Why didn't the fed buy back SVB's bonds?

[jackg]

A lot of people were suggesting on other sites that SVB collapsed because a lot of money was held in government bonds and was hard to liquidate because of the rise in interest rates. If that was the case, why was there no facility for the bonds to just be bought back and instead the bank had to collapse into a bigger one that could make more profit from it (or have a greater burden themselves).

[philipma1957]

A lot of people were suggesting on other sites that SVB collapsed because a lot of money was held in government bonds and was hard to liquidate because of the rise in interest rates. If that was the case, why was there no facility for the bonds to just be bought back and instead the bank had to collapse into a bigger one that could make more profit from it (or have a greater burden themselves).

This is a very good question. I have a good friend that is a retired banker. He was the lead man for his bank's bond investments. He practiced constant ladder technique so that the bonds held were spread out . This prevents a move like SVB did.

Basically bet all bond investment money in one shot at 1.5% rate and thinking the Fed would pivot.

March 17, 2022   +25   0.25% to 0.50%.      no issues here
May 5, 2022   +50   0.75% to 1.00%       maybe some fear but selling off right here means a small easy to fix loss
June 16, 2022   +75   1.50% to 1.75%.      truly in the hole and the beginning of a let it ride mind set
July 27, 2022   +75   2.25% to 2.50%       got worse and likely the last decent chance to bail without a real issue.
Sept 21, 2022   +75   3.00% to 3.25%       I think the rumors of financial problems may have begun
Nov 2, 2022   +75   3.75% to 4.00%        pretty certain the bank knows it is fucked.
Dec 14, 2022   +50   4.25% to 4.50%       and worse
Feb 1, 2023   +25   4.50% to 4.75%       and worse at this point top people were selling their stock off.
March 22, 2023   +25   4.75% to 5.00%       bank has closed


note all from Forbes and I corrected the March 22 date as they had it as march 2.

https://www.forbes.com/advisor/investing/fed-funds-rate-history/


I have to ask my friend what can a bank do in the case above.

My guess is the bond person knew they really fucked up and hide the issue for close to a year.

[Nwada001]

A lot of people were suggesting on other sites that SVB collapsed because a lot of money was held in government bonds and was hard to liquidate because of the rise in interest rates. If that was the case, why was there no facility for the bonds to just be bought back and instead the bank had to collapse into a bigger one that could make more profit from it (or have a greater burden themselves).

Most of the said bonds, which are held under the US Treasury, were already sold out earlier before this crash in order to meet the high interest rates demanded by customers. and they sold it out in a very discounted price which made my run some losses. Most of this said Bonds where already sold out on a discounted price in other to fits in customers demanded high interest rate.  So maybe the Bonds are not worth equal to what could have actually restored the Bank. Or the Fed probably doesn't want to save the bank. 

[EarnOnVictor]

In banking and economics, there are ways to approach situations, this might be what FED sees as best with the economic reality. As we all know, inflation is getting higher, which is forcing the FED to raise the Federal Funds Rate. And naturally, bonds will be devalued in the process, which will not be proper for the government to buy back bonds to avoid altering the hiking purpose. They (FED) consider the total supply of money, in which buying is only advisable when the FED is reducing the interest rate.

In other words, there will be an imbalance of the equation if FED buys back the SVB bonds.

[hugeblack]

A lot of people were suggesting on other sites that SVB collapsed because a lot of money was held in government bonds and was hard to liquidate because of the rise in interest rates. If that was the case, why was there no facility for the bonds to just be bought back and instead the bank had to collapse into a bigger one that could make more profit from it (or have a greater burden themselves).

It is possible to liquidate it at a loss, but the problem was in the attacks of depositors’ requests to withdraw their money, it is 42 billion in one day, and most of the treasury certificates can be liquidated, but at a discount because the return from them is low compared to the return from the certificates that were issued after raising interest rates, so it must To give the buyer a discount, otherwise it will not be sold (for example, certificates worth $1000 must be sold at $900)

As for why the government did not intervene, its direct intervention means light to all bank boards of directors to create chaos as they wish, and the government will solve all their problems.
Roughly the same problem occurred in China with Evergrande^[1]


[1] https://www.bbc.com/news/business-58579833

[Smartprofit]

A lot of people were suggesting on other sites that SVB collapsed because a lot of money was held in government bonds and was hard to liquidate because of the rise in interest rates. If that was the case, why was there no facility for the bonds to just be bought back and instead the bank had to collapse into a bigger one that could make more profit from it (or have a greater burden themselves).

The US government, in my opinion, is currently behaving like the government of a socialist, not a capitalist country. 

A bank is a commercial structure, the main purpose of which is to make a profit. 

327 million US taxpayers do not own large banks.  So why on earth should their taxes be used to bail out the banks (buying government bonds, etc.)? 

Under capitalism, all subjects of the market economy bear full responsibility for their actions.  Therefore, in the event of the collapse of a commercial bank, depositors incur losses (this teaches them to be careful and responsible for their actions).  Persons guilty of fraudulent activities that led to the bankruptcy of the bank are criminally liable for the crimes they committed (including criminal negligence). 

As a result, only the most efficient and respectable organizations, professional managers, as well as the most cautious and responsible investors remain on the market. 

If the US government wants to manually manage the economy by bailing out inefficient banks with taxpayer money, then perhaps it makes sense to abandon capitalism altogether and move towards a planned economy?

[philipma1957]

A lot of people were suggesting on other sites that SVB collapsed because a lot of money was held in government bonds and was hard to liquidate because of the rise in interest rates. If that was the case, why was there no facility for the bonds to just be bought back and instead the bank had to collapse into a bigger one that could make more profit from it (or have a greater burden themselves).

The US government, in my opinion, is currently behaving like the government of a socialist, not a capitalist country. 

A bank is a commercial structure, the main purpose of which is to make a profit. 

327 million US taxpayers do not own large banks.  So why on earth should their taxes be used to bail out the banks (buying government bonds, etc.)? 

Under capitalism, all subjects of the market economy bear full responsibility for their actions.  Therefore, in the event of the collapse of a commercial bank, depositors incur losses (this teaches them to be careful and responsible for their actions).  Persons guilty of fraudulent activities that led to the bankruptcy of the bank are criminally liable for the crimes they committed (including criminal negligence). 

As a result, only the most efficient and respectable organizations, professional managers, as well as the most cautious and responsible investors remain on the market. 

If the US government wants to manually manage the economy by bailing out inefficient banks with taxpayer money, then perhaps it makes sense to abandon capitalism altogether and move towards a planned economy?

In theory good idea in practice not so good.

Svb had lots of large deposits from companies for payroll purposes.

So the 250,000 insured amount makes it impossibly hard to have enough cash insured for payrolls.

What is needed is a true business/payroll insurance that does not involve regular peoples savings.

So far not one word on this idea 💡 which is obviously needed.

[Gyfts]

...

This is precisely why so many people were upset with the government intervention in the first place, similar to that of the '08 crisis.

Normally, a larger bank could come in and purchase up the assets of SVB because they would have the liquidity to spare. It's not as if creditors would be completely out of luck if the government did not step in. FDIC allegedly stopped private banks from coming in and purchasing SVB for whatever reason. If the remedy to a bank collapse is for the federal government to come in, then people might as well bank with the federal government and have them manage assets. And in fact, some of the socialist politicians in America advocate for such a system where investments are managed by the federal government instead of private institutions. Social security is already a system that works like this, and it's set to become insolvent in the near future.

[teosanru]

A lot of people were suggesting on other sites that SVB collapsed because a lot of money was held in government bonds and was hard to liquidate because of the rise in interest rates. If that was the case, why was there no facility for the bonds to just be bought back and instead the bank had to collapse into a bigger one that could make more profit from it (or have a greater burden themselves).

No that is not the problem. You see government bonds were not yet matured so government contracted to buy back the bond after a set period of time. If in between the interest rise then the it's the market price of the bonds that falls down because a higher interest bond will have that much value. So it was not the government who was obligated to buy the bonds. If they would have bought it, then it would have been like bailing them out. So technically it wasn't a wise decision.