If they had not experienced a bank run, they would be in business if long-term interest rates had risen from 1.5% to 10%.

Rising interest rates are not bank runs. If rising interest rates were bank runs, then all the banks would already be out of business, as they all operate in the same universe with the same rising rates.

They experienced a bank run because they were poorly run. They did not properly manage the risk that rates could rise. Not managing risk properly ALWAYS leads to failure eventually.

Long-term bond rates (the ones that the bank did not properly hedge) are still not even high, AND the Fed doesn't raise or lower long-term rates.

The last part, after the "AND" is probably the most important bit: The Fed hasn't raised long-term rates.

True but the problem was mostly from MBS and the fed definitely have influence over those by raising interest rates .

https://www.moneycontrol.com/news/bu...42571.html/amp

« SVB Bank had last week sold its $21-billion bond portfolio consisting of US Treasuries and mortgage-backed securities at a loss of $1.8 billion. »

« Over 95 percent of these mortgage-backed securities were over 10 years in duration, with a weighted average yield of 1.56 per cent.

As per reports, SVB had over $80 billion worth of investments in mortgage-backed securities. »

I literally just asked and answered all of these questions. The problem lies solely with SVB and their poor risk management.

You have to remember, Montreal hates central bankers in general and the Fed in particular. It's always their fault.

They raised the overnight rate (aka the fed Fund Rate), which is the rate that banks borrow for one day. They did not raise any other rates at all (mbs or us treasuries or any other interest rates).

The market decides all of the rates other than the Fed Fund Rate. The Fed Fund Rate causes changes in the two year rates a bit and the 10 year rates hardly at all and 30 year rates approximately nothing at all.

But, again, this is the important thing, the entire problem was the bank making extremely stupid decisions and their customers running away as a result of those extremely stupid decisions. Rates rise and fall and it is the banks job to account for this simple fact when they are making decisions.

You could say curse the sun for your sunburn, I guess. I would say that it is entirely your fault for not putting on sunscreen or checking the clock or the weather before going outside.

He doesn't know enough to hate them yet. It is like he hates all Kevins, despite having never met one.

Perhaps he will learn some things and learn to hate the correct people.

thinking raising the fed funds rates and QE do not affect MBS and treasuries is nonsense.

https://www.investopedia.com/article...gage-rates.asp

"How does the Fed affect mortgage rates?

Normally, the Fed affects mortgage rates with changes in its target for the federal funds rate. But it can also purchase mortgage-backed securities to lower mortgage rates and housing costs, if necessary to support economic growth."


ps: not a bit, the fed fund rate is pretty much a representation of the 2 years rates.

https://en.macromicro.me/collections...ury-bonds-rate

https://seekingalpha.com/article/423...fed-funds-rate

they certainly not absolve of being fault-free right ?
blaming and hating is not an obligation by itself.

ps: i couldnt care less about the fed, it aint my central bank shrug.

You took my humorous overstatement about the 2-year treasuries at face value and ignored the important parts.

The banks who died did not die because the two year treasuries yield increased. They were not invested in them!

The bank didn't fail because of the Fed Fund Rates changes. The bank made easily avoided errors in judgment. The banks were even told that the Fed Fund Rates were going up in case you are stuck mentally on that (by the Fed!!!!!) and just about everyone with at least a rudimentary understanding of history (high school level) could see that long-term bonds were not going to stay at record lows forever. That is why only a few of the more stupid banks have died. There are plenty of other banks doing ok who are fairly stupid, but not quite stupid enough to have murdered themselves. Only the extremely stupid have died, and they did it by their own hand.

It is also why I don't have a sunburn, know that people who get sunburned have acted foolishly, and know that they are doubly foolish if they blame the sun.

I also frequently find myself railing online about things that I don't care about.

I once spent 3 years posting a lot about artichoke farmers because I don't care either way about artichokes.

what does it matter with 2 years old treasuries not being invest in them.
what hurt svb was mbs and mbs are affected by fed fund rates.
especially the adjusted mortgage rate.

https://www.nerdwallet.com/article/m...mortgage-rates

NOW
remember inflation was transitory ?
remeber how they just totally scratch their forward guidance that was suppose to last till what 2024 ?

https://www.federalreserve.gov/newse...n20221012a.htm

Governor Michelle W. Bowman


remember the fed did QE till freakn march 2022 ??
remember the fed did the fastest raise in interest rates in his history ?

why you think they need to do that much that quick ?
because the fed was right or because the fed fack it up big time in the first place ?


ps: as late as summer 2021 ->
they just miss their mark by what ?
450 point hike in 2022?

it was the total opposite of what the fed was saying, and that was like 1 year after they drop rates to 0.
maybe those mbs were bought way sooner then 2021 so the cost of hedging might of been too great or too late already.

im certainly not saying sbv have no responsibilities , on the contrary.
But absolving the fed is a joke....
powell made many mistake since 2018 and not small ones.

Wall Street Journal - Silicon Valley Bank Creditors Form Group in Advance of Possible Bankruptcy

The group hopes to profit from a sale of the collapsed firm’s private-wealth and other units. Even though government officials have warned that SVB’s stock is worthless—the parent company owns other assets that could have significant value.

Fund my lambo. Pay for my woke kids private schools and my luxury lofts.

Thx for the post .
Question for you .
If svb had manage the exact situation but instead of having plenty of tech start up with multi millions $ account way over the limit of fdic , svb had mainly small depositors with a ratio of let say 80-85% insured by the fdic due to small depositors (basically retailers) , do u believe a bank run would of occur ?

We don't use adjustable rate mortgages anymore. I mean, they exist, but hardly anyone uses them (13%).

The Feds Fund Rate was used in the past to try to affect normal mortgages, but it doesn't have the affect they used to think it would.

Sure. That has nothing to do with SVB deciding to purchase long-term mbs and treasuries in 2022.

Sure. That didn't cause SVB to buy long-term mbs and treasuries in 2022.

Yep. That should have caused SVB to not buy long-term mbs and treasuries in 2022.

The Fed is right to raise them quickly. Inflation is a bitch to stop.

That didn't cause SVB to think that buying long-term mbs or treasuries is a good idea.

They were not bought "way sooner than 2021." This is also public record and is in just about every news article about the events leading up to the collapse.

Perhaps you should read at least a little bit. It helps people learn and understand things.

You do seem to care quite a lot about the Fed. I'm not keeping track of how many times you have mentioned them here and said the same thing, but it seems like more than once.

CS down ~30% premarket because of the Fed

I don't think so, because the deposits would be spread out over an exponentially larger number of customers who aren't as "connected" to each other, living online 24/7 and exchanging intel with each other in real time.

But I also wouldn't call this a "black swan" event. SVB served large tech companies with large deposits that were free to move their money at any time. This is a concentration risk on the part of SVB that they need to manage.

40 companies can drain $1 billion if liquidity by withdrawing $25 million each. If Company A gets skittish and moves their money first and tells a few founder friends -- that $1 billion could be gone within hours. Likewise, it would take 10,000 customers withdrawing $100,000 each to reach that $1 billion figure which could take weeks or months due to slower information flow.

But again, that is SVB's risk to manage, and locking up 71% of their investments in 10+ year duration HTM securities early in the Fed hiking cycle yielding 1.6% (while paying out 1.5%) was the colossal failure on their part that led to their demise.

Yeah pretty much how I see this too
Thx

Those woke Saudis and their diversity banking tho

Definitely no where near a black swan. To add, i don't believe they run a huge loan book since majority of startups relied on equity financing. So it was a case of hedging long duration. No idea if regulators are more relaxed in the US because in europe something like this would be flagged on various treasury reports, with even the smallest banks having an asset/liability management team. Despite forward guidance on the rate trajectory by Fed, their bal sheet was basically betting on a low rate environment.

As of 2018, we have less stringent regulations and stress tests on banks under a certain size. They were under that size.

If this isn't that big of a deal, why is FedWatch forecasting a drastic shift to rate cuts over the next few months? Sure that shift was likely coming sooner than later anyway but the change is pretty big from what had been previously forecasted

https://www.cmegroup.com/markets/int...atch-tool.html

No one said it isn't a big deal. It will go down in history as something that happened.

is it a big enough deal for the fed to pivot and jettison the inflation fighting? if so, that seems bad and a recipe for persistent inflation

Only time will tell. Iirc, recent Fed Fund Rates future were already showing expectations for a peak somewhere around mid-year and then a small reduction by the end of the year in the Fed Fund Rates. This move in the Fed Fund Rates futures market is obviously much larger.

Banks getting slapped around by the markets might help slow the economy and thereby reduce inflation. If inflation drops, then they can (and should) lower rates, or at least stop raising them.

I'm not making bets either way. The recent market bets on Fed Fund Rates futures could be right or wrong. I have no idea how good the market has been at predicting the actual future. The VIX futures are frequently very wrong about future volatility (in particular during market turmoil), so I have doubts whether Fed Fund Rate futures do a great job of predicting what the Fed will do.

depends which country.

it still have effects regardless.

u just said this to me 2-3 days ago when i say better to hold short term bonds instead putting money at the banks at 0% is better
And u tell me now SVB should not buy long treasuries and mbs in 2021 ???
so what the hell they should of bought when inflation wont last and no raise hike for like 2 years ?

really ?
When u are stuck to buy bonds while the fed do QE, yields are low.
What u suggest to buy ?
2year bond were at half a percent in end 2021 while inflation were running at like 6-7% ?



LOL ...why ?
Because in april 2021 the FED were already at double the inflation rates they were aiming at but still they did QE for a full year afterwards creating themselves the biggest inflation spike in the last 40 years ?
they bought its majority mbs in 2021 when the fed was still saying no persistent inflation and doing QE massively still.
Not one believed the FED could go up to almost 5% ever.

raising interest rates that much too quickly bring nothing much on the real economy because there is a lagging factor with monetary policy.
we didnt even have the effect of the first .75% interest rates hike yet , so how u know its not too high too quickly the level we have today ?
furthermore, how would u know the 2% inflation target is feasible ?
maybe we live today in an economy where 2% is just not possible.
2% inflation rates is just an ideology.


no really ?
well svb cannot go back in time in 2021 and knowing in advance the fed would raise interest by 450 points in 2022
(the fastest hike in history causing the biggest crash in fixed income)
because the fed was dumb thinking about transitory inflation and do QE till march 2022 even when inflation rates were running triple and more over 2% inflation targeted...

what can i say, i just reply to those who think the fed is perfect and has nothing to be blame about when in actually all those thing u describe about not buying long term fix income been entice by the fed by its QE and nonsense transitory inflation and afterwards doing crazy hikes in such period of time not taking into account that monetary policy have lag feature into it.