[Finance] SVB - New banking crisis looming?

[medwayseagull reborn]

That well known capitalist country China seems to have its share of problems with a property ‘bubble’

China has been a capitalist country for years. The only difference is that it is run by a totalitarian regime.

 

[Comrade Sam]

That well known capitalist country China seems to have its share of problems with a property ‘bubble’

It's a hard task to describe China as anything but a ruthless 1 party capitalist system. So no surprises when it has property bubbles and banking crisis of its own.

 

[jakarta]

Those well known philanthropists HSBC have stepped in so all is good....

HSBC to buy UK arm of Silicon Valley Bank

The sale of the UK arm of SVB to HSBC will come as a relief for many UK tech companies.

www.bbc.co.uk

 

[beorhthelm]

Can you explain this more? I get that as yields go up, bond prices go down. Interest rates/yields are higher now than a few years ago, so bond prices are lower (I think that's right?). Why is that a problem in this situation?

there's a couple of things, one technical i dont really get, the other simple enough: if they are offering 1.5% interest and you get 4% in gov bonds, you withdraw to put the money there instead. the technical one is to do with the bank investing in bonds that are now worth significantly less than when bought, they are tied to those earlier bond prices. as they get affected by the simple issue (people withdrawing for better returns) they become more at risk of exposing the complex issue (illiquid long term assets). other banks may have kept a more fluid balance sheet, selling and rebuying bonds as prices changed and not as exposed to the second.

 

[Neville's Breakfast]

There is moral hazard in bailing out a bank or its customers. It is up to shareholders to prudently manage the business and it is up to customers not to place too much of their funds with one niche bank. If the Government steps in then risk decision making will get even worse because of that safety blanket. I thought we had been through all of us 2008-13.

 

[Neville's Breakfast]

there's a couple of things, one technical i dont really get, the other simple enough: if they are offering 1.5% interest and you get 4% in gov bonds, you withdraw to put the money there instead. the technical one is to do with the bank investing in bonds that are now worth significantly less than when bought, they are tied to those earlier bond prices. as they get affected by the simple issue (people withdrawing for better returns) they become more at risk of exposing the complex issue (illiquid long term assets). other banks may have kept a more fluid balance sheet, selling and rebuying bonds as prices changed and not as exposed to the second.

The value of the bonds on their balance sheet declines as their bond prices fall in value. Consequently they have declining capital and counterparties pull credit and trading lines. Bit of a disaster for a bank. They have taken too much risk. Same old same old.

 

[dazzer6666]

The value of the bonds on their balance sheet declines as their bond prices fall in value. Consequently they have declining capital and counterparties pull credit and trading lines. Bit of a disaster for a bank. They have taken too much risk. Same old same old.

I do find it odd the low interest bonds they were holding ‘to maturity’ didn’t need to be marked to market - thereby distorting the balance sheet. Even if they had though, the collapse still could have been avoided - they messed up strategically with how they communicated with the market and their clients, which caused the run on the bank - a lot of their clients were VC firms who are smarter than they are. FDIC are covering all deposits (including those above 250k) as necessary.

 

[beorhthelm]

The value of the bonds on their balance sheet declines as their bond prices fall in value. Consequently they have declining capital and counterparties pull credit and trading lines. Bit of a disaster for a bank. They have taken too much risk. Same old same old.

as i have read, this isn't quite the case. they've invested too heavily in the wrong sort of bond, that are held to end of the term, rather than more liquid bonds they could sell day to day. mis-managed, not too much risk.

 

[Neville's Breakfast]

as i have read, this isn't quite the case. they've invested too heavily in the wrong sort of bond, that are held to end of the term, rather than more liquid bonds they could sell day to day. mis-managed, not too much risk.

Presumably that choice of bond would have earned a higher return relative to more liquid bonds ? The strategy would have paid off in a stable bond price environment. It could be argued that they took the risk of a low probability outcome that has actually come to pass. I am only speculating though. First I had heard of this bank was yesterday.

 

[Neville's Breakfast]

I do find it odd the low interest bonds they were holding ‘to maturity’ didn’t need to be marked to market - thereby distorting the balance sheet. Even if they had though, the collapse still could have been avoided - they messed up strategically with how they communicated with the market and their clients, which caused the run on the bank - a lot of their clients were VC firms who are smarter than they are. FDIC are covering all deposits (including those above 250k) as necessary.

Yes, financial market accounting regulation still has a long way to go and there are a lot of vested interests trying to roll it back.

 

[Triggaaar]

I assume tax payers will bail out the guarantees. What a clever system that capitalism is.

We need to switch to communism asap comrade

 

[dazzer6666]

Yes, financial market accounting regulation still has a long way to go and there are a lot of vested interests trying to roll it back.

US rules were relaxed in 2015 - allowing SVB to do what they did…..after lobbying to the Senate…….by SVB’s president

SVB Chief Pressed Lawmakers To Weaken Bank Risk Regs

Collapsed bank’s president told Congress “enhanced prudential standards” should be lifted “given the low risk profile of our activities.”

www.levernews.com

 

[dazzer6666]

I assume tax payers will bail out the guarantees. What a clever system that capitalism is. Meanwhile Aramco made $161 billion profit.

No - FDIC is funded by insured institutions.

 

[Super Steve Earle]

I assume tax payers will bail out the guarantees. What a clever system that capitalism is. Meanwhile Aramco made $161 billion profit.

SVB UK bought by HSBC for £1 and will take over all their assets and liabilities. No cost to the UK taxpayer. Thank goodness for capitalism.

 

[BLOCK F]

There is moral hazard in bailing out a bank or its customers. It is up to shareholders to prudently manage the business and it is up to customers not to place too much of their funds with one niche bank. If the Government steps in then risk decision making will get even worse because of that safety blanket. I thought we had been through all of us 2008-13.

All very well for individuals,but in this instance, rather more tricky for those tech businesses who banked with SVB to spread their funds all about the place. Many companies must be mightily relieved that the bank has been purchased by HSBC. Deep shit otherwise.

 

[Machiavelli]

That well known capitalist country China seems to have its share of problems with a property ‘bubble’

Are you suggesting that China hasn't embraced capitalism (to whatever extent)?

 

[ForestRowSeagull]

All above points are pretty much spot on. They duration matched their assets with govt bonds, however they've obviously taken a hammering with yields going from circa 1% to 5%. A run on the bank would force them to sell those bonds at a loss, meaning there is a big gap between what they have and what they owe. As above also they'd classed these as held to maturity, and weren't marking them to market, which seems naive at best.

 

[beorhthelm]

not over yet, shares in another US bank First Republic are plummeting in pre-market trading.

 

[BLOCK F]

not over yet, shares in another US bank First Republic are plummeting in pre-market trading.

Shares down about 60% in pre-market, despite extra funding from the Fed and JPM!

 

[RandyWanger]

Just seen an email from a client asking us NOT to pay an invoice... Guess where they bank with