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A bank should keep the money secure. Anything >0% loss is unacceptable. They were greedy and had a duration mismatch. Interest rates rise and the value of the

A bank should keep the money secure. Anything >0% loss is unacceptable. They were greedy and had a duration mismatch. Interest rates rise and the value of the longterm bonds go down. The regulators should have stepped in and stopped that. Why didn't they? No one should be made whole. Looks like the stock holders will have a 0 and bond holders will take a significant cut. Depositors will be safe. The executives should all be in prison for this. Only have to do this once. The other banks would wisen up and get their act together.

TheAlchemist 4y ago
What about the CFOs and wealthy individuals that where just bailed out ? Shouldn't they were in prison (the CFOs, for wealthy individuals - it's just their money) too ? They were fully aware of the 250k$ limit of FDIC insurance.
- sensanaty 4y ago
  I'm not really qualified to comment on these things so correct me if I'm wrong, but I thought the FDIC insurance was a minimum insurance, meaning that everyone regardless of balance is insured up to 250k and will get that 250k (or whatever they had on the accounts less than 250). In the case of the ones with more than 250k, they'd still be made whole once all the bank's assets are sold/redistributed, right?
  - watwut 4y ago
    Not really. They would be paid as much as possible from selling assets. That does not imply they would be paid everything. They would probably lost some money over that limit.
tarsinge 4y ago
Dumb question but is just keeping customers funds without investing them (even in bonds) and just collecting fees not a viable business model for banks? Is it a necessity or greed?
- noir_lord 4y ago
  In that it's theoretically possible of course. The problem is inflation and the lack of interest rates means that just holding cash is a losing proposition (inflation will eat away at it). With inflation running at 9%ish percent if you hold 20K for 10 years at 9% inflation, it's real worth at the end will be ~8.5K.
  - jen20 4y ago
    That risk belongs to the depositor though.
    - tekknik 4y ago
      No, the banks goal is to make money, if their assets keep devaluing it is also their problem.
- makomk 4y ago
  This idea is fairly popular with libertarians and people have tried to set up so-called narrow banks that do this, but the Fed blocked them from doing so because they consider it to be too important that banks invest their deposits and make loans. That is, the non-existence of the kind of bank you're talking about is the direct result of government intervention, and in fact pretty much all this crisis is (the bank failures were caused by the Fed's interest rate policies, banking regulations pushed banks to focus on default risk over duration risk, etc).
  - nerdponx 4y ago
    The only sources I can find about the Fed taking any kind of action against narrow or full reserve banks is on low-credibility websites with ideological agenda. Can you describe what the Fed blocking action was and where I can read about it? I'm tempted to conclude that it doesn't exist without additional evidence.
    - makomk 4y ago
hnfong 4y ago
> A bank should keep the money secure. Anything >0% loss is unacceptable. You're wrong about this part at least. Borrowing short and lending long is what banks do (among other things). The alternative is either: - banks asking for 10+ year time deposits to match your 10+ year mortgages , or - banks only willing to do mortgages that are < 1 year The risks can be managed somewhat, and SVB *definitely* were too greedy (and stupid), but you're mistaken if you think the other banks are qualitatively different than SVB in their exposures to interest rate risks... That's why most bank's stocks are down. Most people don't think they will fail, but recent events do highlight that they have a bunch of long term securities that lost value.

TheAlchemist 4y ago

What about the CFOs and wealthy individuals that where just bailed out ? Shouldn't they were in prison (the CFOs, for wealthy individuals - it's just their money) too ? They were fully aware of the 250k$ limit of FDIC insurance.

sensanaty 4y ago
I'm not really qualified to comment on these things so correct me if I'm wrong, but I thought the FDIC insurance was a minimum insurance, meaning that everyone regardless of balance is insured up to 250k and will get that 250k (or whatever they had on the accounts less than 250). In the case of the ones with more than 250k, they'd still be made whole once all the bank's assets are sold/redistributed, right?
- watwut 4y ago
  Not really. They would be paid as much as possible from selling assets. That does not imply they would be paid everything. They would probably lost some money over that limit.

tarsinge 4y ago

Dumb question but is just keeping customers funds without investing them (even in bonds) and just collecting fees not a viable business model for banks? Is it a necessity or greed?

noir_lord 4y ago
In that it's theoretically possible of course. The problem is inflation and the lack of interest rates means that just holding cash is a losing proposition (inflation will eat away at it). With inflation running at 9%ish percent if you hold 20K for 10 years at 9% inflation, it's real worth at the end will be ~8.5K.
- jen20 4y ago
  That risk belongs to the depositor though.
  - tekknik 4y ago
    No, the banks goal is to make money, if their assets keep devaluing it is also their problem.
makomk 4y ago
This idea is fairly popular with libertarians and people have tried to set up so-called narrow banks that do this, but the Fed blocked them from doing so because they consider it to be too important that banks invest their deposits and make loans. That is, the non-existence of the kind of bank you're talking about is the direct result of government intervention, and in fact pretty much all this crisis is (the bank failures were caused by the Fed's interest rate policies, banking regulations pushed banks to focus on default risk over duration risk, etc).
- nerdponx 4y ago
  The only sources I can find about the Fed taking any kind of action against narrow or full reserve banks is on low-credibility websites with ideological agenda. Can you describe what the Fed blocking action was and where I can read about it? I'm tempted to conclude that it doesn't exist without additional evidence.
  - makomk 4y ago

hnfong 4y ago

> A bank should keep the money secure. Anything >0% loss is unacceptable. You're wrong about this part at least. Borrowing short and lending long is what banks do (among other things). The alternative is either: - banks asking for 10+ year time deposits to match your 10+ year mortgages , or - banks only willing to do mortgages that are < 1 year The risks can be managed somewhat, and SVB *definitely* were too greedy (and stupid), but you're mistaken if you think the other banks are qualitatively different than SVB in their exposures to interest rate risks... That's why most bank's stocks are down. Most people don't think they will fail, but recent events do highlight that they have a bunch of long term securities that lost value.