2023 bank failures

[David Dennison 18860]

1 minute ago, Neonmoon said:

He is referencing the deposits above 250K that the government said it will guarantee with short term loans. 

Still not taxpayer funds.

[gsoda3 3261]

So basically we’re moving into an era where 100% of deposits are backed by the FDIC. My guess is that this will change banking reserve requirements.

I wouldn't think so. Even with whatever new regulations that would roll out with this, the implication that Main Street Bank has no moral obligation to protect their clients' deposits would completely change the way banks do business.

Truth was best stated earlier, and I’m paraphrasing:
 
SVB was great at raising capital.  They were terrible at allocating their assets.  I don’t think their lending to VCs is really even an issue. 

So true. Ironically what did them in was their conservative approach to lending.

CEO, CFO, COO and CRO are at the best idiots and at worst criminals.

The CRO backstory is telling. They had one up until the beginning of 2022. She left (quit/fired I can't recall) but they never replaced her until January of this year. During the time they didn't have a CRO the directors had a 7 person committee who oversaw risk. In that same time their interest rate hedges dropped from $10 billion at the end of 2021 to $0(!!) in Sept 2022 and only recovered to like half a billion by the beginning of this year. All against about $30 B of assets. Effective committee there.

That FDIC press release is really dumb.  Love the "no cost to taxpayers" bit.  Are Men from Mars gonna fund it?

Because it's not taxpayer money.

The U.S. taxpayers are going to be buying a ton of underwater bonds from banks this week.  At par.  Guess who will take the hit?

It's not bad debt. They're only underwater if you sell them which they won't. It'll be just like in 08 where they'll be held til maturity or sold when they're in the black again.

There are some smart, experienced people on this thread. I’m curious what people think of this. Basically a subsidized way to get around losses on your books? Not sure I can grasp all the unintended consequences of such a drastic action. 
 
 
 
 

There's such a stigma to accessing the discount window I can't think there would be a change of behavior solely on the easing of access. This plus something else? Possibly.

So on the surface I guess it’s essentially $620B of potential stimulus if you think about it in an over simplified manner.

No. Not at all. They didn't receive $620B. The value of those bonds if sold now or marked to market at prevailing prices would be net neg $620. But they won't be sold unless there's an extreme emergency like this because this isn't bad debt- if held to maturity there is zero risk of losing money. That's the impetus behind Yellen and Powell getting with the FDIC to backstop these deposits to create confidence in the system.

So no one was hedging interest risk? Seriously?

See my reply to hefeweizen about the CRO.

[Neonmoon 38129]

5 minutes ago, David Dennison said:

Still not taxpayer funds.

It’s not appropriated by congress, correct. But to say the Fed is totally private isn’t exactly true 

[Jackson P. Neighbors 136]

38 minutes ago, Mullet Free said:

So on the surface I guess it’s essentially $620B of potential stimulus if you think about it in an over simplified manner.
 

 

 

What I’m interested in are the unintended consequences. Basically you eliminate interest rate risk for banks. But any other entity is on the hook if bond prices fall. So why would anyone else buy bonds?
 

Basically the Fed and banking system will make up new rules keep the game afloat. 

The straightforward answer is… kinda. I posted about the difference between tangible equity and regulatory capital per PCA previously. This is a move to align with the regulatory capital definition. I’m not certain it will have the intended effect.

To your question, banks do not fail because of Sensitivity to Market Risk. It is a side issue and its effects are compounded given other problems. There are a lot of posts here trying to dissect the investment portfolio problems but it’s a forest for the trees thing. That did not cause this bank failure, period. As I also said in another post, nobody is going to rush to be the canary utilizing the Fed window. It’s a death sentence and everyone knows it.

[The Ace of Aces 5183]

Love what the Fed did here. Really quite smart. Solving balance sheet problems by (highly) taxing profits (and losses). 

Next the fdic should guarantee all accounts - charge the banks tiered-style insurance for the pleasure. 

[Hefeweizen 5321]

12 minutes ago, gsoda3 said:

 

I wouldn't think so. Even with whatever new regulations that would roll out with this, the implication that Main Street Bank has no moral obligation to protect their clients' deposits would completely change the way banks do business.




So true. Ironically what did them in was their conservative approach to lending.




The CRO backstory is telling. They had one up until the beginning of 2022. She left (quit/fired I can't recall) but they never replaced her until January of this year. During the time they didn't have a CRO the directors had a 7 person committee who oversaw risk. In that same time their interest rate hedges dropped from $10 billion at the end of 2021 to $0(!!) in Sept 2022 and only recovered to like half a billion by the beginning of this year. All against about $30 B of assets. Effective committee there.




Because it's not taxpayer money.



It's not bad debt. They're only underwater if you sell them which they won't. It'll be just like in 08 where they'll be held til maturity or sold when they're in the black again.




There's such a stigma to accessing the discount window I can't think there would be a change of behavior solely on the easing of access. This plus something else? Possibly.



No. Not at all. They didn't receive $620B. The value of those bonds if sold now or marked to market at prevailing prices would be net neg $620. But they won't be sold unless there's an extreme emergency like this because this isn't bad debt- if held to maturity there is zero risk of losing money. That's the impetus behind Yellen and Powell getting with the FDIC to backstop these deposits to create confidence in the system.



See my reply to hefeweizen about the CRO.

 

This is all solid.  The part of the solution that I find most troubling is I see the Fed and Treasury taking on the risk of holding the assets until a buyer is found.  Some may say no harm, no foul if they’re disposed of at face value or higher, but I think there’s a real problem with moral hazard going forward.  
 

There is supposed to be risk in exchange for the compensation of lending.  Remove that risk and you indirectly encourage aberrant lending behaviors.  Then pass regulations to address it, which subsequently get diluted or removed; and you get the cycle of more complex but ever less efficient systems.  
 

I think there are a lot of good intentions here on the regulatory side but this story is just in its first few chapters.

[washparkhorn 9939]

Tech bros be like:

[Guest]

1 hour ago, Hefeweizen said:

Not responding to make a longcat but if you think the other banking institutions participating in the FDIC are the backstop I have news for you.  This was brokered by the Treasury.

Explain to me how the taxpayers will come out of pocket. 

 

1 hour ago, Sawbonz said:

Are you saying your debt to the bank will  be offset by the amount of your deposits lost if the bank fails? I wouldn’t call that “no risk” but it’s better than nothing I guess

I owe $4mm. I have $1 mm in cash. There is zero risk. Trust me, I’ve been through plenty of bank failures. 

1 hour ago, Mullet Free said:

So on the surface I guess it’s essentially $620B of potential stimulus if you think about it in an over simplified manner.
 

 

 

What I’m interested in are the unintended consequences. Basically you eliminate interest rate risk for banks. But any other entity is on the hook if bond prices fall. So why would anyone else buy bonds?
 

Basically the Fed and banking system will make up new rules keep the game afloat. 

Fear mongering.  Banks not named SVB don’t HAVE to liquidate these investments at significant losses.

[DefinitelyNotHollywoodColt 12301]

8 minutes ago, Hefeweizen said:

This is all solid.  The part of the solution that I find most troubling is I see the Fed and Treasury taking on the risk of holding the assets until a buyer is found.  Some may say no harm, no foul if they’re disposed of at face value or higher, but I think there’s a real problem with moral hazard going forward.  
 

There is supposed to be risk in exchange for the compensation of lending.  Remove that risk and you indirectly encourage aberrant lending behaviors.  Then pass regulations to address it, which subsequently get diluted or removed; and you get the cycle of more complex but ever less efficient systems.  
 

I think there are a lot of good intentions here on the regulatory side but this story is just in its first few chapters.

This.

[fattyflattie 4639]

On 3/11/2023 at 11:40 AM, Nivek said:

I am tired of the US Taxpayer bailing out idiots who are not equipped to do their fucking job.

On 3/11/2023 at 12:00 PM, Nivek said:

Sorry for not caring about morons who made bad decisions.

Agree 💯, but fwiw, I usually get crucified for these positions. 

[wackawacka 179]

10 minutes ago, Porterhouse said:

Explain to me how the taxpayers will come out of pocket. 

 

I owe $4mm. I have $1 mm in cash. There is zero risk. Trust me, I’ve been through plenty of bank failures. 

Fear mongering.  Banks not named SVB don’t HAVE to liquidate these investments at significant losses.

This wasn't to save SVB but the potential run on regional banks that were expecting huge outflows Monday AM. Lots of noise from law firms and large banks on safety of regionals to FDIC had to do something to stop the Lehman moment.

[Guest]

1 minute ago, wackawacka said:

This wasn't to save SVB but the potential run on regional banks that were expecting huge outflows Monday AM. Lots of noise from law firms and large banks on safety of regionals to FDIC had to do something to stop the Lehman moment.

Um, no shit?  I’ve been saying this since Friday. I probably have a dozen posts on this pal. Take a fucking lap. 

[Hefeweizen 5321]

21 minutes ago, Porterhouse said:

Explain to me how the taxpayers will come out of pocket. 

 

I owe $4mm. I have $1 mm in cash. There is zero risk. Trust me, I’ve been through plenty of bank failures. 

Fear mongering.  Banks not named SVB don’t HAVE to liquidate these investments at significant losses.

Again responding to the first point: read the release from the Fed, FDIC, and Treasury.  It’s opaque but this is the guarantee:

 

Treasury Secretary Yellen will make up to $25 billion available as a backstop for this BTFP, but the Fed said it does not think it will have to draw on those funds.

 

So likely this won’t cost taxpayers but it’s sure nice to have a 25 bill cushion for transactions.  Can I get that?

Edit: carrying party risk is a cost.  Just in case that wasn’t clear.  Go try to get a surety to post a 25 billion guarantee  lfor you and get back to me on the premium. Because that’s what the taxpayer is doing, acting as the surety here.

Edited March 13, 2023 by Hefeweizen

[DalTxHornFan 3101]

4 minutes ago, Hefeweizen said:

Again responding to the first point: read the release from the Fed, FDIC, and Treasury.  It’s opaque but this is the guarantee:

 

Treasury Secretary Yellen will make up to $25 billion available as a backstop for this BTFP, but the Fed said it does not think it will have to draw on those funds.

 

So likely this won’t cost taxpayers but it’s sure nice to have a 25 bill cushion for transactions.  Can I get that?

 

The Narrator:  It will cost the taxpayers way more than $25 Billion.  (For the good of the country, of course.)

[David Dennison 18860]

Just now, DalTxHornFan said:

The Narrator:  It will cost the taxpayers way more than $25 Billion.  (For the good of the country, of course.)

Not unless Congress approves it.

[Chewbacca 7779]

I’ve been involved in loans up to 25M and even those with rates as favorable as @LIBOR we have never had to hold ALL deposits at the lending institution. Are they paying you to take these loans?

I have done several hundred million worth of loans. Some banks ask that you use them for deposits, others require it. Just depends on the lender.

[Chewbacca 7779]

Depositors losing money is bad and erosion of trust in US banking is even worse. 
Oh no! You've exposed my shameful ideology!

I don't agree with you on many things, but I agree 100% here. Trust in the banking system is crucial to a functioning economy.

[Guest]

27 minutes ago, Chewbacca said:

4 hours ago, Sawbonz said:

I’ve been involved in loans up to 25M and even those with rates as favorable as @LIBOR we have never had to hold ALL deposits at the lending institution. Are they paying you to take these loans?

I have done several hundred million worth of loans. Some banks ask that you use them for deposits, others require it. Just depends on the lender.

It also depends on the particular market. I am sure @Sawbonzknows about the scarcity of energy bank capital.  

[Handcruser 2805]

Question-
Aren’t all funds “taxpayer funds”. Where else would the money ultimately come from?

[gsoda3 3261]

Wait, they had some hedges at the end of 2021 and then completely eliminated interest rate hedging during THE FIRST 3 QUARTERS OF 2022?!?!  When the rates were being systematically increased and inflation was increasing every month?
That is so stupid that I almost want to say sabotage is more likely than incompetence.

I couldn't believe it either but see the screenshot I've attached, esp the underlined part.

The Narrator:  It will cost the taxpayers way more than $25 Billion.  (For the good of the country, of course.)

Not unless Congress approves it.

Evidently there's confusion on the mechanics of how these depositors are being made whole. The federal reserve created a new liquidity facility called the Bank Term Funding Program. It allows banks to exchange treasuries, MBSs, and agency debt at par value for a loan for up to a year. Other than whatever interest rate they're charging, which I can't remember off the top of my head, there is no additional cost. Furthermore Treasury is backing this with 25 billion from the Exchange Stabilization Fund which has been around since Roosevelt. The ESF exists to stabilize currency or any other markets the treasury deems necessary.

[Guest]

8 minutes ago, Handcruser said:

Question-
Aren’t all funds “taxpayer funds”. Where else would the money ultimately come from?

Are you speaking on this particular deal or how depositors would normally be made whole?  In either case it’s not the taxpayer. 

[Shaggy3.0 1695]

6 hours ago, Sawbonz said:

you rang?

 

[DaysOff 7951]

This is a fascinating discussion. Can my 401k go up now?

[52-80 19158]

8 hours ago, Chopper said:

 

As you point out, I am but a simpleton and you are in the self-appointed genius category however I raised a flag about your use of the term "self-capitalized" because it struck me as some type of bullshit but admittedly I don't know your motivation for framing it that way. However, when it all comes out in the wash the fee that funds the FDIC is ultimately paid for by the taxpayer. The shifting of who pays the fee that funds the government program does nothing but keep taxpayers in the dark about the FDIC and also ensures that Congress gets few chances to influence the program and the funding.  Just my dumbass opinion.

I don’t claim to know everything, and only try to know be wiser tomorrow than I was yesterday. And that’s by being more pragmatic/realistic than ideological/pedantic…which is exactly where you’re digging with your Carl Sagan Apple Pie argument. 

Yeah bro, AkCHtuaLLy, your retired neighbors fishing boat belongs to you because you’ve paid 3 cents of his social security entitlement. Totally useful and convincing argument!

The Fed and the FDIC were *literally* created in response to financial disorders, with the raison d’etre of staving off more disorders, and the Treasury holding the bankroll, all in concert to serve the interest of the country. 

All 3 worked with light speed to contain this mess, exactly as they were chartered to do, helping unclog the funds of people mentioned by @Brewand others (who I bet arent Menlo Park yuppies). 

Things worked out for everyone, considering the alternative was having the country question the security of their money…and if that keeps you wringing your hands, yeah, keep the dumbass opinion stemming from your insipid stupidity from polluting this thread  

[52-80 19158]

7 hours ago, Hefeweizen said:

This is all solid.  The part of the solution that I find most troubling is I see the Fed and Treasury taking on the risk of holding the assets until a buyer is found.  Some may say no harm, no foul if they’re disposed of at face value or higher, but I think there’s a real problem with moral hazard going forward.  
 

There is supposed to be risk in exchange for the compensation of lending.  Remove that risk and you indirectly encourage aberrant lending behaviors.  Then pass regulations to address it, which subsequently get diluted or removed; and you get the cycle of more complex but ever less efficient systems.  
 

I think there are a lot of good intentions here on the regulatory side but this story is just in its first few chapters.

-The majority of the assets are good. (They literally come from the Treasury!). Not the same as fraudulently marked toxic mortgages. 
 

-Yes, risk should be borne by lenders. The lenders (and their backers) went bust!

Pretty clean conclusion on a first order basis. 

[HamsterHookah 112]

2 hours ago, DaysOff said:

This is a fascinating discussion. Can my 401k go up now?

You just got a 40% raise. It's never enough for you people.

[SimonBolivar 10958]

We need to see a $2B bank fail to see how the whole "FDIC now de facto insures 100%" bit lasts. It certainly seems you are protected to keep as much as you want in any medium to large bank and you're fine.

[Incredulity 11671]

Does anyone have any data on depositor losses during the Great Financial Crisis?  

[Neonmoon 38129]

It’s a fascinating discussion. The biggest question is the implication of the backstop. Will this be available in the future? Will this increase riskier investments? Will people actually start paying attention to risk management? 

[Bevo 13577]

If SVB was forced to sell its assets at fire sale prices who wins and who loses? Some high tech companies would lose their money as would their investors. Some high tech employees would be out of work. Some high net worth individuals would lose their money. Some large banks, large companies and high net worth individuals could make a bunch of money buying assets at fire sale prices. Some bankruptcy attorneys could make bank. In the end, though, it just seems like it would be a transfer of wealth from high tech start-ups and high net worth individuals to large banks, large corporations and other high net-worth individuals. There's no chivalrous cause or Robin-hood effect. In no way would the poor or middle class benefit.

Edited March 13, 2023 by Bevo

[52-80 19158]

32 minutes ago, SimonBolivar said:

We need to see a $2B bank fail to see how the whole "FDIC now de facto insures 100%" bit lasts. It certainly seems you are protected to keep as much as you want in any medium to large bank and you're fine.

Most of these banks are small banks and their depositors made whole, penny for penny

https://www.fdic.gov/bank/historical/bank/

 

[Captainant 27668]

First Republic Bank is -65% in premarket today (CNBC reporting), I'd bet it's gonna be a bloodbath as faith is further shaken in the ability of these banks to adequately manage risk

Gee, sure sounds familiar. 

Edited March 13, 2023 by Captainant

[Brew 3049]

40 minutes ago, SimonBolivar said:

We need to see a $2B bank fail to see how the whole "FDIC now de facto insures 100%" bit lasts. It certainly seems you are protected to keep as much as you want in any medium to large bank and you're fine.

We do a lot of work in the banking sector and have had bank clients go under. I don’t know that I have seen any where depositors lose money although I’m sure it happens. This isn’t some big anomaly. Banks typically have the asset coverage, it just takes time to convert it to cash. They are covering the timing shortfall by allowing access today, but this is a big bank with a lot of assets to work through the liquidation process on.

[Judge Roybeanbag 11819]

3 hours ago, DaysOff said:

This is a fascinating discussion. Can my 401k go up now?

[52-80 19158]

6 minutes ago, Bevo said:

If SVB was forced to sell its assets at fire sale prices who wins and who loses? Some high tech companies would lose their money as would their investors. Some high tech employees would be out of work. Some high net worth individuals would lose their money. Some large banks and high net worth individuals could make a bunch of money buying assets at fire sale prices. Some bankruptcy attorneys could make bank. In the end, though, it just seems like it would be a transfer of wealth from high tech start-ups and high net worth individuals to large banks and other high net-worth individuals.

Pretty much. Most of the equity in the startup firms reside with VC investors and founders, and notionally would flow instead to JP Morgan and other well-capitalized firms. 

Most of the startup tech employees are not well paid relative big tech. They exchange cash compensation for hopes of a big liquidity event (like IPO).

The risk that they explicitly assumed is startup risk, so they shouldnt be punished for the risk of…their employer putting money in the wrong bank. Nobody wants to see that, regardless of whether these tech employees are more or less wealthy than them. 

[HamsterHookah 112]

16 minutes ago, Captainant said:

First Republic Bank is -65% in premarket today (CNBC reporting), I'd bet it's gonna be a bloodbath as faith is further shaken in the ability of these banks to adequately manage risk

Gee, sure sounds familiar. 

JPMorgan is backstopping these guys, no?

[Captainant 27668]

Just now, HamsterHookah said:

JPMorgan is backstopping these guys, no?

Vanguard has a few billion in em, and I'd bet that other financial planners have similar exposure across the financial sector. 401k beatings will continue until morale improves

[HamsterHookah 112]

I just read something in the NYT that helped me to understand the sentiment of some on this thread as I just caught up:

The venture capital community, a group that includes a vocal group of libertarians, was just bailed out. Yes, these investors do good by funding start-ups, but they have also long lobbied for fewer regulations and also benefited from the special treatment of carried interest. This all looks particularly egregious after some of them spent the weekend begging for government help.

But the reality is that if S.V.B. was just a small regional bank that did not have ties to loud, politically connected venture capitalists and the tech community, it might have been allowed to die — and its customers, individuals and small businesses, would have suffered. Instead, because it is Silicon Valley, it commanded attention.

[Brew 3049]

Did that come out of the letters to the editor section?

[HamsterHookah 112]

11 minutes ago, Captainant said:

Vanguard has a few billion in em, and I'd bet that other financial planners have similar exposure across the financial sector. 401k beatings will continue until morale improves

I was talking about this, but still looks like it’s not helping the fear and was surprised it was down so much: “First Republic reflects investor fears about banks’ health. The independent lender said yesterday that it had secured access to about $70 billion in additional liquidity from the Fed and JPMorgan Chase.”

In other news about JPMC:

The big winner: Jamie Dimon and the big banks. JPMorgan Chase’s bankers spent the week opening up new accounts as everyone fled smaller lenders in favor of its “fortress balance sheet.” Investors have complained over the years about Dimon’s focus on having enough capital and sufficient liquidity at the expense of earnings, but his approach now looks like the right one.

Just now, Brew said:

Did that come out of the letters to the editor section?

Andrew Ross Sorkin. So basically, yea. 

[TonyTexas 10513]

The 10 year Treasury is up 7% this morning. That will help ease the pain. 

[52-80 19158]

11 minutes ago, TonyTexas said:

The 10 year Treasury is up 7% this morning. That will help ease the pain. 

Look at the 2Y going bananas. 
flight to ‘safety’?

[Hefeweizen 5321]

Man this doesn’t feel like the sand is shifting under our feet.  A lot of unsettled and unseen movement going on.

[Snake Diggity 4624]

1 hour ago, Bevo said:

If SVB was forced to sell its assets at fire sale prices who wins and who loses? Some high tech companies would lose their money as would their investors. Some high tech employees would be out of work. Some high net worth individuals would lose their money. Some large banks, large companies and high net worth individuals could make a bunch of money buying assets at fire sale prices. Some bankruptcy attorneys could make bank. In the end, though, it just seems like it would be a transfer of wealth from high tech start-ups and high net worth individuals to large banks, large corporations and other high net-worth individuals. There's no chivalrous cause or Robin-hood effect. In no way would the poor or middle class benefit.

Except that is not at all the extent of the fallout.  If SVB’s uninsured depositors would have been forced to wait until the assets were liquidated (likely months) then thousands of businesses would close, and tens if not hundreds of thousands of people would lose their jobs.  And that’s assuming it isn’t a contagion that spreads to other banks.

[Guest]

Question for the finance experts. Say a person has $280 in a Wells Fargo - should they be worried? 

[pacman 7355]

 

[SimonBolivar 10958]

Just now, axiom of foundation said:

Question for the finance experts. Say a person has $280 in a Wells Fargo - should they be worried? 

That's probably in 17 different accounts there under your social, so you should be fine.

[Buzzrock 14920]

Andrew Ross Sorkin. So basically, yea. 

They can barely hide his boner on CNBC this morning.

[Snake Diggity 4624]

Just now, pacman said:

 

Those fuckers need to fry.

[Buzzrock 14920]

 

If they knew what was coming, wouldn’t they have sold it all instead of a fraction?