Every couple of years lenders and traders tell me that ‘this time, it will be different.’ Silicon Valley Bank-induced chaos shows that bank deregulation always ends in the same painful way.
that he submitted to the Senate Banking Committee, he stated that “since the enactment of the Dodd-Frank Act, we have made meaningful investments to our risk systems, hired additional highly skilled risk professionals, and established a standalone, independent Risk Committee of our Board of Directors.” Becker’s statement did not age well. From that year to last week, SVB had grown by 430%.
The purpose of the Liquidity Coverage Ratio is for banks to add up all of their high quality liquid assets such as cash, U.S. treasuries, AAA investment grade fixed income securities, and other cash equivalents. That figure is then divided by net stressed cash outflows; this is the part where banks have to calculate all the ‘what if’ scenarios. This part of the LCR requires banks to simulate what happens when big deposits or a significant number of deposits flee.
Silicon Valley Bank also did not have to calculate or report the Net Stable Funding Ratio . Knowing a bank’s NSFR is important because this tells us what a bank is doing about relying on stable sources of funding. If Silicon Valley Bank had been required to calculate and disclose NSFR, market participants would have had more detail about all of its sources of funding such as size, type and concentration of deposits.
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