Here are some rational solutions that don’t infringe on our rights: 1. Bankers that don’t hedge for interest rate risk should not be bankers 2. Diversify. AKA don’t put all your eggs in one basket, if you do put all your eggs in one basket, watch that basket damn closely 3. Always have enough liquidity Mimetic desire, very fancy useless words
Exactly. The psychology of bank panics is less important than not creating them in the first place by doing the things that SVB was doing. And it looks like their "hedge" was, like the crypto fraud dude, to curry favor with the people supposedly watching over them. Democrats always talk like there was Magic Regulation that existed in a golden year before Bad Republicans removed it to help the rich. News: there are still (reams of) bank regulations and an entire structure of regulators.
To borrow from someone else:
"Either SVB was incompetent or this is a case of moral hazard, taking excessive risk and expecting political favors and bailouts. It turns out SVB’s real “hedge” was to curry favor with the Biden administration. In 2022 SVB publicly committed $5 billion in “sustainable finance and carbon neutral operations to support a healthier planet.” SVB’s 2022 ESG report lists a litany of “cross-function working groups,” including a “Sustainable Finance Group” that monitors progress against SVB’s Climate Commitment and an “Operational Climate Group” that “monitors implementation of operational greenhouse gas reduction initiatives.” Rather than apply basic risk-management practices, SVB resorted to lobbying for looser risk limits."
..."The psychology of bank panics is less important than not creating them in the first place by doing the things that SVB was doing. And it looks like their "hedge" was, like the crypto fraud dude, to curry favor with the people supposedly watching over them. " ...
How is "not creating them in the first place by doing the things that SVB was doing" even possible, let alone more important, without first understanding "the psychology of bank panics"?
Corruption and fraud in dealings between bank management and elected officials does not constitute--or deserve the name of-- a financial "hedge".
"SVB misread its customers’ cash needs. Risk management seemed to be an afterthought. The bank didn’t even have a chief risk officer for eight months last year. CEO Greg Becker sat on the risk committee.
As customers asked for their money, SVB had to sell $21 billion in underwater longer-term assets, with an average interest rate around 1.8%. The bank lost $1.8 billion on the sale and tried to raise more than $2 billion to fill the hole.
Obviously my use of "hedge" was sarcastic. The point is, as many other commenters have noted, it's a little odd to focus on the psychology of bank panics rather than not letting your bank get into such a position in the first place. SVB got themselves into a non-tenable situation, as this concise summary from WSJ describes:
"Management screwed up interest rates, underestimated customer withdrawals, hired the wrong people, and failed to sell equity. You’re really only allowed one mistake; more proved fatal. Was management hubristic, delusional or incompetent? Sometimes there’s no difference."
You don't create this specific bank panic in the first place by not doing all the things in that list above. Like this from the same article:
"Everyone, except SVB management it seems, knew interest rates were heading up. Federal Reserve Chairman Jerome Powell has been shouting this from the mountain tops. Yet SVB froze and kept business as usual, borrowing short-term from depositors and lending long-term, without any interest-rate hedging. The bear market started in January 2022, 14 months ago..."
Although I also think had Dodd-Frank not been undermined, the situation _might_ have been mitigated—the key word there being "might." Interestingly enough, SVB CEO Becker apparently lobbied hard for that relaxation of Dodd-Frank. Be careful what you wish for, eh? 😀
Anyway, the loan program the Federal Reserve has opened to help keep money flowing through the banking system will be backed by taxpayer money. But, hey! It's NOT a bailout.
I think Biden has just lost all chance of winning the 2024 election.
Never forget that it is now about ballots not voters. If the Republicans are smart they will realize there are lots of Alzheimer’s patients in red areas that should not be “denied” the vote.
You're on a roll today, Madjack! 😀 That made me laugh out loud.
And, of course, those among us with progressive leanings are already combing the 2020 census findings for unexploited pockets of dementia-addled perps in blue states! 😀
Absolutely not a bailout under any possible definition 😅😅
Per 2024 hard to say. On the one hand people’s memories are short, and there will be endless shiny news cycles to distract us between now and then. On the other, I was just reading somewhere that there are many banks not quite as reckless as SVB but nevertheless holding piles of treasury bonds and mortgage backed securities whose value has plummeted and without having hedged against rate hikes. So we could be looking at a wild ride.
Multiple things are true at the same time here. You are correct on the lack of a hedge for interest rate risk. It’s also true that SVB used their increased assets to make higher risk loans to further their ESG and DEI objectives. Both are contributing to the problem.
Apparently, SVB didn't even have a chief risk officer between April 2022 and January 2023.
Classic asset-liability mismatch. Might have been avoided had the Trump Administration not neutered Dodd-Frank. I mean, at least they would have been required to do stress tests.
It would not at all surprise me to find out that the San Francisco Fed (supposedly the regulators watching over SVB) were also laser focused on ESG and diversity initiatives. They probably have detailed charts of the LGBTQ and race metrics for all the banks they regulate which they pore over daily. Actual banking practices? Yawn.
Here are some rational solutions that don’t infringe on our rights:
1. Bankers that don’t hedge for interest rate risk should not be bankers
2. Diversify. AKA don’t put all your eggs in one basket, if you do put all your eggs in one basket, watch that basket damn closely
3. Always have enough liquidity
Mimetic desire, very fancy useless words
We use the call it the lemming reaction.
Exactly. The psychology of bank panics is less important than not creating them in the first place by doing the things that SVB was doing. And it looks like their "hedge" was, like the crypto fraud dude, to curry favor with the people supposedly watching over them. Democrats always talk like there was Magic Regulation that existed in a golden year before Bad Republicans removed it to help the rich. News: there are still (reams of) bank regulations and an entire structure of regulators.
To borrow from someone else:
"Either SVB was incompetent or this is a case of moral hazard, taking excessive risk and expecting political favors and bailouts. It turns out SVB’s real “hedge” was to curry favor with the Biden administration. In 2022 SVB publicly committed $5 billion in “sustainable finance and carbon neutral operations to support a healthier planet.” SVB’s 2022 ESG report lists a litany of “cross-function working groups,” including a “Sustainable Finance Group” that monitors progress against SVB’s Climate Commitment and an “Operational Climate Group” that “monitors implementation of operational greenhouse gas reduction initiatives.” Rather than apply basic risk-management practices, SVB resorted to lobbying for looser risk limits."
..."The psychology of bank panics is less important than not creating them in the first place by doing the things that SVB was doing. And it looks like their "hedge" was, like the crypto fraud dude, to curry favor with the people supposedly watching over them. " ...
How is "not creating them in the first place by doing the things that SVB was doing" even possible, let alone more important, without first understanding "the psychology of bank panics"?
Corruption and fraud in dealings between bank management and elected officials does not constitute--or deserve the name of-- a financial "hedge".
Or this:
"SVB misread its customers’ cash needs. Risk management seemed to be an afterthought. The bank didn’t even have a chief risk officer for eight months last year. CEO Greg Becker sat on the risk committee.
As customers asked for their money, SVB had to sell $21 billion in underwater longer-term assets, with an average interest rate around 1.8%. The bank lost $1.8 billion on the sale and tried to raise more than $2 billion to fill the hole.
The loss flagged that something was wrong."
Obviously my use of "hedge" was sarcastic. The point is, as many other commenters have noted, it's a little odd to focus on the psychology of bank panics rather than not letting your bank get into such a position in the first place. SVB got themselves into a non-tenable situation, as this concise summary from WSJ describes:
"Management screwed up interest rates, underestimated customer withdrawals, hired the wrong people, and failed to sell equity. You’re really only allowed one mistake; more proved fatal. Was management hubristic, delusional or incompetent? Sometimes there’s no difference."
You don't create this specific bank panic in the first place by not doing all the things in that list above. Like this from the same article:
"Everyone, except SVB management it seems, knew interest rates were heading up. Federal Reserve Chairman Jerome Powell has been shouting this from the mountain tops. Yet SVB froze and kept business as usual, borrowing short-term from depositors and lending long-term, without any interest-rate hedging. The bear market started in January 2022, 14 months ago..."
Bingo.
Yes.
Although I also think had Dodd-Frank not been undermined, the situation _might_ have been mitigated—the key word there being "might." Interestingly enough, SVB CEO Becker apparently lobbied hard for that relaxation of Dodd-Frank. Be careful what you wish for, eh? 😀
Anyway, the loan program the Federal Reserve has opened to help keep money flowing through the banking system will be backed by taxpayer money. But, hey! It's NOT a bailout.
I think Biden has just lost all chance of winning the 2024 election.
Never forget that it is now about ballots not voters. If the Republicans are smart they will realize there are lots of Alzheimer’s patients in red areas that should not be “denied” the vote.
You're on a roll today, Madjack! 😀 That made me laugh out loud.
And, of course, those among us with progressive leanings are already combing the 2020 census findings for unexploited pockets of dementia-addled perps in blue states! 😀
Absolutely not a bailout under any possible definition 😅😅
Per 2024 hard to say. On the one hand people’s memories are short, and there will be endless shiny news cycles to distract us between now and then. On the other, I was just reading somewhere that there are many banks not quite as reckless as SVB but nevertheless holding piles of treasury bonds and mortgage backed securities whose value has plummeted and without having hedged against rate hikes. So we could be looking at a wild ride.
All eyes are on Credit Suisse! 😀
"...material weaknesses in its financial reporting over the past two years..." Hmmmmm. What's that pig-Latin for? 😀
SVB was too focused on ESG, DEI and climate change.
Although I do not favor those areas the real problem was a lack of a hedge for interest rate risk. Sadly banking 101
Multiple things are true at the same time here. You are correct on the lack of a hedge for interest rate risk. It’s also true that SVB used their increased assets to make higher risk loans to further their ESG and DEI objectives. Both are contributing to the problem.
I agree.
I agree with you.
Apparently, SVB didn't even have a chief risk officer between April 2022 and January 2023.
Classic asset-liability mismatch. Might have been avoided had the Trump Administration not neutered Dodd-Frank. I mean, at least they would have been required to do stress tests.
Yes, yes, yes, yes, YES.
Thank you. SVB's risk management department must have been moonlighting from the Primate House of the San Francisco Zoo. 🍌
Their risk management department was underemployed and focused on promoting lesbianism for DEI events.
https://www.zerohedge.com/markets/fatal-distraction-senior-svb-risk-manager-oversaw-woke-lgbt-programs
It would not at all surprise me to find out that the San Francisco Fed (supposedly the regulators watching over SVB) were also laser focused on ESG and diversity initiatives. They probably have detailed charts of the LGBTQ and race metrics for all the banks they regulate which they pore over daily. Actual banking practices? Yawn.
That’s an insult to primates at the zoo.