随便说说
朋友，有空来聊聊呗
前几天公司让我去给一个培训班讲一堂课，后来学生在Q & A中提到了一些问题。下面两个问题不涉及confidential的信息，我把我在课上讲的整理了一下放在这，感兴趣的可以看看。有技术问题可以讨论，但请不要涉及政治方面的因素。
开课之前先吃饱，呵呵
Q: Will SVB's failure lead to more inflation?
To answer this question, let's first understand what happened. SVB, like all banks, was highly leveraged. Before the collapse, SVB had only 8% capital, which in the world of banking, is considered well capitalized. When a bank is highly leveraged, even a relatively routine loss in on the asset side of the balance sheet can wipe out its equity. That's what happened to SVB.
SVB's management invested too much of their portfolio in "safe" mortgage-backed securities. Although these assets are usually considered "safe" from the point of view of credit risk, the "safe" ignores the important factor of interest-rate risk.
Interest rate risk is measured by a number called "duration". The duration of a bond is approximately the amount that the bond will fall in market value if the interest rate rises by 1%. When interest rates increase, the value of fixed-income assets such as bonds or mortgate-backed securities decreases. (That is a fact of finance.) Morgages typically have a ducration of over 10 years. They also have a nasty characteristic called "negative convexity" which means that their duration gets longer (everything else equal) as interest rates rise.
These financial characteristics of mortgages are well known to anyone of fixed-income experience. The duration mismatch on SVB's balance sheet would have been obvious to a first year finance student. It remains to be determined who at SVB made and approved these high-risk investments.
When the Fed hiked interest rates, the value of SVB's portfolio declined. At the end of 2022, SVB had lost 15.9 billion dollars on a mark-to-market basis. This means that if they tried to liquidate their entire bond portfolio by selling it at market prices, they would've lost 15.9 billion dollars.
Simutaneously, startups were having trouble raising money, so they had to withdraw deposits from SVB. Higher interest rates, therefore, hit SVB with a double-whammy: the value of their mortgage-backed investment portfolio declined, and depositors wanted to withdraw money. To pay all the depositors, SVB sold $21 billion of bonds at a $1.8 billion loss. Then SVB's management announced that SVB would raise capital to cover the loss. Depositors freaked out and began withdrawing their money, and SVB could not pay all the depositors. The FDIC seized SVB.
If Silicon Valley Bank had exposed itself to less interest-rate risk by keeping its investment assets with a much shorter duration, it would not have lost as much money when interest rates increased.
Now back to the question itself. As you know, inflation is primarily a function of too-rapid increase in the money supply. Since FDIC took over SVB and Signature Bank, cash-short banks have borrowed about 450 billion to pay their depositors, with bonds owned by the banks as collateral. The FDIC has guaranteed the repayment of the loans to the Fed. This techniqu the Fed and FDIC used is called QE - Quantitative Easing. In normal circumstances, when the money supply is increased, the inflation rate will be increased. However, so far, the inflation is not getting worse (from 7% last year to 6% as of today), and the short term treasury bond rate is also dropped. This seems to be a good sign but it is still too early to make the conclusion. It normally will take 6 months to see the results. Nevertheless, comparing to 22 trillion GDP, half trillion (450 billion lent to the banks) to me is too little to have have impact on the inflation but we will see in a better way after 6 months.
Q: If I am a investor, how can I protect myself?
You can protect yourself in a variety of ways, including diversifying your assets so they're not subjected to one risk (such as interest rate risk). If you want to play a game, you'd better stay on top of the game. As a investor, you will need to be on top of the company's balance sheet. When seeing the leverage ratio like SVB's, you will need to reduce or withdraw your investment. As a student in finance, you'd better know all the major financial crisis in the human history, their causes, their impact, and how they ended. For instance, what happened to SVB and other banks today is similar to Savings and Loan Crisis in 1980's. The more you know, the better you can control your money. Knowlege is power.
