***OFFICIAL*** Bank Failure/Crisis Thread (1 Viewer)

[KGB]

looks like they are bailed out

 

[Dinsy Ejotuz]

If your entire banking strategy is dependent on the Fed not raising rates into persistent inflation that was recently approaching double-digits, you're doing it wrong.

 

[Alex P Keaton]

looks like they are bailed out

Once the 2nd bank (in NY) wobbled, this was inevitable.

 

[Alex P Keaton]

If your entire banking strategy is dependent on the Fed not raising rates into persistent inflation that was recently approaching double-digits, you're doing it wrong.

It’s truly amazing how mismatched their asset-liability duration was. I can’t even fathom how they thought that made sense. It’s incredibly basic.

 

[FreeBaGeL]

I see the Fed is doing a closed door emergency session Monday. I would not be surprised if they don't swing to a rate cut and buying MBS again. The bank run killed SVB but what caused the bank run was the Fed's aggressive rate hikes which put them in a bad bind. The Fed is notorious for being unable to forward think and being reactionary. One of the consequences for having a bunch of academics run it.

I think the complete opposite of this. SVB is the one that was short-sighted and lacked forward thinking.

SVB signed itself into long term bonds because they were too short sighted to realize that interest rates might not be super low forever.

These rate hikes were BADLY needed and BADLY overdue. The longer we waited and the slower we did it the worse it is all going to be in the end. If a tech bank going under while all of their depositors are made whole is the fallout of this then jesus we got off easy. But it will get worse I'm sure, and rightfully so.

15 years of hand holding and screwing over the future so people could get buckets of money, and then 8 months of things being a little bit hard (but still historically not bad at all) and somehow people are struggling? WTH did they do with all that easy mode money from the last 15 years?

The reality is things need to get bad. People need a swift kick in the nuts. They need to learn that they can't just spend like crazy and make stupid risky investments and right when they're about to get punished for it, the fed will just screw over the future to make sure they're okay. Every time they do that it just compounds and makes the issue bigger next time, which means they have to take even bigger steps next time, which then makes the issue even bigger the next time, and so on.

And eventually that leads to inflation, which overwhelmingly impacts the people that WEREN'T the ones that screwed everything up in the first place. The only real "trickle down" in economics is that when the fed spends a decade shaping their policy around protecting the upper middle class and above from their own stupidity and dependence it trickles down to real problems for the people whose lives are actually changed by things like a loaf of bread costing $6.50.

 

[fruity pebbles]

If your entire banking strategy is dependent on the Fed not raising rates into persistent inflation that was recently approaching double-digits, you're doing it wrong.

Seriously. If you buckle under a 4.5% Fed funds rate……..

 

[Leeroy Jenkins]

Just heard from a super connected colleague who knows one of the FDIC guys in charge of dismantling SVB. Here’s what he said will happen:
- any account holders will get paid up to $250k on Monday (basically what they had insured)
- they will get paid 50% of their outstanding balance within 1-2 more business days (midweek next week)
- money market account holders will get paid 100% this week
- remainder could take 3-6 months depending on claims, time it takes to liquidate assets, etc
- FDIC has already sold half of SBV’s assets as of today (they started selling at FDIC direction two weeks ago)

Details might vary, but those are the broad brushstrokes conveyed to me.

Thanks @Alex P Keaton

Beyond the $250k that is insured, where does the money come from to make all the other payments? Their assets aren't worth that are they?

For, "FDIC has already sold half of SBV’s assets as of today (they started selling at FDIC direction two weeks ago)", the FDIC took over two weeks ago and was forcing the sale of assets?

SVB held assets worth more than its liabilities (at least on paper) and the majority of those assets were in boring government securities (eg Treasuries). So yeah, the simple answer is the FDIC is just selling the assets, and paying account holders. This isn’t a bailout — it’s an imperfect but decently organized ramp down of a bank at this point. Sell assets. Pay bills.

I don’t know that the FDIC actually officially took over two weeks ago. But from all I’ve heard, it sure sounds like in essence they saw this outcome as inevitable and started to “nudge” SVB toward the right actions. But it could have literally been a takeover two weeks ago. I haven’t been able to confirm that yet.

If SVB got nudged, they made sure they got their bonuses.

It may be too early to play Monday Morning QB, but what could SVB have done to avoid this?

to me, this seems and sounds like a confidence issue creating an unfounded bank run. let them fail, sell the assets before monday morning and temporarily increase the fdic guarantee.

Increasing FDIC would not have mattered here as these deposits were huge and way over the limit. Not to mention the moral hazard. Silicon Valley are the last people who need a bailout.

At least right now this looks like it will turn out like it should. Depositors look to be made whole. Equity holders eat the loss.

Honestly this seems like it would be a good purchase for someone. This bank failed because of bonehead investments - the underlying business is a good one.

Admittedly very ignorant on issues like this. But why should depositors be made whole? They knew it wasn't FDIC-insured, didn't they? I mean, isn't that why it's risky and you shouldn't do it? And now they're getting bailed out. I must be missing something.

On a micro level there is no reason depositors should be made whole. In this case the system worked and the bank had enough assets to cover liabilities. From a macro point of view this whole thing was caused by the most extreme set of interest rate raises in history - the Fed is causing all kinds of stress on the financial system. If there were huge losses to depositors here the system might be viewed as suspect and chain reactions start. That's bad for everyone.

The other item to note is that for these corporate depositors there is no way to guarantee all the money they have - there aren't enough banks.

Yes, but the extreme rate hikes were preceded by record low, near 0% rates.

 

[Joe Bryant]

So basically, all good for bank customers?

 

[Chadstroma]

I see the Fed is doing a closed door emergency session Monday. I would not be surprised if they don't swing to a rate cut and buying MBS again. The bank run killed SVB but what caused the bank run was the Fed's aggressive rate hikes which put them in a bad bind. The Fed is notorious for being unable to forward think and being reactionary. One of the consequences for having a bunch of academics run it.

I think the complete opposite of this. SVB is the one that was short-sighted and lacked forward thinking.

SVB signed itself into long term bonds because they were too short sighted to realize that interest rates might not be super low forever.

These rate hikes were BADLY needed and BADLY overdue. The longer we waited and the slower we did it the worse it is all going to be in the end. If a tech bank going under while all of their depositors are made whole is the fallout of this then jesus we got off easy. But it will get worse I'm sure, and rightfully so.

15 years of hand holding and screwing over the future so people could get buckets of money, and then 8 months of things being a little bit hard (but still historically not bad at all) and somehow people are struggling? WTH did they do with all that easy mode money from the last 15 years?

The reality is things need to get bad. People need a swift kick in the nuts. They need to learn that they can't just spend like crazy and make stupid risky investments and right when they're about to get punished for it, the fed will just screw over the future to make sure they're okay. Every time they do that it just compounds and makes the issue bigger next time, which means they have to take even bigger steps next time, which then makes the issue even bigger the next time, and so on.

And eventually that leads to inflation, which overwhelmingly impacts the people that WEREN'T the ones that screwed everything up in the first place. The only real "trickle down" in economics is that when the fed spends a decade shaping their policy around protecting the upper middle class and above from their own stupidity and dependence it trickles down to real problems for the people whose lives are actually changed by things like a loaf of bread costing $6.50.

The bolded is absolutely true and is the core of my argument. The Fed, once again, screwed up. Their inactivity well after it was obvious to everyone except the Fed that inflation was a massive issue is what laid the foundation for this problem. Sure, SVB and Signature screwed up but the real problem is faith. If depositors don't have faith in the system then there will be a significant shift of funds out of many banks. I wasn't really worried about a run on the banking system at large but with that second domino falling, it is a real threat. I think the only thing that will calm everyone is a shift to ease rates. If it is not done now and you start having a number of banks fail then you are looking at a mini-repeat of 2008 but the problem that causes it won't be lending but the Fed making mistake over mistake.

I can not reinforce this enough. If ANY bank loses 10% of it's deposit base in a short period of time- they will fail. It WILL NOT matter what they have done with assets or hedged against raising inflation. Short of calming the market and depositors with action on rates, I think the only other thing that will be to greatly increase the FDIC insurance limit, however, I am not even sure that doubling it would do the trick. The amount to really make it work might be more than anyone is willing to do.

Besides the short term issues of the banking system having a cascading failure or small to mid size banks is that the big banks will be asked to take over the bigger of these banks. Making the "too big to fail" banks even more "too big" and centralizing the banking system into the top 10 banks in the country. That is a horrible thing for the country.

 

[McBokonon]

So basically, all good for bank customers?

Other than minor interruptions, basically, yes.

Some regionals are trading like they’re the next to fall. First Republic, Western Alliance, PacWest, Zion among the worst trading.

Schwab (not worried but just saying) has also been very rocky throughout all of this.

 

[massraider]

I find this interesting, but I am out of my depth here:

Lots of really bad takes about SVB. Let’s try and correct This is not a solvency crisis like 2008. Bad loans or poor investments were not made. Money was not lost. So, everyone is going to get their money back. (And please no takes about no interest rate hedging. Asset/liability mismatches are how banking works.) Instead this is an old fashion 1930s liquidity crisis. Too many depositors demanded cash at once (as in right now) and SVB (and SI) could not convert loans and securities (and crypto) to cash that quickly. So, everyone is getting their money back from SVB (and SI), just not at 8AM Monday. And, yes this is a big problem as this is working capital for a lot of companies. They have payrolls to meet and vendors to pay next week. And if they don’t pay bills and employees, they in turn don’t pay their bills and this can quickly cascade into a major economic problem. The important question is why so many demanded their money back at once. And I’m not referring to the last two days. I’m asking about the days/weeks leading up to this last two days forcing SVB to sell securities and realize a $1.8B loss, necessitating a capital raise. Why were depositors withdrawing in big enough amounts before Thursday/Friday? First, welcome to the world of mobile banking. Gone are the frictions of standing in line with tellers instructed to count money slowly. (Media images of lines Friday were largely gawkers) How did $42 billion get withdrawn Friday alone without thousands in line? Answer, your phone! This is not the Bailey Savings and Loan anymore. This should scare the hell of bankers and regulators worldwide. The entire $17 trillion deposit base is now on a hair trigger expecting instant liquidity. Add in social media and millions get a message, like Peter Thiel telling Founders companies to pull out, or Senator Warren gloating that SI went under, and pick up their phone open a Chase account and Venmo-ed their life savings into it in 10 minutes. Instant liquidity (not solvency) crisis with everyone still in bed. Banking will never be the same. The second, and I did a long thread on this on Friday … banks are over-reserved, after 14 years of QE, and are still paying 0.50% on accounts when T-bills are yielding 5.00%. They don’t need to compete for deposits. Initially as rates passed 2%, 3% and 4%, the public did not notice. So bankers thought deposits were well anchored at their bank and not moving regardless of the interest rate paid. But at 5% the public finally noticed, and millions reached for the phone at once and transferred to a money market account or Treasury direct to buy T-bills. Banks were squeezed to convert loans and securities to cash instantly so depositors could leave for better rates. Add in the bleed out from tech firms struggling, and Senator Warrens tweeting with glee about SI going out of business, and depositors at SVB got the message and picked up their phones and acted. This is why I have been tweeting that this has to stop now. The Fed is meeting Monday at 11:30. Too late! They need to meet today (Sunday) at 11:30. What needs to be done? Two things. The FDIC needs to raise the deposit insurance ceiling to unlimited as they did this in 2008. Besides $250k is a made up number anyway. So make up a bigger number. Banks need to get their deposit base to stop figuring out how to buy a 4.5% money market fund. They need to raise the interest rates they pay 3.00% - 3.50%, from 0.50%, immediately. Yes, this will kill bank profitability so expect Bank Execs to balk at doing this. This way the public gets the message that you money is safe, no matter the bank, or the amount, and the rate paid on your money is at least competitive with other alternatives. So, do nothing. Otherwise, if we are all waiting for the Fed to START a meeting at 11:30 Monday, hundreds of billions of deposits will have moved by phone and it will be far worse.

https://twitter.com/biancoresearch/status/1634885127179325440

 

[Chadstroma]

So basically, all good for bank customers?

Other than minor interruptions, basically, yes.

Some regionals are trading like they’re the next to fall. First Republic, Western Alliance, PacWest, Zion among the worst trading.

Schwab (not worried but just saying) has also been very rocky throughout all of this.

The panic has begun and that is the real threat.

 

[Chadstroma]

I find this interesting, but I am out of my depth here:

Lots of really bad takes about SVB. Let’s try and correct This is not a solvency crisis like 2008. Bad loans or poor investments were not made. Money was not lost. So, everyone is going to get their money back. (And please no takes about no interest rate hedging. Asset/liability mismatches are how banking works.) Instead this is an old fashion 1930s liquidity crisis. Too many depositors demanded cash at once (as in right now) and SVB (and SI) could not convert loans and securities (and crypto) to cash that quickly. So, everyone is getting their money back from SVB (and SI), just not at 8AM Monday. And, yes this is a big problem as this is working capital for a lot of companies. They have payrolls to meet and vendors to pay next week. And if they don’t pay bills and employees, they in turn don’t pay their bills and this can quickly cascade into a major economic problem. The important question is why so many demanded their money back at once. And I’m not referring to the last two days. I’m asking about the days/weeks leading up to this last two days forcing SVB to sell securities and realize a $1.8B loss, necessitating a capital raise. Why were depositors withdrawing in big enough amounts before Thursday/Friday? First, welcome to the world of mobile banking. Gone are the frictions of standing in line with tellers instructed to count money slowly. (Media images of lines Friday were largely gawkers) How did $42 billion get withdrawn Friday alone without thousands in line? Answer, your phone! This is not the Bailey Savings and Loan anymore. This should scare the hell of bankers and regulators worldwide. The entire $17 trillion deposit base is now on a hair trigger expecting instant liquidity. Add in social media and millions get a message, like Peter Thiel telling Founders companies to pull out, or Senator Warren gloating that SI went under, and pick up their phone open a Chase account and Venmo-ed their life savings into it in 10 minutes. Instant liquidity (not solvency) crisis with everyone still in bed. Banking will never be the same. The second, and I did a long thread on this on Friday … banks are over-reserved, after 14 years of QE, and are still paying 0.50% on accounts when T-bills are yielding 5.00%. They don’t need to compete for deposits. Initially as rates passed 2%, 3% and 4%, the public did not notice. So bankers thought deposits were well anchored at their bank and not moving regardless of the interest rate paid. But at 5% the public finally noticed, and millions reached for the phone at once and transferred to a money market account or Treasury direct to buy T-bills. Banks were squeezed to convert loans and securities to cash instantly so depositors could leave for better rates. Add in the bleed out from tech firms struggling, and Senator Warrens tweeting with glee about SI going out of business, and depositors at SVB got the message and picked up their phones and acted. This is why I have been tweeting that this has to stop now. The Fed is meeting Monday at 11:30. Too late! They need to meet today (Sunday) at 11:30. What needs to be done? Two things. The FDIC needs to raise the deposit insurance ceiling to unlimited as they did this in 2008. Besides $250k is a made up number anyway. So make up a bigger number. Banks need to get their deposit base to stop figuring out how to buy a 4.5% money market fund. They need to raise the interest rates they pay 3.00% - 3.50%, from 0.50%, immediately. Yes, this will kill bank profitability so expect Bank Execs to balk at doing this. This way the public gets the message that you money is safe, no matter the bank, or the amount, and the rate paid on your money is at least competitive with other alternatives. So, do nothing. Otherwise, if we are all waiting for the Fed to START a meeting at 11:30 Monday, hundreds of billions of deposits will have moved by phone and it will be far worse.

https://twitter.com/biancoresearch/status/1634885127179325440

Agreed.... except that this wasn't about mobile banking. This was not a consumer bank run but a commercial bank run as SVB has a very small consumer banking operation. This is about businesses that had millions in accounts freaking out when they heard about the bank being in trouble an exiting those funds through wire transfers (the only real way to move large sums of money like we are talking about).

The FDIC insurance is the key but as he said... it would have to go to "unlimited" which would take a lot of backbone to do. The key about that though is that if you do it... it is a bluff. You are bluffing the depositors out of fear and into faith and thus would not need to actually back the funds.

A 25 bps rate cut would have an overwhelming change of view on all of this and calm the commercial world.

 

[Juxtatarot]

They need to raise the interest rates they pay 3.00% - 3.50%, from 0.50%, immediately. Yes, this will kill bank profitability so expect Bank Execs to balk at doing this.

There are a few things I don’t agree with in that piece but this part I disagree with the most. It would trigger more failures, layoffs, etc.

 

[Juxtatarot]

A 25 bps rate cut would have an overwhelming change of view on all of this and calm the commercial world

Then do what if the next set of inflation numbers are bad?

 

[whoknew]

I find this interesting, but I am out of my depth here:

Lots of really bad takes about SVB. Let’s try and correct This is not a solvency crisis like 2008. Bad loans or poor investments were not made. Money was not lost. So, everyone is going to get their money back. (And please no takes about no interest rate hedging. Asset/liability mismatches are how banking works.) Instead this is an old fashion 1930s liquidity crisis. Too many depositors demanded cash at once (as in right now) and SVB (and SI) could not convert loans and securities (and crypto) to cash that quickly. So, everyone is getting their money back from SVB (and SI), just not at 8AM Monday. And, yes this is a big problem as this is working capital for a lot of companies. They have payrolls to meet and vendors to pay next week. And if they don’t pay bills and employees, they in turn don’t pay their bills and this can quickly cascade into a major economic problem. The important question is why so many demanded their money back at once. And I’m not referring to the last two days. I’m asking about the days/weeks leading up to this last two days forcing SVB to sell securities and realize a $1.8B loss, necessitating a capital raise. Why were depositors withdrawing in big enough amounts before Thursday/Friday? First, welcome to the world of mobile banking. Gone are the frictions of standing in line with tellers instructed to count money slowly. (Media images of lines Friday were largely gawkers) How did $42 billion get withdrawn Friday alone without thousands in line? Answer, your phone! This is not the Bailey Savings and Loan anymore. This should scare the hell of bankers and regulators worldwide. The entire $17 trillion deposit base is now on a hair trigger expecting instant liquidity. Add in social media and millions get a message, like Peter Thiel telling Founders companies to pull out, or Senator Warren gloating that SI went under, and pick up their phone open a Chase account and Venmo-ed their life savings into it in 10 minutes. Instant liquidity (not solvency) crisis with everyone still in bed. Banking will never be the same. The second, and I did a long thread on this on Friday … banks are over-reserved, after 14 years of QE, and are still paying 0.50% on accounts when T-bills are yielding 5.00%. They don’t need to compete for deposits. Initially as rates passed 2%, 3% and 4%, the public did not notice. So bankers thought deposits were well anchored at their bank and not moving regardless of the interest rate paid. But at 5% the public finally noticed, and millions reached for the phone at once and transferred to a money market account or Treasury direct to buy T-bills. Banks were squeezed to convert loans and securities to cash instantly so depositors could leave for better rates. Add in the bleed out from tech firms struggling, and Senator Warrens tweeting with glee about SI going out of business, and depositors at SVB got the message and picked up their phones and acted. This is why I have been tweeting that this has to stop now. The Fed is meeting Monday at 11:30. Too late! They need to meet today (Sunday) at 11:30. What needs to be done? Two things. The FDIC needs to raise the deposit insurance ceiling to unlimited as they did this in 2008. Besides $250k is a made up number anyway. So make up a bigger number. Banks need to get their deposit base to stop figuring out how to buy a 4.5% money market fund. They need to raise the interest rates they pay 3.00% - 3.50%, from 0.50%, immediately. Yes, this will kill bank profitability so expect Bank Execs to balk at doing this. This way the public gets the message that you money is safe, no matter the bank, or the amount, and the rate paid on your money is at least competitive with other alternatives. So, do nothing. Otherwise, if we are all waiting for the Fed to START a meeting at 11:30 Monday, hundreds of billions of deposits will have moved by phone and it will be far worse.

https://twitter.com/biancoresearch/status/1634885127179325440

Disagree very much on how he breezes over the bad asset liability investment decisions. That's a big part of this failure and SVB's failure to manage interest rate risk was huge.

 

[McBokonon]

Agreed.... except that this wasn't about mobile banking

I don’t think his point was about literal mobile banking. He was saying that in prior times, including with commercial banking, if depositors (including businesses) were concerned, the process to withdraw everything was laborious. But now, businesses can open up a new account in minutes and transfer everything nearly instantly. In this case, a small concentration of VC funds that had a large concentration of SVB companies in their portfolios advised their clients to do just that, and they did. “Mobile banking” has enabled runs to be nearly instantaneous which prevents cooler heads from prevailing.

 

[Sand]

No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

This is ********.

 

[eoMMan]

I think the lesson here for people and small businesses is to try and not have more than $250k in a single bank. It's definitely more difficult for a business to stay under the $250k limit (especially one that moves volume) but they should have their higher dollar accounts in larger banks, imo.

 

[beer 30]

It’s truly amazing how mismatched their asset-liability duration was. I can’t even fathom how they thought that made sense. It’s incredibly basic.

I know nothing about all of this except when I hear about a bank failing I assume either 1. somebody stole something or 2. they are idiots at managing money. I thought after 2008 we put stuff in place to keep and eye on the banks to kind of guard against stuff like this, no? I mean my company is privately held by a public company in England but we get audited every year and have to answer a lot of painful questions when we do stupid ****. Is that not the case for a company that manages billions of dollars?

 

[Alex P Keaton]

No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

This is ********.

Check the time stamp. It was true at the time it was written. Obviously it isn’t the case anymore. Spare me the outrage.

 

[Chadstroma]

A 25 bps rate cut would have an overwhelming change of view on all of this and calm the commercial world

Then do what if the next set of inflation numbers are bad?

Inflation has been trending down and the thing that a lot of people do not understand (including the good people at the Fed apparently) is that it takes time for rates changes to move through the financial system. A 25 bps ease isn't going to make or break inflation at this point either but it would go a long way of settling everything down.

HOWEVER, if inflation did buck trends and go up again, you can increase rates again. It isn't a one way street. My complaint is NOT on how high interest rates are. My first complaint was that they should have started increasing rates a LONG time before they did when they kept saying, horribly wrong, that it was transitory. After that, the biggest problem has been them playing catch up with aggressive after aggressive rate hikes over a short period of time.

Calm the market. Calm the depositors. Inject faith back into the system. If data shows that what I think (which is inflation will continue to settle down as the rate hikes already done continue to work through the system) then you can increase it again.

 

[Chadstroma]

No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

This is ********.

Check the time stamp. It was true at the time it was written. Obviously it isn’t the case anymore. Spare me the outrage.

Still the case. At least at the moment.... unless the system starts to break down. They are going to raid the FDIC Insurance funds to make everyone whole.

 

[Doug B]

No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

This is ********.

Check the time stamp. It was true at the time it was written. Obviously it isn’t the case anymore. Spare me the outrage.

FWIW, Joe Biden just said the same thing " ... no costs borne by taxpayers ... " about 45 minutes ago at a press conference. I'm short on the details, but he said something like "the fees banks pay the FDIC will cover this". Reminder: That last quote is a super-rough paraphrase.

 

[Alex P Keaton]

So basically, all good for bank customers?

Other than minor interruptions, basically, yes.

Some regionals are trading like they’re the next to fall. First Republic, Western Alliance, PacWest, Zion among the worst trading.

Schwab (not worried but just saying) has also been very rocky throughout all of this.

Already assuming that a handful of these (hearing PacWest is the worst) are already screwed. But that’s just speculation.

 

[Alex P Keaton]

No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

This is ********.

Check the time stamp. It was true at the time it was written. Obviously it isn’t the case anymore. Spare me the outrage.

FWIW, Joe Biden just said the same thing " ... no costs borne by taxpayers ... " about 45 minutes ago at a press conference. I'm short on the details, but he said something like "the fees banks pay the FDIC will cover this". Reminder: That last quote is a super-rough paraphrase.

We’ll see. As this spreads, hard to see taxpayers not footing some of the bill.

 

[Mitchie]

It’s truly amazing how mismatched their asset-liability duration was. I can’t even fathom how they thought that made sense. It’s incredibly basic.

I know nothing about all of this except when I hear about a bank failing I assume either 1. somebody stole something or 2. they are idiots at managing money. I thought after 2008 we put stuff in place to keep and eye on the banks to kind of guard against stuff like this, no? I mean my company is privately held by a public company in England but we get audited every year and have to answer a lot of painful questions when we do stupid ****. Is that not the case for a company that manages billions of dollars?

There were regulations (Dodd-Frank) but some were reversed in 2018.

 

[Doug B]

Total and complete noob regarding the U.S. banking system, especially interconnectivity between Banks A, B, C and X, Y. Z:

Is all this stuff only going to affect certain banks that have a big percentage of their deposits from venture capital corporations, new-ish tech firms, and so forth? And that the general run of regular 'ol banks where workaday Americans deposit their money ... those regular ol' banks are just about (but not 100% completely) immune from any effects of this?

Or is it "Wait six months, and your couple-thousand-dollar Chase/Capital One/Wells Fargo deposits are going to be gone, too!!!!" (I know, FDIC insurance kicks in for small depositors).

 

[Chadstroma]

Agreed.... except that this wasn't about mobile banking

I don’t think his point was about literal mobile banking. He was saying that in prior times, including with commercial banking, if depositors (including businesses) were concerned, the process to withdraw everything was laborious. But now, businesses can open up a new account in minutes and transfer everything nearly instantly. In this case, a small concentration of VC funds that had a large concentration of SVB companies in their portfolios advised their clients to do just that, and they did. “Mobile banking” has enabled runs to be nearly instantaneous which prevents cooler heads from prevailing.

Not really.

This is a consumer thinking in terms of consumer banking. Commercial banking, which is what this is all about right now, has not been a laborious thing for them to move money for decades. The kind of accounts we are talking about at SVB have been able to move money without going to branch for decades. It simply was picking up a phone and getting a wire transfer to be done to online banking where they could do the same.

Consumer banking mobile banking is largely limited in amounts that can be moved.

It really isn't a factor here.

 

[whoknew]

I think the lesson here for people and small businesses is to try and not have more than $250k in a single bank. It's definitely more difficult for a business to stay under the $250k limit (especially one that moves volume) but they should have their higher dollar accounts in larger banks, imo.

Which is why the $250k limit should be raised. Banks are so dependent on commercial deposits. And when there is a bank failure, the FDIC necessarily waives the limit for that bank. So right now, there is an imbalance in the system. There's no limit for SVB's and Signature's deposits, yet $250k for everyone else.

Time to readjust that limit.

 

[Mitchie]

Total and complete noob regarding the U.S. banking system, especially interconnectivity between Banks A, B, C and X, Y. Z:

Is all this stuff only going to affect certain banks that have a big percentage of their deposits from venture capital corporations, new-ish tech firms, and so forth? And that the general run of regular 'ol banks where workaday Americans deposit their money ... those regular ol' banks are just about (but not 100% completely) immune from any effects of this?

Or is it "Wait six months, and your couple-thousand-dollar Chase/Capital One/Wells Fargo deposits are going to be gone, too!!!!" (I know, FDIC insurance kicks in for small depositors).

small depositors have absolutely nothing to worry about.

 

[Chadstroma]

Total and complete noob regarding the U.S. banking system, especially interconnectivity between Banks A, B, C and X, Y. Z:

Is all this stuff only going to affect certain banks that have a big percentage of their deposits from venture capital corporations, new-ish tech firms, and so forth? And that the general run of regular 'ol banks where workaday Americans deposit their money ... those regular ol' banks are just about (but not 100% completely) immune from any effects of this?

Or is it "Wait six months, and your couple-thousand-dollar Chase/Capital One/Wells Fargo deposits are going to be gone, too!!!!" (I know, FDIC insurance kicks in for small depositors).

The problem right now isn't about banks being connected or not. This isn't even about VC or tech business having problems. This is about the ONE thing ALL banks are built on. Faith. When a bank loses the faith of it's depositors then it fails. It does not matter about anything else. Real or fake- the perception of how safe your money is is ALL that matters. When a bank loses 10% of it's deposits because people run to get their money out before the bank fails then it is a self fulfilling prophecy. The more banks that fail then the more people fear and lose faith in their bank. The big concern right now is that decisions will be made to move money out of pretty much all the banks not named Chase, BofA, Citi, Wells Fargo, etc (all the 'too big to fail' banks) and put pressure on all the small to mid sized banks.

 

[eoMMan]

I think the lesson here for people and small businesses is to try and not have more than $250k in a single bank. It's definitely more difficult for a business to stay under the $250k limit (especially one that moves volume) but they should have their higher dollar accounts in larger banks, imo.

Which is why the $250k limit should be raised. Banks are so dependent on commercial deposits. And when there is a bank failure, the FDIC necessarily waives the limit for that bank. So right now, there is an imbalance in the system. There's no limit for SVB's and Signature's deposits, yet $250k for everyone else.

Time to readjust that limit.

Separate topic but it reminds me of the $1,200 limit on slot machine gambling winnings (casinos have to issue a 1099 when you win more than $1,200). This limit was set in 1977 and would be about $5,000 now if adjusted for inflation. The government is slow to adjust limits like this.

 

[Chadstroma]

Total and complete noob regarding the U.S. banking system, especially interconnectivity between Banks A, B, C and X, Y. Z:

Is all this stuff only going to affect certain banks that have a big percentage of their deposits from venture capital corporations, new-ish tech firms, and so forth? And that the general run of regular 'ol banks where workaday Americans deposit their money ... those regular ol' banks are just about (but not 100% completely) immune from any effects of this?

Or is it "Wait six months, and your couple-thousand-dollar Chase/Capital One/Wells Fargo deposits are going to be gone, too!!!!" (I know, FDIC insurance kicks in for small depositors).

small depositors have absolutely nothing to worry about.

The question though is how much. I don't know the answer to that. If SVB is your model then "unlimited" is the answer. Most banks are not overly leveraged with very focused industry flush with commercial deposits like them though. Also, when it comes to consumer deposits, the $250K limit can easily be turned into a couple of million in coverage in one bank. The real issue is commercial deposits. But good luck making it politically acceptable to increase commercial insurance coverage and not consumer. For consumers, making it simpler for consumers to understand might help too.... the amount of time I spent trying to explain why I was wanting this rich old lady to open up 4 different accounts and structure it particular ways with signers and beneficiaries.... well.... we will say that it wasn't just 5 minutes of my life.

 

[Chadstroma]

I think the lesson here for people and small businesses is to try and not have more than $250k in a single bank. It's definitely more difficult for a business to stay under the $250k limit (especially one that moves volume) but they should have their higher dollar accounts in larger banks, imo.

Which is why the $250k limit should be raised. Banks are so dependent on commercial deposits. And when there is a bank failure, the FDIC necessarily waives the limit for that bank. So right now, there is an imbalance in the system. There's no limit for SVB's and Signature's deposits, yet $250k for everyone else.

Time to readjust that limit.

Separate topic but it reminds me of the $1,200 limit on slot machine gambling winnings (casinos have to issue a 1099 when you win more than $1,200). This limit was set in 1977 and would be about $5,000 now if adjusted for inflation. The government is slow to adjust limits like this.

For this stuff they have been pushing to lower the limits and increasing the types of transctions of what gets reported. Big brother wants to get bigger and they are bulking up the IRS to do it. As another seperate topic.... everyone should support the Fairtax.

 

[Alex P Keaton]

I think the lesson here for people and small businesses is to try and not have more than $250k in a single bank. It's definitely more difficult for a business to stay under the $250k limit (especially one that moves volume) but they should have their higher dollar accounts in larger banks, imo.

Which is why the $250k limit should be raised. Banks are so dependent on commercial deposits. And when there is a bank failure, the FDIC necessarily waives the limit for that bank. So right now, there is an imbalance in the system. There's no limit for SVB's and Signature's deposits, yet $250k for everyone else.

Time to readjust that limit.

I don’t know. Maybe. At some point raising the limit toward infinity does two things: 1) basically makes the govt the bank, 2) removes any incentives for banks to manage risk. I don’t really like either of those.

 

[Juxtatarot]

Where are you guys seeing a cost to taxpayers? I’m just reading about a possible special FDIC assessment.

 

[Sand]

No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

This is ********.

Check the time stamp. It was true at the time it was written. Obviously it isn’t the case anymore. Spare me the outrage.

Hey, GB, this wasn't directed at you. Just a general yell at the universe (i.e. the Fed) for their word wrangling.

You were just the diving board I flew off of.

 

[whoknew]

I think the lesson here for people and small businesses is to try and not have more than $250k in a single bank. It's definitely more difficult for a business to stay under the $250k limit (especially one that moves volume) but they should have their higher dollar accounts in larger banks, imo.

Which is why the $250k limit should be raised. Banks are so dependent on commercial deposits. And when there is a bank failure, the FDIC necessarily waives the limit for that bank. So right now, there is an imbalance in the system. There's no limit for SVB's and Signature's deposits, yet $250k for everyone else.

Time to readjust that limit.

I don’t know. Maybe. At some point raising the limit toward infinity does two things: 1) basically makes the govt the bank, 2) removes any incentives for banks to manage risk. I don’t really like either of those.

I'm not sure that's true. SVB is going to have all of its deposits insured by the gov't. But I'm quite confident management wishes it had managed risk better and it was still an existing bank. And I know its equity holders think that.

 

[Alex P Keaton]

No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

This is ********.

Check the time stamp. It was true at the time it was written. Obviously it isn’t the case anymore. Spare me the outrage.

Hey, GB, this wasn't directed at you. Just a general yell at the universe (i.e. the Fed) for their word wrangling.

You were just the diving board I flew off of.

My bad GB. Just stressed after 72 hours of trying to keep partners afloat.

 

[Sand]

Where are you guys seeing a cost to taxpayers? I’m just reading about a possible special FDIC assessment.

The system they put in place has the Fed printing the money up front to pay back depositors. Color me skeptical that this is all going to find its way back into the piggy bank.

 

[Dinsy Ejotuz]

It’s truly amazing how mismatched their asset-liability duration was. I can’t even fathom how they thought that made sense. It’s incredibly basic.

I'm not qualified to say much about that, but the FED has been really clear for kind of a long time that it's serious about getting inflation back down to ~2% or so. It's come down quite a bit, and is likely to look even better once the housing lags work their way into the official data, but it seems like most people agree it's still in the +/- 3.5-4.0% range once you account for everything.

 

[Chadstroma]

Where are you guys seeing a cost to taxpayers? I’m just reading about a possible special FDIC assessment.

It isn't.
But people don't understand how the FDIC works.... also, I don't fault someone being skeptical of that not changing down the road.

 

[Leeroy Jenkins]

I think the lesson here for people and small businesses is to try and not have more than $250k in a single bank. It's definitely more difficult for a business to stay under the $250k limit (especially one that moves volume) but they should have their higher dollar accounts in larger banks, imo.

According to John Delaney, for 8 basis points per year, a depositor can have their entire value fully insured. People/Orgs just don't often buy the cheap secondary insurance.

 

[Chadstroma]

I think the lesson here for people and small businesses is to try and not have more than $250k in a single bank. It's definitely more difficult for a business to stay under the $250k limit (especially one that moves volume) but they should have their higher dollar accounts in larger banks, imo.

This is the EXACT thinking that is THE problem we are facing right now. (no offense to you @eoMMan there is no fault in it for you to think this way). A flight of cash out of fear from sound banks to consumer unfriendly 'too big to fail' banks that feed the behemoths and put the smaller banks in danger. And this is often as a result of not understanding how FDIC insurance works. It is very easy for a family to have millions in coverage with FDIC coverage. Unless you are a hermit, you can easily protect yourself and not have to bow down to the overlords like Dimon who expect you to bank with them because they are Chase- offering crap and nothing in return. While banks that actually offer value go from being sound to failure because of the drain of deposits.

 

[Chadstroma]

102 bps improvement in mortgage rates.
Treasury bills improving.
Flight to safety.
CPI data out tomorrow.

 

[Don't Toews Me]

Experts flag moral hazard risk as U.S. intervenes in SVB crisis

U.S. regulators may have stemmed a banking crisis by guaranteeing deposits of collapsed Silicon Valley Bank (SVB), but some experts warn that the move has encouraged bad investor behaviour.

www.reuters.com

"... If the Fed is now backstopping anyone facing asset/rates pain, then they are de facto allowing a massive easing of financial conditions as well as soaring moral hazard," Rabobank bank strategists Michael Every and Ben Picton wrote in a note to clients.

"It's certainly a stress relief in the short-term, and we can worry about moral hazard and lax regulation later," said Steve Sosnick, chief strategist at Interactive Brokers in Connecticut, referring to the regulators' actions.
"Stock and bond holders in SVB and Signature are likely wiped out. That's a lot of money that simply evaporated, which has to hurt someone. It won't fully remove the worries about what other banks might be in trouble."

 

[Don't Toews Me]

Federal Reserve’s Path Is Murkier After Bank Blowup

The Federal Reserve has been rapidly raising interest rates to fight inflation. But making big moves could be trickier amid instability.

www.nytimes.com

This moment poses a major challenge for the Fed: It is in charge of fostering stable inflation, which is why it has been raising interest rates to slow spending and business expansions, hoping to rein in growth and cool price increases. But it is also tasked with maintaining financial system stability.

Subadra Rajappa, head of U.S. rates strategy at Societe Generale, said on Sunday afternoon that she thought the unfolding banking situation would be a caution against moving rates quickly and drastically — and she said instability in the banking sector would make the central bank’s job “trickier,” forcing it to balance the two jobs.
“On the one hand, they are going to have to raise rates: That’s the only tool they have at their disposal,” she said. On the other, “it’s going to expose the frailty of the system.”

 

[Don't Toews Me]

https://www.washingtonpost.com/us-policy/2023/03/13/svb-bank-bailout-fed/

“We are trying to help depositors of institutions. The banks, equity and bondholders are being wiped out,” the Treasury official said. “The firms are not being bailed out. The depositors are being protected.”

But other economists — including some Biden allies, and even those who defended the move as necessary — still say the measures amount to a bailout. Even though the fund is paid into by U.S. banks, it is ultimately backstopped by the Treasury Department, potentially putting taxpayers on the hook if it runs out.

The Treasury official said the fund has more than $100 billion in it and is highly unlikely to dip below $0. Any losses to the fund would be repaid in full by charging more fees to banks, the Fed, Treasury and FDIC said in a statement. Additionally, Treasury’s Exchange Stabilization Fund also will provide $25 billion to backstop the Fed’s loan program. The Fed does not anticipate that it will be necessary to draw on the funds, officials told reporters.
“It puts government money at risk. Will they end up having to pay anything from it? Probably not. But they’re definitely giving some great value to the depositors at that bank,” said Dean Baker, an economist at the Center for Economic and Policy Research, a left-leaning think tank. “It is a special intervention. It was not in the rules. It is a bailout.”

 

[Chadstroma]

I expect First Republic Bank to fail next, if there is a failure, even with injection of funds from the Fed and Chase. Stock price is a good indicator of faith in a bank and FRC is down 70% right now. Keep an eye on Western Alliance Bank as well. Down 62% rigth now. Both improved from opening but this indicates a complete lack of confidence in the bank. Deposits should be fleeing in droves from them.