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What's the alternative? That banks make no long-term investments at all? If government bonds are too risky to make a 10-year investment on, then what is? Should
by armada651 4y ago
What's the alternative? That banks make no long-term investments at all? If government bonds are too risky to make a 10-year investment on, then what is? Should we just stop investing in projects that take 10 years to get a return entirely?
- sambull 4y agoRegulation to prevent them from getting into dangerous situations.. financial regulations on capital requirements and stress tests, the sort of the things that in 2018 the SVB CEO worked successfully to be removed. "SVB CEO and President Greg Becker "personally led" the bank's $500,000 lobbying efforts to reduce financial regulations on capital requirements and stress tests, according to the Accountable.US report." [0] https://www.salon.com/2023/03/15/rolled-back-regulations-got-donations-from-svb--now-they-want-to-go-further/ https://www.salon.com/2023/03/15/rolled-back-regulations-got...
- armada651 4y agoFully agreed there, we should indeed be focusing on the lack of regulation of the bank rather than whether 10-year investment are good bets or not. Because even a bank with lots of short-term bets can be driven into the ground without those kinds of regulations.
- kasey_junk 4y agoBank assets are typically laddered so that they aren’t dominated by 10 year assets that were all originated at the same time. A well run bank keeps some amount of assets in lots of different durations including longer terms, just not all at once.
- armada651 4y agoRight, but that's more of a problem with diversification, it doesn't make a 10-year investment inherently high-risk.
- kasey_junk 4y agoIt’s not exposed to credit risk but is exposed to interest rate risk.
- llampx 4y agoWhat SVB did was not best practice, as shown by the fact that they are now bankrupt and the FDIC had to step in to make depositors whole. Why are you painting it as if it was?
- armada651 4y agoI didn't mean to defend SVB, I'm just taking issue with the conclusion that banks should not make 10-year investments and instead only focus on investments that have short-term returns. As if banks weren't already overly focused on that.
- llampx 4y agoTheir CRO should have told them this was a risky strategy, or how to hedge interest rate risk. Ooops, they've been without a CRO since Q2 2022.