Quote:
Originally Posted by Cali Panthers Fan
EVERY single bank has exposure to buying treasury bonds. This was just an institution that was more vulnerable than most to exposure, and the hedge fund guys called them on it to try and lower interest rates.
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Every single bank has treasury securities, but buying long bonds instead of short term bills was a choice that SVB management made to try and make more interest income.
I don't have much sympathy for the VCs and their portfolio companies who both caused this run and are the exposed depositors, and if I was running the Fed/FDIC I wouldn't have backstopped SVB deposits past the 250k.
I would however have backstopped all the other regional banks to stop the run from spreading. That said, if you're going to backstop the regionals then they should have to do the stress tests like the explicitly too-big-too-fail banks. The extra regulations make the large banks structurally safer, but also less profitable, which is unfair.
As just one example, you mentioned First Republic. They have a great reputation among high net worth types because their strategy is to only serve high income people. They offer the best rates on Jumbo mortgages to get clients, and then use a personal relationship manager model with commissions and high service to get other products into their clients. The big banks can't match their jumbo loan rates because of the extra capital they have to put up against jumbo loans. It doesn't seem fair to me that the government/other banks backs their deposits when things are bad but they get to have looser rules so they can offer lower rates to rich people when times are good. Fine their deposits get backed above the limit (which probably saved the bank) but then they should have to play by the same rules as the banks that already had that backing.
As for First Republic's stock price, it was previously way overvalued. Its gone down a bunch, but part of that was the drop from way too expensive for a bank to a normal valuation. Their client base includes tons of investment manager types, and you can find fawning investment write ups about how their great service for rich people is a competitive advantage and so their deserve to be valued like a growth company not a bank.
Edited to add: they also offer the best rates on student loan consolidation and loans to buy into an investment/law/accounting partnership. Same principles, only high income types (usually what they call HENRYs or high-income-not-rich-yet) as a way to build a relationship. Again, not sure looser banking regulations should subsidize that.