One of the many Wall Street analysts I follow is Barry Ritholtz, who is an annoying liberal on politics, but shrewd about the world of finance. He has a long note out this morning about SVB that says, correctly, that no one knows anything for certain. And here are his ten very good questions:
1. Why did the bank have so much capital wrapped up in long dated Treasuries? Who was advising them? Bond Investing 101 is shorten your duration during a rate hiking cycle – how was this unknown to them?
2. Why did Peter Th[ie]l’s Founder’s Fund (and others) advise companies pull deposits out of SVB? What was the concern? What non-public information did they have beyond the publicly announced capital raise? Were there any other conflicts of interests, legal or otherwise?
3. How much of this is related to the hangover from the Great Financial Crisis? One aspect of the GFC was junk paper was often not marked to market on a timely basis – the banks “marked to make believe” and created a misleading picture of their solvency. We changed the rules for that. But why are we marking to market Treasury Bonds if they are “money good” at maturity? Should we carve out exceptions to the asset book marks for paper the Fed will repurchase at Par?
4. What was the impact of the rollback of Dodd Frank in 2018 during the Trump Admin? CEO of SVB had requested – and won – some rule changes, what was their impact? Did that have a material effect on the investment book maintained by SVB? How and in what way?
5. When did the San Francisco Fed learn SVB/Signature were running into problems? What access did the FRBSF have to the SVB investment book? Did they pass this info on in a timely manner to the Federal Reserve?
6. Could the regional FRBSF or the Fed itself have helped facilitate a capital raise without disruption? We do not know what was known when.
7. What was the role of messaging here? Did miscommunication from the bank play a role in the subsequent panic?
8. What was the impact of the most rapid set of rate increases in history have on this event? Was the FOMC a factor in seeing off a bank instability? Was the Fed on both sides of the instability here?
9. What other banks might have similar issues with their “safe” investment portfolio? What don’t the regulators know about the regionals that they should?
10. Who ends up owning these banks? Do they become part of a major (Chase, Bof A, Wells Fargo, Citi) or do they stay a regional? What is the purchase price? Shareholders are wiped put, but do bondholder see any capital?
Ritholtz provides this look at the current Fed tightening cycle:
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