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It seems to avoid discussing a rather basic issue, which is that as Fed interest rates rose, the interest rates on deposits (i.e. individual savings accounts) d

It seems to avoid discussing a rather basic issue, which is that as Fed interest rates rose, the interest rates on deposits (i.e. individual savings accounts) did not increase at all due to bank executives wanting to harvest more of that pie for themselves. Hence people seem to have an incentive to move money out of banks and into money market accounts that were giving much higher returns on those deposits. The history here is illuminating: (Jan 1 2023) > "During the 1980s, savings rates climbed as high as 8%. Deregulation caused deposit interest rates to stay higher than financial institutions could sustainably support, which contributed to banking failures during that decade. In the 1990s, savings account rates decreased significantly, typically sitting between 4% and 5%. The 2000s kicked off with a recession, and savings rates fell to between 1% and 2%. Following the financial crisis of 2008, savings account interest rates fell to historic lows—below 0.25%." https://www.forbes.com/advisor/banking/savings/history-of-savings-account-interest-rates/ https://www.forbes.com/advisor/banking/savings/history-of-sa... See also: https://twitter.com/biancoresearch https://twitter.com/biancoresearch

vkou 4y ago
It avoids discussing it because neither SVB nor most other banks offered their customers interest rate increases.
makomk 4y ago
It's not discussed here, but banks probably couldn't increase their interest rates to be competitive with money market accounts etc because the whole root cause of the problem is that their deposits were backed up with long-term fixed interest rate bonds that paid substantially below the rate that someone could get by buying a bond now, and therefore below the return on money market accounts etc. How bad of a problem this is depends on how sensitive to interest rates the banks' customers actually are.
fwlr 4y ago
“ as Fed interest rates rose, the interest rates on deposits (i.e. individual savings accounts) did not increase at all” Very true “due to bank executives wanting to harvest more of that pie for themselves.” Eh, needlessly inflammatory and does not get at the real issue, although it is undoubtedly true that banks profited by not raising deposit interest rates. Banks could not safely raise deposit interest rates because large parts of those deposits were locked into investments in fixed-rate financial instruments.

vkou 4y ago

It avoids discussing it because neither SVB nor most other banks offered their customers interest rate increases.

makomk 4y ago

It's not discussed here, but banks probably couldn't increase their interest rates to be competitive with money market accounts etc because the whole root cause of the problem is that their deposits were backed up with long-term fixed interest rate bonds that paid substantially below the rate that someone could get by buying a bond now, and therefore below the return on money market accounts etc. How bad of a problem this is depends on how sensitive to interest rates the banks' customers actually are.

fwlr 4y ago

“ as Fed interest rates rose, the interest rates on deposits (i.e. individual savings accounts) did not increase at all” Very true “due to bank executives wanting to harvest more of that pie for themselves.” Eh, needlessly inflammatory and does not get at the real issue, although it is undoubtedly true that banks profited by not raising deposit interest rates. Banks could not safely raise deposit interest rates because large parts of those deposits were locked into investments in fixed-rate financial instruments.