So the antithetical question to the shit I just tuned into would be:
Why didn't the banking industry get squeezed in the past when interest rates were far higher?
Were they not invested in government bonds because there was no regulation to do so? Or were they invested and they got squeezed and I just don't know about it?
1970s many banks linked to property development had huge liquidity issues. It’s the same liquidity crisis but just different assets which all suffer from the same thing. Bad timing.
A run on deposits never happens in a boom, always happens in tightening/recession.
The run on deposits it what creates the liquidity problem because banks have bought assets with deposits that they need to dump to pay back deposits.
The collapsing happens because the liquidity drain occurs in a tightening cycle where assets prices have fallen and suddenly they can’t cover deposits.
My understanding with SVB was when they bought treasuries they then hedged in the wrong direction so exposure was all one sided. Perhaps they thought rate cuts were coming and figured they’d make a quick buck?
One thing is common in history is the bank ponzi will now be incentived to keep rates high even while the central banks cut because they want depositors cash to stay with them and for nobody to want to exit. This is how they’ll help prevent liquidity drain but this is also what fucks the economy royally hard for the years to come.
In 2024 people will be screaming at banks for not passing on rate cuts and banks will be shrugging saying you bastards did a run on us in 2023 and collapsed the industry so we have to do something to keep your money safe 🤷♂️
