2023 bank failures

[52-80 19281]

23 hours ago, longhornmatt said:

The irony of crypto about to get hammered because a real bank just failed based on an old school bank run and the fed raising interest rates in an inflationary environment is too much.  Wasn’t this the original pitch for having crypto to begin with?  

Play that back, deejay!

[Guest]

1 hour 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. 

That is only a fear by dumb people. SVB is gone. Why would lack of regulation be an incentive to…..go out of business?  Lol. 

1 hour 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.

This. 

1 hour ago, bschoolprof said:

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.  

No it doesn’t. 

1 hour ago, HamsterHookah said:

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:

 

There is no fucking doubt. On one hand, the securities portions of bank’s balance sheets is woefully unregulated. On the other, this shouldn’t affect extension of credit at all. But it will. When this shit happens, the flow of credit always slows down. 

[Neonmoon 38130]

30 minutes ago, Chewbacca said:

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.

Before there was the implication that all deposits would not be guaranteed, which was the disincentive to not go buck wild...because of the implication. 

[gsoda3 3300]

37 minutes ago, Chewbacca said:

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.

there's a very real psychological aspect of guarding joe the plumber's money that constrains risk.  i don't care if you're at a PE firm or a retail bank.  if you remove that constraint it becomes free money.  

[Guest]

12 minutes ago, Neonmoon said:

Before there was the implication that all deposits would not be guaranteed, which was the disincentive to not go buck wild...because of the implication. 

You are truly the gift that keeps on giving. So, I’m a greedy banker. I’m going to form a bank and engage in risky securities balance sheet management. I’m going to do so in total disregard of the safety and soundness of my bank, and if it fails and my salary, bonus and stock go hasta la fucking bye bye, it wouldn’t matter. I’m incentivized by the fact that all my depositors, most of whom I don’t know and have never met, are made whole!  What a novel loophole. And by that I mean, are you fucking retarded or what. 

Edited March 13, 2023 by Porterhouse

[Chewbacca 7793]

6 minutes ago, gsoda3 said:

there's a very real psychological aspect of guarding joe the plumber's money that constrains risk.  i don't care if you're at a PE firm or a retail bank.  if you remove that constraint it becomes free money.  

They can already do that.  Clearly SVB did.  If they are predisposed to acting in that fashion, deposit guarantees aren't going to move the needle.

15 minutes ago, Neonmoon said:

Before there was the implication that all deposits would not be guaranteed, which was the disincentive to not go buck wild...because of the implication. 

Strongly disagree.  Either someone is wired that way or they aren't.  

[Biff Tannen 45769]

20 minutes ago, Neonmoon said:

Before there was the implication that all deposits would not be guaranteed, which was the disincentive to not go buck wild...because of the implication. 

 

8 minutes ago, Porterhouse said:

[Dahobbs 17812]

2 hours 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. 
 

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

What are you talking about? I'm just pointing out the FDIC and FEMA are not comparable entities and don't have comparable mandates. Treating them as the same is asinine. 

As to your convoluted analogy:

1) I never said the depositors should turn down the offer. I expect that any rational person would gladly accept the additional protection of their funds. Similarly, I'd expect the Allstate customer above to gladly accept the additional funds from Allstate.

2) I would have also expect Allstate's investors to have an issue with Allstate giving out money that wasn't paid for with premiums. And I'd have concerns about Allstate's viability if its practice was to payout in excess of the risk it had underwritten. 

3) I also expect that other Allstate policy holders may have an issue if their rates go up because Allstate decided to make an exception to payout more than required to certain special policy holders. 

4) My primary point is if insure everything is FDIC policy, then it should be stated and accounted for in its premiums. Otherwise, I think the market message is muddled and will likely result in less than optimal behavior by market participants. 

5) If you want to create a federal agency whose purpose is to provide financial disaster relief rather than insurance, then let's have Congress do that. At least then your comparison to FEMA would be apples-to-apples. 

Edited March 13, 2023 by Dahobbs

[Chewbacca 7793]

4 minutes ago, Dahobbs said:

4) My primary point is if insure everything is FDIC policy, then it should be stated and accounted for in its premiums. Otherwise, I think the market message is muddled and will likely result in less than optimal behavior by market participants. 

100% agree

[Brew 3049]

1 hour 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.  

Do you think bankers currently operate under the moral incentive to guard depositor’s money? How many bankers will gladly take your deposits in excess of $250k? One of the local banks here is advertising 4.75% on up to $10M in deposits. Isn’t that by definition not operating with the incentive to guard your deposit risk? They should cap you at $250k and send you elsewhere.

Again, I can’t get my head around it. This was an investment risk failure plain and simple. The bank held large deposits with no offsetting loans for front end capitalized entities and made longer terms bets to generate income on assets classes they shouldn’t have. They should have told the depositors to lock the money up elsewhere until it was going to be needed based on their cash burn rates, but why turn away good money even if we cannot lend it. Banks have to have deposits to make loans to make money. This one had the deposits, but not the loans and decided to play stupid games and won stupid prizes.

Edited March 13, 2023 by Brew

[Guest]

Where is the FDIC Pawn Stars meme that was here in this thread?  I cannot find. 

[Surly Bevo 25525]

SVB President Former President is aggy.

[Guest]

24 minutes ago, Surly Bevo said:

SVB President Former President is aggy.

There are no SVB alums. Only Former SVBers. 

[4th and 5 4926]

got all CDARS'ed up this morning, thanks for the info, gentlemen, this is a fascinating thread 

[chainsaw 10010]

They didn't collapse they just ran out of funds

[Sawbonz 27781]

There was talk yesterday that the rollback of legislation from 2008 that SVB execs (among others) successfully lobbied for during the last administration would have prevented this failure. Is that correct? If so, why should we not expect more failures? Sure, no one (hopefully) will be stupid enough to make the same exact mistake SVB execs made, but what other risk mitigation failures are looming?

[Brisketexan 105580]

8 minutes ago, 4th and 5 said:

got all CDARS'ed up this morning, thanks for the info, gentlemen, this is a fascinating thread 

Yeah, learned a lot when we did that for a non-profit I sat on the board of.  We were working on our operating budget, and realized that sometimes we had a couple million in the bank at a given time.  And that obviously created risk.  Appointed someone to look into risk reduction strategies, and CDARS was there, and that's what we started doing then (and still do).  Granted, it's easier to do with a couple million than say, a couple hundred million.  

[Sawbonz 27781]

9 minutes ago, Brisketexan said:

Granted, it's easier to do with a couple million than say, a couple hundred million

I don’t know why you couldn’t set up some type of analog to FDIC only for commercial accounts, and not cap it. It seems like if you know the exact amount that you have to insure, it should be really easy to calculate premiums. Definitely much easier than calculating say life insurance or auto insurance premiums. Individuals with $1 million in cash or cash equivalent and choose to put it all in one bank are probably few and far between. Those people probably have cans of money buried in their backyard and safe deposit boxes full of gold coins rather than bank accounts anyway.

Edited March 13, 2023 by Sawbonz

[washparkhorn 9939]

Bailout. The word is bailout, not "insurance". There is no backwards insurance. ~Ayn Rand, probably. 

[Nivek 17042]

On 3/12/2023 at 12:20 PM, SL Xpress said:

Okay.

I would argue distortions occur through greed, through speculative behavior, through the natural inefficiencies in meeting supply and demand, through emotional decisions that aren't properly valued by the market, through the natural tendency towards monopolistic enterprises, through the limitations in the mobility of labor, among many others.

With government, rules and regulations by their definition create distortions in the market. Safety regulations create inefficiencies. Tax incentives create HUGE market distortions. Any rules preserving individual rights over private enterprises create market distortions. Any laws protecting the organization of labor introduces inefficiencies. Government subsidies create distortions. Implied government support creates distortions. The time and effort required to abide by government rules and regulations creates distortions. Torts create distortions. 

But I have a feeling we're defining the term differently.

 I would first start with the statement that I do not believe in the Efficient Market Hypothesis if that is where you are going with a focus on efficiency.   

Let's just look at the SOX Act.  (Link) According to this article one interview with the PCAOB reported that in 2006 there were 1800 financial renumerations but by 2019 that number was reduced to 85.   The implementation of the SOX Act directly lead to increased accuracy of publicly traded firms' financial reporting.    One could argue that the accuracy of the financial statements creates more efficiency.   

[52-80 19281]

2 hours ago, Dahobbs said:

4) My primary point is if insure everything is FDIC policy, then it should be stated and accounted for in its premiums. Otherwise, I think the market message is muddled and will likely result in less than optimal behavior by market participants.

Insuring everything was unequivocally *not* FDIC policy.  However, maintaining confidence and stability in the banks *is* their explicit policy.

They obviously don't have a time machine to revert their premiums collections.  But they can take the swiftest action to avoid the most immediate risk by participants: cascading withdrawals.  That was the clearest message, to ensure the least damage.

 

ITT:  People taking umbrage at federal institutions, created in response to bank runs, with the goal of preventing bank runs, for taking actions to prevent bank runs.  It is a wonderful day on the internet.

[Nivek 17042]

On 3/12/2023 at 2:46 PM, Porterhouse said:

Plenty have overtly lacked sympathy. I don’t really care either way, except I know what the results will be if depositors aren’t backstopped. They’ll be made whole eventually but the markets will be in turmoil in the interim. Major turmoil. And, some idiot here suggested about EQUITY holders should receive excess proceeds of various entities’ deposits over $250k. Not only is that not how things have ever been done, but it reeks of an anti-government populist Surly poster that let his 14-year old post for awhile. So let’s not act like some posters here aren’t rooting for depositor losses. They are. 

 

Way to misrepresent what I stated (very poorly admittedly and attempted to make more sense of it later on).   I was making a moral argument for the unsophisticated retail investor (and 401K investor) who will lose everything in this company whereas the large account holders who had access to better financial managers are the ones who will be paid first beyond their insured limits due to the structure (debt before equity).   We live in a society where the 1% have about the same wealth as the bottom 90%, and yet we keep running to the rescue of the upper 1%.   The debt before equity is a great way to socialize risk while providing extra insurance for those who hold the debt (from a certain point of view).    And yet, SX and I were also discussing the impossible situation where the retail investor could be made whole before the large investor/debtor the latter of which is less likely to feel the sting or had access to better management tools/advice.     But that is also unrealistic.    So in short, it sucks for everyone involved, but I have little sympathy for the wealthy class in this situation (which is worth a cup of coffee if you multiply my sympathy by 1000 and add $4).

Maybe that was clear enough for you?  

[Dahobbs 17812]

43 minutes ago, 52-80 said:

Insuring everything was unequivocally *not* FDIC policy.  However, maintaining confidence and stability in the banks *is* their explicit policy.

They obviously don't have a time machine to revert their premiums collections.  But they can take the swiftest action to avoid the most immediate risk by participants: cascading withdrawals.  That was the clearest message, to ensure the least damage.

 

ITT:  People taking umbrage at federal institutions, created in response to bank runs, with the goal of preventing bank runs, for taking actions to prevent bank runs.  It is a wonderful day on the internet.

Umbrage? I'm not mad about it if that is what you're suggesting. I just don't think of the policy of randomly protecting deposits over the insured amounts is wise. 

[Neonmoon 38130]

1 hour ago, washparkhorn said:

Bailout. The word is bailout, not "insurance". 

I was told we are not allowed to use the “b” word 

[Beau Vine 54878]

4 hours ago, Dahobbs said:

What are you talking about? I'm just pointing out the FDIC and FEMA are not comparable entities and don't have comparable mandates. Treating them as the same is asinine. 

As to your convoluted analogy:

1) I never said the depositors should turn down the offer. I expect that any rational person would gladly accept the additional protection of their funds. Similarly, I'd expect the Allstate customer above to gladly accept the additional funds from Allstate.

2) I would have also expect Allstate's investors to have an issue with Allstate giving out money that wasn't paid for with premiums. And I'd have concerns about Allstate's viability if its practice was to payout in excess of the risk it had underwritten. 

3) I also expect that other Allstate policy holders may have an issue if their rates go up because Allstate decided to make an exception to payout more than required to certain special policy holders. 

4) My primary point is if insure everything is FDIC policy, then it should be stated and accounted for in its premiums. Otherwise, I think the market message is muddled and will likely result in less than optimal behavior by market participants. 

 

Coase Theorem!!!

[Francisco 2.0 32433]

https://prospect.org/economy/2023-03-13-silicon-valley-bank-bailout-deregulation/

 

Quote

THE FIRST WORDS OUT OF THE MOUTH of Rep. Katie Porter (D-CA) when I talked to her on Sunday were: “Can you believe we have to talk about this shit again?” She was referring to a conversation we had in 2018, when she was still just a financial expert and a candidate for Congress, about S.2155, which I call the Crapo bill, a reference to its co-author (Idaho Republican Sen. Mike Crapo) and its underlying contents.

 

Quote

The Crapo bill, designed in conjunction with four conservative Democrats on the Senate Banking Committee who went around their ranking member, Sen. Sherrod Brown (D-OH), to do it, was supposed to be simple regulatory relief for tiny community banks overburdened by the onerous rules of the Dodd-Frank Act. In reality, it was deregulation for “stadium banks,” which as I explained in my exhaustive piece at the Intercept in 2018, refers to banks that are smaller than the real giants like JPMorgan Chase and Wells Fargo, but big enough to spend money granting naming rights to a stadium.

 

Quote

The most important part of the Crapo bill was Section 401, which increased by fivefold the threshold for enhanced regulatory standards, from $50 billion in assets to $250 billion. Silicon Valley Bank’s CEO, Greg Becker, lobbied explicitly for this change. It meant that banks under $250 billion would not be subject to additional stress tests and heightened capital and liquidity requirements. SVB topped out around $200 billion, after growing rapidly in the past few years.

 

 

Spoiler

The final rule for enhanced regulatory standards said that all banks eligible for them would have to “hold a buffer of highly liquid assets based on projected funding needs during a 30-day stress event.” The rules in the Federal Register say: “In general, the more a company relies on short-term funding, the larger the required buffer will be.” As Daniel Davies explains, this was the part of Dodd-Frank designed to prevent bank runs, ensuring that banks have both the structural funding necessary to carry out operations and the emergency funding to handle sudden withdrawals.

Silicon Valley Bank had an unusually high amount of its assets placed in long-term government and mortgage securities, creating a mismatch and, yes, a reliance on short-term funding, namely those deposits that could be withdrawn at any time.

Its rapid growth was also a function of the Crapo bill, since it removed the regulatory hurdles banks would encounter by growing larger. Indeed, banks immediately started scooping up rivals, and the consolidation led to risk-taking affecting a wider class of customers.

Section 401 of the Crapo bill also, by changing one word in the federal code from “may” to “shall,” enabled the Federal Reserve to weaken rules further for the stadium banks. In 2019, using this tailoring provision like Republican supporters of the law urged, they removed the “modified Liquidity Coverage Ratio” from banks under $250 billion (like SVB), a similar kind of emergency measure as in the enhanced regulatory standards. Then-Fed governor Lael Brainard condemned this “reduction in core resilience.”

When I asked Porter about the Crapo bill five years ago, she said its optimal vote tally should be zero. “This vote to reduce capital holding, to lessen much-needed guardrails, was under the guise of being pro-business,” Porter added yesterday. “There is nothing pro-business about a banking failure, as the situation illustrates. Representatives who really care about a strong economy for all, not just their corporate donors, would have voted against it.”

She is readying legislation to reverse Section 401, and place the standards back on SVB and banks of similar size. (The Crapo bill was terrible for other reasons, but she’s just focusing on that one.) The cries that innocent depositors just trying to make payroll shouldn’t be punished for the sins of their banks, Porter said, gives all the more reason to make sure the regulations protect them.

Amazingly, Sen. Mark Warner (D-VA), who got mad at people like Saule Omarova for pointing out that the Crapo bill he helped design unnecessarily increased bank risk, went on television Sunday and doubled down on his leadership. “I do think these midsized banks needed some regulatory relief,” he told ABC. Shame is obviously in short supply in that Senate office.

By contrast, Sen. Elizabeth Warren (D-MA) called the bill the “Bank Lobbyist Act,” and called out Democratic supporters of the Crapo bill by name, correctly stating that “this bill wouldn’t be on the path to becoming law without the support of these Democrats” and that “the Senate just voted to increase the chances your money will be used to bail out big banks again.” She has been proven utterly correct.

 

 

 

 

 

[52-80 19281]

On 3/11/2023 at 5:31 PM, Chopper said:

I have two thoughts on the matter.

Bwahahahahaha.

Rolling back Dodd-Frank bank regulation instituted after the Bush II financial meltdown was asinine but expected considering who was running the previous administration  

 

Democrat Barney Frank, architect and namesake of Frank-Dodd…provided support and endorsement to voting Democrats for rolling back his own bill.

https://archive.is/mG1Vh

 

[Guest]

2 hours ago, washparkhorn said:

Bailout. The word is bailout, not "insurance". There is no backwards insurance. ~Ayn Rand, probably. 

Well it’s not, but I suspect it won’t get in the way of you copying / pasting stupid populist shit from Twitter for cheap rep. 

1 hour ago, Nivek said:

Way to misrepresent what I stated (very poorly admittedly and attempted to make more sense of it later on).   I was making a moral argument for the unsophisticated retail investor (and 401K investor) who will lose everything in this company whereas the large account holders who had access to better financial managers are the ones who will be paid first beyond their insured limits due to the structure (debt before equity).   We live in a society where the 1% have about the same wealth as the bottom 90%, and yet we keep running to the rescue of the upper 1%.   The debt before equity is a great way to socialize risk while providing extra insurance for those who hold the debt (from a certain point of view).    And yet, SX and I were also discussing the impossible situation where the retail investor could be made whole before the large investor/debtor the latter of which is less likely to feel the sting or had access to better management tools/advice.     But that is also unrealistic.    So in short, it sucks for everyone involved, but I have little sympathy for the wealthy class in this situation (which is worth a cup of coffee if you multiply my sympathy by 1000 and add $4).

Maybe that was clear enough for you?  

It’s as clear as it was before. Here, you just used a lot more words to say the same exact stupid eat the rich bullshit. You’re totally wrong and at this point wasting the board’s time. 

[gsoda3 3300]

7 hours ago, Chewbacca said:

They can already do that.  Clearly SVB did.  If they are predisposed to acting in that fashion, deposit guarantees aren't going to move the needle.

no actually SIVB did the exact opposite of taking risks.  their main portfolios were loans to VCs, mortgages, and treasury bonds/bills.  high quality assets.  they ran into issues b/c they were too conservative and bought too many long-dated bonds at low interest rates.  that's why when rates moved up they were in trouble-  the prices of bonds fell as rates went up and then they had to sell those bonds to cover the drop in deposits. 

 

in a situation where deposits are 100% covered by let's say the FDIC banks will swing for home run investments.  they're going to take on risk as you've never seen because there are no consequences of failure. 

 

SIVB's failure was due to incompetence.  failures due to inordinate risk taking are irresponsible.  

 

 

6 hours ago, Brew said:

Do you think bankers currently operate under the moral incentive to guard depositor’s money? How many bankers will gladly take your deposits in excess of $250k? One of the local banks here is advertising 4.75% on up to $10M in deposits. Isn’t that by definition not operating with the incentive to guard your deposit risk? They should cap you at $250k and send you elsewhere.

Again, I can’t get my head around it. This was an investment risk failure plain and simple. The bank held large deposits with no offsetting loans for front end capitalized entities and made longer terms bets to generate income on assets classes they shouldn’t have. They should have told the depositors to lock the money up elsewhere until it was going to be needed based on their cash burn rates, but why turn away good money even if we cannot lend it. Banks have to have deposits to make loans to make money. This one had the deposits, but not the loans and decided to play stupid games and won stupid prizes.

yes.  if they're doing their job the way they're supposed to, absolutely.  all those licensing tests hammer home the moral duty of responsible stewardship. 

[Mullet Free 39]

Just thinking about it for a bit, here is where it matters.
 

If customers feel funds are 100% backed and safe, then you have far less (zero?) risk of any type of bank run. If there hadn’t been a run of deposits for SVB, then it wouldn’t have been a catastrophic event. It would come up after they had raised capital and shored things up. Without the same consequences, banks could get even more offsides before something happens or is discovered.

 

 

[YGIFS 19453]

Well maths notwithstanding, the circle jerk on linked in is certainly something worth laughing at were I on drugs.  

[Sawbonz 27781]

The Crapo Bill?

[TwiceHorn 31686]

13 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.

Shit, corporations and D/O get sued every time there's a major move in the stock price, especially downward, but even upward.

There's going to be a sizable class action off this, no doubt.

[Nivek 17042]

(Delete- I am an idiot for engaging immortal).

[Brew 3049]

1 hour ago, gsoda3 said:

 in a situation where deposits are 100% covered by let's say the FDIC banks will swing for home run investments.  they're going to take on risk as you've never seen because there are no consequences of failure. 

yes.  if they're doing their job the way they're supposed to, absolutely.  all those licensing tests hammer home the moral duty of responsible stewardship. 

I’m all ears on an explanation of how your first point works, because so far no one else that has made that claim can support it with any sort of explanation. The FDIC limit provides confidence to retail customers which in turn curbs bank runs on bad information. Bank runs are probably one of the lowest volume reasons that banks fail. I can name 4 bank clients that have failed in the last 5 years, runs on deposits weren’t the issues with any of them. I can’t come up with anything a bank does at a higher risk level with depositors balances covered because they still put the bank at risk in any scenario you throw out. What it does is artificially deflate interest rates on bank accounts and probably artificially prop up the sheer number of chartered banks there are. Those both may be positives in reality. I’m also not arguing to perpetually cover deposits, but again in almost every scenario depositors end up whole. The timing is the anomaly here, not the fact depositors get their money back.

On your second point, item number one on their list then should be caps of no more than FDIC covered deposits. How many bankers do you know that operate that way? Also, where do you live that bankers require licensing? If they aren’t selling investment products or in mortgage lending, I don’t know of any licensing needed.

Edited March 14, 2023 by Brew

[Trey3216 15380]

12 hours ago, Sawbonz said:

There was talk yesterday that the rollback of legislation from 2008 that SVB execs (among others) successfully lobbied for during the last administration would have prevented this failure. Is that correct? If so, why should we not expect more failures? Sure, no one (hopefully) will be stupid enough to make the same exact mistake SVB execs made, but what other risk mitigation failures are looming?

Reading mother Jones again I see…

[Brew 3049]

6 hours ago, Brew said:

I’m all ears on an explanation of how your first point works, because so far no one else that has made that claim can support it with any sort of explanation. The FDIC limit provides confidence to retail customers which in turn curbs bank runs on bad information. Bank runs are probably one of the lowest volume reasons that banks fail. I can name 4 bank clients that have failed in the last 5 years, runs on deposits weren’t the issues with any of them. I can’t come up with anything a bank does at a higher risk level with depositors balances covered because they still put the bank at risk in any scenario you throw out. What it does is artificially deflate interest rates on bank accounts and probably artificially prop up the sheer number of chartered banks there are. Those both may be positives in reality. I’m also not arguing to perpetually cover deposits, but again in almost every scenario depositors end up whole. The timing is the anomaly here, not the fact depositors get their money back.

On your second point, item number one on their list then should be caps of no more than FDIC covered deposits. How many bankers do you know that operate that way? Also, where do you live that bankers require licensing? If they aren’t selling investment products or in mortgage lending, I don’t know of any licensing needed.

Edited to say 4 failed bank clients in the last 11 years. Turning into my parents where everything seems like it happened yesterday. There were a few others in the front/middle of the 2008/2009 collapse.

[Guest]

8 hours ago, gsoda3 said:

no actually SIVB did the exact opposite of taking risks.  their main portfolios were loans to VCs, mortgages, and treasury bonds/bills.  high quality assets.  they ran into issues b/c they were too conservative and bought too many long-dated bonds at low interest rates.  that's why when rates moved up they were in trouble-  the prices of bonds fell as rates went up and then they had to sell those bonds to cover the drop in deposits. 

 

in a situation where deposits are 100% covered by let's say the FDIC banks will swing for home run investments.  they're going to take on risk as you've never seen because there are no consequences of failure. 

 

SIVB's failure was due to incompetence.  failures due to inordinate risk taking are irresponsible.  

 

 

yes.  if they're doing their job the way they're supposed to, absolutely.  all those licensing tests hammer home the moral duty of responsible stewardship. 

False. Greed drove them here because they couldn’t stand to not earn something on their multitude of deposits in a zero interest rate environment for some period of time. I agree with the bulk of your post, particularly the conservatism of their loan portfolio. But the bolded part is just wrong and they’re not the only ones that have engaged in that practice. 

Edited March 14, 2023 by Porterhouse

[Captainant 27974]

8 hours ago, Mullet Free said:

Just thinking about it for a bit, here is where it matters.
 

If customers feel funds are 100% backed and safe, then you have far less (zero?) risk of any type of bank run. If there hadn’t been a run of deposits for SVB, then it wouldn’t have been a catastrophic event. It would come up after they had raised capital and shored things up. Without the same consequences, banks could get even more offsides before something happens or is discovered.

 

 

Gee, if only there was some rule that prevented depository banks from using deposits for market investments... It would be funny if such a rule was removed just under 5 years ago amirite?

[Neonmoon 38130]

13 minutes ago, Captainant said:

Gee, if only there was some rule that prevented depository banks from using deposits for market investments... It would be funny if such a rule was removed just under 5 years ago amirite?

Pretty sure that rule was removed in 1999. The change from 5 years ago was the limit before increased regulation. Someone can correct me if I’m wrong 

Also, I’m confused by the narrative that raising the Fed Funds rate is breaking the banks. Is that really true? Why didn’t it happen in the 70s, 80s, 90s?

https://www.macrotrends.net/2015/fed-funds-rate-historical-chart

 

 

[Captainant 27974]

4 minutes ago, Neonmoon said:

Pretty sure that rule was removed in 1999. The change from 5 years ago was the limit before increased regulation. Someone can correct me if I’m wrong 

Also, I’m confused by the narrative that raising the Fed Funds rate is breaking the banks. Is that really true? Why didn’t it happen in the 70s, 80s, 90s?

https://www.macrotrends.net/2015/fed-funds-rate-historical-chart

They weren't raising the rate from zero, they were raising from 8 to 9 percent. Interest rates used to be WAY higher - getting a 7% mortgage in the 90s was a fuckin steal

And yes, you're right on the technicality on the rule change. Specifically, the regulatory line was adjusted upwards from $50B to $250B on the reasoning that a bank failing with assets under $250B could not pose a systemic risk to the market, and that "regulation was strangling the marketplace" during all time market highs. 

SVB sought this regulatory change because the prime interest rate was at zero for so long. Depository banks were way less profitable for the same amount of work as investment banks, so they had to increase profits

[Guest]

[Murfdogg21 4486]

16 hours ago, Neonmoon said:

Before there was the implication that all deposits would not be guaranteed, which was the disincentive to not go buck wild...because of the implication. 

 

16 minutes ago, Neonmoon said:

Pretty sure that rule was removed in 1999. The change from 5 years ago was the limit before increased regulation. Someone can correct me if I’m wrong 

Also, I’m confused by the narrative that raising the Fed Funds rate is breaking the banks. Is that really true? Why didn’t it happen in the 70s, 80s, 90s?

https://www.macrotrends.net/2015/fed-funds-rate-historical-chart

 

 

 

[52-80 19281]

Some opinions should remain unexpressed as personal thoughts

 

-abraham lincoln

[Guest]

41 minutes ago, 52-80 said:

Some opinions should remain unexpressed as personal thoughts

 

-abraham lincoln

I mean he’s spouting nonsense all over the place and has been for days. Its eye-opening. 

To answer his question, the rate increases are by and large fantastic for banks. It’s not “breaking the banks”. It broke a bank that was managed very very stupidly. The other banks are enjoying massive expansion in their Net Interest Margins. 

[52-80 19281]

21 minutes ago, Porterhouse said:

I mean he’s spouting nonsense all over the place and has been for days. Its eye-opening. 

To answer his question, the rate increases are by and large fantastic for banks. It’s not “breaking the banks”. It broke a bank that was managed very very stupidly. The other banks are enjoying massive expansion in their Net Interest Margins. 

A commercial bank is not a piggy bank and any no recent legislative changes is related to uncorking a commercial bank from acting like a piggy bank which they have never been in history. 
 

1000 monkeys on typewriters couldnt mash up something that randomly and senseless

[Hefeweizen 5357]

The LinkedIn SVB circle jerk is hilariously tone deaf.  That whole site has a for the 1 percent feeling to it but the bankers talking about their noble lending mission is cringey.

[DefinitelyNotHollywoodColt 12301]

39 minutes ago, Porterhouse said:

It broke a bank that was managed very very stupidly.

Let's check in in a couple of years to see which jobs these morons fall into that will continue to make them filthy rich.

[wildcat09 29453]

21 minutes ago, Hefeweizen said:

The LinkedIn SVB circle jerk is hilariously tone deaf.  That whole site has a for the 1 percent feeling to it but the bankers talking about their noble lending mission is cringey.

I'm telling y'all, we need to load all these people up on an ice floe and just push them out into the ocean. We simply can't risk allowing these people to have any influence in society. They're too stupid.

[wackawacka 192]

On a client briefing call with a major bank (e.g., JP, GS), they are ripping SVB.

Quote

It is idiosyncratic event. A bank that was highly leveraged and not properly diversified. Effectively, the FDIC has indicated any bank that has $100b+ in assets will be classified as systemically important. We expect regulation to come down quickly requiring higher capital requirements and liquidity for regional banks.