The Z Machine
Footballguy
Isn't that what they make refis for???
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***OFFICIAL*** Bank Failure/Crisis Thread (3 Viewers)
- Thread starter whoknew
- Start date
The General
Footballguy
I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
Alex P Keaton
Footballguy
The duration disparity between assets and liabilities was reckless. And crazy. It’s banking risk mgmt 101.I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
Alex P Keaton
Footballguy
I don’t understand your point. Do you want me to make a full list of everything I’m outraged by, every single time I’m confronted by a topic that creates outrage? It would be a long, long list.
The General
Footballguy
It’s crazy that a bank this size got themselves into this situation.The duration disparity between assets and liabilities was reckless. And crazy. It’s banking risk mgmt 101.I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
Alex P Keaton
Footballguy
What does size have to do with it?It’s crazy that a bank this size got themselves into this situation.The duration disparity between assets and liabilities was reckless. And crazy. It’s banking risk mgmt 101.I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
The General
Footballguy
A bigger bank would presumably not have people running it who don’t know “banking 101”.What does size have to do with it?It’s crazy that a bank this size got themselves into this situation.The duration disparity between assets and liabilities was reckless. And crazy. It’s banking risk mgmt 101.I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
I’d assume a higher level of competence.
The General
Footballguy
If this was such an easy problem to diagnose why wouldn’t further regulation in that area make sense?
Redwes25
Footballguy
A bigger bank would presumably not have people running it who don’t know “banking 101”.What does size have to do with it?It’s crazy that a bank this size got themselves into this situation.The duration disparity between assets and liabilities was reckless. And crazy. It’s banking risk mgmt 101.I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
I’d assume a higher level of competence.
Well I am guessing reports that they didn't have a chief risk officer for 9 months last year (after the old one quit and the new one didn't get hired until January) is part of the problem.
Chemical X
Footballguy
if all deposits were guaranteed and not a random figure of $250m, it would eliminate a run. just saying.
The General
Footballguy
That is wild. Didn’t they own these older bonds for a long time, like well before interest rates had been going up.A bigger bank would presumably not have people running it who don’t know “banking 101”.What does size have to do with it?It’s crazy that a bank this size got themselves into this situation.The duration disparity between assets and liabilities was reckless. And crazy. It’s banking risk mgmt 101.I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
I’d assume a higher level of competence.
Well I am guessing reports that they didn't have a chief risk officer for 9 months last year (after the old one quit and the new one didn't get hired until January) is part of the problem.
The General
Footballguy
I mean no one is ever going to allow rich people to suffer
they stepped in toot suite to make sure they all got paid out.Alex P Keaton
Footballguy
That’s the wrong question.
If this was such an easy problem to diagnose, and if banks are already heavily regulated, how did this happen?
Alex P Keaton
Footballguy
See, that’s where we differ. I worked at a large, global insurance company for a decade. That experience permanently removed any belief I previously had that large = competent.A bigger bank would presumably not have people running it who don’t know “banking 101”.What does size have to do with it?It’s crazy that a bank this size got themselves into this situation.The duration disparity between assets and liabilities was reckless. And crazy. It’s banking risk mgmt 101.I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
I’d assume a higher level of competence.
Andrew74
Footballguy
$25bn is the Treasury’s backstop for the BTFP. The Fed can leverage that up to $250bn if not much more. It doesn’t need to cover everything. There are lots of losses in HTM portfolios but I’m not sure we know what’s been hedged. The BTFP is a backstop to other known liquidity pools the banks have, such as FHLB lines, etc. many were really surprised SVB didn’t tap FHLB before selling securities.Yes. But the BTFP is only backstopped to $25B in an industry of trillions. By declaring two banks systemic the Fed is admitting many more are at risk. Some quotes from a recent FT article:
The U.S. banking system’s market value of assets is $2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity. Marked-to-market bank assets have declined by an average of 10% across all the banks, with the bottom 5th percentile experiencing a decline of 20%.
10 percent of banks have larger unrecognized losses than those at SVB. Nor was SVB the worst capitalized bank, with 10 percent of banks having lower capitalization than SVB.
Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk.
Prior to the recent asset declines all US banks had positive bank capitalization. However, after the recent decrease in value of bank assets, 2,315 banks accounting for $11 trillion of aggregate assets have negative capitalization. This calculation underscores that recent declines in bank asset values significantly decreased bank capitalization and bank insolvency risk.
Monetary Tightening and U.S. Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs?
We develop an empirical methodology and conceptual framework to analyze the effect of rising interest rates on the value of U.S. bank assets and bank stability.papers.ssrn.com
I think (theoretically) the Fed did enough. They learned from 07-08 you can’t half *** it.
LawFitz
Footballguy
Because banking stress tests are a ******** potemkim exercise designed by captured and/or inept regulators.
The General
Footballguy
Well that is the scary part Isn’t it? These assholes who run these banks need some stiff malpractice laws similar to doctors instead of cushy golden parachutes. End of rant
Desert_Power
Footballguy
I wouldn't assume that. I would assume there are more layers of bureaucracy and review by duplicative teams though.A bigger bank would presumably not have people running it who don’t know “banking 101”.What does size have to do with it?It’s crazy that a bank this size got themselves into this situation.The duration disparity between assets and liabilities was reckless. And crazy. It’s banking risk mgmt 101.I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
I’d assume a higher level of competence.
The General
Footballguy
This bank in particular had many very finically savvy people with a ****load of money in it - many who started getting their money out last week or wheneverSee, that’s where we differ. I worked at a large, global insurance company for a decade. That experience permanently removed any belief I previously had that large = competent.A bigger bank would presumably not have people running it who don’t know “banking 101”.What does size have to do with it?It’s crazy that a bank this size got themselves into this situation.The duration disparity between assets and liabilities was reckless. And crazy. It’s banking risk mgmt 101.I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
I’d assume a higher level of competence.
I would expect a bank holding this much cash of this many uber wealth would have more levels of management, more eyeballs, etc.
The General
Footballguy
Yes this is in part what I would expect. This shouldn't have been missed by so many people until it all goes **** up and then everyone is like “oh look these people are morons”.I wouldn't assume that. I would assume there are more layers of bureaucracy and review by duplicative teams though.A bigger bank would presumably not have people running it who don’t know “banking 101”.What does size have to do with it?It’s crazy that a bank this size got themselves into this situation.The duration disparity between assets and liabilities was reckless. And crazy. It’s banking risk mgmt 101.I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
I’d assume a higher level of competence.
Todem
Footballguy
The expense of moving, closing
Costs…then paying closing costs again inside two years?
Like I said…if you don’t have a choice it is what it is…if you do…..wait a bit.
Don't Toews Me
Footballguy
Private equity firms Apollo and KKR among those reviewing Silicon Valley Bank loans
Private equity firms Apollo Global Management and KKR are among the parties reviewing a book of loans held by Silicon Valley Bank, CNBC has learned.
The General
Footballguy
Seems that better tests would be the problem then, no?
Alex P Keaton
Footballguy
Shouldn’t have been missed. Full stop.Yes this is in part what I would expect. This shouldn't have been missed by so many people until it all goes **** up and then everyone is like “oh look these people are morons”.I wouldn't assume that. I would assume there are more layers of bureaucracy and review by duplicative teams though.A bigger bank would presumably not have people running it who don’t know “banking 101”.What does size have to do with it?It’s crazy that a bank this size got themselves into this situation.The duration disparity between assets and liabilities was reckless. And crazy. It’s banking risk mgmt 101.I have about a 3rd graders level of understanding in all of this...but...it seems not much here was too crazy or people being overly reckless. Some bad circumstances, some poor decision making by the bank, some unique clients, etc.
Oh and like 90% of our assets are just numbers on a screen that are worthless in reality
I’d assume a higher level of competence.
Most people at big companies are bureaucrats. Often just checking boxes and following processes. Processes designed by other bureaucrats. Sad but true.
LawFitz
Footballguy
The General
Footballguy
I'd be curious if there were any tests or review processes in place for this. The way it is being explained it seems pretty straight forward.
Although it always is after the fact.
Sand
Footballguy
Yeah - there was a good scatter chart on CNBC last night. SVB was an outlier. Most banks were way safer. I didn't digest all of it, but I did see my bank, RF, was way on the other side of SVB, which is always nice.
Sand
Footballguy
When there is no penalty for failure you encourage all kinds of crazy risk taking. And that would happen, you can book it, if this is done. Remember all the off balance sheet CDS shenanigans from 2008? Yeah, that would happen again.
Chemical X
Footballguy
but who is being penalized?
Some of the Dodd-Frank regulations were rolled back in 2018
The General
Footballguy
Right. It is a fine line to walk in regulating and allowing people to take risks. I'd definitely side on the regulation heavier side of the scale when talking about banking.
mr. furley
Footballguy
am also in the financial world for 20+ years and absolutely never in that time have i seen someone refer to millions as "K"
millions as "mm", yes. never as "k"
Desert_Power
Footballguy
I've seen this tweet attempt to do something like that. What matters isn't really the OCI as much as having to actually take that loss (vs holding to maturity).
FreeBaGeL
Footballguy
The discussion was thousands as k vs m, not millions.
prefontaine
Footballguy
MM is Roman numerals. Thousand thousands. It's really not supposed to be lowercase but I've seen that more and more lately. Lowercase m is also often used for Millions while uppercase is Thousands (Roman numerals again). k is always thousands. K is for Kilo.
GreenNGold
Footballguy
why do MM's when you can do MMM's?
Chadstroma
Footballguy
Large US Banks fail putting the economy at risk.... and the FBG thread devolves into a discussion about MM for millions. 
dickey moe
Fingerpicker
How many wheat pennies in 250m?
Desert_Power
Footballguy
Chadstroma
Footballguy
Silicon Valley Bank clearly took things to extreme.
Yea, the adults must have been on vacation and there was no supervision. They made some very poor decisions.... the only unusual thing about this is usually poor decisions that lead to a bank failure are based in lending.
Nathan R. Jessep
Footballguy
Thought this was a great summary and comparison to what happened in 2008
www.lynalden.com
a couple of notable TL;DR nuggets:
March 2023 Newsletter: A Look at Bank Solvency
March 13, 2023 Latest Article: How the Fed “Went Broke” (an analysis of the Fed’s switchover from operating at a profit to operating at a loss) Recent challenges in the U.S. banking system have led to the second largest bank failure in U.S. history this past Friday, followed by a combined...
a couple of notable TL;DR nuggets:
- Due to buying so many securities when interest rates were low that are now heavily discounted if they were to be sold, banks have a lot of unrealized losses. Over $600 billion worth of unrealized losses, in fact
- Due to the low credit risk of most bank assets, I certainly don’t see it as a “2008 repeat” like many commentators on social media have recently. Does this acutely threaten the whole financial system? No. Is it a serious liquidity concern for many banks outside of the top ten or so? Absolutely. And that’s why the Treasury and Federal Reserve stepped in.
- Here in 2023, small banks are already back down to cash levels they had at the time of the 2019 repo spike, while large banks aren’t yet. This draining of liquidity has sucked cash out of smaller banks at a faster rate than large banks, which didn’t really happen during the 2018-2019 period of quantitative tightening.
- As a result of this uneven cash drain, I think it will be pretty hard for the Federal Reserve to continue interest rate increases and quantitative tightening for much longer. They could continue it for a few months more into mid-year if the Treasury General Account draws down quickly enough and offsets some of it, but outside of that, it seems that continuing to reduce the amount of bank reserves in the system risks putting a lot of banks outside of the top ten banks into a persistent liquidity problem.
- On Sunday night, the Treasury and the Federal Reserve coordinated to make a new facility called the Bank Term Funding Program “BTFP” which lets banks use various securities at face value for loan collateral, rather than having to sell them. This gives banks a lot more liquidity against bank runs for now, but just papers over the underlying problem.
- If the Federal Reserve does continue to push forward by raising interest rates and performing quantitative tightening, the long tail of small and medium-sized banks are at risk of ongoing liquidity drains, starting with the most vulnerable and moving up from there. If the small banks sharply raise interest rates to keep deposits, then they risk getting into solvency problems. The beneficiaries of this flight to safety would most likely be several of the the largest banks and money market funds.
- The more the Federal Reserve tries to push interest rate increases and quantitative tightening in this business cycle, the more they will likely benefit the mega-cap J.P. Morgan Chase’s of the world over the small community banks, as reserves will likely continue to drain out of the smaller banks and threaten their liquidity profiles. The Federal Reserve’s BTFP on its own won’t prevent this process; it just make the liquidity drain out of small banks less disorderly.
- -Smaller banks, meanwhile, aren’t out of the woods yet due to the combination of less cash on hand and significant unrealized losses sitting on their balance sheets. The majority of them, at least the publicly-traded ones, don’t have the acute solvency problems that Silicon Valley Bank had, but if they raise deposit rates to try to keep deposits then they do risk experiencing a solvency problem.
- Policymakers will be watching the liquidity situation closely at this point, and are likely to find it difficult to keep moving forward with interest rate increases and quantitative tightening for much longer. Specifically, total U.S. bank reserves probably can’t go much below the current $3 trillion level without corresponding increases in the usage of liquidity facilities.
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massraider
Footballguy
My 2nd takeaway from that clip is the Coffeezilla is skimping on his wardrobe budget, that curling collar on his dress shirt is a catastrophe. If you gonna make suspenders part of your shtick, Mr. off-brand Gekko, maybe get something nicer than a 15.99 dress shirt from H+M
massraider
Footballguy
Are they really this bad?
My entire knowledge of these rating companies is that scene in The Big Short.
Don't Toews Me
Footballguy
Bank of America has raked in $15billion in new deposits after SVB collapse
Depositors are looking to put their money in the safest hands possible following the collapse of Silicon Valley Bank.
Leeroy Jenkins
Footballguy
Soooo . . . how is PNC Bank doing? Seemed like they were in play to buy SVB assets, so I was thinking they are safe. But they are a regional bank basically, so who knows?
McBokonon
Footballguy
Hard to say for sure, but CS has been a known dumpster fire for a while.
IvanKaramazov
Footballguy
We live in a society that is pathologically opposed to holding decision-makers accountable for literally anything. That's how you end up with a bunch of mediocrities running major institutions.Well that is the scary part Isn’t it? These assholes who run these banks need some stiff malpractice laws similar to doctors instead of cushy golden parachutes. End of rant
Don't Toews Me
Footballguy
Market Stress Snarls Trading in U.S. Treasurys
Liquidity, the capacity to trade quickly at quoted prices, has fallen sharply.
www.wsj.com
Stoneworker
Footballguy
Kind of humorous that Credit Suisse's chairman is named Axel Lehman.
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