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Is this related to the Dodd-Frank rollbacks?

JumpCrisscross 3y ago
> this related to the Dodd-Frank rollbacks Mostly. The other component is how we pretend HTM Treasuries both hold their value and are liquid. Europe marks to market daily. I think you should get to choose: mark at $1, but they don’t count as liquid, or mark to market and they contribute to your liquidity ratio. (The rollback meant nobody was measuring liquidity. SVB would have failed its LCR in March 2022.)
- TMWNN 3y ago
  SVB's Tier 1 ratio was 12%, among the highest for US regional banks. <https://www.morningstar.com/articles/1144363/which-bank-stocks-are-most-at-risk-of-a-liquidity-crisis https://www.morningstar.com/articles/1144363/which-bank-stoc...> If you don't believe me, listen to Larry Summers and Dan Tarullo explicitly confirming that SVB would have passed a Fed stress test in 2022. <https://www.youtube.com/watch?v=cYgz4KSRPww#t=5m10s https://www.youtube.com/watch?v=cYgz4KSRPww#t=5m10s>
  - JumpCrisscross 3y ago
    > listen to Larry Summers and Dan Tarullo explicitly confirming that SVB would have passed a Fed stress test in 2022 They literally don’t have the data to make this claim. The Fed does. SVB would have failed its LCR in March 2022.
    - tekknik 3y ago
      So they don’t have the data, only the Fed…and you? Data please, as this says different: https://www.factcheck.org/2023/03/what-to-know-about-trump-era-bank-deregulation-and-bank-failures/ https://www.factcheck.org/2023/03/what-to-know-about-trump-e...
TMWNN 3y ago
JumpCrisscross is wrong; the 2018 modifications had nothing to do with SVB's collapse (or what is happening with First Republic). SVB collapsed because it made a bad bet on where interest rates were going (and did not hedge for risk), making it vulnerable to short-term liquidity issues. That has nothing to do with the 2018 raising of the minimum AUM for application of Tier 1 capital requirements from $50 billion to $250 billion. SVB's Tier 1 ratio was 12%, among the highest for US regional banks. <https://www.morningstar.com/articles/1144363/which-bank-stocks-are-most-at-risk-of-a-liquidity-crisis https://www.morningstar.com/articles/1144363/which-bank-stoc...> Listen to Larry Summers and Dan Tarullo explicitly confirming that SVB would have passed a Fed stress test in 2022. <https://www.youtube.com/watch?v=cYgz4KSRPww#t=5m10s https://www.youtube.com/watch?v=cYgz4KSRPww#t=5m10s> While SVB and Credit Suisse's collapses' causes are directly unrelated, depositor outflows were involved in both, as opposed to fundamental issues with their balance sheets. Credit Suisse's Tier 1 ratio was as good as that of UBS or any other big European bank. <https://www.wsj.com/articles/credit-suisses-death-gives-birth-to-new-type-of-bank-crisis-39bee5b9 https://www.wsj.com/articles/credit-suisses-death-gives-birt...> At the end of the day, a loss of clients' faith in a bank is something that no stress test can directly measure ahead of time.
- hedora 3y ago
  The US Fed disagrees with you: https://www.reuters.com/business/finance/us-fed-points-finger-trump-era-rollback-svb-demise-2023-04-29/ https://www.reuters.com/business/finance/us-fed-points-finge... I’m inclined to agree with the fed, since the 2018 change to the law is what made it legal for SVB to make the bad bet that put them out of business. Also, they were aware of the regulation in question, since they paid lobbyists to get that specific rule rolled back specifically so that they could structure their holdings to overinvest in treasuries.
  - TMWNN 3y ago
    >I’m inclined to agree with the fed, since the 2018 change to the law is what made it legal for SVB to make the bad bet that put them out of business. As Quarles says, the report does not actually provide any evidence of this. Let me repeat: At 12%, SVB's Tier 1 capital ratio was well above the industry standard (5-7%). SVB collapsed because of a liquidity crisis driven by its unusual depositor industry concentration. Nothing SVB did would have been illegal pre-2018; to put another way, poor risk management is not inherently illegal, any more than any other bad investment that ends up losing money is illegal.

> this related to the Dodd-Frank rollbacks Mostly. The other component is how we pretend HTM Treasuries both hold their value and are liquid. Europe marks to market daily. I think you should get to choose: mark at $1, but they don’t count as liquid, or mark to market and they contribute to your liquidity ratio. (The rollback meant nobody was measuring liquidity. SVB would have failed its LCR in March 2022.)

TMWNN 3y ago
SVB's Tier 1 ratio was 12%, among the highest for US regional banks. <https://www.morningstar.com/articles/1144363/which-bank-stocks-are-most-at-risk-of-a-liquidity-crisis https://www.morningstar.com/articles/1144363/which-bank-stoc...> If you don't believe me, listen to Larry Summers and Dan Tarullo explicitly confirming that SVB would have passed a Fed stress test in 2022. <https://www.youtube.com/watch?v=cYgz4KSRPww#t=5m10s https://www.youtube.com/watch?v=cYgz4KSRPww#t=5m10s>
- JumpCrisscross 3y ago
  > listen to Larry Summers and Dan Tarullo explicitly confirming that SVB would have passed a Fed stress test in 2022 They literally don’t have the data to make this claim. The Fed does. SVB would have failed its LCR in March 2022.
  - tekknik 3y ago
    So they don’t have the data, only the Fed…and you? Data please, as this says different: https://www.factcheck.org/2023/03/what-to-know-about-trump-era-bank-deregulation-and-bank-failures/ https://www.factcheck.org/2023/03/what-to-know-about-trump-e...

TMWNN 3y ago

JumpCrisscross is wrong; the 2018 modifications had nothing to do with SVB's collapse (or what is happening with First Republic). SVB collapsed because it made a bad bet on where interest rates were going (and did not hedge for risk), making it vulnerable to short-term liquidity issues. That has nothing to do with the 2018 raising of the minimum AUM for application of Tier 1 capital requirements from $50 billion to $250 billion. SVB's Tier 1 ratio was 12%, among the highest for US regional banks. <https://www.morningstar.com/articles/1144363/which-bank-stocks-are-most-at-risk-of-a-liquidity-crisis https://www.morningstar.com/articles/1144363/which-bank-stoc...> Listen to Larry Summers and Dan Tarullo explicitly confirming that SVB would have passed a Fed stress test in 2022. <https://www.youtube.com/watch?v=cYgz4KSRPww#t=5m10s https://www.youtube.com/watch?v=cYgz4KSRPww#t=5m10s> While SVB and Credit Suisse's collapses' causes are directly unrelated, depositor outflows were involved in both, as opposed to fundamental issues with their balance sheets. Credit Suisse's Tier 1 ratio was as good as that of UBS or any other big European bank. <https://www.wsj.com/articles/credit-suisses-death-gives-birth-to-new-type-of-bank-crisis-39bee5b9 https://www.wsj.com/articles/credit-suisses-death-gives-birt...> At the end of the day, a loss of clients' faith in a bank is something that no stress test can directly measure ahead of time.

hedora 3y ago
The US Fed disagrees with you: https://www.reuters.com/business/finance/us-fed-points-finger-trump-era-rollback-svb-demise-2023-04-29/ https://www.reuters.com/business/finance/us-fed-points-finge... I’m inclined to agree with the fed, since the 2018 change to the law is what made it legal for SVB to make the bad bet that put them out of business. Also, they were aware of the regulation in question, since they paid lobbyists to get that specific rule rolled back specifically so that they could structure their holdings to overinvest in treasuries.
- TMWNN 3y ago
  >I’m inclined to agree with the fed, since the 2018 change to the law is what made it legal for SVB to make the bad bet that put them out of business. As Quarles says, the report does not actually provide any evidence of this. Let me repeat: At 12%, SVB's Tier 1 capital ratio was well above the industry standard (5-7%). SVB collapsed because of a liquidity crisis driven by its unusual depositor industry concentration. Nothing SVB did would have been illegal pre-2018; to put another way, poor risk management is not inherently illegal, any more than any other bad investment that ends up losing money is illegal.