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SVB wouldn’t have these issues if they monitored the risk better. If they put the money in short term govt bonds they would be fine. Or if they kept the rates they paid on deposits low to discourage the excess, they would also be fine.

Banks are in the business to manage risk.

The sad part is this risk management and investment process is concentrated in a very small group. Most of the bank employees are very good, had no idea what was happening, and some will lose their jobs as their equity goes to zero.

This is correct, Banks can plan for this risk by aiming to match the duration of their liabilities, which includes deposits, to their assets. For example, if a bank is getting funding via a one-year certificate of deposit, it can buy a Treasury maturing in one year to match. But if a bank’s deposits can move at any moment, it has to weigh that risk when investing. Banks also diversify with assets that are floating rate, like many kinds of corporate loans or credit card loans. Few are at risk of needing to wind down so quickly. But many may still have to take actions throttling back on loan growth or raising more capital if the Fed keeps going and deposits flee more quickly than anticipated.

KI used to bank with a small credit union in Sunnyvale, CA - it was a tech credit union (cant recall the name of it ATM)

But they used to have a sheet they posted on the wall near the tellers - this was in 2007-2009 at the height of that particular financial fraud collapse (lehman, etc)

The sheet showed how much the bank was making on over draft fees - and every time I was in the bank I would check that number - and it was stunning to see as deeper we got into that recession, how much that number increased.

They were making about 500k per month on _overdraft_ fees alone...

That said a lot about the state of peoples finances alone.

"SVB wouldn’t have these issues if they monitored the risk better."

Let's see what happens. If only SVB goes belly up, then yes, only SVB was the one that couldn't read the tea leaves of the government's actions. But if SVB is just the first of more banks that will go belly up, then perhaps it is not just an error on SVB's part.

If the tide goes out and certain groups turn out to be naked, we shouldn't blame the tide going out and try to prevent that.

Tide is a natural occurring phenomenon.

There is nothing natural about the interest rates policies and stimulus packages from the governments last couple of decades.

They’re still supposed to have swimsuits on, to continue the metaphor. If anything, their customers are relying on trusting them more during turbulence.

When interest rates are negative the bank could just stuff the cash in a mattress no? Why do they need to take risks? They don't HAVE to (except profit of course)

The Fed gave plenty of warning that they would raise rates. Preventing 10% unemployment was absolutely worth the covid helicopter money. SVB is obviously incompetent just from seeing how they've handled the last couple days and should've realized that their long term bonds would get blown up in the post pandemic monetary environment.

> The Fed gave plenty of warning that they would raise rates.

The market bet against the fed, assuming fed was all talk no action. Wrong move.

Most of the market is still anticipating a fed pivot / fed put and / or tax-payer bailout. Time will tell.

> The Fed gave plenty of warning that they would raise rates.

In 2022. Up till the end of 2021, they kept saying inflation is "transitory". According to reports SVB bought a bunch of 10 year MBS in 2021.

SVB is obviously incompetent in believing in that Fed BS about transitory inflation -- wait but should they have believed in the rate hikes as well then?

If your solvency as a bank relies on you accurately predicting inflation and/or fed rate decisions then something has already gone terribly wrong.

I’d argue preventing a total financial collapse in 2020 is more important than SVB and some startups failing.

Yup. FDIC insurance exists for this reason -- you can let a bank that made bad decisions fail without causing a chain reaction through the economy.

It's great, but it punishes the smaller banks while leaving the 'too big to fail' conglomerates in a position to be bailed out by taxpayers. We need to chop down any bank that poses a systemic risk so that it's small enough for the FDIC to handle.

TARP arguably turned a profit, so a bailout isn't necessarily bad. Might be better to let them fly high, get burned, and then let investors get wiped out while keeping customers whole. What we don't want is socialized losses, but distressed investment gains are a-ok with me.

> FDIC insurance exists for this reason

Good luck to all the startups that might have just lost anything they had in SVB over $250k.

FDIC being involved doesn't actually mean you lose everything above 250k. Assuming that the bank's problem was liquidity, and not fraud, it's very likely that no depositor will end up taking a haircut.

> It's quite possible that no depositor will end up taking a haircut.

It's possible that uninsured deposits will eventually be recovered at full value, but losing access to depository funds is itself a loss which often has a very real costs, and when the Depository Insurance National Bank taking SVBs place opens no later than Monday, uninsured depositors are going to only have a claim against the potential realized value of SVB assets beyond what is necessary to cover the insured deposits, while insured depositors will have access to actual money in actual deposit accounts in an actual (solvent) bank.

Yeah, although SVB's failure demonstrates a major shortcoming with deposit insurance (in its role as a deterrent for bank runs). If you have more than $250k in assets, or are worried about short-term liquidity, you're still incentivized to run from the bank.

Correct me if I'm wrong, but FDIC insurance is mainly to protect individuals / small businesses from lose their entire livelihood, they're unlikely to have more than $250k in their bank account at any given time. If you do, you're most likely in/above the 1% and will survive by other means if you lose everything above $250k (or, rightly be "punished" for not having any other survival mechanism)

Part of the reason to protect retail customers is to reduce runs on banks.

> I’d argue preventing a total financial collapse in 2020 is more important

You mean the one that would have been caused by the government's draconian lockdowns?

Good thing the government came in to rescue everybody...

Sure, but it's debatable whether spending a few $T more in early 2021 was more helpful than not.

Blaming the government for poor investment decisions is just ridiculous. The playing field is level yet they are the ones to eat shit. They didn't diversify. They didn't consider macroeconomics. They didn't limit deposits despite having no game plan. It's pure greed and mismanagement.

What are the executives getting paid so much for, if not to manage complicated financial risk? I'm no banker, but as a layperson, I was certainly aware that inflation was possible. I figured it was a given (M2 growth and low productivity), but I guess they felt strongly enough otherwise to risk their entire bank?

Could they not have cut interest rates and take the dip in profit with shorter duration bonds? Was there really no sensible way to prevent this?

Businesses fail all the time from things outside their control, but I've yet to see any indication that's the case here.

> should have foreseen the coming inflation and the following interest rate hikes

That's putting it lightly. Powell has been saying over and over again "more inflation, more rate hikes." Even giving us approximately how many they are planning on doing in a given timeline. I don't understand why so many people think it's a good idea to prepare for the opposite of what the government is literally telling us it's going to do. That does not seem like a smart bet, but maybe that's just me.

You can blame the government for some stuff but at some point companies have to own the decisions they make in the face of not just evidence, but also clear statements, that run counter to how they are operating. SVB made their bed in a large way here.

“It’s the governments fault the bank mismanaged the money given to them” is certainly one perspective. If it were true why aren’t all banks facing the problem SVB has?

Other banks have diversity of depositors.

SVB didn't implode on their own, Thiel decided all the startups he backed should withdraw their deposits. Then other VCs followed the trend.

SVB was what, $2B short on their balance sheets, out of >$200B assets? VC initiated bank run is the only real issue here.

Waiting to see how this all benefits Thiel.

1% is a wildly different number from the 20-30% I've seen mentioned here. What makes you say they're only 2B short?

> of course shouldn't have said those words yesterday.

They were going to have to say something sooner-or-later. I think the biggest part is that before they could raise capital, they needed to be honest about their books or risk securities fraud charges.

If it were just the economic issues, why aren’t more banks in this situation?

The pandemic was going to shake the boat regardless. It was impossible to right-size the stimulus, and in hindsight we over did it, but given the information we had then I think we did the right move, at least with the 2020 stimulus. The 2021 stimulus is much more shady given that then we already had a vaccine deployed and were in a trajectory to recovery.

> it was impossible to right-size the stimulus

This is wrong. DETR, the Nevada Unemployment Office, gave out 1.4B too much [0]. I am absolutely sure this is not an isolated case. The absolute level of corruption disguised at absolute incompetence is too high to let the government off that easily. 2020-2021 was the biggest wealth transfer from the poor to the ultra rich in the history of the world. The stimulus didn't even have a clawback attached to it.

[0] https://www.ktnv.com/13-investigates/detr-sent-out-1-4-billi...

https://www.newyorker.com/news/our-columnists/is-larry-summe...

People will point to duration mismatch but Fed raised too fast without proper warnings.

Inflation is still 6% YoY.

Fed hasn't raised fast enough and is looking at +.50% next meeting.

There's ample reason to believe that the Fed delayed starting its current rate hike process due to political reasons; Chair Powell wanted to be re-appointed and felt that no chair who championed rate hikes back in 2021, which is when it should have started, stood a chance.

Unlikely.

Powell was kept on by both Trump and Biden. For all of the hoopla about "politicalization of the Fed", Powell has kept his chair.

Its not perfectly insulated. Both Trump and Biden can whisper to Powell and encourage certain behaviors. Ex: Trump pushed for lower rates, and Biden pushed for higher rates respectively.

Inflation is alway a monetary phenomenon. They caused this episode of inflation. All of those people at Fed should resign.

They also caused the entire economy not collapsing into a burning pile of garbage in 2020. They are the reason you're not living in a bunker, trading bottle caps for ammunition and fighting for supplies with gangs riding questionably modded dune buggies through the desert.

The Fed has two mandates. Maintain low unemployment and low inflation. There is no way they could have achieved both in the last three years, but inflation is way preferable to economic collapse.

It seems like we've had just as many financial crises before the advent of the Federal Reserve in 1913 than after, so it remains unclear to me the benefits of having it around, particularly as its nominal independence from the political process is eroding.

Sure, keep the lender of last resort; but maybe let the market determine interest rates through money markets, with incentive-control through judicious laws, instead of by fiat.

Hmm, I suggest reading about some of the pre-fed crises to understand better why these modern problems are much better to have if given the choice…

Which pre-Fed crises were worse than the Great Depression or the GFC?

https://www.investopedia.com/articles/economics/08/federal-r...

The obvious example is the panic of 1907, and if your argument is that today’s fed looks anything like 1929’s fed, that’s gonna be a tough road to hoe.

Literally the entire second half of the 19th century.

And this situation is similar. A bad thing happened, so we were going to feel some pain.

Instead of letting that lead to complete chaos we let it lead to some chaos and some inflation.

Exactly, and just to drive it home, I’m going to feel zero pain as a result of SVB imploding, Thanks to the fed.

I felt no pain in ‘08, in ‘20, also thanks to the fed. It was just news to me, abstract and happening to other people. That would not have been true without the fed.

I do wish we could get beyond the idea of "I don't like this system, get rid of it."

It's not realistic in a society this size to just chuck something like the Federal Reserve.

You'd think technologists of all people would understand that to get rid of a legacy system you need to make something so much better it becomes obsolete (or, at the very least, the embrace-extend-extinguish approach).