The more important question of disclosure has to do with the so-called "held-to-maturity" book, which I want to start affectionally referring to as the "held-to-mortality" book, or the "head-in-the-sand" book.
These are all fancy ways of talking about accounting tricks that banks are allowed to employ in order to hide economic losses from their financial statements. Banks would argue that their accounting tricks are blessed by the priesthood of professionals accountants, so it's perfectly legal. Which it is. It is not obvious that real-time mark-to-market accounting would have made things any better, but pretending that massive economic losses were not real was not a sustainable trajectory as soon the accounting fiction (no losses) collided economic reality (the need to sell holdings, in order allow depositors to withdraw their cash demand deposits).
Given the panicy herd psychology of humans, it has long been argued (at least since as long as the collapse of Lehman Brothers) that "head-in-the-sand" accounting is preferable to mark-to-market in order to ensure the stability of the financial system. In laymen terms, sometimes it's better for the public not to know how bad things have gotten behind the scenes. That is a kind of common sense practice for governance, and it isn't going to go away. Ironically, the answer to the SVB collapse is that you should have less informed, less rich and less well connected depositors (i.e. tame and docile customers) if you want to reduce the risk of a run on your bank, which is obvious in retrospect.
SVB's problem wasn't that they had too many well informed customers. It had too many lemmings and a few lemming leaders all in the same industry who pathologically can't keep a thought to themselves without sharing it to their many millions of social media followers.
If your cruise ship is sinking and there aren’t enough life rafts, the problem isn’t that your passengers are climbing in the life rafts and sailing away. The problem is that the ship is sinking!
SVB might have lasted longer if their depositors had not been running for the exits. But why assume that lasting longer is a good thing? They might have got themselves into even more difficulty. In that case the VCs did SVB a favor.
> SVB might have lasted longer if their depositors had not been running for the exits. But why assume that lasting longer is a good thing? They might have got themselves into even more difficulty.
How is this different from, you know, most banks as they stand today?
The reason why their safe investments were losing value is that the Fed had raised rates. Their assets weren't bad, they had lost value because the Fed has raised rates. The market is expecting rates to drop hence the inverted yield curve.
>The reason why their safe investments were losing value is that the Fed had raised rates. Their assets weren't bad, they had lost value because the Fed has raised rates.
In other words, those "safe investments" weren't so safe?
No banking investment is safe if there is a run on the bank. It's not like this result was inevitable. If the bonds didn't need to be sold, they would have paid out.
> No banking investment is safe if there is a run on the bank
This isn't true. Runs can only happen when a bank has insufficient liquidity. Such as when it holds long-dated bonds that it purchased at historical rock-bottom low interest rates.
> If the bonds didn't need to be sold, they would have paid out.
This is the "you don't lose money unless you sell" fallacy. Which yes, is actually a fallacy. (Note the fallacy is useful to use, psychologically speaking, to try to manipulate panic-susceptible individuals into doing the sane thing and not panic selling every dip; that doesn't make it less of a fallacy though)
>If the bonds didn't need to be sold, they would have paid out.
Yeah, but only several years later, and all the while earning a low interest rate. In other words, the net present value of the security still dropped. Sure, if the bank holds to maturity it'll get its principal back, but it would have lost out on a lot of interest. Why would you want to hold your money at a bank that's lending out at 2% (made up number) when the fed is paying 4.5%? The bank will either have to offer lower interest on deposit to compensate, or take a loss. The former case basically creates a bank run dynamic. You want to get your cash out while you still can, otherwise your money will be stuck earning low interest rates for the next half decade. In the latter case, it leads to bankruptcy of the bank as the loss eats into capital reserves.
That sounds like blaming the Fed, when the actual problem was that the bank's prediction of the future turned out to be incorrect. They placed a bet and it didn't pay out, that's all.
They made a bet that people wouldn't need their money back right now. It's the constant risk in fractional reserve banking.
SVB should have purchased more swaps or swaptions, but this is me Monday morning quarterbacking. If depositors had left their money like It's a Wonderful Life things would have been fine.
It's not that they were holding bad assets, it's that they put too much money into assets that took too long to mature. They were betting that they wouldn't need that money sooner than that, and that's the bet they lost.
It's pretty well understood that no bank can really withstand a complete bank run. It's simply not how banks are currently designed to be able to always and forever be able to return 100% of cash at a moments notice. And there's good reason for this, if you always need to have 100% of deposits ready at 60 minutes notice you're pulling a whole bunch of investible capital out of the economy and just sitting on it unproductively. So pretty much any bank that suffers a bank run is going to have to fire sale assets to produce liquidity, and often when that happens other banks will refuse to buy since they're afraid of being the next victim of a bank run. So very quickly this turns into a game of hot potato.
What's unique about SVB though, is that despite it being a relatively large regional bank, a handful of its customers - tier 1 VCs have enough clout to force a bank run. These VCs have created a situation where their entire portfolio of companies depend on SVB, and as a result if they say "Get out of SVB" they can cause massive disruption. What's really funny about this though, is that these VCs -aware that this is the case - don't decide "Better be super careful about dealing with SVB and slowly diversify to de-risk this massive systemic risk to their industry. No, instead what they do is they execute the exact bank run they know will massively damage their industry.
To put it in historical context, this is like if JP Morgan, instead of gathering institutional leaders and co-ordinating a calm and orderly response to a crisis had run on to twitter and screamed "IT'S ALL GOING TO ZERO GRAB YOUR CASH NOW".
I can equally see a scenario where someone on Facebook or Twitter says "Get out of Wells Fargo" and millions of people would do it.
> What's really funny about this though, is that these VCs -aware that this is the case - don't decide "Better be super careful about dealing with SVB and slowly diversify to de-risk this massive systemic risk to their industry. No, instead what they do is they execute the exact bank run they know will massively damage their industry.
They can't even say that without causing a bank run because everyone with a brain in their heads would ask themselves "I wonder why they are saying that, something must be wrong" and that alone causes the bank run. Even a bank saying "everything is fine" can cause a bank run because people would wonder why they feel a need to say that.
Plus, even if they could try to quietly de-risk SVB, everyone knew that if even one person spills the beans, the whole plan is spoiled. And what are the odds that nobody would spill the beans? Plus, what if you are a VC and that happened and then all the companies whose board you serve on find out that you didn't warn them in advance even though you knew they could have spared themselves by getting out early? It would not be good for you.
Bottom line -- the incentives to quietly hide a potential bank failure and coordinate a massive (yet somehow stealthy and not scary to depositors) response just aren't there.
> I can equally see a scenario where someone on Facebook or Twitter says "Get out of Wells Fargo" and millions of people would do it.
They do but fortunately people don’t listen because they have better things to do. We also have sitting members of Congress trying to cause a panic. [1]
You don't need to imply that SVB is unstable to say that the VCs should have been diversified away from it or cause a run on the bank. It's simply a pretty basic business practice to identify risks and try to mitigate them, and big businesses do this all the time. A massive part of Intel's sales organization with big customers are constantly trying to play this cat and mouse game where Intel will try and sell you stuff that locks you into Intel, and the customer will constantly be making moves to avoid getting locked in to a single vendor.
You say the incentive for co-ordination isn't there, but quite clearly this demonstrates a massive incentive for VCs to be looking at the common dependencies of their companies and mitigating them. They actually do this really frequently with start ups and cloud providers - it's a very strategic decision whether as a small company you go with Amazon vs Google vs Microsoft for your cloud, why? Because you're handing over bargaining power in what is likely to be a potential acquisition. I agree that VCs haven't been thinking about things like that, but they absolutely should. It was always crazy that founders were getting mortgages from the same guys that were doing their business banking.
> I can equally see a scenario where someone on Facebook or Twitter says "Get out of Wells Fargo" and millions of people would do it.
Who has both 1) an interest in bank balance sheets, and 2) enough clout with Wells Fargo's depositors to cause a SVB-style collapse?
Given how large and diversified Wells Fargo is, I think the only people with the reach to get a message like that out on social media (celebrities) probably don't have the interest or credibility to send such a message and have it listened to.
>sometimes it's better for the public not to know how bad things have gotten behind the scenes
Better for whom?
It seems to me that institutions that serve the public should do so with transparency. The idea that “the experts” know better than “the public” is a dangerous and elitist one. The suggestion that “the experts” be allowed to hide their math while they fumble at the economy trying to make a buck is absurd
The problem is that expectations shape reality. So if experts are a bit worried, and say so, this may cause a public panic. The panic turned a potential problem that may have never manifested into an immediate disaster.
Given this fact, should experts say things that may cause this panic?
In this case, IMO it was more than a potential problem. On a mark-to-market basis SVB was certainly undercapitalized and possibly insolvent last week. Had there been no run, over the next year, SVB would have had three choices over the next year or so:
1. Keep deposit rates near zero, in which case depositors would progressively realize that they could be making 4.5% on their money elsewhere and withdraw their funds. This ends up being exactly the same as the bank run that happened, just in slower motion.
2. Raise deposit rates, in which case, they would start losing money until they were forced to sell assets to pay depositors their interest. Those HTM assets would then be marked to market and the bank would be officially undercapitalized and taken over by the FDIC.
3. Raise capital or sell the bank. They tried raising capital unsuccessfully. Given this, it's questionable whether they would have been successful at selling the bank because it's unclear whether the bank had a positive value.
SVB's risk officer had a masters degree in public administration. That hire was there to fill the org chart while the bosses continued to cash out options and take home their pay. Keep the paydays going.
Come on now. The "experts" do know more than the public. Half of the public is below average, in fact.
Now, what could be quibbled with is who is actually an expert. Having a lot of money and having founded a successful tech company 25 years ago does not make you an expert at everything.
Off topic, but I always struggle between "half is below average" vs "half is below median". One is technically incorrect, understood by everyone but attacts nitpickers, and the other one is technically (more) correct (and I like it) but comes of as pedantic or even pretentious. I usually pick one depending on the audience.
I agree entirely. I'm just always amused by the joke "you know how dumb the average person is? Well, half of everyone is dumber than that". Not because of the overt joke (which rests on the incorrect and snobby idea that the average person is dumb), but because in mixing up "average" for "median", the joke itself is like a dumb person complaining about how dumb people are.
Actually, it is both factually and technically true.
Human intelligence (usually IQ) is not something that can be measured in a vacuum, so it is generally measured in comparison to the whole. So scores are adjusted on a bell curve such that the mean and median score are the same. For IQ that is 100.
So in the case of measuring intelligence, mean always equals median.
But if we were talking about income, then of course you would be right. Way more than half of the world is below the average income.
When it comes to refinancing at a bank, they certainly are. It's a very specific subject that few ever come in contact with. It's like kernel programming, also a topic that indirectly affects most people but is truly understood by very few.
Please name an average that necessarily has "half of the population is below average", because that is not true for median, mode or the traditional average.
Not an average, but their argument is salvageable:
In a perfect world, exactly half of a population will be (equal to or) below any average when frequency is a normal distribution. Like IQ scores. So when they say "half of the population is below average [IQ]", it's not complete nonsense.
Yes, there are absolutely many distributions where the assertion is correct. It is that fact, that the truth is contingent on the nature of the distribution, which prompts the comment that "half are below average" is not necessarily true but only true contingent on the distribution of "level of expertise".
While that is a very vaguely defined term which is hard to measure accurately, it seem likely that it does not follow a normal distribution but is rather has a bulge at the lower end and have a long tail at the upper end. If this hand-wavey distribution is accepted, that would likely mean that fewer than half are above average. But again, that is contingent on the distribution and not a necessary truth.
What does "institutions that serve the public" mean? It sounds like you're trying to say 'government-run' (like as in 'public sector'), but SVB was a private company.
If we're including private companies, how far does that go? Should I be allowed to look at the financials of local restaurants?
>is that you should have less informed, less rich and less well connected depositors (i.e. tame and docile customers) if you want to reduce the risk of a run on your bank, which is obvious in retrospect.
While a cynical and pragmatic take, I must remind you of the tradition of the United States as eloquently spoken by the American Bar Association, and traceable back as far as our first Presidents.
>Democracy requires not just obeying the law, though; it requires that people actively participate in the political process. This means voting, of course, but it is usually thought that not just any effort at voting will suffice—the citizen must stay informed of political affairs and make a rational choice among the options presented to her in the voting booth. Is there a duty to vote, then?
The root of all evil is info asymmetry; and it is a repeatedly self-evidently revealed truth that "Sunlight is the best disinfectant in matters of civic (or fiscal) corruption".
I know it's kind of a low blow to point this out, but if your point is even remotely representative of the "finance/banking" class, there are some serious problems that need to get resolved pronto; in no way, shape, or form should it even be considered a desirable end that "darn it, why can't we just keep these damn customers in the dark".
You're there to facilitate. You're there to manage risk. You're there to accurately convey the gist and nuance of financial matters in a manner that can be processed by the layman, or failing that, help elevate the layman until you can. You are not there to, nor should you ever feel good about perception managing.
This is tied to why the internationally accepted standards view some kinds of assets as riskier than others, and some kinds of deposits as also riskier than others. In particular corporate deposits are considered riskier because they are more likely to disappear in a run on the bank.
Those standards only apply to our largest banks. But had they been applied, this disaster would not have happened.
There is of course a difference between holding assets with a subjective (potentially bubble) valuation and holding a long dated treasury.
With the treasury, there is a very liquid and transparent market and you will almost certainly get all of the money back on a specific date. You just have to wait long enough.
Yes, but it seems irresponsible that a bank would follow a plan like that knowing they don’t have control over when depositors ask for their money back.
Right. The depositors want paid in dollars not (underwater) fractionalized long duration bonds. Bank regulators allow mark-to-maturity accounting, and we just saw government and federal reserve backstop all deposits to cover up their regulatory blindness.
I have the little celebration trinket on my desk for when PWC completed the sale of Lehmans’ assets. They got 130 cents on the dollar for them in the end. Liquidity matters.
More like, being able to choose when you get liquidated matters. If an individual investor’s leveraged bet goes against them, they don’t get to say “just let me hold for a while so I can sell when the price is higher.”
So who did the excess returns go to? Did Lehman get a big fine or something?
Usually in a bankruptcy, if all creditors are paid off, the equity shareholders get the remainder.
Usually they get wiped out, but sometimes they do get money back. A bankruptcy crystallizes the debts, but the assets can continue to increase in value.
I think GP may have been focussing on one part of pwc’d recoveries but overall, Lehman lost money. Dunno.
> These are all fancy ways of talking about accounting tricks that banks are allowed to employ in order to hide economic losses from their financial statements. Banks would argue that their accounting tricks are blessed by the priesthood of professionals accountants, so it's perfectly legal. Which it is. It is not obvious that real-time mark-to-market accounting would have made things any better, but pretending that massive economic losses were not real was not a sustainable trajectory as soon the accounting fiction (no losses) collided economic reality (the need to sell holdings, in order allow depositors to withdraw their cash demand deposits).
Oh, man, this made me recall the "borrow, then die" strategy mega rich people use to avoid capital gains taxes:
* Step 1 is to have a large investment portfolio.
* Step 2 is to get a loan from a bank against that portfolio with a sweetheart interest rate, very long term, and interest only payments with a final balloon payment.
* Step 3 is to let the dividends and appreciation on the portfolio pay back the loan.
* Step 4 is to die, leaving the entire portfolio to your heirs. This gives them the ability to take advantage of the step up basis, so they pay no capital gains should they sell, which also gives them the ability to immediately sell a portion of the assets to pay off the loans. They can then go on to implement this same strategy themselves.
There's not a direct mapping between this and the "held-to-mortality" book, but the spirit is certainly very similar. While it's losses being hidden by banks using the "held-to-mortality" book strategy, it's gains being hidden by people using "borrow, then die." In both cases, it's essentially done by delaying realizing those losses/gains until as late as possible.
"
It would be good for everyone to understand that in taking his own money out, and encouraging others to do the same, Thiel was protecting himself while actively dooming hundreds of startups to failure. This was a choice to get his and screw everyone else."
It's odd that SVB's choice to forego short-dated securities keeps getting reframed as "they were a victim of a bank run" or "they were the victims of Fed raising rates too fast".
Any normal, non-degnerate bond manager would would keep a significant amount of 1-3 year treasuries in their mix of bonds. Feel free to call your 401k provider to verify this.
Thiel may be guilty of various things, but SVB's failure was due to overleveraged yield chasing.
According to the linked article: "Ms. Izurieta departed the Company on October 1, 2022. The Company initiated discussions with Ms. Izurieta about a transition from the Chief Risk Officer position in early 2022. Accordingly, the Company and Ms. Izurieta entered into a separation (without cause) agreement pursuant to which she ceased serving in her role as Chief Risk Officer as of April 29, 2022 and moved into a non-executive role focused on certain transition-related duties until October 1, 2022."
Yeah, but 10 year bills are way cheaper and you can apparently use their HTM value to shape your balance sheet. $80 spent for $100 on the paper (or whatever).
I’d suspect they were already marginal and this was their only way to keep the books sound until they could solve their deeper problems.
You're confusing cause and effect here. In 2021, even crap 1% 10-year treasury notes cost $100 to purchase, not $80. It's only after interest rates went up in 2022 due to faster than expected Fed rate hikes that 1% treasury notes were no longer as valuable. An intuitive way to think about this is a seller of 1% treasury notes can only ask for $80 when 3% treasury note new issues are available for $100, to compensate the buyer of the 1% treasury note for the lower, less attractive interest rate. The interesting quirk is that it's only the mark-to-market price that is underwater i.e. worth $80. If SVB had the privilege to hold these assets to maturity (i.e. waiting 10 years), they could get their principal $100 back + $10 in interest.
If they did do what you said i.e. "spend $80 to buy $100's worth of treasury notes", then they wouldn't be in the conundrum they're in today. Because their cost basis in that case would be $80 and they could simply sell that treasury note for $80 and they wouldn't have a capital loss at all (in fact, they would be up since they earned coupon payments). It's only because:
1. 2021: they purchased low interest treasury notes before interest rates jumped
2. 2022: interest rates jumped faster than expected
This caused SVB incurring capital losses, which meant their assets to be worth less than their deposits.
If you are curious and want to visualize some of the changes on a graph, you can check out VFITX [1], which is a mutual fund that holds a mix of treasury bills, bonds and notes for an average of around 7-year duration.
-2021 Jan 1: $11.63/share
-2022 Jan 1: $11.12/share = 4.4% cap loss (before factoring in coupon payments)
-2023 Jan 1: $10.15/share = 12.7% cap loss (before factoring in coupon payments)
That’s essentially what I’m saying, except that I’m explaining why they bought 10 year bills in the first place instead of shorter and more liquid ones.
Forget the numbers.
The long term ones are advantageous on their books because they cost less to purchase than short term ones but still record at the full HTM value.
With stable and low demand on withdrawals, using that HTM value isn’t unreasonable since the bills are sure to mature and so the difference of cost between short and long term bills means their books look better for less. There’s predictable risk to the play, but they probably needed the extra bit of wiggle room on their balance sheet and felt it should be fine as long as interest rates stay low and deposits don’t pick up.
But of course neither of those was going to hold. And so (as you noted) their bills grossly devalued and their account holders changed borrowing and withdrawl patterns as the economy shifted. Both factors built into the risk fell through and they went from probably-marginal to downright-damned.
Bond yield and price are inversely related, meaning when the price goes up the yield goes down and vice versa and this relationship creates the risk.
If a company buys low interest bonds (i.e. interest is yield) in a market where interest rates are going up, at some point the cash rate will exceed their bond yield and at that point the bond price drops to match the current interest rate.
Why this happens is when the interest rate is above the bond yield, no one will purchase the bond at the original price, as they can get a much better return in the overnight cash market.
That means the price of the bond falls to a point where the bond yield now matches the cash rate plus some margin for any future risk. That lower price gives the asset it's true value.
So as the cash rate continues to rise the bond price continues to fall and without doing anything, SVG finds itself bleeding hundreds of millions in asset value, with no end in sight.
That then creates the panic and the rest is history.
10 year bills are way cheaper because of the interest rate risk. You have to hold an unrealized/paper loss if rates move against you, but eventually you will realize the face value after 10 years.
This is why bond investors who aren't yield chasing would never overleverage into these.
At the _very_ least the fed announced interest rate rises in March of 2022 (with updates in June, Sept, Nov/Dec) and SVB could've worked out some kind of short-term credit deal with a JP Morgan type last year. Instead they did nothing but sat on assets which they knew would drop over 20% market value in a year while not ensuring short-term liquidity.
This is the part no one is explaining to me; what's the advantage of doing this over doing the right thing? So far it really looks like gross negligence rather than avarice.
>what's the advantage of doing this over doing the right thing? So far it really looks like gross negligence rather than avarice.
Yield chasing is equally gross negligence and avarice.
I'm not sure what you mean by "what's the advantage". What's the advantage of going 100% into Tesla stock call options, rather than an SP500 index fund? There is no advantage when Tesla is returning 4x the S&P. There's a rather large disadvantage when it drops 30% in a quarter.
But that's not what SVB did at all; based on what I've read, their investments were not "yield chasing" but literally the only thing they could think of to do with the massive amount of money getting dumped in their lap.
SVB would have been equally as lambasted for keeping the deposits in cash, as that's an equally as irresponsible thing to do.
Sorry, but you're completely misunderstanding what you're reading, or reading false information if that's your interpretation.
Bond portfolios typically hold a mix of maturities from 1, 2, 3, to 10-year+ maturities. The short term ones offer liquidity and protect against interest rate risk. Because if the interest rate increases and new bonds are issued at a higher rate, your maturing bonds become cash to purchase the new, higher-yield notes.
Literally - call your 401k provider and ask to speak with an investment advisor if you don't believe me.
Holding only 10-30 year HTMs is absolutely yield chasing. SVB skipped having the short-term maturities, because they do not offer much yield. It is basically the literal definition of yield chasing.
>SVB would have been equally as lambasted for keeping the deposits in cash, as that's an equally as irresponsible thing to do.
All cash would've been foolish, but considering the primary purpose of a bank is to provide liquidity for clients, it's a bit of a reach to call it equally irresponsible as assuming your banking clients would be fine waiting 6-10 years for your investments to mature.
Sure, but the thing they bought also had almost no yield, so that's what I'm not understanding. Why is shitty 1% 10 year T notes "yield chasing"? Those sound absurdly secure, and apparently have lots of mechanisms by which you can borrow against them should you need to in almost any non-runlike scenario.
If the SVB bankers were "yield chasing" surely there were more effective ways of doing so at approximately the same risk.
>Sure, but the thing they bought also had almost no yield, so that's what I'm not understanding. Why is shitty 1% 10 year T notes "yield chasing"?
Exactly. the 1-year notes had zero interest rate risk, and almost no yield. The 10-year notes offered very high interest rate risk (remember: rates were almost zero) and barely-more-than-no-yield.
Choosing 1.5% return at high interest rate risk vs. 0.5% return for low rate risk. Either way you are getting almost nothing, but one has the risk of putting you into a liquidity crisis. In a sense you're willing to risk it all to squeeze an extra 1%, It is the absolute definition of yield chasing.
>and apparently have lots of mechanisms by which you can borrow against them should you need to in almost any non-runlike scenario.
If your $1000 bond is worth $1005 at maturity, and it has dropped to $990 and you want to borrow from me against the bond, I will charge you at least $15 in this scenario. That's slightly oversimplified, but lenders (other than the Fed/QE) will loan at a rate where you're essentially locking in a loss, because they have what you need to offset your risk you failed to hedge against (liquidity).
>If the SVB bankers were "yield chasing" surely there were more effective ways of doing so at approximately the same risk.
Not that I am aware of, at that scale of money. There's also high-risk lending to borrowers (which SVB did) but companies might borrow $10M, $20M, maybe $100M. When you're talking $50-100B, Bonds are the only game in town.
I honestly have no clue how to even research alternatives to the 10 year T note as an investment vehicle for SVB, but plenty of gigantic funds seem to be able to do all kinds of riskier investing so it doesn't seem like a fair question. There are tons of places to put money that are riskier, even billions, that would have yielded better returns.
30 year T notes, for example, seem to have been at double the 10 year notes in return at this time. Why not go for those if we're assuming greed as the driving factor here?
They aren’t a fund. They’re a bank. The alternative is exactly what GP just told you: a portfolio of bonds with varying maturity dates. Varying maturity dates reduces your risk in the case where you need to sell to get cash immediately because if interest rates go up, then you may have to sell at a loss. You may have to sell at a loss because it may be more profitable to buy a new bond than sit on your low interest bond, so you have to reduce the price of your bad bond to compete.
It really does seem like a ludicrous bet to be so invested in long term bonds at a moment of historically low interest rates. That’s why it reads like greed. SVB seemingly did very little to reduce the risk on that absurd bet.
Maybe the people who were stupid enough to lock up over half their balance sheet for ten years were smart enough to not do it for 30? Most financial people who take a stupid risk to chase yield don't think they are taking a stupid risk. They, through self delusion or other means, convince themselves it is a sure bet.
>> literally the only thing they could think of to do with the massive amount of money getting dumped in their lap
> There are tons of places to put money that are riskier, even billions, that would have yielded better returns
That there were many riskier alternatives doesn’t mean that there were no safer alternatives. (And by the way most of the riskier alternatives wouldn’t have actually yielded better returns in the last couple of years.)
If you don't think that the explanation for those investments into higher-risk higher-yield longer-term treasury bonds instead of, for example, lower-risk lower-yield shorter-term treasury bonds is that the yield was higher, what could it be?
Speculation that interest rates would go down and longer duration bonds would appreciate more?
Avoiding the hassle of managing a short-term portfolio to have more free time?
I don’t know! I’m asking here because it’s not clear to me what their thinking was, but none of the explanations people here are giving really make me feel like I understand. Is the argument that they were a very narrow set of greedy? Why not just a not narrow set of stupid?
1% is quite a bit when you are talking about this much money. That's $2B a year if you have $200B in AUM. They were probably trying to keep their yield up because without it, you can't offer competitive savings rates which could cause your depositors to trickle out to one of the many other banks that are offering a higher yield.
>They were probably trying to keep their yield up because without it, you can't offer competitive savings rates which could cause your depositors to trickle out to one of the many other banks that are offering a higher yield.
It sounds like this was the "right decision" in retrospect. If so much startup capital has been deposited into your bank that you can't safely steward it while turning a profit, it seems the only answer is to let that money go elsewhere.
Zeltice started this thread by asking, "why is this greed and not just incompetence?" It sounds like both. The corporate officers were stuck in a mindset of "we must keep growing and turning a profit" (greed) that they took the only option to do so, which led us to today (incompetence).
SVB could have bought 3-year, 1-year, 6-month Treasury bills with that money -- which during 2020 and 2021 were yielding <0.25%.
This would have been "safer", but lost them money.
Instead, they bought 10-, 20-, and 30-year T-Bills which were yielding more like 2-3%. Not much by today's interest-rate standards, but significantly more than 0.25%.
That appetite for long-dated bills could, I think, be described as "yield chasing." It was a decision made for short-term financial gain in ignorance of the risks involved.
>This would have been "safer", but lost them money.
In a short-term sense, but the point of short-dated maturities is not to produce yield but rather provide liquidity, which allows you to purchase higher-yielding 10+ year notes in the event the interest rate rises.
They would've actually gained money by (1) not being forced to sell assets at a loss, thereby leading to a run and also becoming insolvent and (2) e.g. used the maturing short-dated bonds to purchase 3-year treasuries at today's 4.1% rate, rather than their shitty 1.8% 10-year notes.
>There are way better ways to "yield chase" than this,
Such as what?
There are not, if you have $50-100B. Your options as a bank are either treasury bonds or mortgage-backed securities.
As a private sector investor (e.g. Warren Buffett) you have the additional option of equity investing, but it will take many years to move that much money.
What? Keeping much of the deposits as federal reserves would have been fine. The Fed pays interest on those balances, so they would have been safe and wouldn’t have collapsed if they’d done that. Instead they made very risky moves to chase higher yield.
Banks make basically all their profit on lending, so they shouldn’t be making risky moves with deposits.
Multiple things can be true here. Thiel didn't start the issue, but he did act in a way that would make things worse for the group, but best for him. Perhaps he felt that if he didn't do it, others would anyways? Probably needless to say, this is perfectly on brand for how he'd act.
These banks made poor investment decisions and were reckles with customer funds, and are to blame for their own failure. It might be on-brand for him, and surely he acted in his own interest and didn't give a shit about anyone else.
But did Thiel also organize runs on Silvergate Bank and Signature Bank NY? Why did those fail along with SVB in a span of days? His involvement seems to be getting exaggerated here.
Or they could have properly diversified like a functional financial institution they would have had diversified enough investments that they could fix a liquidity problem with minimal balance sheet losses or their depositors would be different enough people to not run on the bank from one rich guy on twitter pitching a fit.
SVB bet it all on red and the ball landed on black. Everything after that point is not useful information.
The bank was insolvent. Prisoner's dilemma applies.
"The best response, ie. the dominant strategy, is to betray the other, which aligns with the sure-thing principle.[3] The prisoner's dilemma also illustrates that the decisions made under collective rationality may not necessarily be the same as those made under individual rationality. This conflict is also evident in a situation called the "Tragedy of the Commons".[3]". https://en.wikipedia.org/wiki/Prisoner%27s_dilemma
The bank became* insolvent as a consequence of the actions taken by a select few to encourage withdrawals; the asset-liability mismatch wouldn't have been consequential had the run not been spurred on.
I'm not giving a tutorial about how no bank will survive a run. The bank became insolvent because of a run spurred on by people like Thiel regardless of their issues with realizing losses on their AFS securities. It became insolvent^ last Friday after 42 billion dollars walked out the door
The bank doesn't deserve a bailout, sure. But depositors certainly do, and people like Thiel will hopefully be black marks for future lenders who know the risks they bring. Here's a good thread explaining where SVB went wrong - https://twitter.com/MacroAlf/status/1634626124260028419 - but in the end, they only became both illiquid (unable to sell shares being the last straw after having exhausted AFS securities and cash/equivalents) and insolvent (unable to cover debt obligations) at the hands of the people who spurred on the bank run.
Thanks very much for posting that link, very informative, especially from the perspective of understanding the "hold to maturity" vs "available for sale" classification and how banks can play tricks with those.
An insolvent bank would eventually end up illiquid.
But an illiquid bank is not necessarily insolvent.
In this case, the bank is both illiquid and insolvent. In which case we should not blame the illiquid event because it is eventual as the bank was insolvent ever since the feds hiked rates.
Well, not quite. Insolvency was achieved the moment of the bank run. Until then, the bank was fully solvent based on the value of its liquid assets, including stock, against whatever obligations they had at that point in time.
Once the bank run started, that's when withdrawals outpaced what they could fulfill through the sale of their liquid assets. Hence insolvency, and illiquidity very rapidly thereafter.
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edit:
> as the bank was insolvent ever since the feds hiked rates.
This is less "not quite" and more "not at all" as it misunderstands what insolvency is - the inability to pay debts at maturity.
That's also why CDs exist. Far easier for FIs to actually do something with the money when you lock up with them and drastically reduce the risk of you withdrawing it.
In which case we should not blame the illiquid event because it is eventual as the bank was insolvent ever since the feds hiked rates.
You are assuming that the rates got hiked, and never again will fall.
Had the rates fallen in a year, then they would have no longer been insolvent. And could have recovered. Indeed once they got stuck, they would have had every incentive to hunker down and pray for that outcome.
> It became illiquid last Friday after 42 billion dollars walked out the door.
True. That was the precipitating event that forced it into the hands of the FDIC. But illiquidity is not insolvency.
Insolvency means it could not pay back its depositors because it assets could not cover withdrawals. This hole did not appear last week due to the $42 billion withdrawals.
It's not VCs or SMB owners obligation to keep propping up failing banks. Thiel here did his job properly by advising his companies to take care of their own fate.
> It's not VCs or SMB owners obligation to keep propping up failing banks. Thiel here did his job properly by advising his companies to take care of their own fate.
He might've done his short term job properly, but there's a social contract he stepped on and the consequence of it is a lesser likelihood that ventures with his name on them (in any capacity. Advisor, investor, founder, whatever) will get favorable terms from lenders.
He and others who pushed for rapid exits are now a high risk for lenders, especially any lenders already evaluating their exposure to startups and VCs.
VCs have fiduciary responsibility to their Limited Partners.
VCs must act in the best financial interest of their LPs. So if a VC knew or suspected that their investments were at risk due to bank insolvency, they have a fiduciary responsibility to act. Otherwise LPs could sue for breach of fiduciary duty.
> VCs have fiduciary responsibility to their Limited Partners.
> VCs must act in the best financial interest of their LPs. So if a VC knew or suspected that their investments were at risk due to bank insolvency, they have a fiduciary responsibility to act. Otherwise LPs could sue for breach of fiduciary duty.
No VC is getting sued for not telling their startups to yank cash during a 48 hour bank run.
What happens if Thiel is discovered to have had insider information about the impending closure of the bank? In between the very specific timed messages on Wednesday, to get funds out on Thursday, and for Brex to have an application up and running by Friday afternoon to be ready to take loan apps for people, it certainly doesn't seem out of the realm of possibility.
Does his fiduciary duty to LPs outweight the insider information? IIRC its actually illegal to encourage or push a bank run.
The bank is insolvent, the assets are presently valued below deposits.
This will happen eventually in that situation, to blame the catalyst is being disingenuous. The catalyst could've been anyone, and even in the current case it might not be Thiel - it could have been someone who did it first who then told Thiel.
Water can stay liquid below freezing, but it need just one shake to fully freeze over, and it's not the shakes fault that the water is now frozen.
"What have I told you since the first day you stepped into my office? There are three ways to make a living in this business: be first; be smarter; or cheat. Now, I don't cheat. And although I like to think we have some pretty smart people in this building, it sure is a hell of a lot easier to just be first."
Twitter at it's most ridiculous. If you are worrying about the bank it is perfectly reasonable to take your money and to advise your portfolio companies to do the same.
I'm the last person who wants to defend Peter Thiel. But... he was right. That's not "dooming" anyone, that's... giving good financial advice. The bank was unsound! People should have gotten their money out.
It's true that there's a game theoretic problem here where it's not possible for everyone to take that advice. But... what's the solution being offered? Demand silence on the part of everyone who sees bad financial status?
Isn't Thiel a hero role model whatever to "tech startup founders".
Honestly, just looking at random facts about what he gets up to, this person sounds like the Devil incarnate. Paying kids to drop out of school. A foundation to understand the world through mimetic theory. Promises to invest in the economy of a small country, gets complimentary citizenship then pulls investment. It goes on and on.
Anti-aging?? This guy wants people to not suffer from their bodies getting old and failing, leaving them to suffer and eventually causing them an unavoidable death? What a freeking monster!
Correct me if I'm wrong, but planes, cars and books also started as something very expensive and only affordable for the 0.1%, but are now enjoyed by everyone.
I'll ask the dumb question - he'd already taken his money out, what financial advantage is he meant to have then gained by encouraging others to do the same?
> what financial advantage is he meant to have then gained by encouraging others to do the same?
Assuming the FDIC doesn't make everyone whole, then all of his portfolio companies using SVB will see themselves with valuations lessened by whatever amount of money was lost.
i.e his investments would burn.
That said, we may very well see an outcome where everyone's just fine and instead his investments see a more difficult lending environment. There was once a california law about encouraging bank runs, but it was struck down in 2012 apparently. So not sure what else might apply in criminal or civil code.
> Fintech startup Brex received billions of dollars in deposits from Silicon Valley Bank customers on Thursday, CNBC has learned.
>The company, itself a high-flying startup, has benefited after venture capital firms advised their portfolio companies to withdraw funds from Silicon Valley Bank this week.
And once again, I can't believe I'm saying this in defense of Peter Thiel, but isn't the Occam's razor answer here just that... he was giving his friends good advice? Anyone with money in that bank should have gotten it out, that's not a controversial fact. Surely even Thiel has people he'd rather see not lose their shirts.
Thiel is a literal tyrannical goon who wants to rent you your own body someday, but nothing he did here was wrong. SVB made terrible choices that put them in a bind, and it is not the responsibility of their depositors to keep them liquid. If I found out my bank was obviously and clearly broken, you bet I'm telling everyone I can. Propping up an institution that can't even do the basics of it's job would be stupid and bad for the economy as a whole. The companies getting fucked should probably have noticed that their giant hordes in the bank were uninsured and figured out better ways to manage that money, or at least diversify their accounts.
It's the duty of any corporate officer to act responsibly with regard to the fiduciary duty to the company and to the shareholders. If they get news that their assets are at risk, they must act. To do otherwise would create great legal risk.
I'm not saying I agree either way with the law, but if you don't just take out your money, but encourage others to take out theirs as well, you are encouraging a bank run and there are specific federal laws against doing so... speaking of legal risk.
Wow, some people are really prescient: "And even if the company did run into trouble, there are good political reasons to think that depositors wouldn't be harmed: the people who donate the legal maximum to political campaigns are disproportionately likely to bank with Silicon Valley or work for companies that do."
As if that's why they got help? Come on. The risk of a domino effect of bank runs destroying the banking system, and thereby the economy, is why the government acted tonight. Remember that the Biden administration are not really big fans of the tech industry.
> The risk of a domino effect of bank runs destroying the banking system,
That's the exact speech made by those people, and we know it because they have money and, hence, they have ideological clout and access to our eyes and ears. Had this been a bank from fly-over-country the discourse would have been totally different.
The bottom rungs of US society have innumerable crisis going on. Housing, healthcare, education, nutritional food, childcare, etc.
The point is if things threaten the functioning of upper rungs of society, it gets worked on over the weekend by the leaders. If poor children do not have access to nutritional meals in schools, this gets knocked around for decades and decades while obesity and diabetes run rampant.
A simple example is spending the money to put whole grains, vegetables, and freshly prepared non sugary foods into a child’s plate twice a day during school hours. This would only require paying a few school employees well and paying a few dollars per meal per student for ingredients, but it is not something that has happened.
Lower-middle-class thousandaires don't have $5,000 to donate to a single candidate, let alone hundreds of them. I am not sure how much money you need to be making to donate the maximum to a single politician, but I'm guessing it's in the low-to-mid-six figures before you can have a $5,000 donation as a reasonable budget item.
How many "lower-middle-class thosandaires" do you imagine donate the legal maximum to political campaigns? Even if it does happen it can't be with any significant percentage.
Are you purposely ignoring the rules around donating to PACs and similar? They are defacto part of the political influence economy, and are not limited like that.
I cannot find it now, but there is a twitter thread from January where the guy predicts SVB bank run and implies that his prediction does not cause a bank run itself for his prediction to come true.
The real question is why the regulators didn't notice.
Banking is far, far from a free market. Especially since 2008. There is heavy regulation, stress tests, etc.
People keep talking about how we need more/better regulations but none of that matters if the regulators look at a bank doing risky stuff and don't realize that it is doing risky stuff.
One of the reasons I'm glad about the government's announcement tonight is that I suspect there are a lot of other banks that are similarly exposed to the kind of duration risk SVB was, including First Republic, and now that people are looking for that the chance of further bank runs is pretty high.
Given that the collapse of a bank that had less than that is now the second largest failure ever, lowering that threshold would be a pretty good start.
My personal take - on the surface "cost cutting"; real answer "internal politics"
Dale (along with Rogers) opposed Jared Cohen and Sarah Robertson on their plan to repackage the MBS products, or maybe it was the specific method of repackaging, either way... After his exit interview and packing up his desk, he's talking to Emerson - he asks "who was it?... Robertson?" which clearly points to the internal politics.
Because he was about to embarrass his boss, the Chief Risk Management Officer, by uncovering intentionally obfuscated negligent trading activity that she was ostensibly in charge of overseeing and preventing.
I think it was just a regular down-sizing thing on the other hand it was a little bit weird with the USB hand-off but I dont think it was intended to be sketchy. That movie is a lot of fun, lots of good performances from Spacey, Jeremy Irons, and Zach Quinto.
There's a part in the the movie where a higher-up asks Will Emerson who all are left in his risk department after the layoff, and he points to his two junior analysts. So basically Eric Dale's entire department was cut.
Sam was constantly having "I told you so" moments with other executives, including the one who fired Eric, implying that they all had a good understanding of what they had been doing all along but willingly chose to ignore the risk. Laying off the risk team was the next natural progression of this, because they were no longer a real part of operations at the firm.
There have been stories about the one SV honcho asking his portfolio to check their money at svb days before the chaos. Leading me to wonder; are there any laws or regulations against tipping off your friends that the bank you work at is in serious trouble? What happens when some depositors have insider information allowing them to act well in advance of a bank's problems becoming public? Aren't other depositors put at a disadvantage?
Making such laws would be a signal that the government sees bank deposits as something akin to tradable securities, where you are competing with your fellow depositors for some fixed value and must do so on a level playing field, and that's the exact opposite of what they want to convey. The illusion that every single customer can get their money out whenever they want regardless of anyone else's actions is the single thing keeping the entire system afloat.
Bank deposits are outside the scope of the SEC which is where the usual rules against insider trading come from (selling shares, as mentioned in the article, would potentially be a crime). We (rightly) have laws against improperly profiting from inside information, but I'm not sure they would or should cover pulling your deposits, since deposits aren't meant to be investments that go up and down, they're meant to be reliably worth what they're worth.
with this logic, you will probably end up with laws governing every action you take or does not take. More laws is an intuitive solution but often the wrong one.
What would you call it if a VC was sending group chats to founders telling them to withdraw from a specific bank? Seems like ringing a bank run bell to me.
My understanding is that insider knowledge on the risk literally precipitated the run as more and more founders were trying to move all their money out at the same time.
Well, Silvergate called the government and began unwinding. At some point, voluntarily starting the process makes sense instead of trying to hold on a little longer.
There's barely laws against making money off inside information that actually result in enforcement in 99% of cases, would it even matter if there's laws against not losing your bank deposits?
Chart KRE (regional bank ETF) against SIVB looking back the last year. You'll notice that SIVB starts to underperform the broader index around the Aug/Sept 2022 time-frame. (Underperformed by more than 30% between Aug-Dec 2022). This is a clear sign that not only insiders were aware by that time, but some savvy market participants were already betting against the company.
I’m interested in the fact that this all seems like a whole red flag factory in retrospect but no outsider really saw it coming. If there were people establishing bets against this bank they weren’t doing it on the open market. Options markets for SVIB were almost silent until two days ago.
Just like shellshock and heartbleed, something being out in the open does not mean anyone with enough clout has actually looked into it. Transparency does not by default require anyone to look over the documents generated.
Just because they didn't have a Chief Risk Officer doesn't mean they didn't have a risk management team. They MUST have had an Enterprise Risk Management team whose sole responsibility is to look at risk like this. The main role that the CRO would have is to pound on desks that something had to be done.
The biggest problem SVB had was a mismatch of duration between assets and liabilities. As interest rates started jumping, they should have acted on this by hedging or some other mitigation strategy. But this article's insinuations that people must have known as early as 2021 is ridiculous. The first rate hike was March 2022, and the subsequent one in May 2022 was already after the CRO ended her term.
For SVB to have problems, it needed 2 distinct problems: 1) interest rates had to rise and 2) customers had to start withdrawing funds. #1 started in March 2022, but I think #2 probably happened later than that. I think funding probably dried up Q3, which probably took startups as a surprise which forced them to burn more cash. By then interest rates started to ratchet up by 75 basis points at a time and the stock market hit their lows in October.
One possible scenario is that the ERM team flagged all this throughout 2022, but the CFO couldn't stomach the cost of hedging their portfolio and kept hoping for a reprieve or reversal.
Regardless, I think it's definitely possible that they knew something was wrong in Q3-22. The fact they didn't act until end of Q1-23 by selling off all their AFS assets in desperation is a evidence to me that they were holding out for hope and couldn't bear it anymore until the new CRO forced it. It doesn't seem conceivable to me that they had an entire ERM team that sat around with their thumbs up their asses not understanding the problems they had in the back half of 2022.
EDIT -
There's 3 other things I didn't think of but I just skimmed through their 10K.
1) They had the bulk of the HTM in Mortgage Backed Securities. In a falling rate environment, customers refinance, which means those loans get paid off, and their HTM asset gets converted into cash, which they need to redistribute back into another security. They could have used that cash to pay off depositors withdrawing their cash. But they could As rates go up, all the customers stopped refinancing, customers stopped buying new houses, and SVB wasn't getting those mortgages paid off, which probably cut into their cash.
2) Yes, startups must have been burning through cash, but I also how many of those customers pulling their funds out were just buying US treasuries or moving them into high interest products outside of SVB. This might have been a factor. I myself started buying US Treasuries for over half my portfolio now that 90-day T-bills are over 5%.
3) The 10K was filed on Feb 24, and SVB dumped their AFS portfolio on March 9. That's less than 2 weeks. There's no way that the auditors shouldn't have known about this sale, and they would have raised a huge stink if they knew. So either they were hiding all of this from the auditors, which sounds like fraud or something very acute occurred during those 2 weeks but I can't imagine what that is.
I'm going to be extremely interested to hear the reports from the inside because I'm sure people in SVB finance do not want to get pinned with the blame of this.
EDIT 2:
Found it. Moody's threatened to downgrade which forced the sale of AFS. So that explains it. So maybe everyone thought everything was okay and the surprise threat of the downgrade is what caused the house of cards to fall.
1. Long dated treasuries would almost certainly underperform long term if there were any interest rate increases
2. Interest rate increases were likely due to high inflation, low unemployment
3. Interest rate increases would correlate with a reduction in deposits
I’m not blaming a single person at all, but the bank in general should have been aware of this. While this seems more obvious in retrospect, it should at the very least have become obvious once the first rate hikes were announced
I don't think any of these are relevant to the situation.
1 is obvious, that's CFA Level 1.
2 is also obvious but in 2021 the Fed said inflation was transitory. After over a decade of sub-2% inflation, it wasn't hard to not believe that.
3 is not true. As rates rise, more people pull money out of the stock market and park it into higher interest deposits. The problem with SVB is that they don't have a lot of retail customers that would park their investments.
Oh the fed said inflation was transitory, risk team can take the day off I guess, no need to worry. 3. is true because literaly half their were deposits startups who will have a hard time raising if interest rates rise.
Probably the senior executive team in aggregate, but the speculation based on dates of departure/joining is unfairly laying blame at individuals without much evidence
If you actually believed that narrative, you wouldn't think buying long term MBS was that risky. I think you'd be crazy not to doubt the narrative at least a bit given all the money dumped into the system during covid, I'm just saying it's not just one bank making questionable stupid decisions.
Job of the risk team is to be skeptical, ask "but what if it's not?" and hedge against that possibility. If your job is to believe everything you hear without doing proper risk analysis, why should a bank pay you?
High inflation was coming anyway due to the baby boomer cohort retiring. Then the governments of the world pulled ten trillion dollars out of thin air. Anybody with a business degree who didn't see crazy high inflation coming out of that should've had it revoked.
Powell completed his JD in 1979 but then started working in investment banking by '84 and stayed in various finance jobs including under-secretary of finance from then to now. So he has the relevant experience. I doubt a business degree rather than a JD from the seventies would make any difference today.
This was news to me, but now I understand it (someone with more banking knowledge can correct me if I'm wrong): Securities held by a bank can be classified as either "Hold to Maturity" or "Available for Sale". HTM assets can not legally be hedged against interest rate risk. Reason for this is that if assets are actually held to maturity, there really isn't any interest rate risk.
"The notion of hedging the interest rate risk in a security classified as held to maturity is inconsistent with the held-to-maturity classification under ASC 320, which requires the reporting entity to hold the security until maturity regardless of changes in market interest rates. For this reason, ASC 815-20-25-43(c)(2) indicates that interest rate risk may not be the hedged risk in a fair value hedge of held-to-maturity debt securities."
There is no risk of principal loss in held to maturity assets in a vacuum, but there can still be risk if durations of assets and liabilities don't match, and interest rates move. IE if you've made a bunch of long-term loans at relatively low interest rates, funded by money you've borrowed short-term (including deposits), and then interest rates go up, you can find your cashflow suddenly negative.
From what I understand, they (SVB) won’t exist any more. The FDIC will give all of the depositors their money back, which will come out of the FDIC insurance fund.
Then the FDIC will sell off all the SVB assets, and from their statement and other articles, they expect to get most (if not more) of the money back that they’d pay out to the depositors. That’ll go back into the FDIC insurance fund and SVB won’t exist any more.
I don’t think anyone knows the exact math, partly because the assets are obviously illiquid. So you’re not like getting the full value of a bond, you’re just trying to get someone to buy it off you, which means the pricing is dynamic.
I think their assets aren't illiquid, the problem is they pay out a low rate of interest. As in if I can buy a $1M bond that pays 5% interest. How much you think a $1M bond that pays 1.5% is worth. Much Less.
In 2020 and 2021 about 2.7 trillion worth of mortgages were refinanced. That gives you an idea of the scale of the problem with the Fed blithely raising rates.
So I keep seeing things like "insiders sold X amount at Y date, they must have known Z" but I thought that as an insider you can only sell a certain amount at certain times that are pre-defined before the true value of the sale could be known and before any future material events actually occurred. Could someone explain how this works?
Did you read the article? From the article: "One thing to keep in mind is both Ms. Izurieta’s and Mr. Becker’s 10B5-1 plans were adopted just a month prior to the sales occurring, and these transactions appear to be one-time in nature. They’re arguably open market sales masquerading as 10B5-1 transactions."
Please don't comment on whether someone read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that."
You're required to preregister stock sales, but you can cancel those preregistered plans anytime, so it's possible to get around it by filing and canceling often.
No. My point is whether these people were interested in doing their jobs. You'd think the CRO of an important bank in the US would be more interested in discussing or showing interest for the subject in which they are experts.
What I'd like to know is why through the all of the posts and comments about this on here, the people responsible are never named. Who are/were the scoundrels running this bank, and why haven't they been run out of their homes and driven out of California with pitchforks?
Because that's not the way we do things in the 21st century whether you like it or not. SVB made a dumb and serious mistake but it was still a mistake.
These are all fancy ways of talking about accounting tricks that banks are allowed to employ in order to hide economic losses from their financial statements. Banks would argue that their accounting tricks are blessed by the priesthood of professionals accountants, so it's perfectly legal. Which it is. It is not obvious that real-time mark-to-market accounting would have made things any better, but pretending that massive economic losses were not real was not a sustainable trajectory as soon the accounting fiction (no losses) collided economic reality (the need to sell holdings, in order allow depositors to withdraw their cash demand deposits).
Given the panicy herd psychology of humans, it has long been argued (at least since as long as the collapse of Lehman Brothers) that "head-in-the-sand" accounting is preferable to mark-to-market in order to ensure the stability of the financial system. In laymen terms, sometimes it's better for the public not to know how bad things have gotten behind the scenes. That is a kind of common sense practice for governance, and it isn't going to go away. Ironically, the answer to the SVB collapse is that you should have less informed, less rich and less well connected depositors (i.e. tame and docile customers) if you want to reduce the risk of a run on your bank, which is obvious in retrospect.