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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

by TMWNN 4y 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 4y 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 4y 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.
  - JumpCrisscross 4y ago
    > At 12%, SVB's Tier 1 capital ratio was well above the industry standard (5-7% T1C is a solvency test. The liquidity test they were exempted from were LCRs. They would have failed that test in March 2022.
    - tekknik 4y ago
      Still need data
- tekknik 4y 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. Of course you are, you’re clearly biased against the right so without even trying to disprove yourself you just automatically believe anything against them. 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...

by TMWNN 4y ago

hedora 4y 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 4y 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.
- JumpCrisscross 4y ago
  > At 12%, SVB's Tier 1 capital ratio was well above the industry standard (5-7% T1C is a solvency test. The liquidity test they were exempted from were LCRs. They would have failed that test in March 2022.
  - tekknik 4y ago
    Still need data
tekknik 4y 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. Of course you are, you’re clearly biased against the right so without even trying to disprove yourself you just automatically believe anything against them. 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...