3 ms·

If the Ample Reserve Regime worked as intended, then why did SVB (and apparently close to 400 other banks) choose to buy US Treasuries instead of keeping these

by lowkey 4y ago

If the Ample Reserve Regime worked as intended, then why did SVB (and apparently close to 400 other banks) choose to buy US Treasuries instead of keeping these funds at the Fed? Clearly the Ample Reserve Regime didn't help in this case since these banks have taken 100% of user deposits and used them for speculation (likely leveraged). I'll admit that I am not an expert on banking regulations. However since the 2008 Great Financial Crisis revealed the enormous amount of fraud perpetrated by the banks, I've grown skeptical of the Fractional Reserve Banking system and the Federal Reserve and have done my best to educate myself on the topic. I don't need a theory of why banking with zero reserves is risky for depositors. I can simply point to the evidence of the recent bank failures under the Ample Reserves Regime where the banks clearly did not have ample reserves. I don't think your condescending tone is warranted, especially given the track record of the banking industry. We are all trying to learn here and could do without the snark.

tripletao 4y ago
They're not "banking with zero reserves"; they're just banking under a different and more complicated set of regulations on those reserves than that one simple ratio. In principle that's a better and finer-grained set of regulatory tools, though it obviously didn't work too well for the SVB. The SVB's problem was that they were allowed to ignore the mark-to-market losses on their long-term bond-like assets when interest rates increased, because they said they were going to hold them to maturity. That let them keep gambling that their losses would reverse, instead of raising capital after they became MTM undercapitalized but before they became insolvent. I'm not an expert here, but as far as I know the reserve ratio would have accounted for those assets in the same way and had the same problem.

by lowkey 4y ago

tripletao 4y ago

They're not "banking with zero reserves"; they're just banking under a different and more complicated set of regulations on those reserves than that one simple ratio. In principle that's a better and finer-grained set of regulatory tools, though it obviously didn't work too well for the SVB. The SVB's problem was that they were allowed to ignore the mark-to-market losses on their long-term bond-like assets when interest rates increased, because they said they were going to hold them to maturity. That let them keep gambling that their losses would reverse, instead of raising capital after they became MTM undercapitalized but before they became insolvent. I'm not an expert here, but as far as I know the reserve ratio would have accounted for those assets in the same way and had the same problem.