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Mar 12 • 15 tweets • 5 min read
a reminder that the history of banking is littered with banks' failed promises to convert bank deposits at par and on demand without the state, because state backing of that promise involves proper regulation - the social contract with banks.

ft.com/content/6a77d8…
as Prof Chick (RIP) brilliantly put it: the fundamental story in banking is par convertibility as a social contract between the state and banks
this is why par convertibility is expensive for banks, and money is hierarchical:

banks will try to manufacture credible promises to covert at par on demand without expensive state backing (like shadow money)
Democrats asking us to ignore 200 years of banking history, or their role in the (very light) regulatory regime for SBV.
Democrats would also like to persuade us that people paid to manage large cash pools had no idea about the 250K deposit guarantee, and convertibility risk above that.
but also, how amazing it is to watch a run on bank deposits unfold in 2023 for those of us who've studied shadow money and its regulation Post Lehman #BacktoBasics
when is a backstop not a bailout, US captured regulators edition
heads I win, tails you lose (silicon valley variations on moral hazard)
guys, I have news about Lender of Last Resort and it's evil twin, Quantitative Tightening

3 ghosts the US fed should steer clear off: the liquidity spiral, the coup, the spread
fintech bros' journey from 'true safe haven from the state' to 'no safe haven without the state' is both hilarious and also very very predictable
Chronicle of a (thousand) death(s) foretold
this is either a return to stabilising LOLR or another ECB before Draghi illusion that collateral easing with mark-to-market is countercyclical; h/t @NathanTankus
@NathanTankus a reminder that the US Fed has (had?) one of the most generous collateral frameworks among high-income countries in terms of eligibility - so 'easing' could either mean more generous haircuts or no daily mark-to-market (which amplifies market liquidity pressures)
of course, the question is what exactly prevented Silicon Valley Bank from accessing the discount window last week rather than telling the entire world it was fire-selling liquid assets

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More from @DanielaGabor

Daniela Gabor Profile picture
Mar 14
when you go from protesting the bailout of tech bros to the German conservative position on sovereign debt in the next paragraph. Image
amazing how Sheila Bair, of all, would miss the macrofinancial aspects of the SVB affair, they're all gonna fall for the 'moral hazard for techbros' argument

a reminder that for years, conservative German voices fought hard at Basel and in European regulatory spaces to remove the risk-free treatment of sovereign debt in regulatory regimes.
their logic? periphery sovereigns should have all possible backstops removed.
Read 7 tweets
Daniela Gabor Profile picture
Mar 13
outside the drama of US central banking, we in UK continue to live in Marie Antoinette times
the upside of poolgate is that Tories will throw other Tories under the bus for optics

a reminder half of UK workers will be on strike Wednesday the 15th just to try and make up a bit for the massive loss in living standards the Tories have inflicted upon us for the past 10 years.
Read 4 tweets
Daniela Gabor Profile picture
Mar 13
forget about SBV liabilities for a second, the real bailout story is the regime-change in the Fed's treatment of collateral:

par value goes against every risk management commandment of the past 30 years.
it turbocharges the monetary power of collateral Image
with 1990s shift in open market operations from outright purchases (of sovereign bonds) to repo loans against collateral (sovereign or other), central banks adopted 'modern' collateral valuation:
- collateral at market price rather than par
- haircut on market price Image
the logic was intuitive (and pleased German lawyers/monetarists greatly):

central banks' collateral framework must be conservative - with strict focus on high haircuts and collateral quality - to minimise moral hazard Image
Read 21 tweets
Daniela Gabor Profile picture
Mar 10
JP Morgan, entirely relaxed about Silicon Valley Bank's transition from 'cash burn' to bank run
the question to me - maybe @RobinWigg has the answer - is why firesell US treasuries and agency when these are the easiest to repo and raise reserves?
Sillicon Valley Bank basically firesold 20% of its securities portfolio - the most liquid bits such as US government bonds - so it can meet deposit withdrawal requests that also draw down Fed cash (for settlement)
Read 12 tweets
Daniela Gabor Profile picture
Mar 9
after decades of ordoliberalism and under the table state aid, “This is quick and dirty money to match the Americans,” said one person with direct knowledge of the EU Green Deal Industrial Plan
it is a measure of UK's irrelevance post #Brexit that nobody has noticed our Green Industrial Revolution
green derisking dreams with just £12bn of public resources dont exactly trigger a subsidies race.
Read 4 tweets
Daniela Gabor Profile picture
Mar 6
Macron's Africa tour started in Gabon, for #OneForestSummit.
Its financing pillar relies on “carrots without sticks” strategy of derisking private investment that will displace more effective alternative: public investment a la @katie_kedward @jryancollins
phenomenalworld.org/analysis/wall-…
@katie_kedward @jryancollins Macron's partnership with derisking evangelists is not new, neither surprising - Derisking as Development is now the status-quo approach to
a) development interventions (WB 'evolutions roadmap)
b) climate crisis
c) green industrial policy 'subsidies race'
derisking everywhere - in the EU #GreenIndustrialPlan
Read 4 tweets

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