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Not really, no. Like SVB, FRCs problem was just having too high a percent of uninsured deposits (rich customers, basically). When rumors started that they were
by slashdev 3y ago
Not really, no. Like SVB, FRCs problem was just having too high a percent of uninsured deposits (rich customers, basically). When rumors started that they were next, unlike SVB they were actually a healthy, well run bank. But no bank can handle losing more than half their deposits. It killed them.
- throwaway894345 3y agoMy understanding is that SVB also invested a significant share of those deposits in bonds which are reasonably conservative, but they bought so many of those bonds at/near the peak of the bond market such that they couldn’t liquidate them to cover withdrawals. Banks are supposed to keep a certain ratio of insured:uninsured deposits as well as liquid:illiquid investments and SVB broke both of these rules and regulators let them do it.
- prirun 3y agoAnd a reason that banks have had so many withdrawals is that their deposit interest rates have not kept pace with money market rates, so a lot of people, especially if they had a lot of cash in a bank, have been moving their cash to money markets.
- SilasX 3y agoBut long-term Treasurys are liquid, they just lost value. Be careful not to equate the two. And bizarrely, capital requirements don't require banks to account for duration risk, which is what screwed SVB (and is screwing a lot of other banks now).
- slashdev 3y agoIt’s the combination. Either factor by itself might have been ok, but when 80% of depositors are not insured and the bank has a liquidity crunch, it can spiral out of control quickly.