SVB Discussion II Flashcards
Run on SVB and failure
* Heavy …
* Deposits dropped for 4quarters, intensified in Feb and March 2023
* …, loss of $1.8 billion, announced to …
* Downgrade by Moody’s on March 8th
* Run on SVB, withdrawals of $42 billion (quarter of all deposits) on March 9th
* Put into … on March 10th, … on March 12th
losses on securities portfolio
Liquidate HTM assets; raise capital of $2.25 billion in the week of failure
receivership by FDIC; blanket guarantee on all deposits
Rollback of regulation
* After the GFC, …
* On May 24th 2018 The Economic growth, Regulatory Relief, and Consumer Protection Act was signed.
* what did it do?
* Not subject to…
* Interest rate risk not …
Basel III and Dodd-Frank Act introduced major regulations.
Eased regulation for mid-sized banks by raising the threshold for systemically important financial institution from $50 billion to $250 billion.
LCR for example
part of regulatory stress tests
Contagion concept:
Significant underperformance of banks after SVB failure
Effects are heterogenous
Important factors: Uninsured deposits; Unrealized HTM losses (see graphs on slides); Size (see slide)
Lessons
* Credit risk is …
* A bank with …
* Interest rate risk can be a major risk
* Liquidity risk
* Uninsured deposits can be …
* …
* Treatment of HTM losses?
* Increase deposit insurance coverage?
not necessary for bank failures
assets as US government bonds can also fail
a major source of runs
Stress tests should include interest rate risk
