People say that this SVB fail is isolated and idiosyncratic but I see a lot of stress in the system.
If there's no solution to this debacle by Monday this is going to keep cascading with no predictable trajectory of where it ends.
If there's no solution to this debacle by Monday this is going to keep cascading with no predictable trajectory of where it ends.
Like, for instance, that 56% of SVB’s assets were long term fixed interest rate vehicles, compared to, IDK, 28% of Wells Fargo’s? [0]
0. https://www.bloomberg.com/opinion/articles/2023-03-10/startu...
SVB's problem is that it can't hold them to maturity, it has to sell them today at firesale prices, because they already sold everything they have that's not marked held-to-maturity.
“The same exact thing could happen to grandma!”
Yes, it could, but it’s not especially meaningful to say that the same thing that happened to X could happen to Y if Y were tbe same as X.
Seriously, read Matt Levine’s stuff about SVB. It was a different bank with different customers, different Fed regulations, different depositors, and a unique asset portfolio problem.
35 year old dies BASE jumping. 34 year old BASE jumper says, “yeah he was taking on too much risk — that’s way too old to be BASE jumping.”
56% of assets in long term fixed rate loans is fatal. 26% is also fatal. The latter is not in a position to criticize the former’s excessive risk taking. A 5.6% hole in your balance sheet (20% loss on 28%) is still very bad for an institution that needs to satisfy demand deposits.
If you’re not speaking to that criticism but just giving vague generalities about how banks need to manage risk right, then you don’t need to make a comment at all.
Edit: Hit my comment rate limit so...
Sorry, I don't see the answer -- again, you were just speaking in vague generalities about how "banks need to manage risk right". Doesn't get to the argument you need, which is "this why WF can suffer a 5.6% loss on its loan portfolio but still satisfy demand deposits, and why it's a difference in kind, not degree, from an 11.2% loss happening to SVB".
The point was never that the percentage doesn't ever matter at all, but that both WF and SVB hold way too much in fixed rate long-term loans.
So if we're really going to go there, I think the substantive points went over your own head. When you're ready to say something more informative than "it's a bank's job to manage risk", I'll be ready to learn from it and appreciate the insight you're bringing.
But different investment strategies present different risks. For a bank with a high correlation between deposits and low interest rates, having more investments with strong alpha to low interest rates presents more risk.
So, 28% is less risky than 56%, and Wells Fargo’s depositors have very different profiles than SVB, and WF is subject to the Fed’s liquidity rules that SVB was not.
So, while there is no such thing as risk-free anything, they are such totally different animals that the only reason to act like WF is lying / making PR noises not based in reality is the underwhelming observation that they both have “bank” in their name.
It’s a very low quality, knee-jerk, low-effort comment. That’s all.
(I really dislike WF so if the new HN ethos is to make wild unfounded claims just because we don’t like a company, I guess I could get on the bandwagon.)
[1] Yes, my comment wasn’t explicit, but if you put in some effort and read the context or a sibling comment, you’ll see the justification.
Let's say you're the person who's speaking for Wells Fargo at that moment - you absolutely don't want to give the public any reason to test whether 28% is safe or not. 3 months later, when people are no longer panicking, and cooler heads want to start discussing what're the safety measures to put onto banks - maybe. But seriously not right now. Let's say you quote the 28% number to say your bank is maybe safer than SVB - but the moment the reporter asks whether 28% is safe enough or not, or how about another bank that have more or less, you'd probably realize you shouldn't have said too much already.
So, at this moment... if you're a spokesperson for a bank or a bank regulator - "We're safe. SVB is a special case" is pretty much the only appropriate response right now.
Replace Wells Fargo with SI or SVB and you have your answer (which is, it isn't how much they know about the economy, but what they're really cooking with it).
https://www.bloomberg.com/opinion/articles/2023-03-10/startu...
> One obvious question is: If you are “another, healthy bank” working through this weekend to buy SVB and assume its deposits, how much would you pay for the assets, which were worth $212 billion in December? 8 I am pretty sure the answer is higher than $8 billion, the amount of insured deposits: The FDIC will not be on the hook for the insured deposits. The $15 billion of FHLB advances are also quite senior and will presumably be no problem to pay back.
> I would also guess — not investing or banking advice! — that the answer will also turn out to be higher than $188 billion, which is the total amount of deposits plus FHLB advances. I say this not because I have done a detailed analysis of SVB’s assets but because it seems bad for the FDIC to wind up a big high-profile bank in a way that causes significant losses for depositors, including uninsured depositors. There was a run on SVB in part because there hasn’t been a big bank run in a while, and people — venture capitalists, startups — were naturally worried that they might lose their deposits if their bank failed. Then the bank failed.
> If it turns out to be true that they lose their deposits, there could be more bank runs
Mass layoffs, finance pulling out, feels very dot com bubble bursty to me.