4 ms·

It depends what do you call 'pretty orderly'. FRC was trading at 120$/share in January, 15$/share a week ago, and 1.5$/share on Friday after hours. Pretty clos

It depends what do you call 'pretty orderly'. FRC was trading at 120$/share in January, 15$/share a week ago, and 1.5$/share on Friday after hours. Pretty close to the Bear Stearns path if you ask me ! When Bear Stearns was bought by JPM, there wasn't an immediate collapse of everything - no contagion or anything. On the surface that is. The underlying problems of this crisis are still there - JPM buying (or ... being forced to buy) FRC doesn't solve any of those problems. It's just buying time.

fallingknife 4y ago
The difference is that in 2008 all the major banks had taken on exactly the same balance sheet risk as Bear Stearns. In this case, what brought down SVB was the risk they took on the left side of their balance sheet, and this was pretty unique. FRC was taken down in the resulting panic, not because they shared the risk of SVB. FRC went under because it has been a zombie since the SVB collapes collapse, and the final blow came because they had to publicly report the damage they took then. It's not because of any further deterioration since. That s why there is no panic now. I don't expect there to be any additional casualties from this in the near term as the panic is over. In the longer term, though, I expect additional consolidation because of the fact that the government has all but instructed CFOs to move to larger banks through their statement that only "systemically important" institutions will be bailed out.
- zamnos 4y ago
  Aren't all banks holding a bunch of low-yield 10-year Treasury bonds, like SVB and FRC were, and using somewhat questionable (even if required to by regulators) HtM accounting for them?
  - xmcqdpt2 4y ago
    Yes, but losses at SVB and FRC were a lot heavier than at most banks, https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/silicon-valley-bank-failure-amv.pdf https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/ins...
  - fallingknife 4y ago
    Wouldn't have mattered if they had normal businesses as clients. They deposit and withdraw cash regularly but their balances remain about the same on average. They banked for startups. Startups raise a ton of money at once and then start drawing it down. When VC funding shuts down, like it has recently, balances just drop and drop more. If the average startup raises 2 years of capital, and markets freeze, that means SVB loses 4% of its deposits every month. So just over normal operations they will lose a quarter of their deposits in 6 months. That's why they had to sell their HTM securities. Normal banks that bank normal industries don't face this, and won't need to sell their HTM securities at a loss.
    - coredog64 4y ago
      That and there was a bank run that started on some random Discord server.
    - zamnos 4y ago
      Which is a great explanation for SVB, but what about FRC?
  - coredog64 4y ago
    It’s not questionable if you’re hedging appropriately to provide liquidity.
    - astrange 4y ago
      Well, that depends on your depositors not starting a bank run as well. You can't insure against a sure thing, so it's not actually possible to hedge everything. I don't think SVB necessarily could have done this; there might not've been a position without duration risk for them that actually made them any money.

fallingknife 4y ago

The difference is that in 2008 all the major banks had taken on exactly the same balance sheet risk as Bear Stearns. In this case, what brought down SVB was the risk they took on the left side of their balance sheet, and this was pretty unique. FRC was taken down in the resulting panic, not because they shared the risk of SVB. FRC went under because it has been a zombie since the SVB collapes collapse, and the final blow came because they had to publicly report the damage they took then. It's not because of any further deterioration since. That s why there is no panic now. I don't expect there to be any additional casualties from this in the near term as the panic is over. In the longer term, though, I expect additional consolidation because of the fact that the government has all but instructed CFOs to move to larger banks through their statement that only "systemically important" institutions will be bailed out.

zamnos 4y ago
Aren't all banks holding a bunch of low-yield 10-year Treasury bonds, like SVB and FRC were, and using somewhat questionable (even if required to by regulators) HtM accounting for them?
- xmcqdpt2 4y ago
  Yes, but losses at SVB and FRC were a lot heavier than at most banks, https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/silicon-valley-bank-failure-amv.pdf https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/ins...
- fallingknife 4y ago
  Wouldn't have mattered if they had normal businesses as clients. They deposit and withdraw cash regularly but their balances remain about the same on average. They banked for startups. Startups raise a ton of money at once and then start drawing it down. When VC funding shuts down, like it has recently, balances just drop and drop more. If the average startup raises 2 years of capital, and markets freeze, that means SVB loses 4% of its deposits every month. So just over normal operations they will lose a quarter of their deposits in 6 months. That's why they had to sell their HTM securities. Normal banks that bank normal industries don't face this, and won't need to sell their HTM securities at a loss.
  - coredog64 4y ago
    That and there was a bank run that started on some random Discord server.
  - zamnos 4y ago
    Which is a great explanation for SVB, but what about FRC?
- coredog64 4y ago
  It’s not questionable if you’re hedging appropriately to provide liquidity.
  - astrange 4y ago
    Well, that depends on your depositors not starting a bank run as well. You can't insure against a sure thing, so it's not actually possible to hedge everything. I don't think SVB necessarily could have done this; there might not've been a position without duration risk for them that actually made them any money.