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Comment by danenania | Hacker News Reader

"They failed specifically because of business they were servicing."

I don't think so. All banks are facing major markdown issues right now due to the Fed raising rates. SVB and the crypto banks were just canaries in the coal mine.

First Republic also needed a bailout even though they're a lot more diversified in their client base.

Edit: before you downvote, please read this analysis by our friend patio11 - https://www.bitsaboutmoney.com/archive/banking-in-very-uncer...

TLDR: The U.S. banking system (as a whole) has $620 billion in unrealized losses due to the Fed raising rates. This is way bigger than SVB and crypto.

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…due to the Fed raising rates

Translation: due to the banks not being sufficiently stress-tested to assure resiliency under reasonable rate fluctuations.

In addition to that piece, Matt Levine also did an excellent analysis https://www.bloomberg.com/opinion/articles/2023-03-14/svb-to...

>unrealized losses due to the Fed raising rates.

so they expected rates to stay at near zero indefinitely? It's obvious the banks did a bad job on their analysis. It seems like everyone but these banks knew the spigot of easy money was going to stop sooner or later. It just wasn't sustainable.

It's psychologically difficult to do nothing when faced with inflation and near zero interest rates. The banks should have just sat on their hands and made peace with losing money for a year or two. It's certainly preferable to buying bonds that plummet in value the moment interest rates go up. But that's what they did, because when faced with inflation it feels like you have to do something, and this is something, so they did it.

People have been saying rates must go up for a long time but it took 10 years. That’s long enough for a bank to go out of business if they try to wait it out.

All banks have markdown issues, but SVB had liquidity issues due to the businesses they were serving, i.e. they served cash burning machines so naturally hit liquidity issues. The other banks, like First Republic, also have issues but might not have had a problem if not for the loss of confidence caused by SVB's collapse.

Right. So the next important question(s) is:

Why didn't The Fed anticipate the downside of their actions?

Follow up by: Isn't The Fed supposed to prevent bank failures, not cause them?

Mind you, there are other (loop) holes that enable such things. Nonetheless, are these random-y bank failure or failures of The Fed and its associated regulatory friends?

So the Fed is supposed to keep its interest rates at 0 forever just because some banks based their business decisions on the assumption that interest rates will stay at 0 forever?

_Everybody_ in banking is supposed to be aware that if the interest rate goes up the spot or mark-to-market value of a bond goes down. This is not something complicated like Black-Scholes.

Everybody in banking is able to see the inflation prints and aware that increasing inflation may cause the central bank to raise rates. A bunch of people failed to spot this and have since been sacked and/or lost their equity in SVB.

They didn't fail to spot it. They just didn't anticipate them to be so drastic in such a short time span. It's barely a week ago Jerome Powell said their own prognoses were still wrong.

In other words, white collar "criminal-esque activity" gets a free pass.

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