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WorshipNickOfferman t1_jc5glx2 wrote

Reply to comment by nowyourdoingit in Silicon Valley Bank posted 'financial crimes' senior manager job listing just before closure by carolinaindian02

Problem with SVB was that they were too cautious. They had a massive portfolio of low interest real estate mortgages and were left holding the bag when interest rates climbed. But this is Reddit and what really happened doesn’t matter.

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rood_sandstorm t1_jc5hljd wrote

They didn’t have a risk management team, which could have prevented that

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Science_Over_Twitter t1_jc5m3s0 wrote

Why bother with a risk management team when they can go straight to hiring the financial crimes manager? /s

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WorshipNickOfferman t1_jc5hsbe wrote

You have an authority on that? Cause google says otherwise. Curious where your information is coming from.

Edit: the lack of an appointed “risk management chief” does not mean SVB did not have a risk management team. It had one. That team just did not have a full officer running it. Guess these distinctions are lost on people around here. Nothing new.

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carolinaindian02 OP t1_jc5k9e4 wrote

They didn’t have a risk management officer between April 2022 and January 2023.

Edit: and the risk officer they eventually hired turned out to be ex-Deutsche Bank.

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jimbosdayoff t1_jc5q1bk wrote

That sounds like a recipe for...a situation with unmanaged risk

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AzertyKeys t1_jc5rk7w wrote

Thanks for posting that. This website turned into Facebook

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WorshipNickOfferman t1_jc5rq2l wrote

It’s Reddit. “Bank bad” is all they know. Heaven forbid anyone put any effort into actually understanding what is happening in the world. Knee jerk reactions win the day around here.

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Greenmind76 t1_jc6blrf wrote

Most people are tired of seeing bad banks get bailed out and PPP loans be forgiven, while the government argues over forgiving $10-20k of student loan debt…

Let’s not also forget that many people still remember the bullshit from 2008.

Not saying you’re wrong, just saying shit like that leads to a lot of resentment from a lot of people.

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SuckMyBallz t1_jc7ah9r wrote

Nobody got bailed out here though except people who had their money in the bank. The bank didn't get bailed out. They no longer exist. The feds are going to give everyone their money that they deposited then recoup the costs by selling off the banks assets. No body is getting free money in this scenario. The back is shutdown and the consumers who had money in the bank will be made whole. This is the opposite of the 08-09 bullshit.

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shalafi71 t1_jc9d647 wrote

And if the consumers weren't made whole, those are some of our company vendors. Price hike for us, less money for us.

I should note: My company shares profits very equitably and is 100% aboveboard as to reporting our financial health and plans.

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funkyb001 t1_jc61wmh wrote

This is entirely missing the point. It isn’t just “bank bad” it’s “some banks bad, this one might be, but I don’t give a fuck either way”.

This is not unreasonable. You can get cancer and fall into unassailable medical debt whether you are a good person or not. Why should those people squeezed dry by capitalism give a shit when a bank falls to the same system?

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damola93 t1_jc705xw wrote

Ya, it was terrible risk management. They essentially made a bet that interest rates won't go up in the next 5.6 years(average length of the bonds), starting from 2021. They also didn't hedge against that bet, which you would see on r/wallstreetbets.

They probably had, and they did a terrible job or were overruled.

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The_Northern_Light t1_jc5w65w wrote

> Problem with SVB was that they were too cautious.

absolutely wild take lol can I have some of what you're having?

from Patrick Boyle's video on SVB:

> [...] they basically had no hedges in place at all. To be really clear, this is not just extremely unusual, it is unheard of. All large banks hedge their interest rate risk. They do it because if you don't, you can be wiped out (as we've just seen).

and that's just part of how negligent SVB was

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damola93 t1_jc70lbr wrote

This is the weird part for me, that is typical of what you would see on WSB and not a bank holding 200 billion in deposits.

They also used legal accounting tricks to hide their unrealized losses on the bonds they bought.

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The_Northern_Light t1_jc7x1g7 wrote

Exactly. It may or may not be criminally negligent but it sure smells like it is.

Saying they were “too safe” when they went so heavy on hold to maturity long duration treasuries when we were at zero overnight rate because “they were treasuries” is just delusional.

They were in the riskiest asset they could be without having additional reserve requirement and they were utterly unhedged. They saw a train coming and tied themselves to the tracks.

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jessquit t1_jc5wlle wrote

lolno, they gambled everything on interest rates staying low (despite everyone and their dog talking about the obvious inflation trend) instead of doing the actually risk averse thing and hedging

ridiculous take bro, banks don't go bust because they're risk averse. smh at your ironic edgy take at the end too

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san_serifs t1_jc6nd6b wrote

The sheer speed of this bank’s collapse is why I’m considering selling all my individual positions and putting it all in indexes.

Don’t want to go out for lunch and come back to a company I hold getting a 60% haircut while I’m eating a sub sandwich.

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ultramatt1 t1_jc78hz4 wrote

You don’t need to fully sell all the individual positions but the majority of your equity investments should definitely be in index funds

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Redpandaling t1_jc5iutj wrote

Didn't they also have a pile of government bonds, but from the pandemic, so no one wants them?

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WorshipNickOfferman t1_jc5ixup wrote

Essentially yes. They were over-invested in “safe” investments that lost lots of value when interest rates stated climbing.

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bool_idiot_is_true t1_jc5wuu9 wrote

The problem is bonds are used as a hedge when the other markets turn to shit. They're a lot less valuable when inflation is high.

They have low interest rates but since governments, especially the US government (as long as the debt ceiling fuckery gets resolved), are very reliable debtors so there's almost no risk in getting paid back. Because the interest is a set amount over time; if you want to liquidate them quickly you'd need to sell them lower than whatever the remaining interest is. Profit margins are razor thin at the best of times.

Right now high inflation means the bond markets are crappy in general. So the SVB bonds were sold at a steep loss.

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Arrrrrrrrrrrrrrrrrpp t1_jc5u2q3 wrote

Uhhhhhhh no.

That’s not cautious. They could have held shorter term bonds, but they wanted more $$$$$ so they got longer term

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LonnieJaw748 t1_jc5u6ep wrote

Source on that? Of all the circumstances leading up to their demise, first I’ve heard of what you’re claiming here. Mostly it was they got greedy on long term bonds when rates were zero or near zero, didn’t keep the correct proportion of shorter term bonds, then the fed stopped QE and went QT, putting their bond portfolio underwater when it didn’t have to be. Had they sought more shorter term bonds that would have given them lower returns but at least the liquidity to handle the bank run, they wouldn’t have had to eat shit selling “held to maturity” bonds at a massive realized loss. Where did you read that mbs had anything to do with their shite portfolio and risk management?

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hugganao t1_jc5rzsx wrote

honestly at this point the WHY doesn't even fking matter, because according to everyone on reddit, they all fking saw it coming a mile away?

It's down to who they're going to hold responsible and how.

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WorshipNickOfferman t1_jc5tkwq wrote

No one on Reddit saw this coming. Most people on Reddit don’t even understand what happened. And the WHY is extremely important. It lets us learn and prepare for next time.

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hugganao t1_jc5tqin wrote

Well according to reddit, the solution was to just have better risk management. Talking to a bank. A bank of all places lol

Regardless the ppl who's opinions actually matter know what happened. So really what matters is how they go about dealing with it.

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Adventurous_Aerie_79 t1_jc5tkur wrote

> It's down to who they're going to hold responsible and how.

Somehow I'm sure the public will be the ones writing the bailout checks.

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WorshipNickOfferman t1_jc5tof6 wrote

Except that’s not how this bail out is working. But keep on spreading misinformation. That’s what Reddit’s good for.

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CreamPuffDelight t1_jc5uyy2 wrote

I love how sanctimonious and all knowing you are, on reddit.

Its as if you don't realize at all that you're doing exactly what you're condescending all the other redditors about. There's a word for that you know.

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Adventurous_Aerie_79 t1_jc5yh6e wrote

agreed, he epitomizes everything he hates about reddit. And he seems to want to respond to every comment, usually in a prett dickish way.

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Adventurous_Aerie_79 t1_jc5u1rk wrote

yes, hence the "somehow". I've seen too many bank bailouts in my life to beleive the banks will cover it.

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beepos t1_jc60a9u wrote

The problem though is that their portfolio seems to only have been long term T bills. They didnt have adequate amounts of short term And medium term T bills to protect against a run

That's still being greedy. Long term T bills have a higher return than short and medium term bills. Had they not had a run, they'd have been fine.

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san_serifs t1_jc6ms5z wrote

“Interest rates have been ridiculously low for a long time. Surely, they will never go up. Right? “

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DavidlikesPeace t1_jc7h4ph wrote

Diversification is caution. Putting all your loot in one basket is reckless. If I put all my stock into Facebook that wouldn't make me smart.

I do like how you value treasury bonds. They are in truth a vital foundation to the economy. But is it cautious to put all your capital in a long term very low liquid asset? Almost assuredly no!

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ArchimedesQPotter t1_jc672q6 wrote

Everyone screamed for over a year interest rate hikes we're coming, inflation wasn't transitory. They made terrible financial bets.

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