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💥Kuch Tufani Karte hai💥

📌Silicon Valley Bank Collapse Explained in Bro code. 🥹 Even a 15 year old can understand.

Characters - SVB, Fed, Bro (Startup)

✅ Between 1994 till 2021

Bro: Who are you bro?

SVB: I am your friend.

Bro: Will you lend me money? I am a tech startup.

SVB: Offcourse, Kitna Chahiye?

Bro: Tu bhai hain mera🥹 When everyone rejected me tune support Kiya.

SVB: Thenks!

✅ In 2021

Bro: I have some money leftover from fundings, can I deposit?

SVB: Unasked Bro anytime 🙈

Now, Bro Started depositing money at SVB at 0%. So much that deposits at SVB are way above than loans granted.

SVB now forced to buy zero rated long term security (MBS - Jaane de naa, Tu bhavnao ko samajh)

✅ In 2022

Fed: I increased the rates to 1%. Ting ting tiding!

SVB: Whatever! 🙄

Bro: Yeah Whatever! I am with u SVB😘
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Fed: I increase the rates again to 1.5%. Dhan Ta Dha!

SVB: Whatever! 🙄🙄

Bro: Yeah Whatever. 😐
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Fed: I increase the rates to 2.5%. Hehehe😂

SVB: Whatever! 🙄

Bro: 😒😒😒🤐

WhatsApp University: How dare you?

Fed: Shutup bro, this is not Adani fiasco. Just F*ckoff.
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Fed: I increase the rates to 3%. 😎

SVB: Whatever! 🙄

Bro: 🤒🤕🤧 Bro, gimme my deposits back! I will invest in zero risk fed bonds at 3%.

SVB: I trusted you bro, the zero rated bonds I have purchased from your deposits are trading less than my cost now.

Bro: Whatever! 🙄 Gimme my money back!

SVB: Tu mera bhai tha naa bro?

Bro: Baap bada na bhaiyaa sabse bada Rupaiya bro 🥱

SVB: OK bro! Deta main teko.

FED: 🤣🤣🤣

SVB: I sold my investments at $1.8Bn loss just to pay you back bro! (Stock plummet after this)

Bro: Whatever🙄

Other Bros: Hey SVB, We want out money back too.

SVB: 🥵🤢🤢💔 waaat!

Other Bros: Yes😐 our new bhai is Fed now.

This saga continued entire day yesterday, the demand to return deposits were so so crazy that California authorities shut the bank. The SVB collapsed in 4 hours!

It is in control of FDIC now, who will sell assets and deposits to repay lenders and customers.

The #svb didn't collapse due to bad lending practices but bad Asset Liability Management. Its because of "Whatever! 🙄". They failed to act when they should have.

Its not right to compare it with Lehman or Enron. Its more on the likes of LTCM collapse. Its classic case of bank run.

Had they given some time by the depositors, SVB could have survived.


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💥💥💥💥Basel IV💥💥💥💥

Demystifying Reforms In Credit Valuation Adjustment Risk In The Banks

Credit valuation adjustment (CVA) risk of derivative instruments was a major source of loss for banks during the Global Financial Crisis and was revised in 2020 following the release of the Basel III reforms.

🟦 Meaning Of CVA Risk

CVA risk refers to the risk of losses arising from changing CVA values in response to movements in counterparty credit spreads and market risk factors that drive prices of derivative transactions and securities financing transactions (SFTs).

🟦 What Are SFTs?

Securities financing transactions (SFTs) allow investors and firms to use assets, such as the shares or bonds they own, to secure funding for their activities.

🔷A securities financing transaction can be

1️⃣ a repurchase transaction - selling a security and agreeing to repurchase it in the future for the original sum of money plus a return for the use of that money

2️⃣ lending a security for a fee in return for a guarantee in the form of financial instruments or cash given by the borrower

3️⃣ a buy-sell back transaction or sell-buy back transaction

4️⃣ a margin lending transaction

The CVA risk capital requirements are calculated for a bank’s “CVA portfolio” on a standalone basis. The CVA portfolio includes CVA for a bank’s entire portfolio of covered transactions and eligible CVA hedges.

🟧 Approaches For CVA Capital Requirements

There are two approaches for calculating CVA capital requirements: the standardised approach (SA-CVA) and the basic approach (BA-CVA). Banks must use the BA-CVA unless they receive approval from their relevant supervisory authority to use the SA-CVA.

🟦 Basic Approach -CVA

The BA-CVA has been revised into a reduced and full version. This approach has more granular counterparty type risk weights while the rating buckets have been simplified into two categories. Banks have to adjust parameters in their regulatory calculation engine and evaluate how they record their CVA weight mappings.

Furthermore, banks employing CVA hedges will have to manage bigger impacts on their calculations, due to the intricacies involved in its consideration of hedges, as well as it being a two-part calculation (reduced and full) that must be combined for the final CVA result.

🟦 Standardised Approach - CVA

The new standardised approach (SA-CVA) is more granular and risk sensitive, requiring pre-modelled inputs not previously needed for CVA. In the past, CVA could have been done within the credit risk process with only credit risk inputs; however, banks now need to consider market volatilities, correlations, and credit spreads given that CVA aligns with the revised market risk framework.