Re:SVB shows that there are few libertarians in a financial ...
by dboreham on Monday March 13, 2023 @05:07PM
(#35142667)
They also had to pay out significant interest to depositors. The graph of those outflows looks like a hockey stick. So seeking a high return on their assets wasn't unreasonable. Presumably if they had paid low interest on deposits, depositors would have moved their money to some other institution, leading to the same outcome.
Re:SVB shows that there are few libertarians in a financial ...
by mathattack on Monday March 13, 2023 @05:42PM
(#35143257)
They chose to. They didn’t need to. If they were getting too many deposits, they could lower the interest they paid on them.
The problem is they bought a bunch of long dates securities yielding 1.5-2% and when the deposits flooded in they started paying more than 1.5-2%.
They have been better off buying T bills or something else without duration risk and paying something less than Fed Funds. This is what most banks do.
They could have just as easily done what most other financial institutions do: match the duration of their liabilities with the duration of their bonds. If people can quickly pull their money, then keep the money in short term bonds and money market funds.
The problem with that is it’s harder to make big bonuses when you’re being fiscally conservative.