4 ms·

If your customers actions are all highly correlated, you need to be planning for things like this. The fact that having your whole customer base in a single gro

by yunwal 4y ago

If your customers actions are all highly correlated, you need to be planning for things like this. The fact that having your whole customer base in a single group chat is a bad business model for a bank should not be the taxpayers’ problem.

wstuartcl 4y ago
it's good then that the funds to support the deposits are coming from the bank funded fdic fund not taxes then.
- yunwal 4y ago
  The whole argument is whether uninsured deposits should be provided by the FDIC. I have no problems with the insured amount being returned to customers. The FDIC is a government owned business and shouldn’t be acting outside of it’s financial interests and obligations.
  - wstuartcl 4y ago
    The other good news is that it will probably net out to costing little to nothing in the long term as they had enough assets to cover liabilities -- it was a liquidity crunch. Seems very much relevant to what the FDIC was created for -- to make depositors whole and stop contagion. It would be different if the bank was not properly asset backed.
    - yunwal 4y ago
      > The other good news is that it will probably net out to costing little to nothing in the long term If it cost nothing with no risk, surely a larger banking institution would have been willing to step in to solve it. > Seems very much relevant to what the FDIC was created for The FDIC was created to be an insurance corporation, not to bail out banks at their discretion.
      - fisherjeff 4y ago
        The only risk for other banks is opportunity cost: right now, there are much more productive uses of their money than buying old agencies at par. If you had $200b or whatever laying around, you could buy their portfolio and make about the lowest risk $10b there is. But if you just bought new agencies at the same durations instead, you could easily double that. EDIT: To clarify, this is the primary risk at large banks, where they could absorb a chunk of the bonds without significantly affecting their average maturity. Smaller banks obviously risk replaying the SVB run.
        yunwal 4y ago
        > The only risk for other banks is opportunity cost To be clear, if banks can improve their risk profile for free, they will do that (because it frees them to invest in other risky stuff). A no-risk 5% return while the fed is giving out sub-5% interest rates is a no-brainer. The reason no banks are coming in to help is because it would be a bad investment.
        fisherjeff 4y ago
        They are 5-10% total return, not annual. My point is that it is not a bad investment, it’s just a less-good investment than equivalent bonds with the exact same (extremely low!) risk profile at today’s rates. They were a perfectly fine investment in 2021-22, they just aren’t as attractive in 2023. Could very well be good again in 2024 though, who knows.
      - actually_a_dog 4y ago
        Banks are not being "bailed out." Depositors are. SVB no longer exists. Now, you can certainly argue over the merits of bailing out depositors, but disingenuously framing it as a "bank bailout" is not the position to start from. On that point, the government does have an obligation to "provide for the common defense and the general welfare of the United States," and that is clearly one of the overarching purposes of the Constitution itself. I find it hard to argue that saving tens of thousands of jobs[0] but by making the depositors whole, when the assets of SVB, illiquid though they may be, can cover 60-90% of the cost, is at all the wrong thing to do. This is literally part of why we have a government, and why markets are regulated at all. [0]: I couldn't find a good source on the number of jobs, but that seems like the correct order of magnitude, anyway.
fisherjeff 4y ago
Exactly right. I do think the speed of deposit growth in a low rate environment made that challenging though. Like if it were me, I'd grudgingly buy long-dated assets to keep the doors open, but also look toward reducing maturity as rates increase and start acquiring customers. Problem is that, very roughly speaking, those things only work if rates increase more slowly than you can acquire new customers.
- pas 4y ago
  but ... they could have charged customers to hold their money. or put it into money market funds. sure, less glamorous, but also less risky. of course they were also a startup, so making money was a bit more important than safety. it's just valley things.
enaaem 4y ago
Compared to other banks they also have relatively few customers with very high deposit each.

by yunwal 4y ago

wstuartcl 4y ago

it's good then that the funds to support the deposits are coming from the bank funded fdic fund not taxes then.

yunwal 4y ago
The whole argument is whether uninsured deposits should be provided by the FDIC. I have no problems with the insured amount being returned to customers. The FDIC is a government owned business and shouldn’t be acting outside of it’s financial interests and obligations.
- wstuartcl 4y ago
  The other good news is that it will probably net out to costing little to nothing in the long term as they had enough assets to cover liabilities -- it was a liquidity crunch. Seems very much relevant to what the FDIC was created for -- to make depositors whole and stop contagion. It would be different if the bank was not properly asset backed.
  - yunwal 4y ago
    > The other good news is that it will probably net out to costing little to nothing in the long term If it cost nothing with no risk, surely a larger banking institution would have been willing to step in to solve it. > Seems very much relevant to what the FDIC was created for The FDIC was created to be an insurance corporation, not to bail out banks at their discretion.
    - fisherjeff 4y ago
      The only risk for other banks is opportunity cost: right now, there are much more productive uses of their money than buying old agencies at par. If you had $200b or whatever laying around, you could buy their portfolio and make about the lowest risk $10b there is. But if you just bought new agencies at the same durations instead, you could easily double that. EDIT: To clarify, this is the primary risk at large banks, where they could absorb a chunk of the bonds without significantly affecting their average maturity. Smaller banks obviously risk replaying the SVB run.
      - yunwal 4y ago
        > The only risk for other banks is opportunity cost To be clear, if banks can improve their risk profile for free, they will do that (because it frees them to invest in other risky stuff). A no-risk 5% return while the fed is giving out sub-5% interest rates is a no-brainer. The reason no banks are coming in to help is because it would be a bad investment.
        fisherjeff 4y ago
        They are 5-10% total return, not annual. My point is that it is not a bad investment, it’s just a less-good investment than equivalent bonds with the exact same (extremely low!) risk profile at today’s rates. They were a perfectly fine investment in 2021-22, they just aren’t as attractive in 2023. Could very well be good again in 2024 though, who knows.
    - actually_a_dog 4y ago
      Banks are not being "bailed out." Depositors are. SVB no longer exists. Now, you can certainly argue over the merits of bailing out depositors, but disingenuously framing it as a "bank bailout" is not the position to start from. On that point, the government does have an obligation to "provide for the common defense and the general welfare of the United States," and that is clearly one of the overarching purposes of the Constitution itself. I find it hard to argue that saving tens of thousands of jobs[0] but by making the depositors whole, when the assets of SVB, illiquid though they may be, can cover 60-90% of the cost, is at all the wrong thing to do. This is literally part of why we have a government, and why markets are regulated at all. [0]: I couldn't find a good source on the number of jobs, but that seems like the correct order of magnitude, anyway.

fisherjeff 4y ago

Exactly right. I do think the speed of deposit growth in a low rate environment made that challenging though. Like if it were me, I'd grudgingly buy long-dated assets to keep the doors open, but also look toward reducing maturity as rates increase and start acquiring customers. Problem is that, very roughly speaking, those things only work if rates increase more slowly than you can acquire new customers.

pas 4y ago
but ... they could have charged customers to hold their money. or put it into money market funds. sure, less glamorous, but also less risky. of course they were also a startup, so making money was a bit more important than safety. it's just valley things.

enaaem 4y ago

Compared to other banks they also have relatively few customers with very high deposit each.