Silicon Valley Bank's Mismatch in Assets and Liabilities

There's a whole lot of tools there to prevent that mismatch from wreaking havoc with the bank like hedges or diversifying depositors or diversifying assets and so forth. And yet, you know, what we know is that SGB hardly used any of these tools. The problems are now, I think, transferred off balance sheet to what is it central counterparties who absorb these risks now.

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The more capital a bank holds, the more losses it can take before going bust. Dr. Martien Lubberink, professor at Victoria University of Wellington, joins Forward Guidance to define regulatory bank capital and put it in context of the conspicuous bank meltdowns in March. Lubberink opines on the issues at Credit Suisse & Silicon Valley Bank through the lens of bank capital, and he shares insights on the health and nature of the banking system of New Zealand, where he currently resides. Filmed on April 6, 2023.

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Read Martin Lubberink’s blog at https://capitalissues.co/

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Pieces discussed in the interview:

“The Value of Kiwibank”

Fresh RBNZ Dashboard data shows New Zealand’s largest banks on track to meet increasing capital ratio requirements”

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Timestamps:

(00:00) Intro

(01:39) Lubberink's Background In Bank Capital During The Great Financial Crisis (GFC)

(08:04) What Is Bank Capital?

(13:37) Silicon Valley Bank Was A Masterclass In "How To Not Run A Bank"

(18:16) Banks' Hedging Of Interest Rate Risk

(25:55) Permissionless

(26:59) Important Regulatory Bank Capital Ratios

(37:26) Credit Suisse & Additional Tier 1 Bonds

(46:14) Operational Risks

(48:11) "New Zealand Banks Are Among The Most Resilient Banks In The World”

(51:32) Interest Rate Hedging Again (Jack Is Obsessed)