I think the best way to stop the collapse of this bank is to ban a run on the bank and not allow all depositors to withdraw money at the same time. In my theory, "forbid all depositors from withdrawing money at the same time" is a program, and economic activity is a procedure, and the government, as the brain of the country, has the right to establish such a procedure. Of course, what if someone is in urgent need of money? This can be reviewed, by the relevant person to check if he really need the money, this practice is also a program.
Preprint Analysis of Financial Crisis Causes and Complex Systems Scie...
The method you mentioned will probably induce even greater panic on financial markets and it's equal to receivership that actually happened to the SVB. The issue with the SVB is more systemic than anything. The SVB did everything “right”. It bought long term treasury debt and waited till maturation. It was once called the safest investment strategy. However, rate hikes had pushed the overleveraged system to the brink of collapse. The contagion is real. The move by the big US banks to support the First Republic Bank with deposits corresponds to fear factor, even among ‘Big Guys’, often called as beneficiaries of current problems of small and medium-sized American banks. As its lacks productive activities in the USA that could support compensation for depositors, only financial investments are paying them back. In financial unstable situation there is no good, or even less safe way out of this conundrum. The Fed will choose probably ‘quiet’ QE (as speculated in the current financial press).
Szymon Piotrowski
If you are not willing to adopt such a method, then the financial crisis caused by the bank run cannot be solved, and the banks can not make money and only save the depositors' money. I think the financial crisis is even worse than the panic of banning bank runs. The United States can legislate to initiate an emergency law in the event of a bank run, and it will not allow you to withdraw money except for important reasons, because some financial crises are thus caused by bank runs.
Szymon Piotrowski
This is like in a commercial street of many people, crowding is easy to cause a stampede, shouldn't you control the number of people? Is it because the "freedom" ignores them and makes the crowd go crazy into the street? Then they are free to move crowded, will cause disaster. But we can accept the control of the flow of people in this case, and why not the ban on bank runs?
The fact that you need to or you are forced to take some regulatory action (including measures described in your question), doesn’t mean you these actions and beneficious to the stability of financial system. To the contrary, the history of bunk runs teaches us many in many instances that with regulatory action it could be already to late to take any trust building actions. To block anyone’s deposited funds ‘because he/she doesn’t need it right now’ will be perceived very badly by any standard. If you want to analyse bunk runs, you always should look for root causes, se e. g. this chart: https://static.seekingalpha.com/uploads/2023/3/10/54854261-167846667332821.png Best luck with your research.
To summarise, the reason for SVB's failure is the bank's inability to manage its interest rate risk
Hello Duan Xian Xiang
I think the summary by Dr Peterson K. Ozili is very concise; a very short and precise summary. In greater details, it seems to me that they had a big % in a few areas and maybe could have diversified their investment portfolio.
I think managing this may help avoid the eventual collapse. In short, maybe more attention is needed to address an underlying problem before it gets to impacting individual investors, as we witnessed. Would you agree?
Joseph C Lee
Why didn't Silicon Valley Bank predict a Fed to raise interest rates? Raising rates creates these rate problems, didn't they think that the printing money would cause inflation and the Fed would raise rates?
Peterson K. Ozili
Just not managing the interest rate risk well? Are there any problems with its customers? For example, most of the customers are new technology startups?
Joseph C Lee
I still tend to favor the idea that "depositors withdraw money because of the liquidity crisis". The Silicon Valley bank depositors are new technology companies and some crypto assets, and the withdrawals of these depositors cause a liquidity crisis for the bank. Although the interest rate of long-term Treasury bonds is inverted, this should not be fatal, after all, the risk of Treasury bonds is not so big, and its liquidity is very good. But early on, Silicon Valley banks should have predicted a liquidity crisis for savers, thereby limiting expansionary investment and reserving more money for banks to cope with withdrawals.