General > General Technical Chat

Silicon Valley Bank Collapses

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m k:
So you give us some millions as savings or something like that.
We pay high interest but you can't pull out annually more than say 10%.
We then put your millions to work by riskin'em highly.
If we fail feds will bail you out, win-win.

On the other hand, if feds are not bailing everybody out,
all big cash piles must be in non investing money parks.
It's a waste says a banker.

vk6zgo:

--- Quote from: bdunham7 on March 13, 2023, 12:07:26 am ---
--- Quote from: TimFox on March 12, 2023, 11:33:49 pm ---WaMu's problems were tied to property lending, i.e. subprime mortgages, but SVB's problem is different.

--- End quote ---

SVB actually choked mostly on MBS (mortgage backed securities) but the the problem wasn't credit quality, it was duration/interest rate causing the current (market) value to drop.  Because they had opted to designate these as HTM (hold to maturity) they weren't required to account for the interim drop in value on their balance sheet.  Once they had to sell them to cover the deposits, the manure hit the spreader tines.

There's an nice explanation from JP Morgan along with a comparison showing that SVB is(was) an outlier regarding losses in held securities (they had an unusually large amount) but that sort of glosses over the fact that lots other banks may have similar issues with their own internally-generated loan portfolio and none of them have to attempt to mark those to market.  The picture from the .pdf shows their capital ratio from the balance sheet (blue) and then their capital ratio taking into account unrealized losses on HTM securites. 



https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/silicon-valley-bank-failure-amv.pdf

--- End quote ---

A really very silly "News" outlet in Oz says it wasn't any of those things-----it's because they were "woke"!  ;D ;D

bdunham7:

--- Quote from: tooki on March 15, 2023, 08:12:33 am ---You know that bonds pay interest, right? (But only if allowed to mature.)

--- End quote ---

Yes actually, I was aware that they paid interest.  Were you aware that some bonds pay larger coupons (interest) than others? 

But 'allowing them to mature' makes no sense--you have no control over that and they pay their coupon as per their original terms no matter what you do. 

tooki:

--- Quote from: bdunham7 on March 15, 2023, 01:53:10 pm ---
--- Quote from: tooki on March 15, 2023, 08:12:33 am ---You know that bonds pay interest, right? (But only if allowed to mature.)

--- End quote ---

Yes actually, I was aware that they paid interest.  Were you aware that some bonds pay larger coupons (interest) than others? 

But 'allowing them to mature' makes no sense--you have no control over that and they pay their coupon as per their original terms no matter what you do.

--- End quote ---
Of course it makes sense: if you wait for it to mature, you make a predefined profit on it. If you redeem it prematurely, you lose big time.

bdunham7:

--- Quote from: tooki on March 15, 2023, 06:21:17 pm ---Of course it makes sense: if you wait for it to mature, you make a predefined profit on it. If you redeem it prematurely, you lose big time.

--- End quote ---

What I meant was that including that quote makes no sense when discussing treasury bonds.  You can't 'redeem' them at all, you can only sell them to someone else.  These don't work like savings bonds or retail CDs.  They are going to pay their coupons according to their terms and no matter what action you might take, they return the principal at the end of their term and no sooner. 

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