Comment by ajross | Hacker News Reader

Comment by ajross | Hacker News Reader

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> Now, SVB, loaded with money, could have tried loaning it like crazy, but instead, decided to go the conservative way and buy bonds.

That's revisionist and silly[1]. Spending all your liquidity on long term bonds isn't "conservative" if you're a bank. It's not your money! It's your customer's money that you're just holding for them, and you just dropped it all in a vehicle that doesn't mature for 10 years. What if the customers want their money back? Yeah, we just found out.

No, the conservative option if you can't invest it is just to sit on it. That's what banks do. They sit on other people's money. That they are allowed to spend some of that money on speculation is a reasonable optimization, but it's just that. Obviously just sitting on it wasn't going to get the returns they'd promised to investors though. So they placed bets instead.

[1] And I'm not going to touch the idea that the "authorities" somehow forced them into this. No. Just no.

Do you really think putting it out as mortgages would lock the money up for a shorter duration? SVB had a reasonable amount of liquidity for normal stresses. They'd gotten close to breaching their regulatory cushion for spare capital which was why they were trying to recapitalize.

However once the VCs panicked started a bank run, they folded. Just like literally any bank would. ~45b of net withdrawals in a single day is going to cause any bank significant trouble.

If SVB were originating mortgages then, yes, that should have helped because then, like every other originator, they would have immediately sold the mortgage into the secondary market where it would be turned into a Mortgage-Backed Security and SVB would have cash on-hand and unloaded the long-duration risk.

Instead, they were the ones buying the MBSs and taking on the long-duration risk.

Again that's revisionist. They booked a huge loss (something like $1.2B) last week, before the bank run, precisely because they lacked liquidity to handle routine withdrawals. The bank run is the effect, not the cause.

The government actually wants banks to speculate with customer funds. You might think that the safest bank would be one that doesn’t do anything with customer deposits, just sits on them.

Well this “safe bank” actually falls foul of US banking regulation - there are regulatory requirements for minimum levels of “speculation“ as a bank.

Now clearly SVB got in over their heads here with risk. But just sit on all the money isn’t a legal alternative.

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