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"They failed specifically because of business they were servicing." I don't think so. All banks are facing major markdown issues right now due to the Fed raisi

"They failed specifically because of business they were servicing." I don't think so. All banks are facing major markdown issues right now due to the Fed raising rates. SVB and the crypto banks were just canaries in the coal mine. First Republic also needed a bailout even though they're a lot more diversified in their client base. Edit: before you downvote, please read this analysis by our friend patio11 - https://www.bitsaboutmoney.com/archive/banking-in-very-uncertain-times/ https://www.bitsaboutmoney.com/archive/banking-in-very-uncer... TLDR: The U.S. banking system (as a whole) has $620 billion in unrealized losses due to the Fed raising rates. This is way bigger than SVB and crypto.

chiefalchemist 4y ago
Right. So the next important question(s) is: Why didn't The Fed anticipate the downside of their actions? Follow up by: Isn't The Fed supposed to prevent bank failures, not cause them? Mind you, there are other (loop) holes that enable such things. Nonetheless, are these random-y bank failure or failures of The Fed and its associated regulatory friends?
- rob74 4y ago
  So the Fed is supposed to keep its interest rates at 0 forever just because some banks based their business decisions on the assumption that interest rates will stay at 0 forever?
  - chiefalchemist 4y ago
    [flagged]
    - ericmay 4y ago
      If you’re placing the blame at the feet of the FED then you can’t also blame the FED for correcting the mistake. Also the FED doesn’t exist in a vacuum - saying that it’s the “key contributor” doesn’t make a lot of sense. For example the FED didn’t mandate that Congress overspend by so much during the Trump admin and then produce subsequent pandemic payouts under the same admin. The FED has a mandate to get inflation down. If your business relies on low interest rates that is your fault and your problem. It’s not the government’s job to babysit your business just as it’s not the government’s job to interfere with someone taking out a high interest rate loan for a car purchase.
      - chiefalchemist 4y ago
        I have no power or say. I'm not placing blame. I'm looking for leadership to lead. I'm looking for those who should be accountable, to be accountable. I'm not interested in the moment and the firehose of distractions. The Fed has a mandate to mitigate swings in the economy. The Fed has a mandate to prevent bank failures. And finally, The Fed was instrumental in creating the inflation. Let's not forget about that either.
        ericmay 4y ago
        > I’m not placing blame. > The FED… mitigate swings > The FED… prevent bank failures > The FED was instrumental… It sounds a whole lot like you are placing blame. The FED has a mandate to keep inflation around some percentage and to keep unemployment around some percentage. It most certainly does not have a mandate to prevent bank failures or “mitigate swings in the economy” whatever that means. > The Fed was instrumental in creating the inflation. Can you specify the exact actions the FED took to create inflation? Not that you are blaming them of course.
        chiefalchemist 4y ago
        Accountability !== blame Responsible !== blame The facts and events speak for themselves.
- pjc50 4y ago
  _Everybody_ in banking is supposed to be aware that if the interest rate goes up the spot or mark-to-market value of a bond goes down. This is not something complicated like Black-Scholes. Everybody in banking is able to see the inflation prints and aware that increasing inflation may cause the central bank to raise rates. A bunch of people failed to spot this and have since been sacked and/or lost their equity in SVB.
  - suddenclarity 4y ago
    They didn't fail to spot it. They just didn't anticipate them to be so drastic in such a short time span. It's barely a week ago Jerome Powell said their own prognoses were still wrong.
  - chiefalchemist 4y ago
    In other words, white collar "criminal-esque activity" gets a free pass.
throwingrocks 4y ago
In addition to that piece, Matt Levine also did an excellent analysis https://www.bloomberg.com/opinion/articles/2023-03-14/svb-took-the-wrong-risks https://www.bloomberg.com/opinion/articles/2023-03-14/svb-to...
pohl 4y ago
…due to the Fed raising rates Translation: due to the banks not being sufficiently stress-tested to assure resiliency under reasonable rate fluctuations.
nirav72 4y ago
>unrealized losses due to the Fed raising rates. so they expected rates to stay at near zero indefinitely? It's obvious the banks did a bad job on their analysis. It seems like everyone but these banks knew the spigot of easy money was going to stop sooner or later. It just wasn't sustainable.
- gizmo 4y ago
  It's psychologically difficult to do nothing when faced with inflation and near zero interest rates. The banks should have just sat on their hands and made peace with losing money for a year or two. It's certainly preferable to buying bonds that plummet in value the moment interest rates go up. But that's what they did, because when faced with inflation it feels like you have to do something, and this is something, so they did it.
- zeroonetwothree 4y ago
  People have been saying rates must go up for a long time but it took 10 years. That’s long enough for a bank to go out of business if they try to wait it out.
rcme 4y ago
All banks have markdown issues, but SVB had liquidity issues due to the businesses they were serving, i.e. they served cash burning machines so naturally hit liquidity issues. The other banks, like First Republic, also have issues but might not have had a problem if not for the loss of confidence caused by SVB's collapse.

chiefalchemist 4y ago

Right. So the next important question(s) is: Why didn't The Fed anticipate the downside of their actions? Follow up by: Isn't The Fed supposed to prevent bank failures, not cause them? Mind you, there are other (loop) holes that enable such things. Nonetheless, are these random-y bank failure or failures of The Fed and its associated regulatory friends?

rob74 4y ago
So the Fed is supposed to keep its interest rates at 0 forever just because some banks based their business decisions on the assumption that interest rates will stay at 0 forever?
- chiefalchemist 4y ago
  [flagged]
  - ericmay 4y ago
    If you’re placing the blame at the feet of the FED then you can’t also blame the FED for correcting the mistake. Also the FED doesn’t exist in a vacuum - saying that it’s the “key contributor” doesn’t make a lot of sense. For example the FED didn’t mandate that Congress overspend by so much during the Trump admin and then produce subsequent pandemic payouts under the same admin. The FED has a mandate to get inflation down. If your business relies on low interest rates that is your fault and your problem. It’s not the government’s job to babysit your business just as it’s not the government’s job to interfere with someone taking out a high interest rate loan for a car purchase.
    - chiefalchemist 4y ago
      I have no power or say. I'm not placing blame. I'm looking for leadership to lead. I'm looking for those who should be accountable, to be accountable. I'm not interested in the moment and the firehose of distractions. The Fed has a mandate to mitigate swings in the economy. The Fed has a mandate to prevent bank failures. And finally, The Fed was instrumental in creating the inflation. Let's not forget about that either.
      - ericmay 4y ago
        > I’m not placing blame. > The FED… mitigate swings > The FED… prevent bank failures > The FED was instrumental… It sounds a whole lot like you are placing blame. The FED has a mandate to keep inflation around some percentage and to keep unemployment around some percentage. It most certainly does not have a mandate to prevent bank failures or “mitigate swings in the economy” whatever that means. > The Fed was instrumental in creating the inflation. Can you specify the exact actions the FED took to create inflation? Not that you are blaming them of course.
        chiefalchemist 4y ago
        Accountability !== blame Responsible !== blame The facts and events speak for themselves.
pjc50 4y ago
_Everybody_ in banking is supposed to be aware that if the interest rate goes up the spot or mark-to-market value of a bond goes down. This is not something complicated like Black-Scholes. Everybody in banking is able to see the inflation prints and aware that increasing inflation may cause the central bank to raise rates. A bunch of people failed to spot this and have since been sacked and/or lost their equity in SVB.
- suddenclarity 4y ago
  They didn't fail to spot it. They just didn't anticipate them to be so drastic in such a short time span. It's barely a week ago Jerome Powell said their own prognoses were still wrong.
- chiefalchemist 4y ago
  In other words, white collar "criminal-esque activity" gets a free pass.

throwingrocks 4y ago

In addition to that piece, Matt Levine also did an excellent analysis https://www.bloomberg.com/opinion/articles/2023-03-14/svb-took-the-wrong-risks https://www.bloomberg.com/opinion/articles/2023-03-14/svb-to...

pohl 4y ago

…due to the Fed raising rates Translation: due to the banks not being sufficiently stress-tested to assure resiliency under reasonable rate fluctuations.

nirav72 4y ago

>unrealized losses due to the Fed raising rates. so they expected rates to stay at near zero indefinitely? It's obvious the banks did a bad job on their analysis. It seems like everyone but these banks knew the spigot of easy money was going to stop sooner or later. It just wasn't sustainable.

gizmo 4y ago
It's psychologically difficult to do nothing when faced with inflation and near zero interest rates. The banks should have just sat on their hands and made peace with losing money for a year or two. It's certainly preferable to buying bonds that plummet in value the moment interest rates go up. But that's what they did, because when faced with inflation it feels like you have to do something, and this is something, so they did it.
zeroonetwothree 4y ago
People have been saying rates must go up for a long time but it took 10 years. That’s long enough for a bank to go out of business if they try to wait it out.

rcme 4y ago

All banks have markdown issues, but SVB had liquidity issues due to the businesses they were serving, i.e. they served cash burning machines so naturally hit liquidity issues. The other banks, like First Republic, also have issues but might not have had a problem if not for the loss of confidence caused by SVB's collapse.