Savvy Trades and Investments

[jtomm]

SIVB - Suddenly, tons of banking experts! ha. After the fact, all the smug media blowhards come out and act like everyone should have seen this coming (when they themselves didn't see it coming, nor warn in advance). Also, the rating agency Moody's downgraded SIVB on Friday, so the rating agencies have proved their worth once again.

I am admittedly NOT a banking expert and had no idea of this HTM designation that could avoid mark-to-market scrutiny by regulators, effectively allowing a bank to hide both losses and liquidity issues. In the case of SIVB, it sounds like they also removed all their interest rate hedges in 2022. From what I've read, larger banks face tougher regulatory scrutiny, both for liquidity, interest rate risk, etc., and would not have been able to do this. Have no idea why the rules are this way for smaller banks, but they are. A bank of SIVB's size is also required to have a Chief Risk Officer, and for almost all of 2022 they didn't have one. This suggests to me that they knew exactly what they were doing, were completely arrogant, had almost no respect for the risk they were taking with customer deposits, and operated more like a hedge fund -- making a gigantic bet on interest rates moving back down. With their own money, however, mgt appears to have been well aware of the risks and insiders sold a good chunk of their shares. So this does appear to me to be a case of the bezzle.

One writer suggests HTM should be referred to as Held-to-Mortem and I would tend to agree. I'm shocked that this is going on and allowed. Reminds me of learning of Special Purpose Vehicles (SPVs) during 2008. Remember those? I was like, seriously, you can do that? How the heck is this considered legal?

FT had a good article on the banking regs for different size banks:

https://archive.ph/gmJxU

This gentleman did probably the deepest dive on SIVB:

https://nongaap.substack.com/p/sivb-held-to-mortem-governance

In 2019, a Board Member of the FDIC warned that rule changes could lead to risks for large regional banks and FDIC resolution of those banks:

https://www.fdic.gov/news/speeches/2019/spoct1619.html