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Comment by dahdum | Hacker News Reader

Of course they'll want to blame anything other than the stupidly high risk strategies that got them there.

SVB had the highest compensation in the industry for 2018, and averaged ~$293k/employee last year while hitting top scores for work-life balance, remote options, and employee satisfaction.

For fun...here are the top paying banks in 2018:

1. SVB - $250k

2. First Republic - $247k

3. Signature Bank - $216k

SVB and Signature just failed, First Republic is down 75% over the past 5 days.

https://archive.is/3QXIO

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This is pretty wild, but at the same time, it should be noted that SVB is a commercial bank. The average salary at J.P. Morgan is much lower because they have tons of people working relatively low wage teller (and other retail branch) jobs. I suspect that if you took only those employees in the divisions competing against SVP, the JPM numbers would be much closer.

Keep in mind that it’s precisely because they service only commercial clients that the recent issues his signature and SVB. Very few individuals have more than $250k in a single bank, so there’s no reason for individuals to run on the bank. On the other hand, $250k is not all that much if you are a business with a decent sized payroll.

It’s actually hilarious that the three most troubled banks had the highest employee compensation (though that data is 4 years old). The headline writes itself

This suggests that banking is extremely efficient, basically a textbook example of the efficient markets hypothesis.

The only way you can create outsized returns to pay outsized compensation in that business is by taking outsized risk. Hence the top 3 highest paying banks are also the ones who failed.

This also suggests average compensation is a fantastic short-signal the next time the economy starts re-leveraging.

I still don't understand how banking always pays so well considering how the industry appears to be so good at creating internal level crises every couple of decades.

There are forever headlines in the UK about the banking industry putting pressure on the government to be able to pay out larger bonuses and such. Bank executives opining that they can't get the "best employees" if they don't pay the best. As you suggest it sounds to me like the "best" are the worst/most corrupt biggest risk takers.

Imagine if software had a Y2K every couple of decades that cost the public purse billion while everyone was pushing to pay developers even more. Maybe I don't understand banking but it just seems weird.

> Imagine if software had a Y2K every couple of decades that cost the public purse billion while everyone was pushing to pay developers even more.

Heartbleed, Meltdown, Spectre, log4j etc all cost the taxpayer more than this event.

but more than 2008? My nation has gone through 15 years of deep public spending cuts as a "consequence" of 2008 and the resulting deficit (albeit it was likely just used an excuse to implement anti-public-spending political ideology).

Also I don't remember any of those events dipping into the public purse but rather being commercial liabilities.

Maybe these are not in opposition. Maybe banking need to pay more, because ethical people leave, people who have feeling of guilt want more money to compensate feeling of guilt and the remaining unethical people are good at negotiating for money.

The regular crisis and having a lot of fraud inside is making it expensive.

I'd say it suggests that the banks that were most succesful in growing and attracting depositors were the ones with the best customer service overall.

Problem is, those are also the most finicky, nitpicking customers in the market, and they will bail faster than you can do an equity raise...

Does anyone believe another bank would have collapsed as quickly, even with the same MBS portfolio and impaired loans..if it was composed by a random assortment of customers vs highly networked small opcos + their investors ?

Probably has more to do with the fact that those 3 banks are in 3 very high cost of living areas. New York, Bay Area, Socal

Well they need to pay employees more money to compensate them for keeping their mouths shut and jeopardizing their reputations. Seems like a reality for many companies nowadays.

Crazy to think that people are being compensated based on how much damage they do to society and how long they can keep it going. It's literally the opposite of how the system was intended to work.

I wonder if that is anything more than the lack of retail banking skewing wages. ie you lack lots of branches staffed with relatively low-paid tellers.

Probably that, plus SVB has a disproportionate number of branches in, well, Silicon Valley.

On Zillow right now I see about a dozen homes (not houses) for sale in Silicon Valley for less than $1M and zero for less than $500k within about a 45 minute commute of Sunnyvale. (excluding empty lots and actual trailer parks, and anything under 750 sq feet—and requiring A/C)

Quibble with my filters if you want, but the point is that a person earning these exorbitant SVB comps basically can’t afford to buy a home without spending 2 hrs each day commuting or living in a shoebox with roommates (I guess they could buy that $650k meth house out on the end of Stevens Canyon—-it only needs a little elbow grease: https://www.zillow.com/homedetails/17950-Stevens-Canyon-Rd-C... ).

I would hazard a guess that there are few other banks where back office staff are generally not expected to afford a middle class lifestyle.

And a lack of retail banking is correlated with the percentage of all depositors who have more than $250k, which is correlated with susceptibility to bank runs.

I remember seeing a list on Reddit the other day showing other banks that also were heavily invested in MBSes similar to what SVB were invested in, and First Republic was on that list. I assume the market quickly lost confidence in all of the banks on that list.

Was MBS (mortgage backed securities) a typo here? My understanding was SVB had a huge long term treasury position on the books from before interest rate hikes that was in the red against the market. And their second largest tier was direct loans to things like startups that weren't asset backed but instead default to warranties on the companies taking the loans (I'm not close enough to this to really say that more specifically).

They had over $80 billion of MBS as HTM.

> SVB’s mistake was investing in longer-term mortgage securities with more than 10 years to maturity, rather than shorter-maturity Treasuries or mortgage issues maturing in less than five years. This led to an asset/liability mismatch.

https://www.barrons.com/articles/svb-silicon-valley-bank-rat...

They were agency backed cash MBS, which are basically default risk free as defaults come out as prepayments and are pretty liquid. They’re not at all like the subprime credit default swaps on CDOs that were so problematic in their risk ratings.

They had several MBSes on the books, too. Both MBSes and treasuries are long-term fixed-income products. It's not as bad as they used to be in 2008 - they have largely fixed the "gamesmanship" that got everyone in trouble then.

The current 6 month crash is actually worse than 2008 https://www.youtube.com/watch?v=XMTL2XGKKpI

What crash?

Home sales, down 6 months in a row, this is only the third time it has happened. The numbers are lower than the last time, 2008.

It's notable that those 3 banks are headquartered in the 3 most expensive places in the country. Silicon Valley, New York, and Los Angeles. I'd say that and lack of branches with low paid employees is probably what accounts for the higher salaries.

How are bonds "stupidly high risk"?

When interest rates go up, the mark-to-market price of older, lower-rate bonds goes down since you can get higher coupons (better interest rates) by buying newer bonds.

If you "Hold to Maturity" (HTM), it won't matter -- you'll eventually reclaim the entire par value of the bond. But if you all of a sudden start selling them, you're going to realize massive losses. So when you buy the bond, you better be really sure you can HTM, or you'll eat your shirt.

Here's the kicker: SVB bought at the "top" -- at a time where rates could only increase (zero percent rates), at all-time high home prices (MBSs), all while The Fed indicated that they'll keep raising rates until the economy cries 'uncle' and the yield curves were inverting.

That's why they were risky.

Interest rate risk, duration risk and lack of hedging against these two.

How about the 4th one?

Anyway when you are paid nearly double jp Morgan and chase …

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