Joseph's analysis is reassuring to some extent but still makes me ask: who WAS or IS watching the store? Certainly Joseph's research is amazing and clearly nobody is asking him to keep an eye on things (but should)!!
Appreciate the analysis generally, but you seem to be going through some extreme mental gymnastics to connect this back to the crypto markets. FTX was a large business that committed worse-than-Enron fraud and ripped off thousands of people, including one of their banks. The silicon valley bank run seems to be largely attributable to actions taken by Peter Thiel, including multiple tweets and investor phone calls where he basically instructed anybody willing to listen to him to start a bank run. Other than FTX's fraud also hurting crypto, I don't see how these events are anything other than run-of-the-mill fraud and poor liquidity and risk management by regular banks. You even state yourself that none of these banks failed because of exposure to crypto. Why keep trying to tie these two things together?
I must have missed something in the many changes since Basel II. I thought that one of the quasi-rules around hold-to-maturity classification was that it was not appropriate for highly liquid securities (like federal bonds). As interest rates rose, SVB moved its long term bond holdings into HTM accounting in order to prevent the reduction to its balance sheet. That’s exactly what mark-to-market was supposed to prevent. But not one is saying “misconduct,” so what they did must have been fair. So what am I missing?
HTM classification is still allowed for liquid securities (including bonds and MBS), it's just that the larger banks have to meet more stringent liquidity and funding requirements than institutions like SVB and if SVB were forced to meet those requirements it might have been in a better place to head off a run.
I guess losses on other assets like loans, corporate bonds and credit might be much larger than losses in US Treasuries. So, if I am right, the situation might get worse
Allowing the financial institution to borrow against the par value of assets is exactly what the Federal Home Loan Bank Board encouraged near the tail end of the S&L crisis. It did not end well.
Re-emerging comment that I deleted instead of editing. Doh.
I think I must have missed something in the many changes since Basel II. As interest rates went up, SVB moved its long-dated federal bonds into hold-to-maturity classification. But I thought that the point of mark-to-market was to create transparency on assets that are reasonably easy to value -- like federal bond holdings. But no one is saying that it was inappropriate to classify these bonds as HTM, so that must be Ok. What am I missing?
Today in the British press an article has appeared that HSBC have taken over part of SVB and the BOE is somehow involved. Could be British company share of the debt. Unknown. It seems contagion should not occur but you never know with these bankers.
Outstanding explanations, and the graphs are excellent! 👍🏾
Thank you Nick!
Great article!
Thanks Teal!
Joseph's analysis is reassuring to some extent but still makes me ask: who WAS or IS watching the store? Certainly Joseph's research is amazing and clearly nobody is asking him to keep an eye on things (but should)!!
Appreciate the analysis generally, but you seem to be going through some extreme mental gymnastics to connect this back to the crypto markets. FTX was a large business that committed worse-than-Enron fraud and ripped off thousands of people, including one of their banks. The silicon valley bank run seems to be largely attributable to actions taken by Peter Thiel, including multiple tweets and investor phone calls where he basically instructed anybody willing to listen to him to start a bank run. Other than FTX's fraud also hurting crypto, I don't see how these events are anything other than run-of-the-mill fraud and poor liquidity and risk management by regular banks. You even state yourself that none of these banks failed because of exposure to crypto. Why keep trying to tie these two things together?
After all this- why the continued panic in banks this morning?
I must have missed something in the many changes since Basel II. I thought that one of the quasi-rules around hold-to-maturity classification was that it was not appropriate for highly liquid securities (like federal bonds). As interest rates rose, SVB moved its long term bond holdings into HTM accounting in order to prevent the reduction to its balance sheet. That’s exactly what mark-to-market was supposed to prevent. But not one is saying “misconduct,” so what they did must have been fair. So what am I missing?
HTM classification is still allowed for liquid securities (including bonds and MBS), it's just that the larger banks have to meet more stringent liquidity and funding requirements than institutions like SVB and if SVB were forced to meet those requirements it might have been in a better place to head off a run.
I guess losses on other assets like loans, corporate bonds and credit might be much larger than losses in US Treasuries. So, if I am right, the situation might get worse
Allowing the financial institution to borrow against the par value of assets is exactly what the Federal Home Loan Bank Board encouraged near the tail end of the S&L crisis. It did not end well.
Re-emerging comment that I deleted instead of editing. Doh.
I think I must have missed something in the many changes since Basel II. As interest rates went up, SVB moved its long-dated federal bonds into hold-to-maturity classification. But I thought that the point of mark-to-market was to create transparency on assets that are reasonably easy to value -- like federal bond holdings. But no one is saying that it was inappropriate to classify these bonds as HTM, so that must be Ok. What am I missing?
HTM is a scam. It is similar to what the FHLBB encouraged that raised the cost of that bailout
Aha. I didn’t miss something after all!
Today in the British press an article has appeared that HSBC have taken over part of SVB and the BOE is somehow involved. Could be British company share of the debt. Unknown. It seems contagion should not occur but you never know with these bankers.
https://www.gov.uk/government/news/government-and-bank-of-england-facilitate-sale-of-silicon-valley-bank-uk?utm_medium=email&utm_source=CampaignMonitor_Editorial&utm_campaign=LNCH%20%2020230313%20%20House%20Ads%20%20SM+CID_695cb55b3bf94c5f2f423cf6812f3607
All is explained in this link.
Valuing at par? Any guarantee that those loans will ever be repaid since the banks don't have the money to repay them?