It’s actually far simpler Than the housing analogy. Banks are in the business of risk transformation. They take short term deposits and invest in long term loans. This is maturity transformation. They pay interest on short term deposits at short term (variable) interest rates and lend or invest either short or long term (fixed) interest rate assets. This latter risk mismatch is easy to hedge with interest rate swaps. Silicon Valley Bank and Silvergate made basic errors in judgement when assuming rates couldn’t rise, leaving their shareholders and depositors vulnerable to open interest rate and liquidity risk positions. The question for me is: why is the market so easily convinced that start ups have come up with something new when all they are doing is ignoring hard learnt lessons of the past?
Indeed it did. I think an important point to make here is that this was regulatory issue as much as a technical issue. In other countries (eg, Nigeria) the telcos were forced to JV with banks (hence nothing much happened for years) whereas M-PESA was allow to proceed as a telco initiative.
It’s actually far simpler Than the housing analogy. Banks are in the business of risk transformation. They take short term deposits and invest in long term loans. This is maturity transformation. They pay interest on short term deposits at short term (variable) interest rates and lend or invest either short or long term (fixed) interest rate assets. This latter risk mismatch is easy to hedge with interest rate swaps. Silicon Valley Bank and Silvergate made basic errors in judgement when assuming rates couldn’t rise, leaving their shareholders and depositors vulnerable to open interest rate and liquidity risk positions. The question for me is: why is the market so easily convinced that start ups have come up with something new when all they are doing is ignoring hard learnt lessons of the past?
"M-PESA quickly dominated Kenya"
Indeed it did. I think an important point to make here is that this was regulatory issue as much as a technical issue. In other countries (eg, Nigeria) the telcos were forced to JV with banks (hence nothing much happened for years) whereas M-PESA was allow to proceed as a telco initiative.