3 ms·

Yes that’s the point. Treasuries are cash, they are not meant to make money for banks, they are meant to be a place for banks to put money when they don’t have

Yes that’s the point. Treasuries are cash, they are not meant to make money for banks, they are meant to be a place for banks to put money when they don’t have anything else to do with it. Banks are supposed to make money from the premium between the base interest rate and the rate on the loans they make. The implied contract when you deposit money in a bank is that the bank has a dependable business model as a lender. They are not supposed to be gambling. SVB got greedy. They thought that zirp would continue forever and they made long term bets on that basis and lost. Banks should not be making long bets on macroeconomic conditions: that’s not a bank, that’s a hedge fund.

kgwgk 4y ago
> Treasuries are cash, Obviously not. [edit to add: this seems a controversial comment, it’s being upvoted and downvoted wildly]
- amalcon 4y ago
  Some brokerages break down various types of position (equity, bond, etc). Mine in particular has a "Cash and equivalents" section. Money market accounts go there, but so do treasury funds and such. I suspect the upvotes are because you're technically correct, treasuries are not literally cash. The downvotes are because grandparent obviously meant that treasuries are considered cash equivalents (whether or not they actually should be, given liquidity concerns).
  - kgwgk 4y ago
    Treasuries (without further qualification) are not cash equivalents. (And it’s not because of liquidity concerns.) Treasury bills may be cash equivalents. They present (almost) no interest risk. Long-term treasury notes/bonds is what was being discussed. There is interest risk in that case and neither your broker nor anyone else would consider them cash equivalents (unless they are already close to maturity).
makomk 4y ago
The trouble is that other US government interventions also eliminated a big chunk of the "anything else to do with it". In particular, most mortgages in the US are fixed rate for the entire duration of their term through government backing, which almost entirely eliminates one of the big sectors of loans that banks in other countries can use to make money on the premium from interest payments with less duration mismatch than 10-year or 30-year bonds. In most other countries, mortgages are either variable rate or only fixed rate for a relatively short period. Also, a substantial proportion of all US mortgages in existence apparently locked in their interest rates during the time period in 2020 and 2021 when they were at record lows.
- _heimdall 4y ago
  I'm not as familiar with how mortgage markets work in other countries, but at least in the US fixed rate mortgages are almost always risk balanced against fixed rate investmentsor wrapped up in securities that move risk off the banks' books. A bank would indeed be crazy to hold onto fixed rate 30-year loans with interest rates at near zero.
  - makomk 4y ago
    Yeah, in the US fixed rate mortgages are handed off to the government who guarantees them and bundles them up into securities... that SVB then ended up buying a bunch of because it's not like there was exactly a wide variety of investment options available that they could back their deposits with that actually paid meaningful interest.
    - _heimdall 4y ago
      At least based on this article, it even sounds like this is what they wanted banks to do! The reverse-repo market was created because the Fed wanted banks to buy securities directly from them when interest rates where increased, sounds like SVB and others just followed that playbook
balderdash 4y ago
Maturity transformation (borrowing short and lending long) is still a core function of banking (and historically one of the key sources of profit. Manhunt this risk in a bank portfolio is one of the central jobs of management. The naïveté was thinking the deposit base wouldn’t shrink (after growing 3x in as many years)

kgwgk 4y ago

> Treasuries are cash, Obviously not. [edit to add: this seems a controversial comment, it’s being upvoted and downvoted wildly]

amalcon 4y ago
Some brokerages break down various types of position (equity, bond, etc). Mine in particular has a "Cash and equivalents" section. Money market accounts go there, but so do treasury funds and such. I suspect the upvotes are because you're technically correct, treasuries are not literally cash. The downvotes are because grandparent obviously meant that treasuries are considered cash equivalents (whether or not they actually should be, given liquidity concerns).
- kgwgk 4y ago
  Treasuries (without further qualification) are not cash equivalents. (And it’s not because of liquidity concerns.) Treasury bills may be cash equivalents. They present (almost) no interest risk. Long-term treasury notes/bonds is what was being discussed. There is interest risk in that case and neither your broker nor anyone else would consider them cash equivalents (unless they are already close to maturity).

makomk 4y ago

The trouble is that other US government interventions also eliminated a big chunk of the "anything else to do with it". In particular, most mortgages in the US are fixed rate for the entire duration of their term through government backing, which almost entirely eliminates one of the big sectors of loans that banks in other countries can use to make money on the premium from interest payments with less duration mismatch than 10-year or 30-year bonds. In most other countries, mortgages are either variable rate or only fixed rate for a relatively short period. Also, a substantial proportion of all US mortgages in existence apparently locked in their interest rates during the time period in 2020 and 2021 when they were at record lows.

_heimdall 4y ago
I'm not as familiar with how mortgage markets work in other countries, but at least in the US fixed rate mortgages are almost always risk balanced against fixed rate investmentsor wrapped up in securities that move risk off the banks' books. A bank would indeed be crazy to hold onto fixed rate 30-year loans with interest rates at near zero.
- makomk 4y ago
  Yeah, in the US fixed rate mortgages are handed off to the government who guarantees them and bundles them up into securities... that SVB then ended up buying a bunch of because it's not like there was exactly a wide variety of investment options available that they could back their deposits with that actually paid meaningful interest.
  - _heimdall 4y ago
    At least based on this article, it even sounds like this is what they wanted banks to do! The reverse-repo market was created because the Fed wanted banks to buy securities directly from them when interest rates where increased, sounds like SVB and others just followed that playbook

balderdash 4y ago

Maturity transformation (borrowing short and lending long) is still a core function of banking (and historically one of the key sources of profit. Manhunt this risk in a bank portfolio is one of the central jobs of management. The naïveté was thinking the deposit base wouldn’t shrink (after growing 3x in as many years)