2023 bank failures

[conVINCEd 21469]

Insurance is difficult to price when the insurer’s exposure is unlimited.   There is a reason you have liability limits on your homeowners and auto policies.

[Chewbacca 7780]

1 hour ago, SL Xpress said:

I'm not a fan of making FDIC insurance an unlimited amount, even if what is happening in the case of SVB and Signature is sending that market signal. Once you make it the law it sends a much different signal. Maybe there's a future instance where it's more appropriate not to make depositor's whole. I don't think this was it, but maybe there's a circumstance in the future where that is true. 

The only signal it sends is that depositors money is safe when deposited in an FDIC insured bank.  That's it.  The banks still have to abide by regulations (which probably should be tightened, I don't know enough about the specifics there).  But I don't see any downside to insuring all deposits.

[gsoda3 3263]

33 minutes ago, Mullet Free said:

Evidently this is the post that first got ball rolling. Austin analyst. Read pretty widely by VCs. (Like Thiel?)

 

 

 

there was an article on seeking alpha back in december that hypothesized SIVB should be insolvent.  

[Chewbacca 7780]

2 minutes ago, conVINCEd said:

Insurance is difficult to price when the insurer’s exposure is unlimited.   There is a reason you have liability limits on your homeowners and auto policies.

You can put an incremental cost on it.  The more you have in the bank, the more you pay (through fees, etc, but functionally that's how it works).  Companies with millions (or tens, or hundreds of millions) will look for more cost effective places to park their money, or they will pay.  I don't see it as some huge problem to sort out.

[SL Xpress 7516]

1 minute ago, Chewbacca said:

The only signal it sends is that depositors money is safe when deposited in an FDIC insured bank.  That's it.  The banks still have to abide by regulations (which probably should be tightened, I don't know enough about the specifics there).  But I don't see any downside to insuring all deposits.

Less flexibility is the downside. I don't know what future events transpire, but I don't agree that it's necessary to put it into writing that all deposits are insured. Could be at some point it's seen as helpful to not insure all the deposits, but once it's the law that option is no longer available. 

[Dahobbs 17625]

Just now, SL Xpress said:

Less flexibility is the downside. I don't know what future events transpire, but I don't agree that it's necessary to put it into writing that all deposits are insured. Could be at some point it's seen as helpful to not insure all the deposits, but once it's the law that option is no longer available. 

It isn't a law that we are talking about. But, since the FDIC has the treasury as a backstop, it really is problematic for it to have a policy of insuring all deposits, but to not be collecting premiums for them. 

[Rudiger 1163]

2 hours ago, 52-80 said:

In proxy statement of the company that *was* SVB, execs are subject to “Recoupment (or clawback) policy”

And regardless of that, if you can prove they were willfully negligent in their management of company/assets, you can come after them in court. 

That many investors *in* the company lost their investments, im sure theres no shortage of them and lawyers hungry for a lawsuit.

Serious question: what sort of D&O and E&O coverage would a bank like this have?

[SL Xpress 7516]

2 minutes ago, Dahobbs said:

It isn't a law that we are talking about. But, since the FDIC has the treasury as a backstop, it really is problematic for it to have a policy of insuring all deposits, but to not be collecting premiums for them. 

I don't see it as problematic as you do. If the scenario doesn't fit making depositors whole, don't make them whole. That wasn't the case here. Collecting premiums to insure all deposits in the entire banking system doesn't sound like a good policy to me. 

[Brew 3049]

1 minute ago, SL Xpress said:

I don't see it as problematic as you do. If the scenario doesn't fit making depositors whole, don't make them whole. That wasn't the case here. Collecting premiums to insure all deposits in the entire banking system doesn't sound like a good policy to me. 

I’m having a hard time coming up with a scenario where it doesn’t make sense for depositors to be made whole. I also can’t think of a scenario where they weren’t eventually made whole although I’m sure they exist. The catch here is the timing and guarantee and the class of assets that have to be dealt with.

Generally the FDIC has a buyer in place quickly so timing isn’t usually an issue although I can think of a couple of local banks the regulators operated for quite a while after taking over.

[Dahobbs 17625]

8 minutes ago, SL Xpress said:

I don't see it as problematic as you do. If the scenario doesn't fit making depositors whole, don't make them whole. That wasn't the case here. Collecting premiums to insure all deposits in the entire banking system doesn't sound like a good policy to me. 

You don't see a problem with the FDIC picking and choosing which depositors it'll provide additional help for and which ones it will not? You don't see a problem with all depositors (because the premiums are ultimately passed down to them) paying to provide protection only for the most favored nation depositors? At least if this were done by a political entity, the people would have a mechanism to control this conduct. But the FDIC isn't subject to those controls. 

Edited March 13, 2023 by Dahobbs

[Guest]

2 hours ago, Dahobbs said:

I disagree with that. Protecting depositors isn't a bailout of the bank. But it is a bailout of the depositors. That doesn't mean it is wrong. But it is a bailout, as in it "bails them out" of financial uncertainty. 

We did what I expected us to do. I'm still not convinced it was necessary. At this point, FDIC might as well just insure all deposits at all banks. It is clearly policy to do so. Might as well operate and extract premiums in accordance with that policy. Or maybe this policy only applies to special banking customers. I guess we will see. 

It’s beyond evident it was necessary. 

[HamsterHookah 112]

2 hours ago, HamsterHookah said:

Speaking of idiots, I have a real tough time vilifying people for playing whatever card they chose to play in what was essentially the prisoners dilemma/game theory, when it comes to the bank run.

I personally think it's arrogance to sit in judgment of both; people pulling out their money to get ahead of it or not pulling it out in hopes that the bank weathers the storm. It's an impossibly hard problem to get right except in hindsight, IMO.

Levine said it better than I could:

Quote

 

First, I assumed that the venture capitalist set knew about Silicon Valley Bank’s situation [because it was known].

Second, I assumed that Silicon Valley broadly was in the business of taking care of their own.

Last week showed that both were totally wrong: the panicked reaction to Thursday’s failed capital raise made it clear that nearly everyone in tech was blindsided by Silicon Valley Bank’s situation — which again, absent a bank run, was an issue of profitability, not viability — and the bank run that resulted made it clear that everyone, from venture capitalists to the startups they advised, were solely concerned about their own welfare, not about the ecosystem as a whole.

I don’t, to be clear, begrudge anyone this point of view, particularly startup founders: you have one runway, and even if I might give you a pass for not extending that runway a few feet with a money market fund, I absolutely understand and endorse making sure you don’t have a significant chunk of that runway vaporized in a bank run.

 

 

[52-80 19162]

1 hour ago, Dahobbs said:

FEMA is a federal agency, funding by tax payer dollars, with the purpose of helping the public in times of emergency. The FDIC is a government backed insurance company. Comparing the two like this is incredibly misleading. While FEMA does have an insurance product, that is not the part of the entity involved in disaster relief, and I don't expect the FEMA insurance product to pay out over its policy limits for flooding. 

OK. Your neighbor crashes his minivan, his family of 7 becomes quadriplegic, and Allstate has plenty of money and willing to make an exemption to pay them above their $100k coverage, and the insurance consortium banks them up on it. 
 

And you don’t like it because you’re a perfect Allstate customer never making a claim and technically its not in the fine print and some people might be incentivized to underinsure in the future, and possibly, tenuously, with some 4th-order effect, costing you an extra nickel in premium. 
 

Except instead of 7 people its many more, and could cascade a bank run. 
 

Thats the gist that I think is now understood by most people quite well, and if you want to quibble over that I aint gonna be yer huckleberry

[52-80 19162]

39 minutes ago, gsoda3 said:

there was an article on seeking alpha back in december that hypothesized SIVB should be insolvent.  

Its re-surfacing now that other funds / analysts / observers have concluded the same thing months back. Really quells excuses that this was completely unforeseen, and makes ammunition for potential suits

[Chewbacca 7780]

Other than sticking it to the tech bros and VC community, can anyone give me a reason why letting the contagion spread and having a nationwide bank run would be preferable to guaranteeing access to all deposits at SVB?

[Neonmoon 38129]

2 hours ago, Brew said:

everyone’s inherent need to share their opinions and spew garbage slowly (or maybe not so slowly any more) pushes us closer and closer to the cliff’s edge.

[HamsterHookah 112]

7 minutes ago, 52-80 said:

Its re-surfacing now that other funds / analysts / observers have concluded the same thing months back. Really quells excuses that this was completely unforeseen, and makes ammunition for potential suits

It was definitely known. Which, to your point, is why I think there are some VC's who might need to watch out re: dereliction of duty.

[HamsterHookah 112]

4 minutes ago, Chewbacca said:

Other than sticking it to the tech bros and VC community, can anyone give me a reason why letting the contagion spread and having a nationwide bank run would be preferable to guaranteeing access to all deposits at SVB?

Just from the human-being aspect of it, this is definitely a reason. Not a lot of empathy/sympathy for capitalists trying to capital versus your mom-and-pop, Main St. USA demo. And I can get that.

Very few true libertarians and certainly no True Scotsman.

[Mullet Free 40]

54 minutes ago, Chewbacca said:

The only signal it sends is that depositors money is safe when deposited in an FDIC insured bank.  That's it.  The banks still have to abide by regulations (which probably should be tightened, I don't know enough about the specifics there).  But I don't see any downside to insuring all deposits.

If every bank knows their deposits are fully insured, don’t lending underwriting standards go down? Aren’t banks given green light to do whatever they want with customer deposits?
 

[Apep 645]

5 minutes ago, Chewbacca said:

Other than sticking it to the tech bros and VC community, can anyone give me a reason why letting the contagion spread and having a nationwide bank run would be preferable to guaranteeing access to all deposits at SVB?

 

[bschoolprof 6263]

2 minutes ago, Mullet Free said:

If every bank knows their deposits are fully insured, don’t lending underwriting standards go down? Aren’t banks given green light to do whatever they want with customer deposits?
 

but don't worry, banking regulators will be on top of this and surely prevent this from happening.  Just like the San Fran Fed was out in front of the SVB liquidity issue, and not some random dude on twitter.  

[Neonmoon 38129]

3 minutes ago, Mullet Free said:

If every bank knows their deposits are fully insured, don’t lending underwriting standards go down? Aren’t banks given green light to do whatever they want with customer deposits?
 

That is the fear. In fact, I wouldn't be surprised to see another 2008 happen unless new regulations are put in place to prevent banks from speculating too much with their deposits. 

[Chewbacca 7780]

5 minutes ago, Mullet Free said:

If every bank knows their deposits are fully insured, don’t lending underwriting standards go down? Aren’t banks given green light to do whatever they want with customer deposits?
 

So banks want to go out of business and the owners of the banks want to lose all their equity?  Is that what you're telling me?  The owners of SVB have been zeroed out.  Their equity is gone.  We are only talking about depositors here.

Edited March 13, 2023 by Chewbacca

[bschoolprof 6263]

11 minutes ago, Chewbacca said:

Other than sticking it to the tech bros and VC community, can anyone give me a reason why letting the contagion spread and having a nationwide bank run would be preferable to guaranteeing access to all deposits at SVB?

One argument: because it basically implies we are effectively moving to a fully insured deposit regime, not just for mom and pop, but every entity.  And that exacerbates the moral hazard problems that seem to contribute to a banking crisis every 10-15 years.  

[HamsterHookah 112]

2 minutes ago, Neonmoon said:

That is the fear. In fact, I wouldn't be surprised to see another 2008 happen unless new regulations are put in place to prevent banks from speculating too much with their deposits. 

From what I've been reading from Levine, there will likely be more regulations borne out of this. And they will impact us, the consumer:

Quote

 

The federal government’s action is, in my estimation, the right thing to do for this moment in time. There will, though, be long-term consequences for fundamentally changing the nature of a bank: remember, depositors are a bank’s creditors, who are compensated for lending money to the bank; if there is no risk in lending that money, why should depositors make anything? Banks, meanwhile, are now motivated to pursue even riskier strategies, knowing that depositors will be safe; the answer will almost certainly be far more stringent regulation on small banks, of the sort imposed on the big four after 2008. That, in turn, will mean tighter credit and more fees for consumers, in addition to what will be a big increase in FDIC insurance premiums. And, while taxpayers may not be directly infusing money into failing banks, taking on all of those low-interest rate securities is real opportunity cost.

To put it another way, before the events of last week the U.S. benefited from a banking trust dividend: businesses technically should have been worried about money that exceeded the $250,000 insurance limit, but in practice few gave it much concern. This made their operations more efficient, and made money more widely available for banks to lend. Regional banks, meanwhile, got away with lower capital requirements and less regulation, making it easier to extend credit and offer bespoke services. The FDIC, meanwhile, charged relatively low fees of member banks because it was only insuring $250,000 per account, even though its presence made the overall system much safer and more reliable for accounts of all sizes. That trust dividend is now gone, and the costs of replacing trust with explicit rules and regulations will accumulate forevermore.

 

 

[Laxtonto 12090]

10 minutes ago, Chewbacca said:

Other than sticking it to the tech bros and VC community, can anyone give me a reason why letting the contagion spread and having a nationwide bank run would be preferable to guaranteeing access to all deposits at SVB?

 

3 minutes ago, Mullet Free said:

If every bank knows their deposits are fully insured, don’t lending underwriting standards go down? Aren’t banks given green light to do whatever they want with customer deposits?
 

The problem is that either solution is a no-win and doesn’t fix the systemic problem automatically. If you allow a real bank run you wreck the current structure and force a fix at the cost of untold losses and impacting economic growth. If you allow yourself the FDIC insure everything then risk assessment becomes even less important and the viewpoint of the value of banks and banking morphs again and none of this gets fixed.

 

Neither is a good option but you not one forces a fix. That isn’t good when that option is the more nuclear of the two. How did you force a fix without the painful object lesson is the real trick.

[DefinitelyNotHollywoodColt 12301]

4 minutes ago, Chewbacca said:

So banks want to go out of business and the owners of the banks want to lose all their equity?  Is that what you're telling me?  The owners of SVB have been zeroed out.  Their equity is gone.  We are only talking about depositors here.

Wait, are you seriously suggesting that bankers won’t do stupid shit that could come back and bite them in the ass in the pursuit of massive short-term bonuses?

[David Dennison 18922]

Does a change in the $250,000 limit need congressional approval or can the FDIC do it on its own?

[Chewbacca 7780]

1 minute ago, DefinitelyNotHollywoodColt said:

Wait, are you seriously suggesting that bankers won’t do stupid shit that could come back and bite them in the ass in the pursuit of massive short-term bonuses?

That's what government rules and regulations are there to stop, which brings up the real ugly issue here - lobbyists.  I will never understand how we are the only developed county in the world who allows lobbying.

[bschoolprof 6263]

3 minutes ago, Neonmoon said:

That is the fear. In fact, I wouldn't be surprised to see another 2008 happen unless new regulations are put in place to prevent banks from speculating too much with their deposits. 

Tighter banking regulations will do little IMO.  They still have to be enforced by humans, and past experience has shown we suck at this in banking.  

 

[wildcat09 29355]

4 minutes ago, DefinitelyNotHollywoodColt said:

Wait, are you seriously suggesting that bankers won’t do stupid shit that could come back and bite them in the ass in the pursuit of massive short-term bonuses?

Americans have no memories. 2008 might as well have been the friggin dark ages for a lot of people.

[David Dennison 18922]

2 minutes ago, Chewbacca said:

That's what government rules and regulations are there to stop, which brings up the real ugly issue here - lobbyists.  I will never understand how we are the only developed county in the world who allows lobbying.

First Amendment, brah.

[HamsterHookah 112]

I do wonder if this is an inflection point and something we look back on as Pre-Silicon Valley and Post-Silicon Valley as an era, from a business, tech, VC, start-up and culture perspective. The death knell of what was already happening, even.

--

When the stakes are so high, and the perceived opportunity space increasingly narrowed, every decision becomes a Prisoner’s Dilemma — and, in retrospect, what happened to Silicon Valley Bank becomes inevitable. Moreover, it probably won’t be the only bad outcome of this new environment; it’s hard to understand the value of trust until it’s gone, and the full accounting of what has been lost will take years.

The irony in this loss of trust is that the ultimate driver is tech itself. What made the Silicon Valley Bank run unique was (1) the ease with which its customers could execute withdrawals and (2) the speed with which news of Silicon Valley Bank’s impending demise spread. Just to put the scale of this collapse in context, a total of $7 billion in depositors’ assets was lost in The Great Depression; $7 billion then is $161 billion today. Silicon Valley Bank, meanwhile, processed $42 billion in withdrawals in 24 hours. It was the speed, fueled by zero distribution costs for both rumors and withdrawals, that was so destabilizing for an entity predicated on arbitraging time.

That destabilization and resultant loss of trust, meanwhile, is everywhere around us, from our politics to business to every aspect of media. This increased uncertainty and destabilization has and will continue to drive demands for more government intervention — and, like this weekend, it may not even be wrong! More government, though, means replacing trust with more rules, regulations, and restrictions, which will have a long-term effect on innovation. This, perhaps, is the inevitable outcome of tech having set disruption as its objective function: the ultimate casualty may be the Silicon Valley that once was, not just its bank.

[wildcat09 29355]

2 minutes ago, bschoolprof said:

Tighter banking regulations will do little IMO.  They still have to be enforced by humans, and past experience has shown we suck at this in banking.  

 

This is why the entire VC crowd should be loaded up onto an ice floe and pushed out into the ocean.

[gsoda3 3263]

6 minutes ago, David Dennison said:

Does a change in the $250,000 limit need congressional approval or can the FDIC do it on its own?

since the FDIC's inception every time the limit has been raised it's been through an act of congress:  either an act, public law, amendment, etc.  does that mean that only congress can raise the limit?  i'm not sure, but precedent shows that congress has to enact legislation to do so.

[Laxtonto 12090]

15 minutes ago, Chewbacca said:

So banks want to go out of business and the owners of the banks want to lose all their equity?  Is that what you're telling me?  The owners of SVB have been zeroed out.  Their equity is gone.  We are only talking about depositors here.

No bank wants to go out of business just like no fund wants to have staggering annual negative losses. That doesn’t mean it doesn’t or won’t happen.

Human nature will always mean that someone will push whatever you are talking about to the extreme. All regulations and penalties do is lessen that urge and make object lessons for those who go beyond them.

Removing another level of risk just removes one more barrier from incentivizing risky behavior.

[HamsterHookah 112]

Something that might be lost in the sauce a bit (and rightfully so) is that SVB's saga we are and have watched play out will absolutely impact start-ups raising money. Fundraising which was already hard in Q1 FY24 went from hard to virtually impossible until AT LEAST Q3 if not later.

We will see lots of start ups get sold for parts and IP, lots of M&A, and flat out zero'ing out. Now is a good time to start a business if you can bootstrap and don't need money for 12-18 months to scale though IMHO.

[Brew 3049]

26 minutes ago, Mullet Free said:

If every bank knows their deposits are fully insured, don’t lending underwriting standards go down? Aren’t banks given green light to do whatever they want with customer deposits?
 

It’s been a long weekend so I could be completely missing the obvious here, but why would fully insured deposits impact loan underwriting standards? I can’t think of anything they do that would be dictated by the FDIC coverage outside of  it giving them more leverage for deposit concentrations. Right now the average person with excess cash knows to spread it around in banks. That goes away with guaranteed deposit coverage which may actually drive interest rates on deposits up as it would be more competitive and it is artificially held down with the FDIC coverag. I guess that could lead to lowering underwriting standards as they have to take on riskier loans at higher rates to make the spread.

[Chewbacca 7780]

1 minute ago, Brew said:

It’s been a long weekend so I could be completely missing the obvious here, but why would fully insured deposits impact loan underwriting standards? I can’t think of anything they do that would be dictated by the FDIC coverage outside of  it giving them more leverage for deposit concentrations. Right now the average person with excess cash knows to spread it around in banks. That goes away with guaranteed deposit coverage which may actually drive interest rates on deposits up as it would be more competitive and it is artificially held down with the FDIC coverag. I guess that could lead to lowering underwriting standards as they have to take on riskier loans at higher rates to make the spread.

Yeah, this is where I'm at, too.  I don't see how guaranteed deposits have any impact on how the bank operates.  If they are too loose, they go out of business whether deposits are guaranteed or not.

[Chewbacca 7780]

12 minutes ago, Laxtonto said:

No bank wants to go out of business just like no fund wants to have staggering annual negative losses. That doesn’t mean it doesn’t or won’t happen.

Human nature will always mean that someone will push whatever you are talking about to the extreme. All regulations and penalties do is lessen that urge and make object lessons for those who go beyond them.

Removing another level of risk just removes one more barrier from incentivizing risky behavior.

How does guaranteeing deposits change lending behavior?  It's not like they are on the hook for deposits personally or anything.

[Goredho 17408]

41 minutes ago, Chewbacca said:

Other than sticking it to the tech bros and VC community, can anyone give me a reason why letting the contagion spread and having a nationwide bank run would be preferable to guaranteeing access to all deposits at SVB?

There are two people arguing for it amongst my friends.  One is a free market absolutist that doesn't believe in any external economic interventions.  The other eschews traditional banks, is all in on crypto and wants to see the world burn.

[Updawg 2268]

Startups were dumb to use this bank instead of going on shark tank

[gsoda3 3263]

12 minutes ago, Brew said:

It’s been a long weekend so I could be completely missing the obvious here, but why would fully insured deposits impact loan underwriting standards? I can’t think of anything they do that would be dictated by the FDIC coverage outside of  it giving them more leverage for deposit concentrations. Right now the average person with excess cash knows to spread it around in banks. That goes away with guaranteed deposit coverage which may actually drive interest rates on deposits up as it would be more competitive and it is artificially held down with the FDIC coverag. I guess that could lead to lowering underwriting standards as they have to take on riskier loans at higher rates to make the spread.

 

9 minutes ago, Chewbacca said:

Yeah, this is where I'm at, too.  I don't see how guaranteed deposits have any impact on how the bank operates.  If they are too loose, they go out of business whether deposits are guaranteed or not.

 

5 minutes ago, Chewbacca said:

How does guaranteeing deposits change lending behavior?  It's not like they are on the hook for deposits personally or anything.

it removes the moral incentive to guard depositors' money.  at that point if the bank goes bankrupt what's the consequence for those in charge?  nothing really, just go to another bank.  

[Chewbacca 7780]

8 minutes ago, Goredho said:

There are two people arguing for it amongst my friends.  One is a free market absolutist that doesn't believe in any external economic interventions.  The other eschews traditional banks, is all in on crypto and wants to see the world burn.

Sounds like they both want to watch the world burn.  

[Schulz2.0 28960]

Just now, Chewbacca said:

Sounds like they both want to watch the world burn.  

Sounds like both are idiots that only see the world in black and white.

[Goredho 17408]

Yep, I keep them in the fold so I feel smart.

[Chewbacca 7780]

2 minutes ago, gsoda3 said:

 

 

it removes the moral incentive to guard depositors' money.  at that point if the bank goes bankrupt what's the consequence for those in charge?  nothing really, just go to another bank.  

Wait, so do bankers have morals or not?  Because listening to you guys in here, if deposits are fully guaranteed, they're gonna go apeshit on their lending standards (implying they have none).  Here's a hint - they can already do that if they are so inclined.  Guaranteeing deposits does not change the calculus there.

[Brisketexan 105154]

9 minutes ago, Updawg said:

Startups were dumb to use this bank instead of going on shark tank

[Sawbonz 27578]

 

1 hour ago, 52-80 said:

OK. Your neighbor crashes his minivan, his family of 7 becomes quadriplegic, and Allstate has plenty of money and willing to make an exemption to pay them above their $100k coverage, and the insurance consortium banks them up on it. 

Link to this happening?

[Brisketexan 105154]

2 minutes ago, Sawbonz said:

 

Link to this happening?

Sorry.  That insurance claim was denied, in its entirety, because the policy holder accidentally misspelled the middle name of one of his children (well, I mean, it LOOKS like he misspelled it -- is that supposed to be a lowercase "a," or a lowercase "o?"  Whatever, CLAIM DENIED!)