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We had a longstanding regime and precedent for how bank defaults would be handled. Anyone with treasury experience knows about insurance limits and accordant r

• mywittyname 3y ago
  Counter-point: SVB's funds were in treasury bonds. Their losses were entirely paper losses caused by the Fed's decision to aggressively raise interest rates. The government caused this, so it's not unreasonable to expect that the government pay for the damaged caused. This was a completely predictable outcome of aggressive rate hikes - banks buy a whole lot of t-bonds. T-Bonds can lose money on paper. If someone buys a 1% 2-year T-Bond for $100 (expecting $102 in two years), and the next year, rates go to 3%, the book value of that bond (what it can be sold on the open market for) is now $99 because of how bond values are determined.
  • bugglebeetle 3y ago
    That’s entirely absurd. This is essentially saying there should be a special, perpetual class of government-backed securities with a guaranteed return in excess of all other market performance or conditions. If this was true, everyone would just invest in the special government stocks where you get 10% ROI forever and almost nothing in anything else. At that point, you’d have insane inflation or be better off with a state-run command economy.
    • mywittyname 3y ago
      It's not absurd at all when you consider that T-Bonds are the foundation of our banking system. Plus, there's no fundamental reason we price bonds the way we do. The risk of this exact scenario playing out across the banking sector is likely the reason why the Fed took so long to raise rates (and the drastic, reversal of course when they tried in 2018).
      • mlyle 3y ago
        > Plus, there's no fundamental reason we price bonds the way we do. Discounted cash flow analysis / net present value is the one thing that we have in finance that's really a fundamental/intrinsic thing.
  • mlyle 3y ago
    > The government caused this, so it's not unreasonable to expect that the government pay for the damaged caused. No. You don't just get to get the government to subsidize all your duration risk. You need to properly run a bank. You can buy shorter duration bonds in order to mitigate the risk from interest rate changes.
• triceratops 3y ago
  > Then the venture capital industry and startups decided to ignore these risks and put massive amounts in one bank. Call me silly but opening a bank account with the 17th largest bank in the US is not risky or reckless behavior in my book. It's nothing like Wall Street in 2008. They're bank accounts ffs. People use them to run businesses to earn their money. They don't become rich off bank deposits. At best SVB might have given some discounts on other products for keeping large balances. If they did, they should also have advised splitting the deposits into $250k accounts or done it automatically. > why diversify banking now? Why do it at all? Is any value produced by doing that? If I have $25m in 100 accounts at one bank, it's unconditionally insured. But if I put it all in one account at that same bank, it's not. It's the same amount of money, and the same level of risk as I'm the only owner of all that money. How is that logical? Public sentiment has colored this situation differently because SVB account holders are largely wealthy individuals and companies. Bank accounts are a utility. They should just work.
  • mlyle 3y ago
    > If I have $25m in 100 accounts at one bank, it's unconditionally insured. Insurance is by ownership group, not by account.
    • triceratops 3y ago
      I stand corrected. Even so, what's the point of all this money splitting? Increase the FDIC premiums for larger account balances going forward. Apply those increased premiums retroactively to all the banks that failed recently, if feasible. Let account holders get on with more useful work.
      • mlyle 3y ago
        > Even so, what's the point of all this money splitting? It eliminates the most proximal cause to the SVB collapse: strongly correlated behavior by large account holders. If banks have many account holders that are diverse, it's hard enough to get a panic that causes illiquidity. The duration risk would have still been an issue, but a far smaller issue without the need for panicked liquidation. (Even with a healthier balance sheet, most banks would struggle to endure a bank run like SVB). > Let account holders get on with more useful work. If you have a massive amount of money, there's a little bit more work to do than dumping it in a random bank. Ages ago, when my firm had a $15M bank balance, it was close to trivial to work with a vendor to spread the balance among 20 banks. We were still not fully insured, but we had significant insurance and limited exposure to any individual bank failing. 20x the risk of failure, but 1/30th the cost should one happen. We could have also bought some treasuries directly. > Apply those increased premiums retroactively to all the banks that failed recently, if feasible. How do you charge a bank that failed and doesn't have the money to pay its depositors money? I'm in favor of a small increase in the insurance coverage. Maybe $500k or $750k. But I don't think it's good to make bank accounts equivalent in safety to treasuries up to any amount but more liquid.