12 Comments

Treasury bills mature in one year or less. SVB owned treasury notes, not treasury bills.

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Thanks for pointing it out Jay, have corrected it.

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Time for change. Allow banks to have private commercial insurance or reinsurance on their deposits. FDIC charges the same premiums to all banks irregardless of how reckless they are. Insurers can and will charge more for bad management in premiums just like they do in all consumer and business lines. Look at drivers in Massachusetts where all drivers are charged the same. No one cares how bADLY they drive. Safe drivers pay the same as bad drivers. Conservative banks will pay lower premiums and thrive. Bad banks will either reform or go out of business

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No, the FDIC limit should not be increased. Why should the middle class and poor insure the deposits of multi $M companies, when they are fully capable of doing this themselves? That’s what CDS’s and the likes are for. If these companies did not think about doing that, then they are taking the risk of flying naked and unprotected. No point in coming crying to the govt. because you lost your house in a fire, when you didn’t even think about insurance.

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Thanks for this long and well-balanced article. Just one question; I'm a subscriber to Bonner Private Research and on their substack they explained that SVB invested in Mortgage-Backed-Securities (instead of Treasury Notes): "As deposits expanded, SVB bought at least $80 billion worth of Mortgage Backed Securities (MBS) with an average yield of 1.5%. MBS are liquid and higher yielding than boring old ‘risk free’ US government bills and notes." They do not show from where comes this information.

However, as a very small investor I'm always baffled how "the big guys" in Finance are prone to mismanagement.

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So I think you might have made a mistake on fractional reserve requirements. They got rid of this in 2020, even in the Investopedia article you linked it says the following:

“On March 26, 2020, the 10% and 3% required reserve ratios against net transaction deposits were reduced to 0% for all banks, essentially removing the reserve requirements altogether.”

This also means that, kind of counterintuitively, it’s actually the interest a bank earns from loans which enables them to pay interest on deposits. There’s a great episode about this on the podcast you just tweeted as being the #5 investing and finance podcast. Hopefully I’m not misunderstanding anything but I just wanted to point that out! Thanks for the write up.

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More opportunity to invest in the upcoming dip and make some money! Sorry about your vehicles getting smashed by that tree with Cooper. I own a landscaping company and the odds of that happening is super slim. Glad y’all were okay.

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Thank you for your timely research. This disaster proves that not all fund managers are sophisticated in risk management as they are supposed to be.

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Excellent article Graham.

Pension funds could be next like the fiasco in Britain with the Bank of England coughing up £65bn to save them. Again government bonds the problem.

The Australian banks are majorly exposed to the housing loans market which could end in tears.

Thank you, Fraser Seith

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Cash mgmt is the duty of the controller or treasurer in a business.

Not too difficult if you are told by mgmt what the timeline of future needs are, and that timeline is accurate.

When not accurate, problematic.

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The bank is generally in the business of lending for a fixed period of time, but its liabilities are often demand deposits, callable instantly. Its an inherently somewhat dangerous situation... because of that possible timing difference.

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