In 2018 govt rolled back post-GFC regs that could've helped prevent this. The bank bought too many long dated bonds that fell last year as rates rose. Perfect storm of mismatched assets vs deposits. It's not a credit issue like in 08 but public doesn't understand that and can create a run on banks regardless. Smaller regional banks (Truist et al) more potentially susceptible than giants like JPM. All depends how many long bonds they owned and how many people yank funds. Now that tides going out we'll see who else is swimming without trunks on...
It's interesting because you don't have garbage assets like in 08. You just have long bonds that are underwater for right now, but will mature at par at some point. So if an entity can hold them it's fine. But ifyou have depositors all wanting their money out at the same time, the bank's forced to sell at a loss to raise the $. Complete failure of management oversight of (fairly basic) bond duration risk, like financial management 101 stuff. There's nothing really exotic going on here. You can and probably should bailout deposits, but not SVB stock/bondholders, IMO. The question is what entity covers the "bailout" in exchange for taking those long bonds onto their balance sheet and holding them to maturity, because the entity would need to advance a dollar now but accept a $0.60 bond today that will one day be worth $1.00, kind of like an IOU. Interesting times. This is what happens when you artificially suppress interest rates for YEARS and throw $5T of stimulus onto a post-pandemic economy, then rapidly jack up the cost of money by raising rates: certain things are likely to break. 😉 My two cents.
Good post. I guess your two cents is no 0.6 cent.
The amt of crappy derivatives and swaps,are 100 times greater today than in 08,from what I've read.
They didn't clean up shit then,they just kicked the can.
Now the can is too big to kick.
Hedgies and banks are fuked.
They didnt clean up and the 2018 no renew of regs is a drop in the bucket vs naked dhorts, hypothicate shares, derivitive markets, bond market chaos and more.
Yellen sporting some stubbed toes from trying.
100% accurate.
They really should have seen this coming.
This is what fractional reserve banking leads to.
Let's just assume for a moment the general use of dollars in an account. What is not yet on the horizon to be used, could be used to park it somewhere where it at least does not devalue.
Normally, a bond paying interest would not be a bad idea. The Mix of short, medium, long duration is important in order to be able to quickly exchange bonds for dollar to meet customer demand.
However, the money policy of the fed is rather peculiar, and only those in the know, are able to navigate that sea. So we have increasing levels of interest leaving the lower interest bonds at a discount, leaving the holder actually without a market unless the discount looks interesting to a prospective buyer.
Combine this with a huge amount of money printing, leaving a lot of excess cash to be parked at the fed.
So, what is fueling inflation? Supply side issues.
I am sure the Wokians are capable of thinking they can land such a plane. And they did. Underwater.
hahahha, I have to admit. Going to shit does not cover it ...