This is why I don't like bonds... Their inverse valuation with rising interest rates.
The FED's rising interest rates are analogous to the tide going out, so we can see who is and isn't wearing swim trunks.
It appears that SVB bank got tangled up by treasury bonds on their balance sheet that dropped in value as interest rates went up... Of course this is an oversimplification (there are multiple ways to value bonds, etc).
If you want to be angry at somebody how about the SVB bank President Greg Becker who sold $3.5M of common stock 2 weeks before the collapse. The rest of the bank's shareholders are expected to get zip.
According to President Biden this is ex President Trump's fault. Opinions vary (even Barney Frank doesn't agree).
==
Bank deposit insurance protects deposits up to $250k but reportedly they are also protecting larger accounts at SVB. This could create some moral hazard if people don't behave responsibly. Signature Bank in NY is getting similar assistance.
The government needs to manage contagion risk. Unlike old fashioned bank runs, modern electronic funds transfers can quickly deplete bank assets. Its not like when George Bailey could just lock the doors.
Interesting times... This will probably give the central bankers motivation to pause the rising interest rate environment.
JR
The FED's rising interest rates are analogous to the tide going out, so we can see who is and isn't wearing swim trunks.
It appears that SVB bank got tangled up by treasury bonds on their balance sheet that dropped in value as interest rates went up... Of course this is an oversimplification (there are multiple ways to value bonds, etc).
If you want to be angry at somebody how about the SVB bank President Greg Becker who sold $3.5M of common stock 2 weeks before the collapse. The rest of the bank's shareholders are expected to get zip.
According to President Biden this is ex President Trump's fault. Opinions vary (even Barney Frank doesn't agree).
==
Bank deposit insurance protects deposits up to $250k but reportedly they are also protecting larger accounts at SVB. This could create some moral hazard if people don't behave responsibly. Signature Bank in NY is getting similar assistance.
The government needs to manage contagion risk. Unlike old fashioned bank runs, modern electronic funds transfers can quickly deplete bank assets. Its not like when George Bailey could just lock the doors.
Interesting times... This will probably give the central bankers motivation to pause the rising interest rate environment.
JR