Vix hits highest since October as bank stock sell-off stirs volatility

[JaiBalayyaaa]

Vix hits highest since October as bank stock sell-off stirs volatility 

 

 

[JaiBalayyaaa]

https://www.ft.com/content/d730b863-9c45-41ac-b495-665140ec68ad

 

[hyperbole]

Fed rates valla first domino idi, bank stocks assam ayye laga unnayi

What Happened With SVB Financial?

Investors wanted to pull their deposits from SVB because they were not paying enough relative to Treasuries. However, the number of investors pulling funds caused SVB to need more cash on hand, forcing SVB to raise additional capital by selling its investment portfolio. Where economies and banks of the past had significant liquidity, deposits soared at banks that invested the monies primarily in fixed-income securities. Fixed-income securities are sensitive to interest rate hikes – the massive hikes we’re seeing. So as the Fed continues to hike, the inverse relationship between interest rates and bonds saw the value of bonds go down as yields went up, catching banks like SVB off-guard. Because SVB primarily invests in long-term bonds, which they typically hold and have never had to report on, puts them in a bind. The fall in bond value results in unrealized losses because SVB has to convert their bonds and sell them at current market prices, which equates to mega losses and funding concerns, as the value of SVB’s portfolio is less than they modeled. The bigger concern for banks is

1. Will this cause a domino effect?

2. Will banks start to increase their deposit rates to retain clients and avoid the same debacle?

3. Increasing deposit rates will eat into banks’ net interest margins significantly, posing further issues.

[veerigadu]

6 minutes ago, hyperbole said:

Fed rates valla first domino idi, bank stocks assam ayye laga unnayi

What Happened With SVB Financial?

Investors wanted to pull their deposits from SVB because they were not paying enough relative to Treasuries. However, the number of investors pulling funds caused SVB to need more cash on hand, forcing SVB to raise additional capital by selling its investment portfolio. Where economies and banks of the past had significant liquidity, deposits soared at banks that invested the monies primarily in fixed-income securities. Fixed-income securities are sensitive to interest rate hikes – the massive hikes we’re seeing. So as the Fed continues to hike, the inverse relationship between interest rates and bonds saw the value of bonds go down as yields went up, catching banks like SVB off-guard. Because SVB primarily invests in long-term bonds, which they typically hold and have never had to report on, puts them in a bind. The fall in bond value results in unrealized losses because SVB has to convert their bonds and sell them at current market prices, which equates to mega losses and funding concerns, as the value of SVB’s portfolio is less than they modeled. The bigger concern for banks is

1. Will this cause a domino effect?

2. Will banks start to increase their deposit rates to retain clients and avoid the same debacle?

3. Increasing deposit rates will eat into banks’ net interest margins significantly, posing further issues.

I was referring to this exact situation in other thread.
 

anyways I think It will trigger something big now 

[JaiBalayyaaa]

6 minutes ago, hyperbole said:

Fed rates valla first domino idi, bank stocks assam ayye laga unnayi

What Happened With SVB Financial?

Investors wanted to pull their deposits from SVB because they were not paying enough relative to Treasuries. However, the number of investors pulling funds caused SVB to need more cash on hand, forcing SVB to raise additional capital by selling its investment portfolio. Where economies and banks of the past had significant liquidity, deposits soared at banks that invested the monies primarily in fixed-income securities. Fixed-income securities are sensitive to interest rate hikes – the massive hikes we’re seeing. So as the Fed continues to hike, the inverse relationship between interest rates and bonds saw the value of bonds go down as yields went up, catching banks like SVB off-guard. Because SVB primarily invests in long-term bonds, which they typically hold and have never had to report on, puts them in a bind. The fall in bond value results in unrealized losses because SVB has to convert their bonds and sell them at current market prices, which equates to mega losses and funding concerns, as the value of SVB’s portfolio is less than they modeled. The bigger concern for banks is

1. Will this cause a domino effect?

2. Will banks start to increase their deposit rates to retain clients and avoid the same debacle?

3. Increasing deposit rates will eat into banks’ net interest margins significantly, posing further issues.

A lot of startups have VC funding in this bank, not sure how many of them are insured? 

[JaiBalayyaaa]

1 minute ago, veerigadu said:

I was referring to this exact situation in other thread.
 

anyways I think It will trigger something big now 

First thing it will do is make it hard for startups in the Bay area to access their VC Capital. 

[veerigadu]

Just now, JaiBalayyaaa said:

A lot of startups have VC funding in this bank, not sure how many of them are insured? 

Even if they are insured, they are only protected to certain amount. Companies might face cash problems now