4 ms·

> But I am yet to see evidence that any bank could have withstood a run of that magnitude. I think you're right that no bank can withstand a run of that magnit

> But I am yet to see evidence that any bank could have withstood a run of that magnitude. I think you're right that no bank can withstand a run of that magnitude, and it has been pointed out elsewhere in the thread that entities that can do so aren't really a bank anymore. However, the bank run only occurred because it was public knowledge that SVB had terrible duration risk, so it's somewhat of a chicken-or-egg problem. All the findings that came out since then points to minimal duration hedging on SVB's part, so all in all it sounds like a bank that was poorly managed, perhaps adapted too well to a ZIRP world, and was ripe for a run to happen.

tripletao 4y ago
> I think you're right that no bank can withstand a run of that magnitude, They're not right. No bank could sell assets quickly enough to withstand such a run, but that's why the Fed serves as lender of last resort. Even under previous policy, the Fed would lend against the mark-to-market value of the collateral. So in theory any MTM-solvent bank could survive any run, so there was no incentive to start the run in the first place. The SVB was MTM insolvent due to that excessive duration risk, so it couldn't do that. It's not the only MTM-insolvent bank (see the link in my other comment), but that in combination with its unusually high fraction of uninsured and thus flighty deposits was apparently enough to start the run.
- jjeaff 4y ago
  Thanks for the posted paper. But if SVB was able to borrow against the mark to market value of their collateral, I don't understand why they couldn't remain solvent. Because they had plenty of assets, even at mtm value to cover a 50% run. Even all the way to nearly a 90% run, it seems.
  - tripletao 4y ago
    The SVB was in the process of arranging exactly such borrowing. There were some delays, but it probably would have succeeded if the FDIC hadn't intervened to shut it down. > “We were well under way with the transfer of collateral and were waiting for a call from the Federal Reserve and SVB,” a spokesperson for the San Francisco FHLB said. “And while we were waiting for a call, the FDIC took over SVB.” https://www.wsj.com/articles/how-the-last-ditch-effort-to-save-silicon-valley-bank-failed-89619cb2 https://www.wsj.com/articles/how-the-last-ditch-effort-to-sa... The FDIC intervened because that was unlikely to save the SVB--those loans could fully resolve a liquidity crisis, but they actually make a solvency crisis worse for the remaining depositors, since an insolvent bank becomes relatively more insolvent with each dollar withdrawn. It's bad for public trust when a bank shuts down with $100B in deposits backed by only $90B in assets; but it's much worse when the run continues until there's $10B in deposits backed by nothing.

tripletao 4y ago

> I think you're right that no bank can withstand a run of that magnitude, They're not right. No bank could sell assets quickly enough to withstand such a run, but that's why the Fed serves as lender of last resort. Even under previous policy, the Fed would lend against the mark-to-market value of the collateral. So in theory any MTM-solvent bank could survive any run, so there was no incentive to start the run in the first place. The SVB was MTM insolvent due to that excessive duration risk, so it couldn't do that. It's not the only MTM-insolvent bank (see the link in my other comment), but that in combination with its unusually high fraction of uninsured and thus flighty deposits was apparently enough to start the run.

jjeaff 4y ago
Thanks for the posted paper. But if SVB was able to borrow against the mark to market value of their collateral, I don't understand why they couldn't remain solvent. Because they had plenty of assets, even at mtm value to cover a 50% run. Even all the way to nearly a 90% run, it seems.
- tripletao 4y ago
  The SVB was in the process of arranging exactly such borrowing. There were some delays, but it probably would have succeeded if the FDIC hadn't intervened to shut it down. > “We were well under way with the transfer of collateral and were waiting for a call from the Federal Reserve and SVB,” a spokesperson for the San Francisco FHLB said. “And while we were waiting for a call, the FDIC took over SVB.” https://www.wsj.com/articles/how-the-last-ditch-effort-to-save-silicon-valley-bank-failed-89619cb2 https://www.wsj.com/articles/how-the-last-ditch-effort-to-sa... The FDIC intervened because that was unlikely to save the SVB--those loans could fully resolve a liquidity crisis, but they actually make a solvency crisis worse for the remaining depositors, since an insolvent bank becomes relatively more insolvent with each dollar withdrawn. It's bad for public trust when a bank shuts down with $100B in deposits backed by only $90B in assets; but it's much worse when the run continues until there's $10B in deposits backed by nothing.