Silicon Valley Bank

[Verbal]

I won't claim to be an expert here but, I have been educating myself on all the issues involved. My family is large, split and politically stubborn. I find that most issues, like this one, have little basis in politics except to provide wrongly applied correlations and fodder. So, to get any real idea I have to ignore family and search for the facts.

I will pose a couple of things that are intriguing to the overall discussion. Here is a link to bank failures, you can look at them by year and follow them back to Dodd Frank of 2008 through 2018 rollback and beyond. https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/

Secondly, if you were wanting to Nationalize the banking system why would you bring the FDIC, the Fedreal Reserve and Banking CEO's together to help resolve this situation? Wouldn't letting SVB flame out and take some others with it give you more leverage to step in and institute a National Bank?

Looks like fewer failures since the rollback when compared to the same time period before. But are there other factors that I don't know about causing that? Again, I am trying to get a better understanding.

I agree this wasn't a move by the dems to nationalize banks. It proves that the issue can be cured with the current measures. Now will dems try to use this to increase regulations, maybe. That can be good or bad depending on what they try to pass.

 

[OSUPSYCHO]

Looks like fewer failures since the rollback when compared to the same time period before. But are there other factors that I don't know about causing that? Again, I am trying to get a better understanding.

I agree this wasn't a move by the dems to nationalize banks. It proves that the issue can be cured with the current measures. Now will dems try to use this to increase regulations, maybe. That can be good or bad depending on what they try to pass.

My understanding on what little research I have done on this is SVB was in a very unique situation as a bank that came back to bite them in this case. They are (were...) the bank for a LOT of the tech companies. At the beginning of the pandemic most of the tech companies get a LOT of extra business with everyone being remote and companies needing more of everything IT to make that happen. So SVB deposits more than doubled what they were the year before. Thus SVB had to find a place to invest all that new money. They put it in bonds which at the time seemed to make sense, but they were not prepared for the interest rate jumps happening so fast currently. This made their bonds with lower rates worth a LOT less in a pretty fast time frame and they had a lot of them. So when circumstances caused them to have to sell them they took a huge haircut. That started the panic and then to make things even worse, they were not able to find a lifeline from any angel investors, because most of them already had their money in SVB as deposits as it was the main bank for those guys.

 

[RxCowboy]

Again no where in the article does it say the 2018 changes are limited to "community" banks. Everyone sees that but you.

Did a quick look here is an article that doesn't use the word "community"

The facts on Trump's 2018 loosening of regulations on banks like SVB - ABC17NEWS

By Daniel Dale, CNN After Silicon Valley Bank collapsed late last week following a run on the bank, Sen. Bernie Sanders of Vermont argued that the culprit was clear: an “absurd” 2018 law, signed by then-President Donald Trump, that rolled back regulations on banks of SVB’s size. President Joe...

abc17news.com

edit: I took some parts out. I want to be civil.

Read the CNN article. Talked about the effects of inflation. Also from the article:

Deputy Treasury Secretary Wally Adeyemo on Friday sought to reassure the public about the health of the banking system after the sudden collapse of SVB.​

​

"We have the tools that are necessary to [deal with] incidents like what's happened to Silicon Valley Bank," Adeyemo said.​

​

Adeyemo said US officials are "learning more information" about the collapse of Silicon Valley Bank. He argued the Dodd-Frank financial reform overhaul, signed into law in 2010, has given regulators the tools they need to address this and improved the capitalization of banks.​

Interesting how the fed "has the tools" and apparently hasn't been gutted by the previous administration. Hmm... From reading the article, it sounds more like incompetence at the hands of SVB than anything else.

When interest rates were near zero, banks loaded up on long-dated, seemingly low-risk Treasuries. But as the Fed raises interest rates to fight inflation, the value of those assets has fallen, leaving banks sitting on unrealized losses.​

​

Higher rates hit tech especially hard, undercutting the value of tech stocks and making it tough to raise funds, Moody's chief economist Mark Zandi said. That prompted many tech firms to draw down the deposits they held at SVB to fund their operations.​

​

"Higher rates have also lowered the value of their treasury and other securities which SVB needed to pay depositors," Zandi said. " All of this set off the run on their deposits that forced the FDIC to takeover SVB."​

Failure to see that the Fed was going to have to raise interest rates to fight inflation, or betting that the Fed wasn't going to. Either way, SVB was screwed.

 

[RxCowboy]

The restrictions on banks that stopped them to invest more aggressively were rolled back by the previous administration.

From the CNN article:

Despite initial panic on Wall Street over the run on SVB, which caused its shares to crater, analysts said the bank's collapse is unlikely to set off the kind of domino effect that gripped the banking industry during the financial crisis.​

"The system is as well-capitalized and liquid as it has ever been," (emphasis added) Zandi said. "The banks that are now in trouble are much too small to be a meaningful threat to the broader system."​

The CNN article says that what you just said isn't true. "Well capitalized and liquid".

 

[RxCowboy]

Again no where in the article does it say the 2018 changes are limited to "community" banks. Everyone sees that but you.

Did a quick look here is an article that doesn't use the word "community"

The facts on Trump's 2018 loosening of regulations on banks like SVB - ABC17NEWS

By Daniel Dale, CNN After Silicon Valley Bank collapsed late last week following a run on the bank, Sen. Bernie Sanders of Vermont argued that the culprit was clear: an “absurd” 2018 law, signed by then-President Donald Trump, that rolled back regulations on banks of SVB’s size. President Joe...

abc17news.com

edit: I took some parts out. I want to be civil.

That CNN article was useful and actually answer some questions for me. Thanks.

 

[Verbal]

Read the CNN article. Talked about the effects of inflation. Also from the article:

Deputy Treasury Secretary Wally Adeyemo on Friday sought to reassure the public about the health of the banking system after the sudden collapse of SVB.​

​

"We have the tools that are necessary to [deal with] incidents like what's happened to Silicon Valley Bank," Adeyemo said.​

​

Adeyemo said US officials are "learning more information" about the collapse of Silicon Valley Bank. He argued the Dodd-Frank financial reform overhaul, signed into law in 2010, has given regulators the tools they need to address this and improved the capitalization of banks.​

Interesting how the fed "has the tools" and apparently hasn't been gutted by the previous administration. Hmm... From reading the article, it sounds more like incompetence at the hands of SVB than anything else.

When interest rates were near zero, banks loaded up on long-dated, seemingly low-risk Treasuries. But as the Fed raises interest rates to fight inflation, the value of those assets has fallen, leaving banks sitting on unrealized losses.​

​

Higher rates hit tech especially hard, undercutting the value of tech stocks and making it tough to raise funds, Moody's chief economist Mark Zandi said. That prompted many tech firms to draw down the deposits they held at SVB to fund their operations.​

​

"Higher rates have also lowered the value of their treasury and other securities which SVB needed to pay depositors," Zandi said. " All of this set off the run on their deposits that forced the FDIC to takeover SVB."​

Failure to see that the Fed was going to have to raise interest rates to fight inflation, or betting that the Fed wasn't going to. Either way, SVB was screwed.

i didn’t blame anything on the previous or current admin so leave that stuff to responses to other people.
can you acknowledge you were wrong about the community banks? If not why are you involved in this conversation.

 

[RxCowboy]

i didn’t blame anything on the previous or current admin so leave that stuff to responses to other people.
can you acknowledge you were wrong about the community banks? If not why are you involved in this conversation.

"The system is as well-capitalized and liquid as it has ever been," (emphasis added) Zandi said. "The banks that are now in trouble are much too small to be a meaningful threat to the broader system."

How exactly was I wrong. The system is as well-capitalized and liquid as it has ever been.

 

[Verbal]

"The system is as well-capitalized and liquid as it has ever been," (emphasis added) Zandi said. "The banks that are now in trouble are much too small to be a meaningful threat to the broader system."

How exactly was I wrong. The system is as well-capitalized and liquid as it has ever been.

Man You love to change the goalposts. Did the rollbacks apply to “community” banks and “investment” banks including SVB?

 

[Backin82]

I won't claim to be an expert here but, I have been educating myself on all the issues involved. My family is large, split and politically stubborn. I find that most issues, like this one, have little basis in politics except to provide wrongly applied correlations and fodder. So, to get any real idea I have to ignore family and search for the facts.

I will pose a couple of things that are intriguing to the overall discussion. Here is a link to bank failures, you can look at them by year and follow them back to Dodd Frank of 2008 through 2018 rollback and beyond. https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/

Secondly, if you were wanting to Nationalize the banking system why would you bring the FDIC, the Fedreal Reserve and Banking CEO's together to help resolve this situation? Wouldn't letting SVB flame out and take some others with it give you more leverage to step in and institute a National Bank?

A close family member was recently (but pre-SVB failure) in DC to give a presentation to the Fed Board of Governors specifically on risk management for banks to guide policies, etc.... I felt that his opinion was fairly valuable in this, but I also know very little about banking. When I asked him to explain the situation as to a 5 year old, he just said it was a combination of really poor management and coincidence that led to their failure.

I asked if it was kinda like the run on toilet paper during covid. His response, "Yeah, but in this case it was mostly the toilet paper's fault."

 

[jobob85]

A close family member was recently (but pre-SVB failure) in DC to give a presentation to the Fed Board of Governors specifically on risk management (for banks) to guide policies, etc.... I felt that his opinion was fairly valuable in this, but I also know very little about banking. When I asked him to explain the situation as to a 5 year old, he just said it was a combination of really poor management and coincidence that led to their failure.

I asked if it was kinda like the run on toilet paper during covid. His response, "Yeah, but in this case it was mostly the toilet paper's fault."

And like toilet paper - their either on a roll or covered in sh...

 

[RxCowboy]

Man You love to change the goalposts. Did the rollbacks apply to “community” banks and “investment” banks including SVB?

I'm not changing anything, merely quoting the article. If the Trump changes have put us all in danger, please show evidence of it. The article says "well-capitalized and liquid as it has ever been" whether community or investment banks. SVB and the couple of other banks that have failed recently appear to have been isolated occurrences. Otherwise, I maintain your immediate "it's Trump's fault" was nothing but partisanship, and now you're boring me.

 

[Verbal]

I'm not changing anything, merely quoting the article. If the Trump changes have put us all in danger, please show evidence of it. The article says "well-capitalized and liquid as it has ever been" whether community or investment banks. SVB and the couple of other banks that have failed recently appear to have been isolated occurrences. Otherwise, I maintain your immediate "it's Trump's fault" was nothing but partisanship, and now you're boring me.

I never said it was trumps fault.

you were nothing but rude to me about what banks were part of the rollbacks. You were missreading it as others have pointed out. because of that you missed my point and ignored what I said. Now you can’t even admit you were wrong.

 

[OSU79]

I won't claim to be an expert here but, I have been educating myself on all the issues involved. My family is large, split and politically stubborn. I find that most issues, like this one, have little basis in politics except to provide wrongly applied correlations and fodder. So, to get any real idea I have to ignore family and search for the facts.

I will pose a couple of things that are intriguing to the overall discussion. Here is a link to bank failures, you can look at them by year and follow them back to Dodd Frank of 2008 through 2018 rollback and beyond. https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/

Secondly, if you were wanting to Nationalize the banking system why would you bring the FDIC, the Fedreal Reserve and Banking CEO's together to help resolve this situation? Wouldn't letting SVB flame out and take some others with it give you more leverage to step in and institute a National Bank?

You had me at ignore family. Doing so has greatly improved our past few years.

 

[GOGETUMPOKE]

"The system is as well-capitalized and liquid as it has ever been," (emphasis added) Zandi said. "The banks that are now in trouble are much too small to be a meaningful threat to the broader system."

How exactly was I wrong. The system is as well-capitalized and liquid as it has ever been.

You aren't wrong. What people need to realize is that there is not one single bank in existence that can survive a huge run on deposits. The rollback on Dodd Frank is absolutely not the reason SVB failed. My bank is less than $100mm and we are still required to stress test for rate shocks up to 400bp. Almost every bank is upside down in their bond portfolio right now and will continue to be as long as rates go up. Not a problem at all unless you are forced to sell the bonds. The powers that be had a way out of this without using the FDIC fund to bail out the uninsured depositors but they chose to go a different direction. I have my own opinion on why they did what they did but I will let you draw your own conclusions.

 

[RxCowboy]

You aren't wrong. What people need to realize is that there is not one single bank in existence that can survive a huge run on deposits. The rollback on Dodd Frank is absolutely not the reason SVB failed. My bank is less than $100mm and we are still required to stress test for rate shocks up to 400bp. Almost every bank is upside down in their bond portfolio right now and will continue to be as long as rates go up. Not a problem at all unless you are forced to sell the bonds. The powers that be had a way out of this without using the FDIC fund to bail out the uninsured depositors but they chose to go a different direction. I have my own opinion on why they did what they did but I will let you draw your own conclusions.

Turns out that SVB left their chief risk officer position open for 8 months. From Fortune.com:

Laura Izurieta stepped down from her role as CRO of SVB Financial Group in April 2022, and formally departed the company in October, according to an SVB proxy filing. The bank appointed her permanent successor as CRO, Kim Olson, in January of this year.​

​

It is unclear how the bank managed risks in the interim period between the departure of one CRO and appointment of another.(emphasis added) Representatives at SVB did not return Fortune’s request for comment.​

​

A risk officer typically anticipates and manages regulatory, operational, competitive or other risks faced by a firm. SVB’s risk chief reports directly to a “Risk Committee,” which includes chairpersons of SVB’s Board and all the Board committees, in addition to the chief executive officer, according to filings from the company. The committee is responsible for hiring, evaluating and terminating the CRO, and as of 2023, was made up of seven members.​

​

Silicon Valley Bank was without an official Chief Risk Officer during a difficult transition in the venture capital market—the industry SVB services so closely. At the beginning of 2022, as interest rates started to climb, venture capitalists pulled back and slowed down their pace of dealmaking, leaving the tech companies they backed with less capital to run their businesses. That directly influenced deposits at Silicon Valley Bank.​

 

[GOGETUMPOKE]

 

[Backin82]

In case anyone is curious, this is the report that my family member wrote and presented at various Fed regional meetings and eventually the Board of Governors in D.C. (Powell in attendance). This information was widely circulated internally prior to the SVB failure. One of the example banks used in his presentation on risky banks......? Silicon Valley Bank.

"Example of Financial Risks – Silicon Valley Bank
9
SVB, the 18th largest U.S. banking organization, has significant interest rate risk
 The bank used significant deposit growth to purchase longer maturity securities
 Since year-end 2019, the investment portfolio as a percent of total assets grew 17 percentage
points to 56 percent
 Yields on purchases were low due to the rate environment and portfolio duration increased
 At third quarter-end 2022, total unrealized losses to capital totaled -110 percent
 Since rates began increasing, the bank has lost nearly 8 percent of its deposits and the company is
executing on its contingency funding plan to maintain appropriate liquidity
 Interest rate risk measurement systems failed to estimate sensitivity to rising rates, resulting in higher
funding costs
SVB’s weaknesses in market risk management and high IRR exposure has resulted in
 Sensitivity to Market Risk component was downgraded to 3, or “fair”
 Supervisory matter requiring attention to improve reliability of interest rate risk modeling simulations
 Heightened supervisory attention to assess corrective action and ongoing rating accuracy"

https://www.federalreserve.gov/supervisionreg/files/board-briefing-on-impact-of-rising-interest-rates-and-supervisory-approach-20230214.pdf