5 ms·

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)

by zamnos 3y 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 3y 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 3y 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 3y ago
  That and there was a bank run that started on some random Discord server.
- zamnos 3y ago
  Which is a great explanation for SVB, but what about FRC?
coredog64 3y ago
It’s not questionable if you’re hedging appropriately to provide liquidity.
- astrange 3y 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.

5 ms·

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)

by zamnos 3y 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 3y 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 3y 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 3y ago
  That and there was a bank run that started on some random Discord server.
- zamnos 3y ago
  Which is a great explanation for SVB, but what about FRC?
coredog64 3y ago
It’s not questionable if you’re hedging appropriately to provide liquidity.
- astrange 3y 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.