Bank run on Silicon Valley Bank(techcrunch.com) |
Bank run on Silicon Valley Bank(techcrunch.com) |
https://www.reddit.com/r/Superstonk/comments/11n1xtw/all_ban...
They took the deposits and bough "safe" bonds (eg treasuries). Which they're allowed to carry on their books at cost, even though their market price drops as interest rates rise.
But in both SVB and silvergates cases the drop in the market value of their assets coincided with an increase in withdrawals. They were forced to sell some of these bonds to fund withdrawals, requiring them to realize the market price. The accounting distorted the value of their assets to an extent, and the withdrawals laid that distortion bare
Sometimes the headlines write themselves...
The bank’s leadership made some bad financial decisions but then scored a massive “own goal” in how they communicated all that to the market and their customers.
They were really concerned about anything web3 so I wonder if they limited their exposure. Or maybe it was just us they didn’t like.
Will be hard to raise for startups without compelling profitability metrics, though
I wonder how many people's lives and livelihoods have been upended by this trash saying "it's just business"? Now he wants people to be nice to him? Better idea - go live on the street - it's just business.
Is it that bad?
Also, I'm constantly fascinated by how many smart people fundamentally don't understand the economics of banking and how these (often private) institutions create and destroy money.
Enjoy bankruptcy you frauds.
Both of these items have a duration. They have to match the duration between their assets and their liabilities or they end up insolvent. If enough of the depositors try to pull their money out of the bank, then that reduces the duration of the banks liabilities, and the bank won't be able to move quickly enough to sell their assets to stay solvent.
The tech companies that are complaining about FDIC intervention caused their own problems because they are panicked morons.
Even more ridiculous is any one of these mega tech firms could probably step in and solve this situation with a cash infusion. They would almost certainly come out ahead because they would be buying a claim on the bank's assets for less than they are worth. But they won't. Because they don't know what they're doing.
What happened here is no different than what has happened in every banking crisis pre-08. The economy will be fine, someone like Berkshire Hathaway will make a stupid amount of money and customers will blame a bank for a problem that they created by being stupid.
We later opened two accounts in two different banks as a backup/failover strategy. One handled incoming invoices and accounts payable, while the other handled payroll, so we'd always have money flowing through both banks at all times. If one of them failed, locked us out etc. we'd have the other to fall back on. It actually happened once: due to an admin error one of the accounts was locked for 10 days. We just routed payments and receivables to the other bank and went on with our day.
1. The Bank lends money to startup
2. They raise money from VC
3. They pay back the loan to the bank using the VC money
4. Valuation raise and the VC shows high returns
5. VCs raise more money to repeat the process
6. Small investors buy shares of high-tech company because bonds yields 0%
It works, until it doesn't anymore.
I'd say now is a good time to short SVB if you're into that sort of thing.
You’re a day late. Try again on the next bank failure.
> You’re a day late.
just one sec:
SVB Financial Group
Pre-market 57.50 −48.54 (45.78%)
SVB is probably not the last shoe to drop in this story.
Not an expert in this area but when distilling everything I understand about this topic, it seems like big banks (too big to fail?) collude with the federal reserve to rob smaller banks (of clients and value) using interest rate games and these "requirements" every x years.
If anyone has an explanation as to why that's a wrong conclusion, please share.
This happened in 1930 a year after the crash started and again in 2009 a year after the events of 2008.
Fed policy will be interesting in the near term. I know they are fighting inflation but they may have to concede this is a battle that will be fought over the next several years and that deliberately destroying the economy through too aggressive rate increases is bad medicine.
Still though, it's too early to say. If there was a more widespread contagion and a panic, then I guess it could be bad.
To me though the real culprit is the super lower interest rates we had just a few years ago. Without that, we would not be seeing any of this.
I don't know what to make of it.
one if banks need to rebalance but
especially if the OCC tells banks they dont need to touch that crap anymore to fulfill their regulatory requirements
Reporting suggests SVB has a lot of reserves, but them trying to raise money suggests otherwise. Weird.
Although, why anyone managing billions of dollars thought it was a good idea to lock up tons of money for a long period when interest rates were nil is beyond me. I'll gladly take their job at merely HALF their salary!
SVB probably has a disproportionate number of its customers being mid to large businesses, for which FDIC protection isn’t as helpful. So they’re probably more vulnerable to runs than a bank that mostly holds retail customer funds.
I don’t think the FDIC intends to stop every possible bank run, but rather dramatically reduce the number of them and reduce the impact when they happen. I think on that front the FDIC has been enormously successful
Lots of startups hold a lot more money there and aren’t protected.
Why did 50% of VCs and their startups and their mom bank all bank at the same bank?
Decentralization seems to get a bad rap in the valley
That’s not even enough to make an emergency landing
Compare their numbers to any other investment bank.
https://www.macrotrends.net/stocks/charts/CS/credit-suisse-g...
But also, trading on SVB was halted before the market opened. :)
Plus, their situations are different from a typical younger person today. All of the folks in my family who keep large amounts of cash in their checking account are mostly not relying their own savings to live. They all have pensions and social security, they're not pulling from an IRA at this point. They've never had the habit of directly investing in their own retirement.
>this case will be a case study for years to come, and will effect change in FDIC's requirements.
I'm only at the position where I see this conspiracy without squinting because I remember the last time this happened, responsible solvent small banks were, thanks to regulation, pushed under or taken over by the larger irresponsible banks.
I have a feeling the environment (requiring malinvestment followed by rapid rate raises) is set so that the next set of regulations will do the same and further kill smaller banks. It doesnt seem like a side effect but rather the intent of the chaos that a few large banks guide or are privy to (through lobbyists, fed insiders, etc...) before it occurs.
https://www.thestreet.com/etffocus/blog/inverse-cramer-etf-i...
Becker said the bank has “ample liquidity” to support its clients “with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge.”
Pro tip: if you're CEO of a bank that's facing a bank run, don't tell the press that you'll be in trouble if everybody takes their money out.
It seems that CEOs of banks haven't learned anything since 1873 when this was observed.
However, not to defend the guy, but as a CEO of this bank he ... has to say something. And whatever he says it will be bad anyway.
A bank can follow a lower risk strategy and accept lower profits, but that's not necessarily what shareholders want. Some risk of failure is acceptable.
I Don't think you can make that call for all CEO's of Banks 1873.
Is that terribly worded or is it just me? I figure it’s supposed to be poetic but I find it tedious. I think it could be simplified like this:
“A banker who argues his creditworthiness has none.”
I realize it’s a quote but holy shit.
You are right that it definitely explains 99.99% of banks in history. But there are a handful of historical examples -- even after "modern banking" began in medieval Italy -- that don't fit. A recent example is The Narrow Bank which was shutdown by the Federal Reserve. But in the past you had things like the Bank of England in 1844 which went to 100% reserves for a period. Or banks under the Louisiana Banking Act of 1842 -- which was why banks in Louisiana were unaffected by the financial crisis of 1857.
That’s the kind of thing that only gets said when there’s some concern that there will be a run.
Also out most of the banks - you would expect that the clients of SVB are a little more sophisticated than your retail bank demographic being start-up companies and all (big assumption).
Assuming these people have any level of sophistication is what gets us into these messes. It’s good to remember they are betting billions of dollars based on nothing but fomo and don’t know anything special at all.
Is that worth it?
Sometimes you can be too smart for your own good: in this case the CEO might have assumed that everyone knows that all banks inherently carry a risk in case of a bank run, but all the market hears is the word “risk” and panics correspondingly.
True, but isn't it possible that if he omitted this clarification, his statement about "ample liquidity" could be on shaky ground, from a legal perspective?
You can lie, and say everything is great. If enough people believe you, your bank is safe and you live happily ever after. If they don't believe you and pull their money, then you committed fraud and will go to court.
Or you can tell the truth, and say everything will not be great if everyone pulls their money. Then people will definitely pull their money. You will be sad, because your employer has turned into a smoldering crater and your equity is worth zero, and everyone will blame the bank run on you, but you are probably legally safe.
I think the only real thing you can do is make sure no one with credibility ever asks you if you are solvent. That is hard to avoid though, if you are a bank and you have to raise money by selling equity.
SVB's customers are weighted significantly more towards businesses who will have more than $250k in the bank. So, they have to be ready to take action fast, so a bank run on SVB is much more likely.
I'm going to go out on a limb and say that that might not be common knowledge.
A run might be more likely for investment funds like Questrade and Fidelity if their customers liquidate their holdings en mmasse and move to cash deposits and CDs, which would be covered by depositor insurance.
I don't think this is damning in any capacity. It's well known that all banks in the world keep part of their reserves in other vehicles. If a bank run happens, they'll have liquidity issues.
What a guy.
[0] Thiel Fund, Venture Firms Advise Companies to Pull Money From SVB
[0] https://www.fastcompany.com/90864395/silicon-valley-bank-an-...
Every bank would be in trouble if everybody took their money out
Investment/VC funds are doing the same (we’re talking many, many billions of deposits lost in a span of a few days).
There is a chance SVB will freeze assets while they deal w liquidity crunch which may impact startup ability to pay bills, pay salaries, etc.
If you use SVB, transfer your money out now (as in Friday morning at 8:30am), even if it’s to your personal account while you set up a business account elsewhere.
This is a serious issue and may result in wide ranging damage to the entire tech industry.
SVB is the most commonly used bank by startups and investors. This isn’t media trying to hype a story for clicks, this is a real an major issue.
As you know, we are limited in what we can share until the transaction formally closes next week but in the meantime I’m attaching concise information on the strength of our business, based on our recent mid-quarter update and financial announcements.
Our Moody’s Deposit Rating is Prime
Our credit ratings are also investment grade
SVB took action this week designed to:
Strengthen our financial position Enhance profitability Improve financial flexibility now and in the future
Our financial position enables us to take these strategic actions
SVB is well-capitalized Has a high-quality, liquid balance sheet Peer-leading capital ratios
Even before these actions:
We had ample liquidity and flexibility to manage our liquidity position SVB has one of the lowest loan-to-deposit ratios of any bank of our size
The improved cash liquidity, profitability and financial flexibility resulting from the actions we announced today will bolster our financial position and our ability to support clients through sustained market pressures.
If a bank does get in trouble, it's usually because its balance sheet is not sound (i.e., assets are not really worth more than liabilities). In the case of SVB, a big portion of its assets are loans made to startups. Who knows how many of those loans are at risk of default in this environment? Simultaneously, many of SVB's depositors are also startups that at the moment can't raise more capital and thus have been withdrawing money from their bank accounts to fund their cash burn. I suspect SVB can't sell its doubtful loans, or use them as collateral, so it has been forced to sell high-quality long-duration assets purchased when rates were much lower, recognizing large losses.
Particularly when 'venturing' into areas more profitable because of more risk?
Here's their loan risk analysis as of EOY:
https://i.imgur.com/ZWG157R.jpg
Don't miss 14% to "innovation economy influencers"…
VCs: [immediately texting after hearing the above from the CEO] attention all portfolio companies, SVB seems to be in trouble, don’t keep your money with them
It’s also what makes having any sign of balance sheet weakness a death spiral, as anyone who knows runs for the exits, making things even worse.
Waiting to see how this shakes out for Peter Thiel.
The collapse of a solvent but illiquid bank is well worked out in the US. Here's a 60 Minutes episode where they got to cover the process.[1] It's not too bad for the customers, but it is really bad for bank management. The 60 minutes video shows the moment when the FDIC people show up and tell the CEO he's finished.
This is after a $1.25B common stock offering in an attempt to shore up its cash reserves.
Keep in mind they are raising cash by selling equity with their shares at $100 when they were at $500 a less than a year ago.
That's pawn shop levels of selling. To say they are in trouble is like saying it would be tough to sell a house that is currently on fire.
Rumour was that SIVB got alot of the old SI deposits when it became clear that they were going bankrupt.
It looks like both SI and SIVB will go bankrupt due to the same two causes.
The one two punch of:
- loan duration mismatches(short term deposits bet against long term loans). More specifically to get some interest income you tend to have to either go to riskier assets, not an option for bank, or longer duration. Unfortunately this locks you into rates for a long term.
As everyone knows, rates have really gone up quickly in a short duration. This makes your long duration assets drop alot in value so you can't easily liquidate them to move to new higher paying assets.
Normally this would be fine as you can ride out the duration of your long term bets without losing money, except for the second issue below.
- and a deluge of withdrawals meaning you can't just ride out your long term loans.
The difference here is that while SI will go away, someone will probably buy SIVB. It's just that with FDIC only protecting the first $250,000 in deposits you don't want your corporate money at the bank. And you certainly don't want to wait for FDIC to step in and make you whole.
There is a potential third issue with SIVB in that as the bank of alot of silicon valley startups they hold a lot of warrants for those companies on their balance sheet. And those have really been written down alot lately. Stripe, a great company by most measures had its valuation cut in half according to a post from yesterday so you can imagine what the average startup's valuation is worth if strip is being cut in half.
SIVB got hit by a lot of different issues all at once but they all had the same root cause, large interest rate hikes in a quick timeframe.
The other commonality between SIVB an SI is that both banks heavily concentrated on one sector only, for SI it was crypto and for SIVB it was silicon valley. For each bank they ran into interest rate hikes at the same time that the sectors they relied on took a huge dive in value.
Diversification is important.
The bank re-opened for withdrawals the next day under FDIC control, and was later sold off to another bank.
Edit: the video was relatively optimistic given the subject matter, at least for bank customers, not the owner. Assuming there's a market for buyers in such a case.
I'm curious if and how the "secret online bidding process" the FDIC runs to find bidders doesn't leak out to the owners of banks. It's possible the banker in the photo heard about it via word of mouth when it was being shopped.
If anyone loses money in the SVB downfall, it is entirely the fault of the CEO/CFO for poor management.
Depending on your monthly cash flow and your balances, anything over $100k should be kept in CDARS. It is explicitly designed to keep your cash spread out across banks limiting risk of default at a single institution and keeping the balance at each bank below FDIC insurance maximums.
Banks even at their simplest "Main Street local level", need to keep, say, 15% or 20% of their deposited funds available, as determined centrally e.g. the Fed or the Bank of England.
The rest by design is to be lent out, that's how banks offer loans, mortgages etc.
So "we can't immediately return 40% or 60% or 80% of deposits" really isn't any kind of gotcha or big secret. No bank in the world can handle such a situation.
So: runs can and do happen, and are always a threat, and currently might be happening.
The question is: how to handle it in a grown up manner.
Every VC is talking to their portfolio companies right now about this. Text/slacks/emails. Half of them screaming panic telling founders to pull money out, the other half holding the line to stay strong
Most founders i know arent taking the risk and moving money...
There are a lot of harmful clowns out there fearmongering. They should stop.
The failure of a bank like this, if it occurs, would be bad for a lot of people.
Not even once, they have done something for us.
As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time. If they locked deposits for a period of time they could safely (and morally) loan that money out without lying, and, in fact, there wouldn't need to be a reserve ratio at all.
Demand deposits should cost a low service fee, since the money can't be safely lent.
Yes, I'm a lot of fun at parties, why do you ask?
1. https://techcrunch.com/2023/03/09/silicon-valley-bank-firms-...
Why these companies didn’t issue shares at the outrageous/nosebleed valuations they were at a year ago? Truly a mystery
The market was made aware of how deep the losses are, as this is not usually reported in investor disclosures and the bonds are usually held to maturity thereby not being subject to losses in their notional value
ANY bank with volatility in customer deposits is vulnerable to these losses as they have to sell the bond at its current value at a big loss to cover the customer withdrawal
Today I learned that many startups park their money at one bank. I hope that isn’t true. If it is I’d be moving my funds regardless right now.
Two of the largest bank ETFs are down around ~8% today. SIVB is only 2% of the holdings of KBE and 3% of KBWB.
https://www.google.com/finance/quote/KBE:NYSEARCA
https://www.google.com/finance/quote/KBWB:NASDAQ
A former Bridgewater guy who I respect very much is saying that the panic is totally uncalled for: https://mobile.twitter.com/BobEUnlimited/status/163395659942...
Been using Mercury for a couple of years, as a customer I can recommend their excellent support & services. That said, I know aprox zero of their balance sheet or those of their backing banks Choice Financial Group and Evolve Bank & Trust.
But I'm not worried about Mercury, I'm worried about their partner bank.
Anyone know if Evolve is in a similar situation?
https://fintechbusinessweekly.substack.com/p/evolves-problem...
https://techcrunch.com/2023/03/09/silicon-valley-bank-shoots...
The king without clothes fairy tale of startup unicorns is starting to hit reality of financing capital at high interest rates.
Many startups have not had sound viable business models which yields black profit numbers but have instead run on red minus numbers year after year. Due to very low interest rates it has been too easy to start new companies. Thus many startups have been started without viable business ideas. The startups have been funded by venture capital, venture capital have calculated on future discounted cash flow when valuing the investments. Now that central banks are raising interest rates to fight inflation the higher interest rate will effect venture capital firms calculations. Venture capital uses future discounted cash flow. Now central banks artifically altered the interest rates by quantive easing which forced interest rates lower than the natural market yield.
“Application
To apply the method, all future cash flows are estimated and discounted by using cost of capital to give their present values (PVs). The sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value of the cash flows in question;[[1]](https://en.wikipedia.org/wiki/Discounted_cash_flow#cite_note...) see below.”
source: https://en.wikipedia.org/wiki/Discounted_cash_flow
According to the investopedia article four values are among other used to value startups:
* Cost-to-Duplicate
* Market Multiple
* Discounted Cash Flow (DCF)
* Valuation by Stage.
source: https://www.investopedia.com/articles/financial-theory/11/va...
This being a bit different, the most likely scenario will be SVB getting bought on the cheap by a bigger bank. The merger will be pushed by the regulator.
Since SVB's root problem is lack of diversification in client basis, a larger bank beings the perfect solution. In such a scenario SVB will continue as a brand, and their website would start working again.
What would you name as its peers? I've heard First Republic. What about Bank of the West?
>perhaps solely because of its name
It is a killer name, after all. I bet the First Republics of the world wish that when they were started however many decades ago, their founders had the foresight to name them "High-Tech Bank" or "Sand Hill Bank" or somesuch.
It's baffling that banking regulators in the US allow such a racket to exist in the first place. It would be as of "Silicon Valley Insurance Co" were to insure every home in the Bay Area and no other homes anywhere else. The chances of large insurance claims all happening at the same time (the insurance company equivalent of a "bank run") would be unreasonably high if all of the risk were to be concentrated in a single town in an earthquake prone area. Now there are reasonable solutions to diversify that risk away in the insurance industry, such as the reinsurance market.
The US has a strange history of having large numbers of small, independent banks. In other countries (in Canada at least), banking is an oligopoly - the regulator effectively limits the number of banks that exist in the country to only a handful and only a few very large ones. This has the benefit of forcing banks to be large and diversified, thus avoiding the phenomenon of a small bank run or two happening every year like they have in the US. It would appear that the US system is also prone to occasional larger bank runs, like say Lehman Brothers or Silicon Valley Bank... The advantage of the US system is the lack of regulation promotes entrepreneurship and investment, which is something systematically lacking in a country like Canada.
It might also turn out that, in retrospect, it was a bad for the Silicon Valley venture capital industry to be so heavily reliant on a single, non-diversified, local bank. I can't help but wonder how much of a role the VC industry played in this, for example what ever happened to the billions of dollars that the VCs raised for crypto startups? Is Silicon Valley Bank liquidity crisis a domino effect of the cascading bankruptcies and market crashed in the crypto racket?
which is why insurance companies generally don't insure against earthquakes. The gov't doesn't need to come and nanny the company to tell them not to do something.
These specialty banks like SVB are servicing accredited entities, who should have enough sophistication to know what risks they are taking putting enormous amounts of deposits into a single bank.
Or just don't mess with money that belongs to customers. Be the world's first reliable bank.
But the Fed won't let TNB open an account. The basic reason seems to be that they worry that this model is destructive to the US economy, which relies on banks making loans so people can buy houses and cars, and businesses can operate. If everyone banked at a narrow bank, the economy would seize up from lack of capital.
Whether or not you agree with this take, the reality today is that you cannot run a bank like you've described in the US.
(This is all covered in more detail by Matt Levine: https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...)
“The requirement that the defendant act with the intent to deprive the owner of his property makes embezzlement a specific intent crime.”
Meaning your safe as long as your intent is not to steal the money.
But if your concerned definitely ask your lawyer. (Accountant won’t be able to provide that sort of legal advice)
If you move company funds in one blob from SVB to Personal account, and then move the same blob from Personal account to Bank XYZ, and document the process, you'll be fine.
Of course, you can use your personal account for a while until you setup another business account (which you should have at least a couple if you are well funded) but while it's technically not illegal, it can massively complicate your accounting later.
If you risk it and SVB goes into receivership: you might fail to make payroll. You might not have money for the taxman. You might default on liabilities.
These are not balanced risks. Any executive which does not pull their company's money to surefire safety is being negligent. Your duty is to your employees, your shareholders, and your suppliers. Not the owners of SVB, or to make the FDIC's job easier.
So, in cases where you think this is a risk, it's best to move swiftly.
These aren't the actions of a healthy bank. Of course, their problems are now much much worse as people got wind that the bank was in trouble.
Do you now if that "investor" is short Silicon Valley Bank's stock, took out long puts, or has other conflicts of interest?
Because if so, they just committed a felony.
That "investor" had better hope one of the recipients doesn't forward the email to the SEC.
Are you short Silicon Valley Bank, by chance?
If the subprime crisis taught us anything it was that ratings go for marginally usefull to utterly useless the second sht gets real and there is actual stress in the system
The problem in 2008 was that splitting an investment into a senior "low-risk" one and a higher-risk one led to higher ratings overall than the initial investment warranted. Do you have any evidence that something like this is happening here, or that this is a systemic problem?
SVB received all the capital it needed to cover the losses on its bond portfolio liquidations.
Cons:
The announcement of bond sale losses made everyone realize ever bank has a bunch of bonds at a loss if they don't hold to maturity, and SVB is going to need to sell any more of its bonds at a greater loss as more customers pull money out.
Pros:
The losses, percentage wise, aren't that great, so far. As long as perhaps greater than 90% of deposits don't leave then everyone can get paid out and its really business as usual.
Cons:
Large institutional investors are the biggest account holders and they're absolutely pulling out, alongside all of their portfolio companies.
Pros:
Other banks that are more liquid could step in and shore up the capital.
Cons:
- The fed [likely] won't be one of those banks (even if it just meant buying the bonds closer to par value) because that would mean a reversal of policy.
- This didn't help Silvergate bank and the new equity investors are at major losses too now, wiped out.
4 hours ago the fdic closed the bank
i'm curious whether your account was fully fdic insured or how much you stand to potentially lose if not
That's some weird stuff!!
A bank that understands this, knows it's not fraudulent, and makes it easy to withdraw, deposit, get credit cards, give loans/venture debt, has a competitive advantage in this niche but highly lucrative sector—given they can operate with the right risk controls.
We stayed with SVB.
so a fraudster could easily exploit this bank then?
Example: After our startup went up in flames in 2017 my wife and I (co-founders) got "regular jobs" with nice salaries. Some time later, we tried to refinance our mortgage with Chase. The banker at Chase was very happy to serve us right up until the point where he asked if we had more than 20% ownership stake in any company. I said, well, yes, technically we own 80% of our defunct startup. He then said he had to look at the startup's tax returns for the last two years. I was like... ok, that's weird, but sure. He then informed us that we did not quality for a loan because he had to consider our company's income along with our own, and our company had lost half a million dollars in its last year of operation, therefore he considered us to have lost half a million dollars.
I was like... "Do you even know what a C corp is?"
We ended up switching to SVB, which had no problem refinancing our mortgage.
(Fortunately our balance in that account today is within FDIC-insured limits...)
They understand the startup ecosystem in a way that big banks don't. Now there's some competition from startup-focused banks like Brex and Mercury, but a five years ago SVB was one of the only games in town.
P.S. which makes me wonder how much of SVB friendliness was just smart marketing. If you look up and down this thread, most of the SVB "explanations" here are strictly circular: "they are good for startups because they are good for startups", with little to none useful info.
Mercury provides services and a frontend, but their banking services are provided by Choice Financial and Evolve.
Brex is also not bank. The Brex business account is an FDIC Sweep account, which constantly moves your balances across multiple banks to keep you within the FDIC limits.
and not unlike aws/stripe/etc they want to be the bank for small companies that grow into huge companies. startups are a good segment to target (eg like vc) because they might also turn into a large company with much more cash and more banking needs
"Motivated seller!" -- Lionel Hutz
Calling it a duration mismatch is a bit misleading. They took on duration risk and their loans lost value is more accurate. Otherwise they would just sell the loans (which they stated they did, but clearly it wasn’t enough thus the equity raise)
Remember my point was it was a 1-2 punch.
1) their duration mismatch their long term assets lost value, this isn't a problem if you can hold to maturity as you'll get all your money back.
2) people flocked to the bank to pull money out as tech went down, their deposits really fell as those companies needed the cash to fund operations and layoffs.
When the demand deposits were required back before the duration of their assets this required them to sell when the assets were already marked down.
Does this make my point clearer?
But if other banks don’t have such enormous amounts of money leveraged it seems possible this is a one off case. When rates get hiked as quickly as they have risks that were always there that nobody considered are made obvious.
That conjecture seems wrong. Sure, 2% 30-y treasuries dropped a lot in value, but you still can easily liquidate them.
In 2008 you could sell your MBS at any time, it was just for 10 cents on the dollar, that's not liquidity as we use the term.
They sold a chunk of long duration assets for a 1.2B loss because they had to sell them. That's a big loss for the quality of assets they were selling.
That is what is mean by hard to liquidate. Its true you can always sell anything. It's can you get a price that keeps you solvent that is the liquidity issue.
SIVB wasn't selling 2 and 30 year treasuries, they were selling MBS.
If you don't have to sell them and can keep them to maturity, they don't appear as a loss in your accounting.
It's the difference between mark-to-market versus held-to-maturity accounting. If you have to sell, you are forced to mark-to-market. If you don't have to sell, you don't have to account for losses due to bond prices falling in the market.
just fell another 44% in pre-market after that 60% fall:
SVB Financial Group
Pre-market 58.60 −47.44 (44.74%)
It isn't. That's a myth. It never has been how banks work and never will be.
Destructive runs can never happen in a modern banking system if the central bank does their job properly.
If everybody takes their money out of a bank in trouble, then the central bank ends up as the main depositor in that bank.
Which is as it should be - since they were regulating that bank.
The question here is whether the regulator has been asleep at the wheel and whether depositors over the FDIC limit are going to pay for that.
When banks lend out money, they don't lend out existing deposits, they create new (debt-based) money from nothing and this new money is fractionally backed by deposits.
With 10% fractional reserves, if they have $100 in deposits, they can lend out $1000, thereby creating $900 of new money from nothing.
edit: Here is a great explanation: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Quote: "Another common misconception is that the central bank determines the quantity of loans and deposits in the economy by controlling the quantity of central bank money — the so-called ‘money multiplier’ approach. In that view, central banks implement monetary policy by choosing a quantity of reserves. And, because there is assumed to be a constant ratio of broad money to base money, these reserves are then ‘multiplied up’ to a much greater change in bank loans and deposits. For the theory to hold, the amount of reserves must be a binding constraint on lending, and the central bank must directly determine the amount of reserves. While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality."
and if all of a sudden, the depositors decide to take out their $100 in deposits, the bank is in trouble, because they'd still have the $1000 in loans, which is now not backed by any reserves.
They, if this were to happen, would be required to obtain the reserves somehow - borrow from another bank, from central bank, or attract new depositors.
so in essence, the idea that the depositor's money is "lent out" is not technically correct, but the idea is not too different.
Loan to deposit ratio is orthogonal to reserve ratios, which is orthogonal to capital requirements.
It’s not that banks are loaning out more than their deposits that creates new money, it’s that they are loaning out money _at all_ that does.
If we really want to prevent bank runs, shouldn't we just forbid lending?
Snark aside, transforming duration is a big part of the value that banks add. In general, there's a lot of demand for lending short and borrowing long. Banks add value (and risk) by taking the opposite side of those trades. I'd rather have banks that suffer occasional runs (which really aren't that common at this point) than banks that don't transform duration
A more nuanced approach would be to value and triage lending opportunities according to how much they contribute to the heating up of the economy, and how much opportunity for future sustainability they provide.
Yes, it would solve one type of problem. But nobody wants your solution because it’s an unreasonable trade off for everyone to solve an extremely rare edge case.
Single-minded optimization for single edge cases is really easy in fantasy worlds, but in the real world people choose trade offs even if they come with rare edge case risks.
> Daily reminder that bank runs wouldn't be a thing if we did duration matching, forbidding banks from borrowing short and lending long.
In other words, no liquid deposits allowed. Banks charge customers to hold their liquid cash because they can’t do anything reasonable with it.
So yes, you could make one type of extremely rare problem go away by removing a desirable feature used by hundreds of millions every day. I don’t think people would actually choose this, though.
> As always, the underlying problem in banking is that the banks are lying, telling two or more people they own the same dollar at the same point in time
Either you don’t understand how banking works, or you’re trying to project a crude misunderstanding onto the general public.
The concepts of assets and liabilities are well understood in the business world. Banks aren’t “lying” and fractional reserve banking does not mean that banks are creating fake dollars. Liabilities have always been part of the equation.
Can you explain why this is bad? People lived with hard-ish money systems for extremely long periods of time.
> The concepts of assets and liabilities are well understood in the business world. Banks aren’t “lying” and fractional reserve banking does not mean that banks are creating fake dollars. Liabilities have always been part of the equation.
I mean, it's really about how you define words.
Most people believe that they have money in the bank. When in reality, they have unsecured debt to the bank. Although to be fair, for most people that debt is backstopped by FDIC/NCUA.
But, of course, that unsecured debt is often referred to as money, so I can't really blame them too much.
hilarious attempt at a metaphor, traffic deaths from personal automobiles have been in the top 10 causes of death worldwide for the better part of a century lol
Imagine if you could only get 3-year mortgages, after which the entire cost of the house had to be repaid. That would make home ownership unattainable for the vast majority of the population. Alternatively, if you could not access your savings for 10-30 years after depositing I bet a lot of people would not bother at all.
Adding on...
Balloon mortgages exist, although they're usually not very convenient though, because transaction costs are real and the risk of being unable to find acceptable finance terms when the balloon payment is due is also real.
Similarly, lots of people participate in retirement accounts with substantial fees for early access. I guess you could do mortgage lending from retirement funds, but the interest rates aren't compelling (they might be if that was the only source of long term lending though).
It is when the loans are priced correctly.
This is a clear and obvious sign that the price of long term loans is wrong.
It feels to me like saying that evictions wouldn’t be a thing if we simply didn’t allow tenancies.
I roughly believe that if you gave people the choice between paying to store money in ‘cash but it’s a number in a database’ (ie the thing you describe) and investing it in some kind of ‘not a bank’ where they can earn interest and withdraw when they please but the big pot of money is loaned out, there might not be runs of the ‘bank’, but there would likely be runs of the ‘not a bank’.
https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
Yes but this is a valuable service for the economy and so society has decided that it's worth the cost of insuring the risk of a bank run in exchange for the economic benefit of banks doing this.
I don't remember a bank ever telling me this. I was taught how banks work way back in grade school. Surely everyone knows that banks don't literally hold the money you deposit in a vault somewhere.
I honestly don't see where banks are lying about this.
Seems like for the vast majority of people it does not. Most banks make enough money to pay their FDIC premiums and some interest on demand accounts and profit for their shareholders, and the few that don't are covered by insurance. That seems way better than having to pay a monthly fee to keep my money safe and liquid.
>there wouldn't need to be a reserve ratio at all.
Wouldn't there? The bank could still end up with bad loans in excess of their models and require some capital to take the loss before depositors. Or are you suggesting that banks are simply a market maker between depositors and those with loans? That seems even less optimal, societally.
Lying is wrong[1]. Therefore, it is bad to base your banking system on it. It's the typical thing where the costs to the system accrete over time and then cause a crisis: the elites are bailed out, the taxpayers eat it.
There wouldn't need to be a reserve ratio. A dollar could, in theory, be lent out an infinite number of times, so long as that dollar were lent (and saved) at increasingly shorter durations. At any given point of time, a single person "owns" that dollar. Of course, the market would signal what dollars were available when. And, also, loan losses would need to be covered out of other profits by banks (who would need to charge service fees for, well, the services they provide, rather than hiding behind long/short duration arbitrage)
(I'm also in favor of a citizens dividend for controlling money growth, and a modern debt jubilee per Steve Keen. So, yes, you can safely ignore anything I say as implausible, almost certainly wrong, and unlikely to ever be realistically considered by the powers that be. This has one advantage, however: I will never be proven wrong :)
[1] - see all moral traditions across all cultures, or ask mom
One deposit. One loan. One withdrawal request.
So that's either loans, or effectively giving people a negative interest account where you lose your money. Citibank does this, they just call it "fees" and it really, really hurts the people who don't have much money.
"I want my money back."
"Sure, you can have it in two years."
This is the main issue, and it's called a "reserve requirement", which is a percentage of the deposits that the bank must keep on hand to mitigate risk of issues like this.
https://en.wikipedia.org/wiki/Reserve_requirement#United_Sta...
In March 2020 the US Federal Reserve lowered it from 8% to 0%, which is where it is today. Just to give you an idea of how the economy works then, let's say you put $100 into your account at Bank A. Company X takes a loan from the bank for $100. Where do they put their money from the loan? Well, they spend most of it but part of it ends up in, let's say, Bank B. Bank B then takes that money and loans it out 100% to Company Y, who spends some of it and also puts some reserve into their bank account in Bank A. Which lends it out 100%.
So this is an over-simplified example but just to give a visual that this is where inflation is coming from. The "government" isn't printing money -- the banks are. It's a deck of cards with no safety net.
Watch the movie "The Big Short" and tell me how this isn't the same situation.
source: I am also a lot of fun at parties
Besides a minimum reserve requirement, banks also have liquidity and (risk-weighted) capital adequacy requirements, which are practically much more relevant.
The 2008 financial crisis was effectively caused by "laundering"/structuring the risk weights.
What is the business then? In order for it to be a business, a bank needs to earn a higher interest rate on what they lend than on what they borrow.
The bank has two choices to achieve this delta in interest rates. It can either 1. mismatch duration or 2. make loans that are riskier than their borrowings. By banning the first, you are implicitly claiming that the second is preferable. Is the second really preferable? Maybe. But not obviously.
I have no special sympathies for Silicon Valley Bank, but the reason its customers still have deposits today is that the bank leaned more toward the duration mismatch than the risk mismatch. What happens if you achieve your interest rate delta by making super risky loans and all those loans turn to goose eggs? Bye bye customer deposits.
Banks have some set of relatively fixed cost, in terms of systems and staff. In a low rate environment, there's virtually no margin to be made on short term lending. Stretching the duration for higher yield is the only way to get margin to cover expenses.
Even in a high rate environment, most of a bank's reserves tend to be short term - savings accounts, 1 year CDs, etc. The things people want to borrow for (e.g. houses, cars) tend to have a longer time horizon to pay off. So if you want banks to actually make those kinds of loans, duration matching doesn't work.
They certainly would become less of a profitable and shrink as a percentage of the economy. Which is good: smart folks would be incentivized to go into things like manufacturing and research, and produce actual value.
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
I thought they came into existence, atleast initially, purely for the secure storage of funds.
Until the borrower doesn't (or can't) pay back the loan...
"Safe" and "moral" seem like inherently relevant words here and I'm unconvinced that you're proposal would be overall beneficial compared to the increased circulation we enable today.
I suspect the OP would state "That's where adequate collateral comes into play."
You are trying to solve a relatively non-existent problem.
Are fixed deposits not common in the US?
The default path for slightly higher interest on a fixed term in the US tends to be certificates of deposit. They’re similar but functionally more like a bond you purchase than an account you can deposit into regularly.
#notallceos!> Embezzlement is using company funds for your own personal gain.
AFAIK, the criteria for embezzlement is much broader than "personal gain." You have to take possession (rightfully), but do something with it (unrightfully).
I can see an argument that the scenario of an employee taking its money from SVB and putting in another bank IS embezzlement if this is done without the CFO/officer's consent. In practical terms, you're probably fine as long as you're trying to act in best interests. [1]
[0] https://en.wikipedia.org/wiki/Embezzlement [1] https://en.wikipedia.org/wiki/Conversion_(law)
I never thought much of public relations until i had to work with the team.
It’s really an art.
what the bank could do is announce a period of time, where you'd get a much higher interest payment for keeping the deposits in.
So at least a portion of people would prefer getting the interest payments, rather than withdraw, and thus give breathing room. The bank might suffer a loss in the short term from paying out the interest, but would not collapse due to the (now non-existent) run.
They are public, you can see their filings at the SEC. I'd guess some hedge fund paying attention noticed this weeks ago and just made a killing.
I imagine it like this:
1. Place some money in bank.
2. Wait till bank bought bonds, treasuries and all that jazz.
3. Short the banks stock.
4. Withdraw huge amounts of money and cause liquidity crunch.
5. As the bank needs to keep its capital ratio above 5%, it will close positions at a loss, causing a death spiral (the bank run. As more people want to secure what’s left, the bank needs to unwind more positions at a loss. Which will cause even more people wanting to withdraw, which results in even more selling of the bank.
6. Eventually the bank becomes insolvent.
7. Buy stock back.
There might be more variables to it, such as the price of the treasuries itself (you might want to wait for a rate hike, inflation, credit rating change or whatever before you make the bank sell), but generally this is how imagine such a trade.
In the UK I have not heard of an equivalent scheme, but then again I am not dealing with accounts.
Of course, the reason I bank with them at all is they had mobile check deposit in like 2011 or 2012, which was ahead of the game at that point.
I'm not sure where you're getting this information. Natural disasters, including earthquakes, are perils that can definitely be insured. This is possible because the regional insurers can buy catastrophe reinsurance to protect the insurance company from extreme losses that are beyond the company's ability to absorb. I don't know much about earthquakes, but in Florida hurricane / flood insurance is heavily subsidized by the government in order to make home ownership affordable / possible in coastal areas.
Insurance is a highly regulated industry. The government regularly comes to "nanny" insurance companies and tells them what to do on a daily basis. So, again, I'm not sure what you're trying to say. The regulator in the US is called NAIC, it's the insurance equivalent of the Fed for banks in the US.
The same VC funds influence all of the startups with deposits at SVB. This happens on the tails of Silvergate, where the major exchanges (who also share investors and have overlapping board control) coordinate a bank run, while Elizabeth Warren did everything she could to rug that bank, by spreading FUD and also by forcing them to pay back their emergency loan.
This entire thing is honestly more than a little fishy. Call me crazy, but it feels like a controlled demolition and open financial warfare on the startup and crypto industries.
It will be interesting to see if there isn't new regulation that gives the government far more power conveniently sitting on the shelf that's about to be pushed through.
It could just be unlucky revenue management at these banks, where they locked up way too much of their deposits in fixed rate bonds before the Fed decided to jack up rates, but that begs the question... why didn't the Fed know that raising rates this aggressively would cause bank failures? The Fed should have been aware of the bank's position with Treasuries. On some level this is a controlled demolition. It's just a matter of who is doing the demolition.
Crazy :)
It's a pretty bog standard bank run. Bank takes a stupid risk, blows up. We see less of them now because of the FDIC, but most of SVB's deposits were non-insured so it was almost an 1890's style bank run. There was nothing "controlled" about it.
It’s on par with the Big Short in terms of telling a great story about the economic crisis.
I am certain they all did it, but in secrecy. Even when banks stocked grains and not gold.
Apologies if no one was meant to answer that.
Of course this all is going to pale in comparison to the amount that banks make by d̶u̶m̶p̶i̶n̶g̶ ̶c̶o̶n̶s̶u̶m̶e̶r̶ ̶f̶u̶n̶d̶s̶,̶ ̶h̶e̶a̶v̶i̶l̶y̶ ̶l̶e̶v̶e̶r̶a̶g̶e̶d̶,̶ ̶i̶n̶t̶o̶ ̶h̶i̶g̶h̶ ̶r̶i̶s̶k̶ ̶a̶s̶s̶e̶t̶s̶ responsibly investing deposits. But of course banks under '100% deposits maintained' type systems could then engage in more typical behavior with their own funds above and beyond what's made from deposits. Under such a regime no bank would ever be "too big to fail", customer deposits would be 100% guaranteed at all times, and more. In exchange you'd see substantially slower overall economic growth and monetary multiplication, but I'm increasingly convinced that would not have been a bad thing.
10 people put $10 in your bank. You give someone a loan for $50 and leave $50 in the vault. 7 of your customers take $10 out, you are screwed.
More like 20,000$, but yes.
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
Consider that startups are most often sitting on mountains of cash.
Also, having founders personally guarantee a credit card by putting up a house as collateral is not ideal for anyone.
Funnily, we ended up not being able to dissolve for 5 years because some dude decided to sue us (though this actually happened after Chase turned down the refi). I'm not going to get into the details except to say eventually his lawyer withdrew, he was self-representing, and then he didn't show up for court appearances, and so it was dismissed. 5 years later. This also did not bother SVB, when they looked at the details.
Anyway we finally dissolved last year.
Calling it duration driven obscures this pretty simple fact
My point is that when you take the view from the wider society, the price of long term loans should be (nearly) independent from the chance of bank runs. Those are only a problem for the shareholders of the bank itself, but not to the society it resides in.
Funds over the FDIC limit aren’t just surrendered; instead, you become a creditor to the failed institution. The FDIC works to recover those funds - good loans are sold to other institutions, payments due are collected, furniture and real estate is sold, the usual.
So a percentage of your money may be paid to you over several years time. Good luck managing free cash flow in the meantime.
But that's not what that means at all. It's not even implied, unless people are just not understanding what it is that banks do or how they work. But I don't see how anyone can fault the bank for that.
I think what's happening now is equivalent to 2008, it's just the underlying security was bonds and, in SVB's case, emerging equity. There were risks on all sides of the equation.
Retail banking is not some wildly lucrative enterprise, generally speaking - it's the boring, stable-ish segment of finance. They're gonna make roughly the same margin, whether through fees or spread.
You should absolutely talk to your CFO, board, accountant, and lawyer before taking such a drastic step.
the legal system is not black and white. You go to court and there’s a judge and possibly a jury that hears your story, and decides if what you did deserves punishment.
Attempting to safeguard your company’s assets hours before a bank’s potential collapse will garner sympathy from just about everyone.
I understand your points; but people banking with SVB may not be able to run this month’s payroll if they don’t move their money. That will cause more problems than anything else we’re talking about right now.
Unfortunately a bank run is very likely due to VCs mass emailing portfolio companies. I hate to be yet another person promoting this, but it’s always best to be the first ones out during a collapse.
It’s very easy to prove good intent when you didn’t benefit in any way. Besides, it’s the prosecution’s burden to improve intent, not the defendant’s.
Transferring $10 million to a personal account for 1 day then transferring again to a permanent business account a day later has zero legal risk when the bank you’re moving away from is literally collapsing.
Another bank will likely swoop in, probably no need to panic
But at least with my company’s money, there’s no room for “probably” when it comes to my ability to pay our employees.
Our company will be dead if we can’t make payroll or if we can’t pay our credit card bills. That’s not something any CEO wants to risk just to avoid a bank run.
A CEO has a fiduciary responsibility which includes making decisions that are in the best interest of the company. Taking no action at this point is just irresponsible.
If SVB, it is probably too late to stop it, that game has already started and once a bank run starts only a miracle (or a powerful external actor) can stop it. If other banks I do not see a risk of contagion. And should the contagion spread to major banks feds will certainly step in (to save our core banking system, blah blah). My 2c.
That seems like a weak signal. If the only example of egregiously wrong ratings we have is from the subprime crisis, that means they got them right enough a lot more often than not.
If the bond issuer defaults then they wouldn’t receive money back on any timeline. Thus calling it a duration mismatch is misleading.
More accurately, they took on a level of duration and credit risk, and it didn’t pay off.
Their portfolio only had an unrealized loss, if they held they would have been whole. They were forced to sell long duration assets before they matured.
This is the very definition of a duration mismatch. Short duration money got called back while the long duration money was below par. if they could hold the long duration to maturity they would be whole with no losses.
Not sure what I'm failing to explain.
It is indeed quite common to hear aphorisms like "live every day like it's your last" which make the same point as your analogy, but remove the suggestion that the speaker could be a murderer and are thus much more analogous to the bank CEO's statement.
Obviously there are important differences between the scenarios, but that critical aspect is what‘a relevant in this context.
Lehman and Washington Mutual were truly exceptional cases in the 2008 crisis, and SVB may be right there with them in a few weeks.
[1] which technically didn't fail but had its retail banking operations forcibly absorbed by Citigroup in an overnight shotgun wedding officiated by the FDIC, but hey who's counting
Bragging about getting a car loan when (I assume) you have good history and credit? Unless it was a $1.5m Mclaren P1 supercar or something, that's not remotely in the same category.
That said, it doesn't seem to have emerged into widespread use until well after the 1950s, so would have been a peculiar choice for a 19th century author:
<https://books.google.com/ngrams/graph?content=creditworthine...>
I figure you’re just being snarky but still.
It's just you.
Ugh. Give me a break.
Trading Halted. They were down 66% on the day before halt
On 08-March-2023, they were trading at $267.90, by the end of the 9th, 106.08. By trading halt today, $39.49. Now, it's worthless. Imagine thinking you got a bargain at $106, or $39...
These calls for regulations always seem to result in that sort of thing happening.
They didn't really want "too big to fail" laws they wanted "don't ruffle the status quo, even if it harms the market long term".
In the Youtube the FDIC selling a 50yr old small independent bank to a $9 billion dollar megafirm was the real message of the video. Even if that bank was ultimately at fault for engaging in the gov-incentivized mortgage bonanza, in the years following the new rules plenty of other healthy smaller banks got swept up by bigger banks when the rules made them infeasible businesses.
>>"Multiple VCs, including Sequoia and Craft Ventures, have advised their startups to move funds away from Evolve-backed platforms, resulting in about $200 million being moved off Mercury, according to multiple people with knowledge of the matter.
>>Immad Akhund, co-founder and CEO of Mercury, didn’t deny that the funds had been moved and characterized the amount as “not really material,” saying the company has “billions of dollars in deposits across 100K customers and [is] profitable.”
>>Akhund characterized the money movement as “primarily folks diversifying, rather than full churning,” by moving funds to Mercury’s other bank partner, Choice, or into Mercury’s treasury management product."
The problems those systems caused are the reason we created the Fed and soft money. Hard money ruined many lives, caused many panics, and is an intellectually bankrupt idea that only cranks are still devoted to.
Fractional reserve banking has been the dominant form of banking for the last 300 years, and has roots well beyond that.
True, but most of human history was also pretty awful. If subsistence agriculture is your idea of a good time, nobody's going to stop you. But it's definitely not what most people want.
I can't tell - are you arguing that soft money is a necessary precondition to industrialization?
The point is that a bank run is a liquidity event (i.e. we still own more than what we owe, it’s just hard to turn it into cash fast enough).
SVB has a fine balance sheet for now, they’re just running out of easy things to sell.
The quote is referencing liquidity events, where the problem is everyone wants their money because they’re nervous about the bank, but the only thing that can hurt the bank is them taking out their money (because then the bank is in fire sale mode).
A CEOs job in this time (something SVB CEO did not do) is to project confidence. That’s literally all they can do.
Do they?
If SVB is sitting on a pile of Treasury bonds that mature in 20 years, they can “hold to maturity” and get their principal plus some very low interest rate. But this is useless! In a fantasy world in which all their depositors leave and they keep those bonds for 20 years, they are indeed worth that amount in 20 years, which has a rather lower net present value today, and maybe their investors care and maybe they don’t.
But this is, of course, a fantasy. Those bonds are collateral for deposits, SVB pays 4.5% APY on savings, and that 4.5% doesn’t materialize from the ether. In 20 years, 4.5% multiplies money by 2.4, those T-bonds will not multiply by 2.4, and SVB will slowly but surely end up in the hole. Unless they convince a very large fraction of their depositors to forego interest.
It boggles my mind that banks are apparently permitted to do accounting on a hold-to-maturity basis. Holding a bond to maturity avoids paying a spread and maybe has some tax effects. And that’s it. Otherwise you might as well sell it and buy a new one with the same present value.
(I am not an expert, and I’m going off HN comments for how these rules work. But if the banks really do get to say they plan to hold a fixed-income instrument to maturity and they can value it as something like face value, then I think the system is broken.)
No it isn't. Any other bank would be happy to write a loan backed by US treasury holdings, at no more than a moderate profit. If you're sitting on that, it has value. But it doesn't have value in literal dollars by tomorrow morning to pay out a withdrawal. That's what "liquidity" is all about.
For most banks, it is fine to assume a 20 year deposit window because deposits are fungible and for most of recent history deposit bases have gone up.
SVB was wrong for not assuming that the 2021 deposit spike was (in hindsight obviously) a short term blip, but you can look at their loan book on page 19 of [0].
It's not immediately clear to me that there's some sort of systemic risk in VCs/PE firms not paying back their loans, but given how circular the tech ecosystem is, maybe we get there.
[0]https://s201.q4cdn.com/589201576/files/doc_financials/2022/q...
But they wouldn't continue to pay 4.5% interest for 20 years would they? This is just a brief moment of high interest rates, so I think that's the main detractor from this argument. In other words, it's not like 4.5% APY on savings is anywhere close to the norm.
His statement didn't project confidence. My "we are adequately capitalized" shirt is raising questions answered by my shirt is the meme way of expressing it. The right move would be to find a recapitalization transaction and complete it, which they tried to do but issued the press release right after a crypto-focused bank went into receivership due to falling account levels. That did not help matters.
Their financial history includes borrowing lots of money, taking a big risk, and losing a lot of that money. Not necessarily bad, but it’s reality. Just because that activity happened under a different legal entity doesn’t make it irrelevant. The mortgage applicants own nearly all of the company that is losing tons of cash. It is an important part of their financial history.
I'm disappointed that we failed but I think it shouldn't affect our personal credit one way or the other.
https://money.cnn.com/news/specials/storysupplement/bankbail...
It's an exponential process and there are really only 2 states except for an infinitesimally small space between.
If you want another anecdote - this one has millions in it - my last startup banked with Wells Fargo from pre-seed right up to series A with >10mil in three funding rounds and never had a single problem. Must be my crazy luck here as well!
At any rate, SVB is dead now, so it's pointless to argue whether they were really a startup's best friend or just hyped that up. They are not anyone's friend anymore, they are dead and the only real question here is how to get the damn money back from them.
As a consumer (or a business client in the case of SVB), how does it benefit you that the bank doesn't simply hold your deposits in a figurative safe somewhere?
At a minimum, I wish I could say it benefits us by banking being free.
Lending could be opt-in. There could exist banks who charge a premium for simply being the custodian of your money. (These must already exist)
Fractional reserve makes money easily available to those seeking money they don't have, at the risk of depositors whose money they're putting on the line.
(For better or worse. I'm not for or against it. I'm certain there are massive benefits to the system. But the reality is the average depositor probably doesn't realize their bank deposits aren't actually theirs - and that's why we have the FDIC)
Loans are not always a bad thing.
Banking is supposed to be a very boring business (at least under Glass-Steagal-like regulation). Making "bets" with money they don't have isn't something retail banks are supposed to be doing. Yes, we know that some banks were doing this prior to the '08 GFC, but wasn't that supposed to have been reigned in by the reinstatement of Glass-Steagal-like regulation since then? (of course, there is some distinction between retail banks and investment banks, is SVB the former or the latter?)
Retail banks absolutely underwrite loans.
I do think you should be able to trade fiat into gold and vice versa tax free, so gold can be used for savings, which it is very good at.
In fairness, nobody agrees with me on this stuff, including myself at times!
That makes them real enough.
Banks are one, if not the most, regulated companies in the US.
What are banks lying about and who are they lying to?
I'd assume the government would come down on them pretty hard if it turns out that all banks are lying to their customers as federal and state regulations on banks are pretty heavy handed to make sure that the vast majority of banks are healthy at any given time.
With duration matching you can have loans, but it is clear that depositor A can't get dollar X back until time point T, and that borrower B can have the dollar until then.
But they don't do that. Or, I've literally never seen them do that.
What the bank tells me is what my current deposit is. That's the truth. They aren't representing that the amount they're listing is a specific dollar somewhere, they're telling me how much money I've given to them.
But, like, what if they aren't? Who holds the bag when losses exceed profits? That is of course exactly the case where deposit insurance comes in handy. So I'm pretty sure you still need it.
Your model protects specifically against losses due to time mismatch between deposits and loans, but there are other ways that loans can go bad!
Where is the lie, though?
“Sorry we have to wait for someone else to want a loan”
If you’re trying to solve one extremely rare problem (bank runs) by completely dismantling a much demanded and commonly used banking feature (interest bearing accounts with liquidity) then sure, this would do it.
But nobody actually wants that.
How does your statement make any sense?
(I am assuming that by "capital" you mean cash.)
SVB had to liquidate good assets quickly, so it sold them at a loss. That means its capitalization compared to liabilities (deposits) could be in “uh oh” territory.
So it sells capital on the open market to shore up its liquid capital. Yes, most every capital raise works mostly like this. But it’s notable here because of what it portends.
A healthy company doesn't generally sell shares in itself (except perhaps to fund a major expansion). Selling equity is a last resort when you don't have better funding options (retained earnings, debt, ...).
What explicitly is the lie?
That's normal for business banking I think. Trucking cash and coins around isn't free, that stuff is heavy.
Is real economic growth even determined by anything but technological development?
Of course, the economy can be made to "grow" by some slight of hand, like having a high inflation rate while pretending that we don't. Or by depleting natural resources. But that's not the kind of growth we want.
Other loans go to people who were going to buy a doodad after saving up for 12 months, who instead get the doodad immediately and pay for it for 14 months. That looks like economic growth, because in month 1 doodad sales have risen. But if the sale would have happened anyway, the 'growth' is lot more debatable IMHO.
Did the loan actually increase economic growth? I think the only reasonable answer is: Yes, if the bank issuing the loan had a better idea than the market about the future profitability of the investment. However, that doesn't seem very likely to me.
That is just the end result, the question is how do you get there? How do you organize an economy to reach that outcome in the most optimal way?
You are welcome to make that bet for your personal finances or on behalf of your company. You should not make that bet with someone else’s money unless they have signed up for it.
That's assuming a traditional short, and not something like selling naked calls. In the latter case they just expire worthless.
It's hilarious that banks serving crypto and startup ecosystems aren't failing because their crypto and startup loans went bad, they're failing because of the duration risk from holding long-term Treasurys on their balance sheet.
That is the number one reason why banks go bankrupt...
It's not hilarious, duration risk is the biggest risk a bank has to deal with and it gets worse the more and more people keep their money as demand deposits. This is why the Fed does QE, the duration of deposits has shrunk so low, that the banks can't buy treasuries as the duration of the treasuries has become too long in relation to instantaneous demand deposits that can switch from bank to bank. The only solution that the Fed came up with, is to do the duration transformation themselves by buying long duration treasuries and giving instantly transferrable central bank reserves with no duration risk. This works because the system as a whole cannot go bankrupt, but individual banks can. If you take your money out of the bank, the CB reserves just get turned into cash. If you transfer between banks, the recipient bank now holds the reserves.
Also, plenty of crypto specific banks did fail because their loans went bad.
If a bank has $100 of deposits and has lent out $90 on a 30-year adjustable rate basis, the bank is exposed to potentially liquidity issues, default risk, and second-order effects like changes in the yield curve. But if the bank lends that $90 as a fixed rate mortgage or buys a 30-year T bond, they are directly exposed to interest rate changes.
(Also, as I understand it, and this is far outside my expertise: banks usually try repackage their debt and sell it to investors. The banks presumably can’t carry those 30 year fixed mortgages on their books without accounting for interest rate risk. Why are T bonds special?)
If you were charged a small nominal fee for your demand deposits, you would likely say "OK, I'll keep a certain amount in my demand deposit account, and then put the stuff I don't need into longer duration deposits, so I can get some interest."
This would be the right thing, and that money could be safely loaned out at durations shorter than you deposited. You would then be signalling to the market exactly what the demand is for money over time, and it could respond appropriately.
To an extent you do this today: you don't keep all your money in demand deposits, you instead put a lot in the market or whatever. Back in the day, you might have even bought a CD, which is almost exactly what I'm describing, sans the requirement that banks not loan funds they can't guarantee are available for the duration of the loan.
So it's not as crazy as it sounds. It's still crazy, but not as crazy as it sounds.
For the financial sector at large, treasuries and bonds make up the vast majority of the market
And most banks probably have much more money deposited in checking and savings accounts than in CDs.
A bank that only offers CDs or other long-duration deposits would be pretty weird.
I've never seen a bank that only offers CDs. That's probably because such a bank wouldn't survive.
https://www.federalreserve.gov/newsevents/pressreleases/bcre...
Just curious. As mentioned, I'm pretty ignorant about this and would like to educate myself.
Let me try again. You're still thinking about liquidity -- assuming a 20 year deposit window seems okay to me.
But the problem is solvency. It's not that the assets are illiquid -- it's that they insufficient. If you run a bank, assume a 20 year deposit window, and invest those deposits in safe assets that carry similar interest rate risk to the deposits themselves, then you are solvent. If depositors leave faster than expected, you may be forced to pay a spread or other haircut to sell your long term assets early, but that's a small effect and can be managed gradually as long as you stay on top of it.
This isn't SVB's problem AFAICT. SVB bought assets that were perfectly liquid (T bonds!) and (if I read the filings right) assets that are still fairly liquid (MBSes), but they had interest rate exposure that did not match the deposits. Savings account interest rates (at SVB!) were up to 4.5%, and those T bonds had much lower fixed interest rates. [0]
If depositors held their money at SVB for 20 years and SVB didn't have a bank run right now, SVB would still be in trouble: SVB would be paying more interest on those deposits than they would receive on their investments, and their portfolio would slowly go negative.
[0] Whether you think about them as paying low interest for a long time or as being marked to market at a loss and then paying current interest rates at maturity is immaterial. You end up with the same number of actual dollars at the same times.
You are confusing price today with the actual characteristics of the instrument.
A T-bill pays back it's face value always, it just trades below face when interest rates are higher than when it was purchased.
That is the definition of a liquidity problem. You'll get the face value back eventually (it is sufficient), but not if you sell today.
A liquid market is not the only characteristic of liquidity. There's a liquid market for anything at a low enough price...
>If depositors held their money at SVB for 20 years and SVB didn't have a bank run right now, SVB would still be in trouble: SVB would be paying more interest on those deposits than they would receive on their investments, and their portfolio would slowly go negative.
This is a true statement people are making that has nothing to do with what happened here. The point of a bank is interest rate arbitrage, so I agree SVB would have to do their job better over those 20 years, but this thing that happened over 3 months is a liquidity crisis. They weren't running out of money to pay interest on deposits, they were running out of money to give those deposits back and were veering into the problem discussed above - selling things below value to create liquidity.
In this make believe banking system that I am making up. :)
Because the rates suck, but that hasn’t always been the case.
This has nothing to do with liquidity. If I had a 0 interest, $100 T bond maturing in 30 years, I cannot sell it today for $100. But anyone who lent me $90, nonrecourse, using it as collateral and asking for only a moderate profit is nuts because this bond is not worth $90 — not even close. Maybe I can get a loan that is based on my own credit-worthiness, but that’s a different story entirely.
If I have this $100 T bond, and I’m a bank, and that T bond is collateral for a $100 savings account paying 4.5% APY, I am in the hole. If my depositor sticks around, I can gamble and hope I can make up my losses (e.g. by interest rates going way down), or I can try to be such an awesome bank going forward that my profits can make up for my losses, and maybe I’ll get away with it, but I don’t really deserve to get away with it.
Not to a retail investor looking at short term returns (and irrationally obsessed with Inflation! due to media consumption), but to a bank with regulatory deposit requirements and a longer term outlook? Seems not unreasonable.
Anyway it doesn't have to be worth the full face value. It just needs to be worth enough to back a short term loan big enough to honor current withdrawal demands.
I wonder if this is the problem.
> to a bank with regulatory deposit requirements and a longer term outlook?
Maybe with some generally accepted accounting principle, but not by any sensible business standard.
If that bond trades for $80, no one would buy it for $90. It’s worth $80. Similarly, if you already own it, it’s not magically worth more.
And if you are a bank with a long term outlook, you expect interest rates to hold near current levels, and you pay 4.5% APY to depositors, your long term outlook of paying 4.5% to deposits where that deposit money is locked up in a very safe bond earning 1.8% APY, you are losing a lot of money, very safely, in the long term. Almost exactly as much as you would lose by booking the loss right away and investing in something else.
Other than tax or regulatory arbitrage, complex accounting is no substitute for actual profits and losses :)
If someone misjudges the value, volatility, etc, of collateral used for loans, those loans could be a bad thing if the borrower stops paying.
"Fabulous witticisms" feels good to listener and is funny, because it validates what people want to hear. It is rarely actually correct or actually correctly describes world.
Not shocking the voters wanted something different.
Thatcher won two landslide re-elections for a reason.
For example the UK has also had subsequent Conservative victories for the last 12 years or so but every single argument made in 2010 about their approach has been proven true. To the detriment of every person in the UK.
So it doesn't necessarily follow in my eyes that an election win means that what you're doing is the right thing, only that you are popular and you can convince people you will do something to help them.
Arguably the reason was the war, not domestic policy [0]
[0] https://history.com/news/margaret-thatcher-falklands-war
Hardly a problem local to Britain, and hardly something Thatcher solved. It was a crisis that also passed in countries that did not elect viciously anti-state, anti-working class governments.
> crumbling infrastructure; that couldn't even clean its own streets
Bit of an exaggeration, and I'm not sure how Maggie "Minimal State" Thatcher has supposedly helped with that.
> Thatcher won two landslide re-elections for a reason
If it weren't for the Falklands she would have been a one term president.
Currently, for example, there is Wokeism in general, with particular emphasis on transgenderism. Transgenderism only "affects" a very small percentage of the population, nobody paid it any mind a decade ago, and yet today it's a thing.
I think what we’ve discovered is that, thanks to the Internet, that’s a strategy that’s significantly easier to employ than ever before. In the past ups at least need to have mainstream media outlets onboard. Nowadays you can do that with a hashtag
I use a single dollar just to make the idea concrete.
I don't think they're even telling you that. And that is absolutely not what we were taught about banks in school. I think that banks do assume that everyone basically knows how banking works, though, so they don't engage in an educational program about it when you open an account.
What banks have told me is that my deposits are safe (in the sense that I won't lose my money) up to $250k. That's true enough. And I also remember reading the paperwork I signed when I've opened accounts where they specifically say that my deposits might not be available at the moment I want to withdraw them, for various reasons.
Although the Assets, Liabilities, and Capital reporting available if you click "create financial reports for this institution" estimates 5.69% of deposits are insured. Is a corporate account limited to $250K of deposit insurance? If so, I imagine many of them may have much more than that, and the reporting does show almost 75% of the deposits are in accounts with greater than $250K, assuming I'm reading the report correctly.
> The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. [1]
1: https://www.fdic.gov/resources/deposit-insurance/brochures/d...
An individual could easily have that much let alone a startup with millions.
and not that it matters but this is specifically about a startup or business not talking about personal finances of an individual
I'd much rather lose 0.4% of my money than lend it out at +0.01% to whatever checking accounts pay nowadays while they lend out to some asshole that does business with the bank.
Edit: It seems I am incorrect.
> The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Deposits held in different ownership categories are separately insured, up to at least $250,000, even if held at the same bank.
Per account "type" and structure. For DDAs if you are married it will be:
You: $250k
Your+your wife: $250k
You POD your wife : $250k
Your wife: $250k
Your wife POD you: $250k
My understanding is that this might cause an unwelcome surprise to (for example) someone with a personal account at Bank A, and a sweep account at Brokerage P that sends its funds into accounts at Banks A, B, and C.
The economy was pretty much in the dumpster for most of the 70’s in both countries.
Not unusual for the old guard to be turfed out when that happens.
https://en.wikipedia.org/wiki/Great_Recession
Here's some citation for ya.
As for viable replacements that allow for forward progress: https://en.wikipedia.org/wiki/Workers%27_self-management
(Also, for that matter, it's not like capitalism doesn't tend to devolve into autocracy and corruption)
The "alternative" you envision is premised on shifting power back to the masses, but I think it's also important to mention guardrails to prevent excessive capital accumulation. There would still be an economy, but it would be driven by a more egalitarian aggregate demand and less likely to suffer the shocks of boom bust cycles associated with financial malarkey.
Why?
CDs are insured by the FDIC. That gives people the same amount of confidence in all CDs no matter what bank they get them from.
There certainly was an aspect of that back in the 80s. In the early years Labour was lead by Michael Foot, basically a likeable version of Corbyn but just as unelectable. But then, the Labour Party back then was properly Marxist and had actually pushed forward a programme of nationalisation and unionisation that worked out about as well as you'd expect.
The most egregious example of waste was the coal industry, hence the strikes. The tax payer was subsidizing coal to the tune of £1.3 billion a year which was real money back then, just under 1% of total national GDP, not including the increased costs to power and steel industries that were prevented from using cheaper alternatives. When the mining union leader Arthur Scargill appeared before a Parliamentary committee and was asked at what level of loss it was acceptable to close a pit he answered “As far as I can see, the loss is without limits.” That's what we were dealing with. That's just coal, but swathes of industry had been nationalised and was a horrible rotting carcass of waste and losses dragging the country down. Reforming that lot was incredibly painful but it had to be done.
Maggie is generally portrayed as being incredibly unpopular, and the way she was lampooned by a generation of up coming British comics was cruel though frankly hilarious, but she won resounding election victory after victory. The economy she built transformed the country into the modern nation it is today. Notably when Blair and Brown brought in a Labour government in 1997 they changed essentially nothing substantive because her reforms palpably worked. All the proposed changes reverting Britain towards a statist socialist economic agenda were quietly shelved and never talked about agin until Corbyn came along.
Since then Conservatism on both sides of the pond has suffered an appalling moral and intellectual collapse. The conservative and republican parties are mocking parodies of their former selves. Back in the 80s there were serious, major economic and social problems that desperately needed fixing and economic liberalism had the answers. Nowadays that's just not even vaguely controversial, instead the focus of the right has shifted towards damaging reactionary dog whistle issues like culture wars and blind nationalism. That tendency has always been there, but now it's all they have.
The conservatives of the 80's had a problem to solve, stagflation, inefficient socialism, big state. Neo-liberalism solved those problems, but created new ones.
The conservatives today have another problem to solve, mass immigration, rampant crime, loss of sovereignty and ability to reform to foreign bureaucracy, dependency on foreign manufacturing, etc.
Part of these problems are residues of the same economic neo-liberalism that was enacted in the 80s. Reagans and Thatcher's neo-liberalism saved society from the socialist dystopia, but over time it has thrown society in a neo-liberalist dystopian path that few people like, beside the corporate elites.
The conservatives have moved on to new, real problems. You seem stuck in the past.
A friend of mine tried that line about manufacturing on me a few years ago and I asked him what kind of factory he wanted his so. To work in when he grew up. He looked at me as though I’d just shot his dog. We don’t need factory jobs, we’ve git near full employment anyway. That’s why we need immigration to solve our demographic issues with our ageing population. We’ve got plenty of jobs much higher up the value chain, the main problems are around training and education.
I should add that as a Scot I'm definitely not a fan of hers (you just grow up there knowing "Thatcher Bad") but I'm not quite at "put a stake through her heart and garlic round her neck"[0] :)
[0] - https://twitter.com/halaljew/status/1294414600566382598
It's a lot more complex than war-helps-current-leader, at least outside the US. It depends on the war and the context.
"Neither the strong nor the weak version of the proposition that American defense spending bankrupted the Soviet economy and forced an end to the Cold War is sustained by the evidence."
https://www.theatlantic.com/past/docs/politics/foreign/reagr...
It was a strange time.
However, the FDIC covers all banks, and is generally involved with smaller banks fail and they are they to insure whatever balance the bank could not cover with its remaining assets when it failed.
I’m not actually aware though what the last incident they actually had to pay out was though. Looking through their historical data on bank failures every one I’ve seen says the insured accounts were assumed by another bank purchasing up the failing bank.
But worse, thousands of the individual depositors and businesses who banked at IndyMac were over the FDIC limits and they lost, collectively, hundreds of millions of dollars. The FDIC insurance limit at that time was $100k per separately-named account per bank; it is now $250k. And the $250k raise was, in a surprisingly kind move, purposely made retroactive to help cover some of the losses that people had suffered during the GFC under the previous lower limit.
And still, despite all that, lots of people lost lots of money when the bank went under:
https://www.latimes.com/archives/la-xpm-2010-may-31-la-fi-in...
If you have that much money, FDIC is not adequate for you (and isn't intended to be). There are other mechanisms for those sorts of depositors. Surely, those businesses got solid financial advice and are using them, right?
So, let's say you are a company with 4 banks accounts. Each has $500k in it. One of them is SVB. You probably just move the $500k into one of the other bank accounts. It's no big deal per se, but you do it. That's a run on the bank if lots of companies do the same thing.
Per depositor, per insured bank, per account category.
It’s not that difficult to keep significant excess deposits insured.
That's akin to saying my house won't burn down because I have insurance. Don't underestimate the stupidity of large crowds of people.
I still have cheques that say Washington Mutual on them; literally no disruption to my life when they started floating upside down.
This "don't underestimate the stupidity..." might feel like a clever or wise speech to give, but history suggests the FDIC has been incredibly successful at reducing bank runs. Insert "those who don't learn history...." speech here.
FDIC was invented for the great depression when banks were not as large or concentrated, nor were they as globally connected and intertwined with day to day business. The reality is that FDIC is far from being sufficient insurance to calm down a collapsing market, that's why we had to do bailouts in 2008, because of what was coming down the road in that regard if the contagion were to spread further.
As for the crime rate the perception is divorced from reality, I’ll quote from Wikipedia: “The United Kingdom's crime rate remains relatively low when compared to the rest of the world, especially among first world countries.” Our crime rate is a fraction of that in Ukraine before the war. Their murder rate was three times ours.
Maybe if you define immigrants with passports as Britons. There's a reason why the BNP, British National Party, won the two seats they ever won in counties most affected by immigration. This effect would also be exact opposite of that in Sweden, which is intriguing, because here the sub-urb ghettos are split between social democrats, which the immigrants vote for, and the nationalists, which the few non-immigrants left vote for.
The fact that you are trying to argue that areas affected are the least concerned, when the case is exactly the opposite across Europe; says a lot about your "reality". Modern leftists are a scourge.
Similarly from a reserve standpoint they don’t need to worry about inflation as they need to pay back deposits in nominal terms not what the money is worth when withdrawn.
The US banking system has been given a great deal of regulatory leeway due to recent economic turbulence, including setting reserve requirements to 0%. So market value is only relevant if they need to sell before maturity.
The issue is that the sale value of their reserves has dropped below that nominal value. If you take in $1000 of deposits that you're paying 1% interest on and your reserve against that is a 10-year $1000 T-bill with a 2% coupon, you'd think you're fine, right? But if interest rates go up to 3%, you can't sell that T-bill for $1000 any more; if you can hold it to maturity you're fine, but if your customers start pulling their deposits you're in trouble.
There would only be a problem if the bank's credit deteriorated in its risky assets, enough to freak depositors out.
If the T-Bill has a maturity beyond 90 days it doesn’t qualify as a liquid asset.
We’re currently in some interesting times: “As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.“. https://www.federalreserve.gov/monetarypolicy/reservereq.htm
please feel free to disagree!
The problem is, the underlying assets that SVB owns will only pay them back at 1% APY, and only in 20 years or whatever, and the billionaire has been promised 4.5%APY and is expecting to have access to one months worth of interest next month. that 3.5 difference is thus a huge problem for SVB.
JPM has assets of ~15% of GDP and has 66 million household clients.
I'll take the odds that it's too big to fail.
There are better options than playing these odds. Spread across banks, hold short term treasuries etc. Treasury functions at a company exist for a reason.
Which is exactly what needs to happen when depositors ask for their money back.
Banks generally have liquid reserves to handle significant fluctuations in deposits. If that’s insufficient they have incoming cash flow and the option to borrow money to make up the difference rather than instantly selling assets.
Thus in practice extracting 5% over a week is fine but there’s a threshold that will kill any bank.
This is a chicken and egg situation.
As Levine put it, it’s not an asset problem, it’s a liability problem.
Right now there will be a lot of chatter if the root cause was industry concentration, mark to market, junior VCs scaring gulible founders, or as you pointed out: duration risk.
I think in five years the common narrative will be about duration risk.
To spell out what you hinted at: SVB will collapse at some point in the next few years. The only scenario they survive is if they survive this bank run, and then soonsih the fed lowers interest rates by a ton.
Otherwise even without this bank run SVB will still slowly be forced to sell off more and more HTM assets. Core reason being they cannot cashflow wise offer market rate interest on deposits. Clients _would_ move their money to better paying banks, not everyone but too many.
Thus this bank run only accelerates the inevitable. The interest broader note is how other bigger banks have or have not managed their exposure to duration. And special eyes towards the Japanese MegaBanks, double so if the bank of Japan does raise rates.
Any number of reasons, particularly if all your customers are in the same industry. If you're "Silicon Valley Bank" and there's a downturn in Silicon Valley, well, here you are.