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Comment by itsoktocry | Hacker News Reader

So all of the people who banked with SVB and benefited from the excessive risk the bank was taking (perks, higher interest rates on savings) get a freebie , must be nice.

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No, this is damage control to stop contagion.

This does nothing for SVB, it's depositors, or shareholders. it's to extend credit with backing of certain assets as collateral to avoid forced sale of said assets and more bank failures.

From the announcement:

> The financing will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.

If treasury bonds are so risky for banks to hold that they need to create a funding program to repo them "at par" - what is the point of the govt allowing banks to hold these bonds in the first place?

Surely it does help SVB depositors, since without this action they would (a) take a haircut, since we expect SVB has less assets than deposits, and (b) have to wait some months or years for those remaining assets to be liquidated and distributed to the creditors including them?

Are you reading a different news than I am? I am not aware of SVB providing excessive interest rate for anyone. The bank burned because they took a duration risk, but I do not think any depositor got any freebie. Unless you are counting on the unnecessary anxiety of losing almost everything for the last few days.

The "freebie" was (supposedly) that SVB would give mortgages to people who no other bank would touch.

But that is not true either. SVB could not find enough people to give loans which is why it was all parked in long term treasuries.

TBH, looks like they went belly up because of buying too many long term low yield bonds... Sort of the opposite of excessive risk really...

No, it was because they sold the bonds at a loss, triggering a loss of confidence and a bank run.

They sold the bonds at a loss because they suddenly needed to make a whole bunch of depositors whole. It was a bank run. The loss of confidence came before the loss of liquidity.

There was some tail wagging the dog. Depositors wanted to be made whole because the bank had to disclose bond sale, bond purchase, and stock sale activities as a package deal. Each activity individually might have snuck under the radar, but together that spooked the depositors.

Then the CEO says there's not a problem which you only need to say if there is a problem. That didn't help either.

Well… SVB took on a lot of interest rate risk (rather than credit risk, which is what we’re more used to banks blowing themselves up with). Then rates rose and SVB were stuck holding long term fixed rate assets that weren’t yielding anywhere what they needed to. They probably didn’t see this as risk, since rates had been very stable for the last decade… but the mortgage market also sounded really safe in 2007.

If they actually weren’t taking on risk they’d have bought short term bonds to avoid rate risk, but that wouldn’t have made them any money.

You consider getting your money back from a bank deposit a freebie?

You expect every person on the street to be an financial auditing expert and to read theirs bank's statements?

If you're a company's CFO putting half a billion in a bank I would definitely expect that.

You could argue for a 3% haircut "stupid tax" for such a CFO's account. But what would be the downstream implications? Money would move to big banks, making them even bigger.

… and we avoid contagion of all regional banks.

SVB didn’t take excessive risk in any reasonable framework. If you think buying treasury bonds and vanilla MBS is excessive I would love to understand what would be acceptable risk.

excessive risk? I mean one could argue that the MBS they bought were slightly risky, but its not like they bought a crap ton of crypto - or bought a bunch of high risk mortgage securities.

They got bit by interest rates, which they should have managed better, and the bank needs to go down, but dont bring down a huge amount of workers with it.

As long as the bank dies, it’s going to stop more drama and cost not so much as it will prevent further panic.

Too big too fail

There is an official name for that - Systemically Important Financial Institution

https://www.investopedia.com/terms/s/systemically-important-...

Too well-connected to fail then?

The bank failed and is being liquidated. You want to punish depositors too? Those are discrete issues. Honoring deposits and winding down the company can be done at the same time.

There is no down side to backing deposits. Frankly it’s time for the FDIC to raise the ceiling on the guarantee and offer voluntary coverage for 100% of deposits.

I disagree; if anything, they should lower the limits of coverage back to $100k. Anyone too stupid to diversify their savings across multiple banking institutions deserves to lose their money (over the limit) when the bank fails. Regular people with less than $100k in cash savings shouldn't have anything to worry about; that's why the FDIC exists. For people with a lot more money, it's not the taxpayer's job to protect them from their own stupidity. Any competent financial advisor (who high net-worth people should be using anyway) will tell them to diversify. And by keeping that much cash spread out over different institutions, risk overall is lowered, not just for the individual, but for the whole system.

How is a venture backed company with $40m in capital supposed to diversify? How are you supposed to manage a business with all your funds scattered across 100 bank accounts? How are you going to accept payments, manage user log ins, api credentials. There are significant practical operational and technical blockers that you are ignoring.

Yeah, they just pull $25B of out that hat, nevermind talks about debt ceiling and defaulting on US debt.

$25b is a rounding error on a rounding error against the US economy. Further the $25b it going to be used to buy assets at par that are currently impaired but expected to go back to full value when interest rates fall. So for an investment of fractions of a penny on the dollar the Fed can preserve a large number of high growth start ups that will accrete trillions of dollars of value in the future. Seems like a good call.

It makes sense in theory, but how is this not a license for further similar schemes?

Surely $25B is a rounding error for all major players here, given a noisy constituency, but it looks like this sets up lack of accountability...

Also, some articles are claiming that Fed is now covering all uninsured deposits, just like overnight.

[0] https://twitter.com/colbyLsmith/status/1635061613920395264

Yeah, it sucks because it’s going to show up as inflation.

How's that?

The bank lost money. Where does this new money come from?

Oh right, the money comes from… inflation.

What are you talking about?

Privatize gains, socialize losses.

People cry out for socialism. Then when they see it in action the response is “Oh no, not like that.”

Shareholders are getting wiped out. So no gains as their stock is now worth nothing. Any dividends they collected are a fraction of the stock value.

May they never ever mock us with false free market beliefs again. Crony capitalism.

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