Sure. But “safe” like the word “poison” is context specific. Is a single treasury considered safe relative to other investment options? Is it safe to so significantly increase your exposure to this one type of asset rather than leaving it as cash in hand, as they’d have been required without the change in regulation they pushed for?
It would. The applicable change for them was the large increase in the threshold of the size of the bank to whom the regulations applied. It doesnt matter that they chose to do something other than lend the money they previously would have been required to keep on hand to cover exactly this sort of issue. It just matters that they were no longer covered by the regulation requiring to keep that amount of liquidity.
My understanding is that the mortgage securities (that have not been failing) would potentially be on the wrong side of the stress test, but the T-bills would not.
Are you sure? I thought Dodd-Frank allowed these longer T-bills to count towards liquidity requirements, because ‘you could always turn them into cash’. Not sure myself, though.
I might be wrong, but I don’t believe the partial repeal of Dodd-Frank lowered capital thresholds. Basel III is the global standard for required bank capital.
The point I was making is that SVB somehow managed to lose money on a portfolio of remarkably dull investments, none of which had any significant default events. As you say, gross incompetence.
“The point I was making is that SVB somehow managed to lose money on a portfolio of remarkably dull investments, none of which had any significant default events. As you say, gross incompetence.”
Just doing a quick reading, and now I am less sure. Those assets would not count as CET1, so potentially offside the stress test, but would count as Tier 1 (AT1) for many of the others. Definitely would have them in Basel compliance.
It changed the threshold of which banks it applied to. The argument is bit of a rhetorically disingenuous one, arguing not that smaller banks didnt need it, but that smaller did not apply to the issue Dodd-Frank was put in place to limit - systemic effects of bank failures.
The argument has essentially been, banks the size of SCB should be allowed to run themselves like dickheads and risk their client’s deposits because the consequences of a failure will not be systemic.
Yeah, the scenario I was considering was ‘would have passed the stress test if applied?’, and it will take a more detailed reading of how the stress test is applied across the types of Tier 1 Capital.
@Limiescouse, WSJ sends a shoutout in your direction.
“At the same time, heavy-handed federal interventions could amount to an embarrassing coda for a rollback of post-financial-crisis regulations on small and midsize banks undertaken in recent years. Officials on Sunday signaled they were weighing tougher capital requirements and liquidity rules, reversing at least some of the steps taken during the Trump administration to ease restrictions on smaller banks.”
Pure nonsense. The Treasury and the FED made bank on 2008. They bought the toxic assets for lower than face value prices, and made lots of money as those assets recovered. The TARP equity infusions were a massive home run for the Treasury. Plus, if they hadn’t have acted, the entire financial system would have melted down. It would have been a catastrophe. These programs cost the taxpayer nothing.
The GM situation might have been a little different. I think the government ended up with the pension.
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