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No we wouldn't. This is not a repeat of 2008, the rules written to keep 2008 from happening again wouldn't have stopped it, and the media has been bullshitting
by makomk 3y ago
No we wouldn't. This is not a repeat of 2008, the rules written to keep 2008 from happening again wouldn't have stopped it, and the media has been bullshitting people about this for, basically, partisan reasons. 2008 was caused by default risk and in particular, by the banking system failing to adequately protect against the fact that lots of loans would default at the same time in a recession or housing price crash. The rules were focused on stopping that. The current problem is duration risk - banks hold a bunch of extremely safe but long-duration fixed interest assets like US Treasures and government-backed mortgage securities, the Fed has increased interest rates very rapidly, and that means the interest banks have to pay on their savings is now higher than they get on those asssets. None of the rules foresaw such aggressive interest rate rises, and to some extent this kind of duration mismatch is just how banks work full stop. The media is misleading people about this because they really, really want it to be a story about right wing anti-regulation politicians causing a repeat of the last crisis.
- JumpCrisscross 3y ago> None of the rules foresaw such aggressive interest rate rises The Fed has stress tested for duration since Dodd-Frank. The unsophistication of SVB’s duration simulations was specifically flagged by supervisors ex ante. Subjecting SVB, Signature and First Republic to LCR requirements would have thrown up early red flags. (You’re partly correct in that the definition of liquid assets is too broad: Treasuries of all kinds get equal weight.) > media is misleading people about this because they really, really want it to be a story about right wing anti-regulation politicians The 2017 rollback was bipartisan.