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I’m still shocked that people will openly admit this. This is not an excuse.

“ Punit Soni said startup founders like him­self don’t usu­ally have timeto think about di­ver­si­fy­ing bank ac­counts. They are pulling all-nighters try­ing to build their prod­uct or ser­vice, raise cap­i­tal, hire new en­gi­neers or ac­com­plish dozens of other tasks re­quired to build their nascent busi­ness. ”

https://www.wsj.com/articles/easy-loans-great-service-why-silicon-valley-loved-silicon-valley-bank-6b3f203e

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author

Good WSJ op-ed today:

How SVB ‘Profited’ From Interest-Rate Risk

An accounting rule created an incentive for the collapse.

https://www.wsj.com/articles/how-svb-profited-from-interest-rate-risk-accounting-rules-deposit-fdic-federal-reserve-coupon-held-to-maturity-ec43418a

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really good

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Thank you for the insightful and informative article. Maybe an article on potentially similar issues (HTM unrealized losses) at select regional banks, such as Western Alliance, some online banks (including Marcus at GS), would be interesting to the readers

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Mar 12, 2023Liked by The Rational Walk

Thank you for this artlcle.

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The WSJ opening paragraph from an article posted this afternoon. This paragraph boiled things down very simply.

Sil­i­con Val­ley Bank’s fail­ure boils down to a sim­ple mis­step: It grew too fast us­ing bor­rowed short-term money from de­pos­i­tors who could ask to be re­paid at any time, and in­vested it in long-term as­sets that it was un­able, or un­will­ing, to sell.

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Mar 11, 2023Liked by The Rational Walk

Well written and easy to understand. Thank you.

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Mar 11, 2023Liked by The Rational Walk

Ravi, one of your best and most timely pieces! Thanks!

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Thanks for your analysis!

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Mar 11, 2023Liked by The Rational Walk

As an ALM actuary it always amazes me when bank regulators tell life insurers that banks do ALM better. All could improve. In today's environment too many are relying on rules of thumb that are no longer appropriate. Risk teams should all be running scenarios based on cash flows and market value in addition to those based on GAAP. Finance 101 gets forgotten as you get more sophisticated.

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Mar 11, 2023Liked by The Rational Walk

No one forced SVB to buy long dated highway yielding HTM bonds back when interest rates were much lower. Berkshire chose lower yielding short dated bonds because of such a risk (not the only reason Mr. Buffett chose such a strategy). Maybe Berkshire can keep SVB afloat in return for a 10% preferred?

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SIPC is more than FDIC. Some firms even have supplemental insurance on securities. There are money market mutual funds yielding over 4%.

Bank customers are bound to put pressure on banks.

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author

I wish I had seen this tweet from Bill Ackman before posting this article… the idea that (sophisticated) depositors with over $250K in a bank didn’t realize what they were doing seems crazy to me. Bailouts cannot be the perennial answer.

https://mobile.twitter.com/BillAckman/status/1634564398919368704

“By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank.”

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Excellent post. Not everyone appreciates the accounting nuances. Thanks!

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Mar 11, 2023Liked by The Rational Walk

I appreciate the cogent explanation!

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Interesting that banks don’t have to mark to market their portfolio yet other companies (like Berkshire) do? Is this to try to provide stability to bank financial statements or something?

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