<instructions>Your goal is to analyze the following comment and estimate how highly it will be upvoted by the Hacker News community.</instructions><comment><author>jaycroft</author><text>Because now the bank has to pay interest to depositors of $150M instead of $100M, which means that they&amp;#x27;ll pay a lower, less competitive rate.  So, in order to keep customers, banks are incentivized to lend out any and all spare cash for whatever yield that they can get, in order to give attractive rates to depositors.  Losing customers though shouldn&amp;#x27;t really be a problem for the bank, after all, those customers did deposit &amp;quot;too much&amp;quot; money - once enough have left to seek higher yields elsewhere, there will be less cash on the sidelines, and so higher yields for the remaining customers.  I suppose if your whole philosophy is &amp;quot;growth at any cost&amp;quot;, and you&amp;#x27;re measuring growth not just by AUM but also by number of customers, you get excess risk taking and yield chasing.</text><parent_chain><item><author>goodoldneon</author><text>Why is &amp;quot;too much money&amp;quot; a thing? If a bank only wants $100 million in deposits, but customers deposit $150 million, why can&amp;#x27;t the bank set the extra $50 million to the side and pretend like it doesn&amp;#x27;t exist until customers want to withdraw it?</text></item><item><author>duxup</author><text>I have some family who (with some other partners) founded a small community bank that has grown over the years.&lt;p&gt;They expanded in some areas by buying other small community banks, specifically in areas where there was a big increase in income in the local area (from mineral rights, etc).&lt;p&gt;The smaller banks that they bought were in a situation where suddenly they had large amounts of cash incoming, and customers who were paying off &amp;#x2F; not taking out loans like they used to.&lt;p&gt;They didn’t have the reach (mostly confined to a small rural region) to use that cash to give out loans elsewhere so they looked to merge or be bought by someone who did.&lt;p&gt;Until I heard about those banks I hadn’t considered “too much money” was a problem.</text></item><item><author>somenameforme</author><text>An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it&amp;#x27;s accurate):&lt;p&gt;&amp;quot;- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021.&lt;p&gt;- As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!) in mortgage backed securities (MBS) with these deposits for their hold-to-maturity (HTM) portfolio.&lt;p&gt;- 97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%.&lt;p&gt;- The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration &amp;quot;risk-free&amp;quot; bonds from the Fed at a 2.5x higher yield.&lt;p&gt;- This is not a liquidity issue as long as SVB maintains their deposits, since these securities will pay out more than they cost eventually.&lt;p&gt;- However, yesterday afternoon, SVB announced that they had sold $21bn of their Available For Sale (AFS) securities at a $1.8bn loss, and were raising another $2.25bn in equity and debt. This came as a surprise to investors, who were under the impression that SVB had enough liquidity to avoid selling their AFS portfolio.&amp;quot;&lt;p&gt;[1] - &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;twitter.com&amp;#x2F;jamiequint&amp;#x2F;status&amp;#x2F;1633956163565002752&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;twitter.com&amp;#x2F;jamiequint&amp;#x2F;status&amp;#x2F;1633956163565002752&lt;/a&gt;</text></item></parent_chain></comment><story><title>FDIC Takes over Silicon Valley Bank</title><url>https://www.fdic.gov/news/press-releases/2023/pr23016.html</url></story>
<instructions>Your goal is to analyze the following comment and estimate how highly it will be upvoted by the Hacker News community.</instructions><comment><author>jellicle</author><text>Well, yes, if your bank is receiving too many deposits and you didn&amp;#x27;t want to be vulnerable to a SVB-style failure, then you could:&lt;p&gt;- set your rate of paid interest on demand deposits quite low - what&amp;#x27;s going to happen, some people will pull their deposits? That&amp;#x27;s fine, that&amp;#x27;s what you want.&lt;p&gt;- re-deposit those excess deposits at other banks, taking only their meager interest payments on demand deposits&lt;p&gt;The math here works fine. As long as there&amp;#x27;s some difference between the rate you&amp;#x27;re paying on deposits and what you&amp;#x27;re getting, no matter how small, you&amp;#x27;re fine. And if you need cash quickly, hey, those are DEMAND deposits at other banks, you should be able to withdraw them immediately. You can spread the risk of a run on your bank around to every other bank.</text><parent_chain><item><author>goodoldneon</author><text>Why is &amp;quot;too much money&amp;quot; a thing? If a bank only wants $100 million in deposits, but customers deposit $150 million, why can&amp;#x27;t the bank set the extra $50 million to the side and pretend like it doesn&amp;#x27;t exist until customers want to withdraw it?</text></item><item><author>duxup</author><text>I have some family who (with some other partners) founded a small community bank that has grown over the years.&lt;p&gt;They expanded in some areas by buying other small community banks, specifically in areas where there was a big increase in income in the local area (from mineral rights, etc).&lt;p&gt;The smaller banks that they bought were in a situation where suddenly they had large amounts of cash incoming, and customers who were paying off &amp;#x2F; not taking out loans like they used to.&lt;p&gt;They didn’t have the reach (mostly confined to a small rural region) to use that cash to give out loans elsewhere so they looked to merge or be bought by someone who did.&lt;p&gt;Until I heard about those banks I hadn’t considered “too much money” was a problem.</text></item><item><author>somenameforme</author><text>An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it&amp;#x27;s accurate):&lt;p&gt;&amp;quot;- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021.&lt;p&gt;- As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!) in mortgage backed securities (MBS) with these deposits for their hold-to-maturity (HTM) portfolio.&lt;p&gt;- 97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%.&lt;p&gt;- The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration &amp;quot;risk-free&amp;quot; bonds from the Fed at a 2.5x higher yield.&lt;p&gt;- This is not a liquidity issue as long as SVB maintains their deposits, since these securities will pay out more than they cost eventually.&lt;p&gt;- However, yesterday afternoon, SVB announced that they had sold $21bn of their Available For Sale (AFS) securities at a $1.8bn loss, and were raising another $2.25bn in equity and debt. This came as a surprise to investors, who were under the impression that SVB had enough liquidity to avoid selling their AFS portfolio.&amp;quot;&lt;p&gt;[1] - &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;twitter.com&amp;#x2F;jamiequint&amp;#x2F;status&amp;#x2F;1633956163565002752&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;twitter.com&amp;#x2F;jamiequint&amp;#x2F;status&amp;#x2F;1633956163565002752&lt;/a&gt;</text></item></parent_chain></comment><story><title>FDIC Takes over Silicon Valley Bank</title><url>https://www.fdic.gov/news/press-releases/2023/pr23016.html</url></story>