Quote:
Originally Posted by manaboutown
I received a phone call from my stock bookie at Schwab a couple days ago. He asked me if I was concerned about Schwab Bank, went on to point out about how large it was and so on. He told me he was calling all his clients. Then he asked me if I had any questions. I said not really and told him that I had a general understanding of why SVB was in trouble; it invested long at low interests rates and now was forced to borrow short at higher interest rates. As he seemed nervous I asked him if he was doing damage control. He did not take that question well. After a more or less inconsequential and somewhat strained affable conversation about the weather and such we ended the call.
Then, I got on the internet and discovered Schwab was taking some heat and its stock was down. Turned out Schwab had also gone long on low interest bond investments, was in a pickle to some extent and was assuring folks they had what it took to cover the bases.
Very interesting...
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Silicon Valley Bank failed because it didn’t have enough cash on hand to pay off a lot of people with big accounts who tried to pull their money at once. It was a lot like the famous run on the bank in “It’s a Wonderful Life,” but of course much bigger. If the people hadn’t panicked, little or no money would have been lost.
There is a simple solution: Pass legislation allowing banks to suspend payments to those requesting withdrawals by up to 30 days if necessary, perhaps with the bank paying a late-payment penalty. After all, if I bounce a check or fail to make a payment to my credit card bank, they aren’t going to throw me into bankruptcy. We should extend the same grace to banks. It would make our money safer. This money wasn’t pulled from SVB because it was needed, but only to keep from losing it. A grace period would have rescued all the creditors.