VIEW FROM THE THAMES
DEON GOUWS: When a bank gets screwed
They say equity is a thin sliver of hope between what you owe and what your assets are really worth. In SVB’s case, that sliver evaporated overnight
The recent demise of Silicon Valley Bank (SVB) reminded me of something I heard at a course I attended in London in 2000. One of the presenters was professor Ingo Walter of the Stern School of Business in New York. As a German finance academic living and working in the US, he was eminently qualified to comment on some of the key differences between the two countries, focusing in particular on the way that banks and their customers behave.
Walter gave the example of someone who wanted to buy a new big-screen TV. If you’re in Germany, the first thing you’re likely to do is to look at your most recent bank statement. If you have enough money, great, go out and make the purchase, otherwise start saving until you can afford to buy it cash. Over the months that follow, the bank will pay you a measly interest rate on your deposit — “for that is what banks do, they screw you”, according to the good professor...
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