YouSaid · the spoken record

Dan Davies

lines on the record: 23
first: 2023-03-14
most recent: 2023-03-14
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Political speech about how you're against bailouts and how you're in favor of saving money for the taxpayer. But it doesn't actually solve anything. And the next time a crisis comes around, it's still a crisis and it still needs something to be done about it. And all that happens is that that necessary corrective action takes longer to execute because there's still people who think that they can gain short-term political advantage by shouting about bailouts. And that's the story of the euro crisis and I very much hope that it doesn't happen in the USA right now.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a bailout just means that the state steps in and provides insurance so that something economically destructive doesn't happen. And lots of people who did economics degrees start talking about moral hazard. But I noticed that there's very few people who work in the insurance business whose first concern right now is about moral hazard. I also very much doubt that anyone involved with Silicon Valley Bank, even those that again paid back at 100 cents in the dollar, will look back at this last week and regard it as a case of moral hazard where they got looked after really well. In a crisis, you just need someone to stand in and show that they are managing it. And there's a lot of, to my mind, really quite silly rhetoric about bailouts because when it happens, it's kind of easy to do a”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think people have stopped asking me what's a bailout. I'm asking you, you know, I keep giving them the wrong answer. Yeah, it's a bailout. And bailouts are good. Bailouts are almost always the right thing to do.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“And I think that the market sees those things and it doesn't go how fiscally responsible, it sees those things and thinks nobody's taking this seriously. What you need is someone to do what Mario Draghi did and come out, bang the table and say this is a bailout. Taxpayers' money is at risk. We have unlimited firepower. We will stop this thing in its tracks. We will underpin the liquidity of the US financial system. And it's always my view that with these things, you're always going to end up doing that. So you might as well save yourself a couple of days hearts egg and do it right out of the gate.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“Think I want to look up for a real sign that the authorities are taking this seriously because the one thing we learned over the kind of great financial crisis and then again those of us who are active in Europe learned it in the euro crisis is that if you're dealing with a crisis of market confidence you need to bring the absolute entire power of the state and the central bank to bear One thing I was quite disappointed seeing with the announcement that these facilities was all of these announcements saying this is not a bailout send no taxpayers money is at risk”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“Genuinely surprised that didn't happen The London operations, the UK subsidiary, was bought by HSBC over the weekend. And it looks like HSBC have brought themselves a small because it's obviously small compared to the overall bank, but nice little local tech banking business. The thing about banks is that when banks go into resolution, all sorts of strange things start kind of bubbling up and things that you never knew were going on tend to be uncovered. So people tend to be a little bit risk averse. But yes, I'm surprised that none of the big players felt that they could buy this one. Although, you know, that's still a possibility over the coming weeks. The FDIC is still, as I understand it, looking to sell this thing as a going concern, as an operating business. So it might be that...”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“Think it's the second of those really. There did seem to be something going along with the FHLB where just simply silicon valley bank was very large when you compared it to the San Francisco Federal Home Loan Bank. For the Federal Reserve and the other discount window operations, you have access, but it's access against collateral previously to this week it was against collateral at market value. So if you've got a mark-to-market loss on that portfolio, you can only raise money against a haircut on the market value. And it's got to be the right collateral brought together in the right place at the right time. In ordinary situations, you can always deal with the ordinary problems of banking. What you can't deal with is something absolutely kind of off the charts crazy like we saw on Thursday and Friday last week.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“Actually, quite unusual for depositors of any sort to lose money in a bank resolution. Usually you have a cushion of bondholders there and de facto deposits are considered to be senior to bondholders. I can only think it's happened a couple of times in the USA and there are actually regulations on the way to just generally say that you've got to have a layer of bondholders in there which are you know they're not going concerned capital, but they're an extra cushion for the deposits so i i don't think anyone's ever really thought of deposits of any sort as being money at risk you know i mean the depositors of silicon valley bank didn't think of their deposits as being money at risk before when it's turned out that they were correct it's turned out that they're getting all of their money back”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think so. When you have something like this, you're always going to see what they call a flight to safety or a flight of quality. And in the case of deposit runs like this, because people look at the too big to fail banks and presume that they've got a de facto guarantee, despite the fact that actually what we've seen in the case of signature in Silicon Valley is that the FDC seems to be quite happy to extend coverage to uninsured deposits even in this kind of second tier and signature is actually quite a small bank, as long as they are reasonably happy about the quality of the assets. And as long as there is a decent cushion of unsecured arm holders, because obviously the bond holders in these banks are going to be taking losses, they're not covered in the way that they're large.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“It's not unknown. It's not as extreme as in Germany where you have lots of really, really small savings banks. But it is quite unusual to have that much of the banking system in smaller kind of local savings banks. And then you have these things like Silicon Valley Bank, which grew so quickly that although it was a local Silicon Valley and a local tech industry entity as recently as four or five years ago, by the time of last week it was the 16th biggest bank in the United States of America by asset size.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“Not running this risk was, as we discussed, a threat to the earnings. And so people decided that they were going to lobby hard to get these things restricted to the very biggest banks. And as a result, Silicon Valley Bank wasn't required to calculate or report some of what I'd regard as the key regulatory ratios with regard to its use of hot money to finance illiquid assets. its kind of high quality liquid assets on hand and those policy would just really meant to be managed by the company itself and by the company in discussion with its supervisor but because there's no hard and fast regulatory number being calculated there it's easy to lose track and it seems that that's what's happened”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“They did. I mean, what basically happened is that in the USA, there were a couple of Basel international standards that were meant to address pretty much the zigzag risk, which were only implemented for a very small number of the largest internationally active banks. And a lot of that appears to be because medium-sized and community banks in the USA have got a strong political lobby.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“It's not quite that, but obviously, if you've got a bond that's valued at 70 and you're lending 100 against it, then slightly more than half of your loan, a third of your loan is unsecured. It's not unknown for central banks to lend unsecured in emergency situations. It would be a complete departure if they started doing that in the normal course of their business. But this does look like it's a specific time limited for stability that's going to go on for a year and where I would expect that most of all the borrowing that's ever going to be done under it is going to be taken out in the next couple of weeks.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, well, it's clear that the Federal Reserve is concerned that it's not going to necessarily confined to those two banks because this new facility they've put up there, the bank term finance program, just looks to me like a term finance program that's there for the Fed to say if you've got any of these kind of things, if you've got any of these problems hanging around on your balance sheets, the Fed has put together this term funding facility in order to allow banks that have got some kind of problem or something on their balance sheet that they need to get rid of and trade out of those positions in a reasonably graceful and orderly fashion. And you can tell that this is the concern because they've said that they will provide funding against the face value or the par value of any of these bonds rather than the market value, which could be 30% lower.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“But you have to ask whether the run would have been so big or whether it would have happened at all if they'd managed financing more conservatively. Because the other part of this is that it's not just the kind of hot money on the deposit side. There were big unrealized losses on the securities portfolio because they'd kept that interest rate risk there. And if you're hanging around with an unrealized loss on securities that's bigger than your shareholders funds, the former bank regulator in me says, if you're doing that, then something bad is going to happen sooner or later. It's not a good idea to ever let yourself get into that position.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it's kind of difficult to know what the counterfactual was. Just in sheer amounts of numbers of the amount of money that's left, there was nothing that could have stood in the way of that. Yeah, I think that's correct. On the other hand, there's no quantum of funds they could have had hanging around that would have stood up to that kind of a deposit run.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm Barry Ritholz, inviting you to join me for the Masters in Business Podcast. Every week we bring you conversations with the people who shape markets, investing, and business. I speak with CEOs, Nobel laureates, market innovators, and legendary investors. Whether you own stocks, bonds, real estate commodities, even crypto, these are discussions you absolutely need to hear. Subscribe to the Masters in Business Podcast on Apple, Spotify, or anywhere you listen.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“Story showing that they had discussed internally whether they should be reducing that risk position. But all of the incentives were to push them in the direction of taking that in. Obviously, interest rates themselves moved quite a bit faster than anyone was expecting. So they were just caught on the wrong side of the trade.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“So you might have thought you had some diversification there, but in fact if all these people are funded by the same few VCs and all those VCs that are on the same WhatsApp group, then actually behaviorally this isn't a thousand guys with 10 million each. It's one big conglomerate of guys with 10 billion. The real trouble was that their commercial incentives were completely the other way. You've got these deposits. you're providing this excellent customer service, which was the backbone of their franchise. That costs a lot of money. So you've actually got to do something that earns you a bit on the asset side or give up the business. And if you start hedging out the risk, then you're hedging out the return as well. And so, you know, they could have managed it more smarter. I think you pointed to a...”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that's a real good question that presumably they're going to be asking themselves right now. I think to some extent, they haven't realized the extent to which their customers were not separate entities in terms of their financial decision making.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“and being good at gathering those deposits means that you gather a huge amount of those deposits and then through the last couple of years when you had a massive boom in terms of VCs putting money into their portfolio companies, they just got these huge inflows of deposits. So one of the most difficult things to manage in banking is rapid growth. In particular, you had rapid growth in deposits at a time when interest rates were very low. So the actual equilibrium covering their cost of business spread on these deposits, you know, they might have had to pay negative 50 basis points of interest rates. And the company doesn't want to do that because it's going to damage the franchise in the long term. The company certainly doesn't want to turn business away. So what they end up doing is putting the money in higher yield and securities. And to do that, you've got to move out on the maturity curve.”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, Silicon Valley Bank, according to everyone I've spoken to about it, were just very good at customer service Tech companies in Silicon Valley. There's no particular magic to the business model. It's just they built themselves around that. They did a lot of business on the golf course, I'm told. And when you had a venture capital funded startup, Which might easily have $10 million in the bank, they would be the guys who would onboard you easily, give you a bunch of corporate credit cards for your kind of teenage coders who've never had a credit card before, and just generally look after you in a way that other banks weren't as sharp on the consumer. customer service”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source
“I think what's happened is that we're seeing why certain kinds of deposits are considered to be hot money. And at the end of the day, you've got corporate deposits, which people like to think are sticky and wealth management deposits in Cygnesia, New York, which is the other bank that's been shut down and taken over by the FDIC this weekend, which people like to think are sticky, but their big amounts of money. It's not like a few thousand in the bank that people have for their transactions. It's a sum of money that people get worried about if they think they're going to lose it. And that means it can be sticky for a while, but when it moves, it really moves. That's why most regulators don't let you fund long-dated assets out of that kind of deposits. Or put limits on your ability to do it”
2023-03-14 · Odd Lots · Dan Davies On What Brought Down Silicon Valley Bank · IDENTIFIED FROM THE TRANSCRIPT · source