you that it's necessary overhead. The action is what "cost the taxpayers money" because it required enforcement action. Crime is actually a great example: we all pay when crimes are committed, so we should all take interest in preventing crime rather than just reacting whenever it happens. The same is true for things like rail freight safety, air travel safety, and banking.
  - tripletao 4y ago
    The FDIC is guaranteeing all SVB deposits, including deposits above $250k. Any deficit will be paid from the FDIC's insurance fund, which if necessary will be topped up by a special assessment on all participating banks. So the losses (if any) won't be socialized over taxpayers, but they will be socialized over some combination of bank owners and customers. https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...
    - 4y ago
psychlops 4y ago
> just don’t have good risk managers They had no chief risk officer for 8 months. They argued publicly against stress testing banks. Their complete absence of hedging guaranteed that time bomb that would have gone off now or later.
- fnordpiglet 4y ago
  I agree 100% up to the point of the necessity of a bank run. I think they faced some serious quarterly losses for some time to come, but many banks see that without a run on the bank. That’s why I suspect someone large and influential in the startup world operated a bank run whisper campaign for their personal benefit. I’ve no proof, but I’ll wager $5 on it.
  - psychlops 4y ago
    It's entirely possible, but they wouldn't have been a random target. They put themselves into a very precarious position with the unhedged bets they made and the very selective client base they held. Consider that (nearly) all other banks weathered the storm just fine so far through correct risk management.
cronix 4y ago
> They just don’t have good risk managers. It was worse than not having good risk managers... They didn't have a CRO at all for 8 months, until 2 months ago. > In the run-up to all this, SVB’s proxy statement, filed earlier this month, reveals that the firm’s chief risk officer stepped away from her role early last year, and the bank did not hire a replacement until this past January. https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/ https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...
tracker1 4y ago
I think it's rather telling that they were run on, and pushed over the ledge instead of bolstered by those now calling for bailout. And now they get what they really wanted, a crosspoint to the Fed rate hikes, and cover under the "too big to fail" umbrella... This won't lead to better practices until people are jailed and or bankrupted over these kinds of actions.

el_nahual 4y ago

I saw on another HN thread that when a bank has bonds designated as "hold to maturity" they are not allowed to hedge against rate risk--because there isn't any! The bonds will be held til expiration for purposes of the coupon, not to trade.

ralph84 4y ago

Why hedge when we privatize the profits and socialize the losses? SVB execs sold tens of $millions in stock before the failure. Are the execs going to be forced to return the compensation they received for showing higher profits by not hedging?

psychlops 4y ago
Don't forget they also paid bonuses the morning they failed.
- fnordpiglet 4y ago
  This is the time of the year when banks pay bonuses for the prior years work. My understanding is it was scheduled annually at the same time and happened to occur the day they went insolvent. Frankly I’m down with Nancy in client confirm generation getting her bonus. The senior managers all got fired and their comp clawed back, so seems legit.
  - psychlops 4y ago
    I've no problems with Nancy, she's pretty cool. Firing isn't really enough, loss of license and industry bans should be on the table as well as criminal investigations for fraud and negligence of custodial funds.
  - jgon 4y ago
    You seem pretty emphatic that senior managers have had their compensation clawed back but have posted absolutely zero proof that this is the case. Care to show any reason we should believe you?
fnordpiglet 4y ago
Yes. It’s called clawback provisions. They were summarily fired and their compensation was clawed back. And how are the losses being socialized? The assets of the bank are collateralizing the lines of credit they’re getting to stay solvent. It won’t cost anyone a thin penny, other than bank management and shareholders.
- nerdponx 4y ago
  I imagine taxpayers did pay at least something in the form of treasury and fed employees working over the weekend and getting paid overtime. Or is that not how it works?
  - ip26 4y ago
    Are police wages “socializing the cost of crime”? I consider enforcement necessary overhead.
    - nerdponx 4y ago
      I'd say they are. And I agree with you that it's necessary overhead. The action is what "cost the taxpayers money" because it required enforcement action. Crime is actually a great example: we all pay when crimes are committed, so we should all take interest in preventing crime rather than just reacting whenever it happens. The same is true for things like rail freight safety, air travel safety, and banking.
- tripletao 4y ago
  The FDIC is guaranteeing all SVB deposits, including deposits above $250k. Any deficit will be paid from the FDIC's insurance fund, which if necessary will be topped up by a special assessment on all participating banks. So the losses (if any) won't be socialized over taxpayers, but they will be socialized over some combination of bank owners and customers. https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...
  - 4y ago

psychlops 4y ago

> just don’t have good risk managers They had no chief risk officer for 8 months. They argued publicly against stress testing banks. Their complete absence of hedging guaranteed that time bomb that would have gone off now or later.

fnordpiglet 4y ago
I agree 100% up to the point of the necessity of a bank run. I think they faced some serious quarterly losses for some time to come, but many banks see that without a run on the bank. That’s why I suspect someone large and influential in the startup world operated a bank run whisper campaign for their personal benefit. I’ve no proof, but I’ll wager $5 on it.
- psychlops 4y ago
  It's entirely possible, but they wouldn't have been a random target. They put themselves into a very precarious position with the unhedged bets they made and the very selective client base they held. Consider that (nearly) all other banks weathered the storm just fine so far through correct risk management.

cronix 4y ago

> They just don’t have good risk managers. It was worse than not having good risk managers... They didn't have a CRO at all for 8 months, until 2 months ago. > In the run-up to all this, SVB’s proxy statement, filed earlier this month, reveals that the firm’s chief risk officer stepped away from her role early last year, and the bank did not hire a replacement until this past January. https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/ https://fortune.com/2023/03/10/silicon-valley-bank-chief-ris...

tracker1 4y ago

I think it's rather telling that they were run on, and pushed over the ledge instead of bolstered by those now calling for bailout. And now they get what they really wanted, a crosspoint to the Fed rate hikes, and cover under the "too big to fail" umbrella... This won't lead to better practices until people are jailed and or bankrupted over these kinds of actions.