LogFAQs > #972166901

Samurai7 posted...

Their risk management position was only filled in January and had been vacant for nine months. Also the invested almost entirely in bonds which lose value as interest increases. If they had a qualified risk management employee they would've avoided this easily with better diversification. If you have 30 minutes and are really interested I recommend watching Patrick Boyle's take on it as he seems very thorough to me.

https://youtu.be/GdfYnqyu7v8

Uh, banks can't really invest customer funds in stocks. Any stock can go down in value, which is fine for a typical investor as the risk they accept but not for a bank which is investing its depositors' money. Diversification protects against huge losses but a bank also cannot tolerate even relatively small losses because they are using customer money.

The reason they invest in bonds is because if you hold to maturity, the only way you can lose money is if the company/government that issued the bonds defaults. If you have to sell before maturity, the price can go down because there are now better opportunities to lend money at higher interest rates. Now of course SVB didn't do well in managing risks but it's not as simple as having more diversification.

LordoftheMorons posted...

My understanding is that they werent subject to the same regulations as big banks even though they were pretty large; the solution is probably for Congress to make banks like them subject to those regulations after all I think

Unfortunately, we never solved the "too big to fail" problem from last time. Our too big to fail banks got bailed out, and are even bigger now than before 2008. The action of regulators this last week will only push depositors to place even more money with a very small number of "too big to fail" banks, since the signal is that the government will allow medium sized and regional banks to fail. But if it was JP Morgan or Goldman Sachs? There'll be a bailout, which they will try hard to assert is not a bailout. So for customers, it doesn't make a whole lot of sense to keep money in non-mega banks anymore.

The flip side may be greater regulation, but if we are going to have a super class of too big to fail banks which are regulated to the extent that they are basically run by the government.....