General > General Technical Chat
Silicon Valley Bank Collapses
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bdunham7:

--- Quote from: tooki on March 14, 2023, 08:03:55 am ---I think the key thing to remember in this instance is that SVP had not actually lost anything. It was strictly a liquidity issue — plenty of assets (more than enough to cover their liabilities and deposits), but far too little cash.

--- End quote ---

I can tell you from experience that almost every insolvent person or company starts out thinking they have a liquidity issue.  If you have assets that are difficult to value and sell, that narrative can allow you to get in pretty deep before you are faced with the fact that the issue is actually insolvency.  However, when assets can be valued precisely, then it is much easier to tell the difference.  And if your assets have an active, liquid market like treasury securities do, then the problem is their actual current value, not your inability to sell for the correct value.  The fact that the current value has dropped far below some future value, no matter how certain that future value is, does not really make it a liquidity issue. 

The reason many are still clinging to the idea that all someone needs in a situation like SVB is some 'liquidity' in the form of cash to be returned later when their securities mature is that is just hasn't sunk in that money isn't free any more.  ZIRP is dead!  A cash bridge to cover the 6.2 years of duration of SVBs portfolio would cost ~30% even at the Fed funds rate.  The new BTFP facility is essentially a special program to extend ZIRP/LIRP just to banks with treasury or agency securities to avoid having the ZIRP withdrawal from killing them.  Sort of like giving methadone to a heroin addict for a while.  I haven't heard what the cost of this facility will be to the banks.
dave j:

--- Quote from: coppice on March 14, 2023, 08:27:40 pm ---That's worrying. In 2008 people like Barclays were in their bidding to scoop up some US failures cheaply. If they were not head to head with HSBC trying to get SVB UK what does that say about their current state? Simply burned last time, and not interested? Less well positioned?

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HSBC have always been relatively conservative compared to other banks. During the 2008 banking crash, the UK government called in the heads of the UK banks to explain how they were going to meet the UK's new bank liquidity requirements. Most of the banks needed government loans/bailouts. Barclays said they preferred to raise the money on the markets rather than be subject to government involvement in the business (a condition of a loan/bailout). HSBC didn't bother sending the head of the company as asked but instead sent someone with a note that said 'we have transferred some cash from our global bank and are now in full compliance with your new liquidity requirements'.

Scooping up US banks post 2008, Barclays would have had time to raise the capital. With SVB UK, the government needed someone to buy it immediately, not in a few days time. HSBC had the cash available. Barclays, presumably, didn't.
SiliconWizard:
Who on Earth really thought our global banking system was sustainable anyway?
coppice:

--- Quote from: bdunham7 on March 14, 2023, 09:03:44 pm ---The reason many are still clinging to the idea that all someone needs in a situation like SVB is some 'liquidity' in the form of cash to be returned later when their securities mature is that is just hasn't sunk in that money isn't free any more.  ZIRP is dead!  A cash bridge to cover the 6.2 years of duration of SVBs portfolio would cost ~30% even at the Fed funds rate.  The new BTFP facility is essentially a special program to extend ZIRP/LIRP just to banks with treasury or agency securities to avoid having the ZIRP withdrawal from killing them.  Sort of like giving methadone to a heroin addict for a while.  I haven't heard what the cost of this facility will be to the banks.

--- End quote ---
Low interest rates have persisted for so long a generation has grown up that doesn't realise what the world is like when money is expensive. I wonder how they will adapt. Its really annoying to hear young people complain how easy it was for their parent's generation to buy houses with the lower prices of the past, ignoring how interest rates made a mortgage on even those low prices crippling.
themadhippy:

--- Quote --- HSBC had the cash available. Barclays, presumably, didn't.
--- End quote ---
if barclays couldn't raise a quid id be pretty worried
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