1. When banks accept deposits from clients, they OWE the client that money. So deposits are liabilities to the bank.
Liabilities cost money…
…”cost” both to serve those clients (branches, tellers, apps) and any interest the bank pays you on your checking account (deposit). pic.twitter.com/2in9kir8qi
>In 2021 SVB saw deposits jumped from $61.76bn to $189.20bn – read free cash startups got to grow >to generate better yield they purchased a large amount, ~ $80bn! in mortgage backed securities (MBS) with customer deposits – Yes the same dreaded instrument that cause 2008 crash
>97% of these MBS were 10+ year duration with average yield of 1.56% >with FED’s interest rate of ~4.5% and increasing in 2023 > customers with deposits who were earning little less than 1.56% (bank spread) can now purchase govt backed sec with >4.5% yield
>This is not a liquidity issue as long as SVB maintains their deposits as they are earning ~1.56% on these deposits and the MBS has not gone bust (like in 2008)
depositors would want to have better returns on their monies as they have to prep for longer runways with the last round with the constant narrative of ‘2024 is going to be worst than 2023'
>yesterday SVB announced that they had sold $21bn of their Available For Sale (AFS) securities at a $1.8bn loss and raising another $2.25bn in equity and debt – which hints at liquidity of the bank if the depositors are not getting theie monies back, if MBS cannot be liquidated?
