Thread by @SAH16928046

Mutual funds do come with lock-in features! Especially if you are investing in a capital-protected product, you are not entitled to early encashment for a certain time.
Redemptions are deterred with the backend load.
#Backstops are required in the banking arena beyond penalties

Of course, if you park liquidity in a time deposit liability side product, at a bank, you might have to pay a penalty for early withdrawal.
But, the highest liquidity risk is emanating from the sight deposits pool.
Run-on-the-bank risk is hard to mitigate if assets don't sell

Also, the standard practice is to call in the treasury department and borrow short-term through the interbank market to fund liquidity drains.
Call and Clean lending is done via the wholesale market for Fi credits.
Also, Repo markets can be used.

The problem is that when a commercial or any other financial institution is in trouble, it is hard to mobilize new funds aka liquidity at low rates in the interbank market.
Retail deposits react negatively to higher markup rates.

This paper is about FIDC Insurance Reinsuring the deposits.
Harnessing the free market: Reinsurance models for FDIC deposit insurance pricing
proquest.com/openview/3d365…

The next step in Systemic Risk Management should revolve around the Reinsurance of all financial institutional risks.
Insurance of Financial Claims by FDIC and the central bank guarantees needs additional actuarial coverage
This project should be on top of the policy.

The problem is with the mindset which trickles from the top!
If you expect the Government of the day to be your father or mother, you expect to be bailed out time and again!
Govt should not be a parent.
It should be a servant to the people.
The banking mindset must change.

When failed banks were being bailed out during and after the GFC, it sends the wrong message!
It encouraged gambling and pardoned white-collar criminals who had defrauded innocent people.
#TARP was a big mistake in my opinion.
It incentivized bad behaviour.

The most lethal aspect of economic policy is to show the financial institutions which accept deposits the doors to the money printing press or national exchequer chest!
If you give them money, you are reinforcing harmful learning processes, which creates a "psychic" problem.

Did credit rating agencies downgrade #SVBBank before the run began?
I am not in the loop on this.
If someone could tell me their credit ratings history?

Most of the credit rating firms that make billions through fancy services and ECAI exercises were partly to be blamed for the GFC
Didn't they see this coming?
A bank which holds a large fixed-income portfolio and runs a maturity mismatch during the rate hike cycle remains obscure

Black Swan Risk is one thing!
But being illogical is not a defence of BS and randomness.
This #SVBCollapse is bad risk management oversight and a lack of liquidity contingency planning by the treasury desk.

Please improve four things next time =>
1. Surveillance
2. Institutional Resilience through BCP (which is often confused with only IT/ MIS/Cyber disruptions)
3. Market Intelligence based stress testing
4. External Credit Rating Assessments
#SVBCrash #SVBBank

When risk managers were shown the door after the GFC and their quantitative models were blamed, it gave the risk-takers an immense psychological edge.
They had good reasons to insult middle and back office controllers.
Gatekeepers should always be supported and NOT discouraged.

Why didn't #SVB bank and their risk managers check asset and liability side exposures and simulate scenarios of analytical model-based outcomes?
This is risk management 101.

Unfortunately, Altman Z Score cannot be applied to banks.
Otherwise, that is an excellent credit risk tool used for early warning signalling and bankruptcy prediction.
#SVBCrash #SVBCollapse #SVBBank #FED #FDIC