- important questions and issues that arise from
- The Atlantic Council excellent paper (URL below)
- “The Fed’s tightening is a recipe for global volatility. Silicon Valley Bank’s collapse is just the start”
I am using the headings in the paper as a reference in this analysis:
Questions that arise:
- Immediate steps: while “This leaves a considerable amounts of assets to cover losses while the balance sheet is being unwound” there remains the question of why SVB was allowed to be subject to the old terminology used loosely “OVER-TRADING”.
in short the bank was taking on deposits and lending obligations with customers that far exceeded its capital base. Liabilities $195Bn Capital $12Bn.
Overlay this with mis-matches in maturities that I do not have access to, and that provides a picture of funding difficulties in times of sudden changes in customer requests. Consider the balance sheet of a JP Morgan who look like a whale in comparison. - Systemic Risk: Regulators now need to hold managers accountable.
Yes, but how to achieve this is the question. We had a crisis in 2008 but Dodd-Frank did not hold managers accountable nor provide suitable stress test measurement.
Conclusion
Greater attention is needed in the development of regulations that are
- focused on management behaviours in non-standard periods of unusual activity
- limits in business volumes for banks, notwithstanding assets or liabilities. The implication here is that the traditional view in banks that deposits are good and debts risky is too limitiing. It should be all about balance sheet management including risk assessment, maturity dates and fund matching between assets and liability types.
Bankwatch 