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SVB And The Anarchists’ Dream
Seemingly every day, somebody, somewhere, publishes a new postmortem on last month's turmoil in the US banking sector.
Humanity's perverse fascination with calamity, which I lament at regular intervals, means all market mishaps are monetizable events.
That doesn't mean all financial journalism is a manifestation of the profit motive, but then again, what else is there at the end of the day? If you have any overhead or non-trivial fixed costs (and I don't, by the way), keeping the proverbial li
Well said. The bank business has been roughly the same since the Dutch goldsmiths invented it 500 years ago. Traders who owned ships and shipments would deposit their wealth with goldsmiths who had strong vaults and good reputations for honesty before departing on a long voyage. It didn’t take long for the smiths to discover that during long voyages the gold deposits the owners had entrusted to the them just laid in the vaults, earning nothing for anyone. So the smiths lent some of it to others who needed it for a time and could pay it back later. The entrusted gold still belonged to its owners but they didn’t need it so it could be used by others until the owners wanted it back. That worked great as long as only a small percentage needed their money back on a given day. Every day some specie went in and some went out. If some reason arose that folks suddenly felt their money wasn’t safe there could be a run and there would be trouble. Here we are 500 years later and the same existential issue still exists. Banks can’t really successful unless we are willing to trust them. When accountants who don’t really understand banking do audits they don’t bother with the roots of that problem. Banks I worked for would generally get three audits a year (taking a bunch of time and costing the bank a lot of money. They would get a typical accounting audit, along with at least one from the Comptroller of the Currency and one from at least one other regulator. The current mark-to-market rules created the problems at SVB directly because of rising rates.
Crypto in its present form isn’t competition for banks, but a Fedcoin might be – something for the govt to weigh.
Regulations were relaxed, the system was awash in funds and the interest rate regime changed. So even if the bank did nothing further on its own (which it did), the sea level was already rising. But what DOES seem to have changed is the ease in and our comfort with moving large amounts of money rapidly, combined with the instant rumor machines (Teams, Slack, G-Chat, Twitter even) to quickly galvanize that even speedier money. That alone would seem to make runs more likely than in the past. I alost had to choke back a chuckle seeing news coverage of depositors gathered at the already locked doors of an SVB branch looking to empty their accounts before it was too late. It’s not really how it happens anymore … instead we’ve got bigger, faster, suddenly and all at once.
My takeaway is that everything needs to happen way slower than it has been. If the Fed wants to print money, raise rates or lower rates- better move a lot slowwwwwer than they have been.
I agree with everything you say here, but the idea that its okay to buy a longer term treasury paying 55 bps is insane. So is saying that the bank couldn’t buy some long dated treasury puts …It’s all gambling at some level, and there is also the question of why the spread between a savings account and short term treasuries is so high…beware of guys who wear collar pins…
Congrats on you capital light model, H.
Let asymmetry reign!