Silvergate Bank to begin voluntary liquidation

And for pretty good reason, at least it seems to me. Doing business with physical currency is not just objectively worse than digital transactions under most circumstances, it’s also increasingly untenable for more and more of life.

Banking services basically are so successful they became a necessity for the vast majority of people who can access them—you have to have money storage, as a prerequisite to moving money you can’t or don’t wish to store. I can’t think of a reason I should pay a bank for the privilege of access to paying some of my own money to another party.

On the other hand, I think this is just as good an argument that the kind of banking I’m describing should be a public good rather than a part of the services provided by investment firms. I even think there’s fairly good precedent for that argument, albeit at a drastically larger scale and with an unfortunately storied history of fraud and abuse.

> if you offer customers yields below fed funds rate (~5%), the money on the spread is risk free.

Absolutely insane how my local bank's money market account interest rate is something like 1.4%. Their CDs only hit 3%. Like come the fuck on. Ended up moving most of my money out of there.

Some are probably upset with it because they want Silvergate's liqudiation to be caused by crypto, and not super-safe US Treasurys. Turns out Silvergate's bitcoin loans are just fine, and it was the Treasurys that fucked them up.

Others are probably upset with it because Silvergate had the option to hold cash as cash, or cash as one-month T-bills, and if they had done that, they wouldn't have had to liquidate.

But instead they locked it up in much longer dated bonds to grab a little extra yield, and got burned when interest rates increased.

This bank did put a ton of the money in T-Bills. The vast majority of the remainder was in boring stuff like longer-term bonds. A very small amount (relatively) was involved in bitcoin lending.

The problem is highly liquid and effectively instantly redeemable wasn't enough when the crypto world melted down and a huge percentage of their depositors needed money back right away. No bank can survive that. Wells Fargo just has customers from a wide enough crosssection that they won't all need their money back at once. But you can imagine it happening to a small local bank following a natural disaster as well.

Silvergate was solvent and has the assets to cover liabilities, just has liquidity issues.

Interesting. That article from 2018 speculates on the Fed's motivation, but seems upfront that nobody is certain why they gave TNB such a hard time. Has the story developed since then? Did the suit go to trial?

EDIT: In 2020 the Southern District of New York court dismissed TNB's complaint[1], finding the 18 month wait did not construe a denial (despite the application form saying a decision "may take 5-7 days"). I guess there was no appeal?

[1] https://justmoney.org/the-narrow-bank/

TLTs value went down because yields went up. This is by design, anyone who invested in TLT at zero rates should have known the yields to price function. Honestly i dont see whats to hide here in reporting ??

Can you explain what am i missing here ?

What do you mean underreported? TLT losing value isn’t news. The average duration of TLT’s US Treasurys is ~20 years—if rates go up 1%, the bond principle value goes down ~15-20%. The 20y treasury yield went from ~2% in Jan22 to 4% in Mar23, and TLT went from $150->$100 in the same time period.

Anyone who knows what TLT is likely knows about duration risk.

https://www.fidelity.com/learning-center/investment-products...

Under-reported by who? Virtually everyone I know has been watching the Fed / FFR and the rate-hike news because it affects things like long-term treasuries very significantly.

The FFR going from 0% to 4.5% over the last year is probably the biggest, most important (and definitely well reported) piece of news... and constantly makes front-page material on most financial newspapers I've been reading.

The idea that this is somehow "underreported" is... odd... to me. The amount of commentary on rising interest rates, federal fund rates, hawks in the Fed, inverted yield curves and more suggests that the public is hyper-aware of this and the implications.

Plenty of banks want billions of dollars of business. Smaller banks jump at 100 million of deposits here and there for some niche market. The properly run crypto organizations are still banked fine, USDC - a stablecoin that isn't considered controversial - has $40bn on deposit at BNY Mellon. There are also many financial institutions under state charters and other concoctions that are or seek to operate better for the crypto industry. And crypto organizations have undergone more serious stress tests and banking isolation before.

Silvergate's stress came from holding normal super boring bonds and needing to liquidate those, it needed to liquidate because of the mismanaged crypto organizations, but its ability to liquidate came from its own portfolio choices during a coincidental macroeconomic environment and not crypto.

That's not because voice recognition doesnt work. It's been working quite well for 15 years now. Just ask the Deaf community.

The issue is even if the error rate is 1 in 100 and you scale that up to a billion users supporting thousands of use cases, you then need to maintain a large army of people to manually handle those errors.

Its a huge cost to even the largest firms. Very similar to what Facebook/Twitter/Youtube end up doing to handle content moderation. The faster systems scale the faster you get swamped with bugs you don't have bandwidth to fix. The consequences begin to multiply. Your basic Jurassic Park story plays out.