Thread by @BalajiY

Random thoughts/questions on all the post #SVB analysis: 1) Should larger banks that have lower “deposit beta” be allowed to take on more deposits, overruling current 10% national de novo deposit share ceiling? In turn, big banks can make commitments to invest in smaller ones 1/n

2) Banks to ⬇️ investments in HTM long term securities or mandate accounting standard changes that reflect M2M changes in HTM portfolio in B/sheet or PnL. There is too much juggling today btw HTM and AFS buckets, neither of which directly affects the PnL. Hedging is not effective

3/n) Isn’t is rather interesting that Mortgage Servicing Rights (MSRs) are treated punitively from a Basel3 risk-capital perspective but longer-duration Agency-backed Mortgage Securities that feed off the same MSR cashflows are considered low-risk and have no capital charge?!

4/n) Supervise all banks with reasonable HTM exposure (say >50% of Capital) irrespective of asset size and run half yearly liquidity stress tests; see great graphic from @TheEconomist

5/n) Rather than unlimited deposit insurance for Corporate deposits, can such accounts have an “overnight” sweep facility for >$250k into short term treasuries or money market funds? Fed should exempt such overnight sweeps on the Assets side towards capital or leverage ratios.

6/n)No solution is perfect. In a 15-yr period, we have gone from credit risk events causing➡️ liquidity squeeze➡️ solvency crisis, prompting Govt liquidity➡️ inflation (Covid amplified it)➡️ creating duration risk, coming full cycle back to liquidity squeeze & a solvency issue!