What we’re reading (3/15)
“How Good Is Current Stress Testing?” (Marginal Revolution). (Citing a tweet stating: “To me, the biggest culprit in SVB’s failure is that the fed’s most severe stress test scenario in 2022 didn’t even consider the possibility of rising interest rates. Asleep at the wheel.”). “I know how easy it is for some of you to write your Op-Eds calling for more, more, more regulation, but banking is already a remarkably regulated sector. Maybe sometimes those regulations just don’t work so well. (I still recall the earlier call for “have them hold more government securities!”) And you can’t just blame that on the ‘plutocrats,’ the ‘tech bros,’ or whatever.”
“Why (Almost) Everyone In Washington Is Ticked At The Fed” (Semafor). “Lawmakers are asking how examiners at the Federal Reserve Bank of San Francisco, which was in charge of supervising SVB, failed to spot signs of trouble that later sparked a run by its depositors. They note that the issues were readily visible on SVB’s public financial statements, and drew attention from short-sellers months before. Making the optics worse: SVB’s CEO sat on the San Francisco Fed’s board until Friday.”
“How Goldman’s Plan To Shore Up Silicon Valley Bank Crumbled” (Wall Street Journal). “ Goldman had lined up a slate of investors at $95 a share, about $11 less than the day’s closing price. At around 5 p.m., Goldman bankers got a report on SVB’s deposit outflows. The bank’s lawyers at Sullivan & Cromwell LLP said the deal couldn’t go forward without a disclosure about the deposit losses. Goldman abandoned the deal.”
“The Silicon Valley Bank Crisis’ Parallels To The 1980s” (Axios). “From 1980 to 1994, nearly 1,300 of these smaller, home loan-focused banks failed. And they failed mostly because of at least one issue that plagues us today: high inflation that prompted big rate increases by the Fed. The S&Ls were in the mortgage business, and when they made these loans they held them on their books. As rates rose, those mortgages were worth less and less — a sort of corollary to the mortgage-backed and government securities sitting on SVB's books.”
“Swiss National Bank Will Provide Credit Suisse Financial Support ‘If Necessary’” (Washington Post). “Shares of Credit Suisse plunged more than 20 percent Wednesday before rebounding somewhat. The Dow Jones industrial average fell by almost one percent and European banking stocks tumbled, contributing to a 3 percent fall in the Pan-European Stoxx 600 index.”
