2023 bank failures

[wildcat09 29,453]

I don't know why they would expect any new regulation to come down quickly. This Congress isn't going to be passing shit.

[Dahobbs 17,802]

15 minutes ago, wildcat09 said:

I don't know why they would expect any new regulation to come down quickly. This Congress isn't going to be passing shit.

I would assume new regulation may be from agency rule making rather than Congressional action. 

[gsoda3 3,285]

10 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.

banks work to foster relationships with their customers.  there's a trust that if you give me your money i'll take care of it, grow it, and when you need it it'll be here.  if there's an explicit guarantee that money will be there no matter what it's going to remove a major constraint on risk that regulation won't be able to constrict.  we already have a hard enough time regulating risk where there's still intrinsic risk for the bankers.  an explicit 100% guarantee on all deposits would be a bad bad idea.  

 

pretty much anyone at any bank selling any type of product needs a license.  you have national licenses and state licenses depending on where you are.  as an analyst you don't need a license but it's rare for anyone who sees themselves in a long term career not obtaining their licenses.  

 

3 hours ago, Porterhouse said:

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. 

 

they had an amount they had to keep liquid.  it was dependent on their deposit $.  they did that but kept extra amounts also in T bonds at too low of a rate.  it was lazy and with their ineptitude in guarding against an obvious rate increase the writing was on the wall.  ironically if they had instead found a way to turn those into corporate bonds they would have been in better shape.  

 

 

2 hours 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?

 

2 hours ago, Captainant said:

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

the rollback didn't allow depository banks from using deposits for market investments.  that's a weird thing to say.  it rolled back provisions which would have subjected banks to stricter oversight and required them to carry more capital.  

[DefinitelyNotHollywoodColt 12,301]

59 minutes ago, wildcat09 said:

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.

All the bankers and hedge fund guys I know are very smart, but they all have incredibly poor decision-making skills. 

Unfortunately what we've learned is that we are hopelessly tied to their decisions, which is really bad for us.

[Hefeweizen 5,357]

1 minute ago, DefinitelyNotHollywoodColt said:

All the bankers and hedge fund guys I know are very smart, but they all have incredibly poor decision-making skills. 

Unfortunately what we've learned is that we are hopelessly tied to their decisions, which is really bad for us.

They’re not nearly as smart as they think they are .  That is the main problem.  Knowing what you don’t know is the biggest challenge professionals face.  Engineers lose their license for practicing outside their area of expertise.  Attorneys refer clients to experts in other areas.  Doctors refer to specialists. Bankers say hold my beer.

[DefinitelyNotHollywoodColt 12,301]

1 minute ago, Hefeweizen said:

They’re not nearly as smart as they think they are .  That is the main problem.  Knowing what you don’t know is the biggest challenge professionals face.  Engineers lose their license for practicing outside their area of expertise.  Attorneys refer clients to experts in other areas.  Doctors refer to specialists. Bankers say hold my beer.

They know how to chase bonuses, which is what they’re told to do.

[bernorange 8,373]

1 hour ago, wildcat09 said:

I don't know why they would expect any new regulation to come down quickly. This Congress isn't going to be passing shit.

They don't have Taco Bell in DC?

[Brew 3,049]

41 minutes ago, gsoda3 said:

banks work to foster relationships with their customers.  there's a trust that if you give me your money i'll take care of it, grow it, and when you need it it'll be here.  if there's an explicit guarantee that money will be there no matter what it's going to remove a major constraint on risk that regulation won't be able to constrict.  we already have a hard enough time regulating risk where there's still intrinsic risk for the bankers.  an explicit 100% guarantee on all deposits would be a bad bad idea.  

 

pretty much anyone at any bank selling any type of product needs a license.  you have national licenses and state licenses depending on where you are.  as an analyst you don't need a license but it's rare for anyone who sees themselves in a long term career not obtaining their licenses.  

Can you walk into a bank where you are and buy insurance products without having to go through their wealth management / private banking people? You can’t where I am. There is a bank side (deposits/loans) and a wealth management side (products/investments) and with larger banks a private client side that bridges the gap.

[wildcat09 29,453]

On 3/14/2023 at 11:12 AM, Brew said:

Can you walk into a bank where you are and buy insurance products without having to go through their wealth management / private banking people? You can’t where I am. There is a bank side (deposits/loans) and a wealth management side (products/investments) and with larger banks a private client side that bridges the gap.

All of which is a function of laws that they're always lobbying to get repealed or exemptions from.  The history of banking is a history of enormous dumbassery occasionally constrained by law when their dumbassery gets out of hand and hurts the rest of us, which we inevitably roll back after said new law (or regulation) works and we forget why we enacted it in the first place.

Edited March 15, 2023 by wildcat09

[Brew 3,049]

Walk me through what the bank does differently if deposits are 100% guaranteed? You keep saying it, but what does it look like in practice? Bank A has deposits of $500M, makes loans using those deposits, holds treasuries and other ST investments to make some money on funds not loaned, etc. If that $500M becomes fully guaranteed what is the bank doing differently with those deposits? Riskier loans, riskier investments than treasuries, what? The bank is still exposed to risk of loss, regulatory requirements on capital, funds being moved ant any given time, etc. Do you think they all start rolling the dice and increasing the risk of default to the bank? I don’t see it. I can see where it pushes interest rates higher potentially (which could lead to more risk in the loan portfolio by extension) and causes bank consolidation which may not be positives, but this wholesale shift that covered deposits would creat doesn’t make sense. 
 

Deposits are effectively covered now as has been stated numerous times. The timing of access has not been.

Edited March 14, 2023 by Brew

[Neonmoon 38,130]

2 minutes ago, Brew said:

Do you think they all start rolling the dice and increasing the risk of default to the bank? I don’t see it.

Just because you don’t see it, doesn’t mean it’s not possible. People are idiots 

[bernorange 8,373]

4 minutes ago, Brew said:

Walk me through what the bank does differently if deposits are 100% guaranteed? ...

The Fed was really scared about the implications of this when they considered The Narrow Bank's application for a Fed Master Account.

[Brew 3,049]

2 minutes ago, bernorange said:

The Fed was really scared about the implications of this when they considered The Narrow Bank's application for a Fed Master Account.

In a very quick look at it, the Federal Reserve was concerned with a number of issues with the structure that TNB was applying for while also not being an FDIC insured bank. Those deposits would not have been insured at the depositor level.

[Neonmoon 38,130]

Bank Employee A: We could make bigger bonuses if we make riskier investments. 

Bank Employee B: But there’s a bigger chance of losing money too 

A: Who cares, it’s not our money 

B: True, but that’s someone’s retirement money and 

B: The bank could fold 

A: The bank has tons of money

I just don’t see how deleting that part of the equation won’t affect the risk calculation. 

[washparkhorn 9,939]

FDIC Insured cash sweeps were available prior to the SVP bank run. Well run operations paid for this service/insurance because it limited exposure to bank runs (and paid interest).

Faux libertarians billionaires sought to nullify the adage—Fools and their money are soon parted. The older idiom—He who has the money makes the rules—always wins. 
 

[washparkhorn 9,939]

Odds of anyone being held accountable? 

[bernorange 8,373]

14 minutes ago, Brew said:

In a very quick look at it, the Federal Reserve was concerned with a number of issues with the structure that TNB was applying for while also not being an FDIC insured bank. Those deposits would not have been insured at the depositor level.

100% of deposits would have been parked at the Fed.  Depositors wouldn't lose anything unless the Fed failed.

[Brew 3,049]

1 minute ago, bernorange said:

100% of deposits would have been parked at the Fed.  Depositors wouldn't lose anything unless the Fed failed.

The bank deposits were, but the depositors were not. They were still subject to bank risk and the interest rate float if you scan the app and response. If you read further through the Fed’s response, they had a number of issues with the structure.

I may be completely off base here. It wouldn’t be the first time, but with the overlayed regulations in place the guardrails are there already otherwise you would see depositor loss on bank failures.

[bschoolprof 6,280]

18 minutes ago, Brew said:

Walk me through what the bank does differently if deposits are 100% guaranteed? You keep saying it, but what does it look like in practice? Bank A has deposits of $500M, makes loans using those deposits, holds treasuries and other ST investments to make some money on funds not loaned, etc. If that $500M becomes fully guaranteed what is the bank doing differently with those deposits? Riskier loans, riskier investments than treasuries, what? The bank is still exposed to risk of loss, regulatory requirements on capital, funds being moved ant any given time, etc. Do you think they all start rolling the dice and increasing the risk of default to the bank? I don’t see it. I can see where it pushes interest rates higher potentially (which could lead to more risk in the loan portfolio by extension) and causes bank consolidation which may not be positives, but this wholesale shift that covered deposits would creat doesn’t make sense. 
 

Deposits are effectively covered now as has been stated numerous times. The timing of access has not been.

It's not so much what any one bank does, in isolation, it's the incentives it creates (or distorts) for depositors.  One obvious reason we have limited deposit insurance is the insurance fund is not big enough to backstop all deposits. But another critical reason is we want wealthy, non-Mom and Pops to have some skin in the game with the loans (deposits) they are making to banks.  They have the sophistication and financial wherewithal to monitor bank risk taking and move their funds to safer/higher-quality institutions since they have risk of loss if things go south. This type of monitoring is one of three pillars the FDIC views as playing important roles in mitigating the moral hazard problem with deposit insurance.  

This moral hazard problem arises with any insurance, but it can be exacerbated by government distortions.  When the government, via flood insurance,  bails rich people out of their foolish decision to build houses right on the coast where there's - wait for it - lots of water that is bad for houses, it encourages more foolish decisions to build houses right on the coast.  SVB was reportedly paying 5% plus on large uninsured deposits. We want the VCs and tech companies to pocket the gains from this but then socialize all their losses?  Ok, but then you'll get more SVBs and flooded houses on the coast that we all pay for. Another approach is to let the uninsured depositors learn the tough lesson of making risky on-demand loans to liquidity-strained borrowers. 

 

[Chewbacca 7,793]

13 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. 

Yeah, I didn't dig into what caused SVB's failure too much, so mea culpa on that.  But that aside, the point remains.  If any bank wants to take outsized risks, they can do that today.  Guaranteeing deposits does nothing to change that.

[gsoda3 3,285]

53 minutes ago, Brew said:

Walk me through what the bank does differently if deposits are 100% guaranteed? You keep saying it, but what does it look like in practice? Bank A has deposits of $500M, makes loans using those deposits, holds treasuries and other ST investments to make some money on funds not loaned, etc. If that $500M becomes fully guaranteed what is the bank doing differently with those deposits? Riskier loans, riskier investments than treasuries, what? The bank is still exposed to risk of loss, regulatory requirements on capital, funds being moved ant any given time, etc. Do you think they all start rolling the dice and increasing the risk of default to the bank? I don’t see it. I can see where it pushes interest rates higher potentially (which could lead to more risk in the loan portfolio by extension) and causes bank consolidation which may not be positives, but this wholesale shift that covered deposits would creat doesn’t make sense. 
 

Deposits are effectively covered now as has been stated numerous times. The timing of access has not been.

 

yes, they will chase yields.  you understand the premise but you don't agree.  

 

2 minutes ago, Chewbacca said:

Yeah, I didn't dig into what caused SVB's failure too much, so mea culpa on that.  But that aside, the point remains.  If any bank wants to take outsized risks, they can do that today.  Guaranteeing deposits does nothing to change that.

 

that's the thing though isn't it.  right now they have a motivation to protect that money.  that motivation changes if there's an explicit guarantee on all depositors' cash.

 

[Chewbacca 7,793]

3 minutes ago, gsoda3 said:

 

that's the thing though isn't it.  right now they have a motivation to protect that money.  that motivation changes if there's an explicit guarantee on all depositors' cash.

 

Either someone is wired to take big risks or they aren't - a guarantee on deposits changes nothing.  This is just human nature stuff.

[Samson's Wig 3,195]

!!!!EVERYBODY PANIC!!!!

 

I have enjoyed fielding calls from every person my parents ever met asking me if their money is safe.  The fact I don't have a fucking clue about any of this doesn't slow them down.  I've got more education than they do so I must know all about it, even though I work in entertainment law.  So, thanks a lot, SVB, you rotten lot of goat molesters, for making me talk on the phone nonstop and calm people down about whether their  $50k in savings at Bank of America and their IRA at Ameriprise is safe.  This is the true travesty of this entire ordeal. 

[Samson's Wig 3,195]

45 minutes ago, Neonmoon said:

Bank Employee A: We could make bigger bonuses if we make riskier investments. 

Bank Employee B: But there’s a bigger chance of losing money too 

A: Who cares, it’s not our money 

B: True, but that’s someone’s retirement money and 

B: The bank could fold 

A: The bank has tons of money

I just don’t see how deleting that part of the equation won’t affect the risk calculation. 

You're assuming anyone in banking has a soul to speak of.  They don't.

[Brew 3,049]

11 minutes ago, gsoda3 said:

 

yes, they will chase yields.  you understand the premise but you don't agree.  

 

 

that's the thing though isn't it.  right now they have a motivation to protect that money.  that motivation changes if there's an explicit guarantee on all depositors' cash.

 

They are free to chase the yields now within the constraints of regulations, which have zero to do with FDIC insurance limits per deposit. 

Again, the motivation to protect the money comes from not killing the golden goose (the bank) not depositor risk of loss in a bank failure in my opinion. They work to protect the bank and maximize the bank’s return, taking off the FDIC limit doesn’t change that equation.

I grew up in the bank side of our firm and still deal with banks/bankers regularly as we still work with 60-80 banks. We deal primarily with non publicly traded banks just for the record, so I view banks more from the community bank size (up to $1B) more than the publicly traded side for perspective.

Edited March 14, 2023 by Brew

[Sawbonz 27,776]

4 hours ago, Porterhouse said:

[MonkeyDoughnut 10,439]

1 hour ago, Brew said:

Walk me through what the bank does differently if deposits are 100% guaranteed? You keep saying it, but what does it look like in practice? Bank A has deposits of $500M, makes loans using those deposits, holds treasuries and other ST investments to make some money on funds not loaned, etc. If that $500M becomes fully guaranteed what is the bank doing differently with those deposits? Riskier loans, riskier investments than treasuries, what? The bank is still exposed to risk of loss, regulatory requirements on capital, funds being moved ant any given time, etc. Do you think they all start rolling the dice and increasing the risk of default to the bank? I don’t see it. I can see where it pushes interest rates higher potentially (which could lead to more risk in the loan portfolio by extension) and causes bank consolidation which may not be positives, but this wholesale shift that covered deposits would creat doesn’t make sense. 
 

Deposits are effectively covered now as has been stated numerous times. The timing of access has not been.

This example just makes the timing window shorter, lowers the risk, but the risk is still there. For "fully guaranteed" I would think no loaning / investment would have to be the requirement.. ie. they would need to charge fees for holding funds for you in order to make it work.

That said... if company with $200M cash has option of parking in Bank A who will fully guarantee it and charge X percent fee to do so vs Bank B who won't guarantee the funds but will pay 6% interest on the balance, which Bank do you think investors in the company are going to expect it to use?

[Sawbonz 27,776]

37 minutes ago, bschoolprof said:

It's not so much what any one bank does, in isolation, it's the incentives it creates (or distorts) for depositors.  One obvious reason we have limited deposit insurance is the insurance fund is not big enough to backstop all deposits. But another critical reason is we want wealthy, non-Mom and Pops to have some skin in the game with the loans (deposits) they are making to banks.  They have the sophistication and financial wherewithal to monitor bank risk taking and move their funds to safer/higher-quality institutions since they have risk of loss if things go south. This type of monitoring is one of three pillars the FDIC views as playing important roles in mitigating the moral hazard problem with deposit insurance.  

This moral hazard problem arises with any insurance, but it can be exacerbated by government distortions.  When the government, via flood insurance,  bails rich people out of their foolish decision to build houses right on the coast where there's - wait for it - lots of water that is bad for houses, it encourages more foolish decisions to build houses right on the coast.  SVB was reportedly paying 5% plus on large uninsured deposits. We want the VCs and tech companies to pocket the gains from this but then socialize all their losses?  Ok, but then you'll get more SVBs and flooded houses on the coast that we all pay for. Another approach is to let the uninsured depositors learn the tough lesson of making risky on-demand loans to liquidity-strained borrowers. 

 

Username checks out

[Surly Bevo 25,501]

12 minutes ago, Sawbonz said:

Nothing to add other than would really love a "Where Are They Now" style update on those three

[gsoda3 3,285]

22 minutes ago, Chewbacca said:

Either someone is wired to take big risks or they aren't - a guarantee on deposits changes nothing.  This is just human nature stuff.

 

to an extent.  individual capacity for risk changes.  systemic capacity for risk also changes systematically.  look no further than the great financial crisis.  or long term capital management.  or even SIVB.  parameters for risk and reward are always changing and there are many different catalysts.  some known, many unknown.  that's why this is so hard.  

 

15 minutes ago, Brew said:

They are free to chase the yields now within the constraints of regulations, which have zero to do with FDIC insurance limits per deposit. 

Again, the motivation to protect the money comes from not killing the golden goose (the bank) not depositor risk of loss in a bank failure in my opinion. They work to protect the bank and maximize the bank’s return, taking off the FDIC limit doesn’t change that equation.

I grew up in the bank side of our firm and still deal with banks/bankers regularly as we still work with 60-80 banks. We deal primarily with non publicly traded banks just for the record, so I view banks more from the community bank size (up to $1B) more than the publicly traded side for perspective.

 

like i said above we obviously have differing opinions.  thanks for your input and insight.

[wildcat09 29,453]

Guys, the answer to the question "do banks do dumb shit when they're not forbidden from doing dumb shit by law?" has been soundly demonstrated, repeatedly, by history. As bschoolprof explained, the impact of fully insuring all deposits would be systemic and diffuse, not really a case of any one individual going "oh hell yeah, time to gamble with all of it!" But banking laws and regulations are a complex system of interlocking parts, and limited deposit insurance has been a big part of its design. Messing with that, without adjusting anything else to account for the change, may very well destabilize the current system.  

[Chewbacca 7,793]

38 minutes ago, Brew said:

They are free to chase the yields now within the constraints of regulations, which have zero to do with FDIC insurance limits per deposit. 

Again, the motivation to protect the money comes from not killing the golden goose (the bank) not depositor risk of loss in a bank failure in my opinion. They work to protect the bank and maximize the bank’s return, taking off the FDIC limit doesn’t change that equation.

I grew up in the bank side of our firm and still deal with banks/bankers regularly as we still work with 60-80 banks. We deal primarily with non publicly traded banks just for the record, so I view banks more from the community bank size (up to $1B) more than the publicly traded side for perspective.

Yep.  If they want to be risky and chase yield, they can do so now.  Guaranteeing deposits does nothing to change that.

[Guest]

3 hours ago, gsoda3 said:

banks work to foster relationships with their customers.  there's a trust that if you give me your money i'll take care of it, grow it, and when you need it it'll be here.  if there's an explicit guarantee that money will be there no matter what it's going to remove a major constraint on risk that regulation won't be able to constrict.  we already have a hard enough time regulating risk where there's still intrinsic risk for the bankers.  an explicit 100% guarantee on all deposits would be a bad bad idea.  

 

pretty much anyone at any bank selling any type of product needs a license.  you have national licenses and state licenses depending on where you are.  as an analyst you don't need a license but it's rare for anyone who sees themselves in a long term career not obtaining their licenses.  

 

 

they had an amount they had to keep liquid.  it was dependent on their deposit $.  they did that but kept extra amounts also in T bonds at too low of a rate.  it was lazy and with their ineptitude in guarding against an obvious rate increase the writing was on the wall.  ironically if they had instead found a way to turn those into corporate bonds they would have been in better shape.  

 

 

 

the rollback didn't allow depository banks from using deposits for market investments.  that's a weird thing to say.  it rolled back provisions which would have subjected banks to stricter oversight and required them to carry more capital.  

Bud, it was greed:

In 2020 and 2021 when rates were “zero”, the excess cash in banks were kept (deposited) at the Fed and were only earning .15% yield.  Banks were paying depositors, not much, but it was about .20% to .30% , so with the cost of FDIC insurance, about 5 or 6 bp, the “all in cost” of interest bearing deposits was ..25% to .35%, which created a NEGATIVE spread for banks on all its excess cash.  Banks had two choices:

• Suffer through the negative spread until rates normalized.  Naturally, no one knew how to plan this timing; or
• Invest the excess cash in longer term securities, i.e. MBS (mortgage backs) or other bonds , i.e. UST.

Many banks could not stand the loss of profitability by keeping the funds at the Fed at .15%, so they bought longer term securities, such as:

·         MBS.  Expected average life of 5 to 6 years, yield avg. of about 2.25% to 2.5%. (remember the mortgages in those days were 2.75% to 3%);

·         UST,  5yr to 6 yr maturity.   Yielding probably 1.2%;

• • These investments of excess cash provide a positive (modest) POSITIVE margin or profit.

·        Then March 2022 comes around and rates skyrocketed, and this was the impact to the above securities:

·         The average life of their MBS investments moved from 5 or 6 years to 8 to 9 years.  No refis and borrowers with low mortgage rates would not sell their home.  The market value of those securities plummeted as much a 30% to 40%, creating huge unrealized losses.

·         While the maturity shrank 1 year, the market value on the USTs plummeted, as much as 20% depending on the maturity.

• • So, these banks now find themselves with low yielding bonds, relative to the rate the Fed pays (4.60%) and are now having to pay premium rates for interest bearing deposits.

·        Net net, the unrealized losses in some cases (Silicon and others) amounted to as much as 50% to 60% of their capital account; therefore, it was difficult to justify, economically or accounting, selling the bonds and realizing the losses.  Yet, SBV HAD to, whereas most other banks with these large securities portfolios won’t face this same problem as they’re not weighted in VC / tech.

[elfenix 34,385]

2 hours ago, Hefeweizen said:

They’re not nearly as smart as they think they are .  That is the main problem.  Knowing what you don’t know is the biggest challenge professionals face.  Engineers lose their license for practicing outside their area of expertise.  Attorneys refer clients to experts in other areas.  Doctors refer to specialists. Bankers say hold my beer.

username checks out

Edited March 14, 2023 by elfenix

[ChickenSandwich 9,856]

14 minutes ago, Chewbacca said:

Yep.  If they want to be risky and chase yield, they can do so now.  Guaranteeing deposits does nothing to change that.

Wouldnt the cost of guaranteeing all deposits be exponentially higher than the current fees associated with the $250k cap?

Would these costs be absorbed by the bank, payed only by those above the cap or be passed on to all of their customers?

[yoladu 4,165]

2 hours ago, DefinitelyNotHollywoodColt said:

All the bankers and hedge fund guys I know are very smart, but they all have incredibly poor decision-making skills. 

You can only get away with that characterization if you are a teenager and don't have a fully developed frontal lobe.

Adults who have "incredibly poor decision making skills" are not allowed to be called smart.

Edited March 14, 2023 by yoladu

[Brew 3,049]

39 minutes ago, gsoda3 said:

like i said above we obviously have differing opinions.  thanks for your input and insight.

Just to be clear, I’m not arguing to take the limits off either. I just think the risk to taking the limits off is more related to depositor side problems it creates not bank side. It’s basically the guy on the depositors shoulder making them pay attention to things and spread their individual risk. Without it, you could see mass consolidation in the banking world because deposit side risk goes away. Inevitably that probably creates the risk you bring up as well. I just think the bank is always going to be limited by the risk to the bank.

Ultimately, the system functions now with very limited depositor risk albeit not zero. Most of this will quiet down if the feds return money to investors showing they did not come out of pocket on anything.

[Chewbacca 7,793]

12 minutes ago, ChickenSandwich said:

Wouldnt the cost of guaranteeing all deposits be exponentially higher than the current fees associated with the $250k cap?

Would these costs be absorbed by the bank, payed only by those above the cap or be passed on to all of their customers?

Charge customers for it.

[Brian Fantana 6,704]

Seems to me like every time we (the taxpayers) bail out a bank, we should then own the bank. And then asset strip every executive down to their shoelaces to recover as much of the money owed as possible.

[gsoda3 3,285]

13 minutes ago, Porterhouse said:

Bud, it was greed:

In 2020 and 2021 when rates were “zero”, the excess cash in banks were kept (deposited) at the Fed and were only earning .15% yield.  Banks were paying depositors, not much, but it was about .20% to .30% , so with the cost of FDIC insurance, about 5 or 6 bp, the “all in cost” of interest bearing deposits was ..25% to .35%, which created a NEGATIVE spread for banks on all its excess cash.  Banks had two choices:

• Suffer through the negative spread until rates normalized.  Naturally, no one knew how to plan this timing; or
• Invest the excess cash in longer term securities, i.e. MBS (mortgage backs) or other bonds , i.e. UST.

Many banks could not stand the loss of profitability by keeping the funds at the Fed at .15%, so they bought longer term securities, ********** such as:

·         MBS.  Expected average life of 5 to 6 years, yield avg. of about 2.25% to 2.5%. (remember the mortgages in those days were 2.75% to 3%);

·         UST,  5yr to 6 yr maturity.   Yielding probably 1.2%;

• • These investments of excess cash provide a positive (modest) POSITIVE margin or profit.

·        Then March 2022 comes around and rates skyrocketed, and this was the impact to the above securities:

·         The average life of their MBS investments moved from 5 or 6 years to 8 to 9 years.  No refis and borrowers with low mortgage rates would not sell their home.  The market value of those securities plummeted as much a 30% to 40%, creating huge unrealized losses.

·         While the maturity shrank 1 year, the market value on the USTs plummeted, as much as 20% depending on the maturity.

• • So, these banks now find themselves with low yielding bonds, relative to the rate the Fed pays (4.60%) and are now having to pay premium rates for interest bearing deposits.

·        Net net, the unrealized losses in some cases (Silicon and others) amounted to as much as 50% to 60% of their capital account; therefore, it was difficult to justify, economically or accounting, selling the bonds and realizing the losses.  Yet, SBV HAD to, whereas most other banks with these large securities portfolios won’t face this same problem as they’re not weighted in VC / tech.

 

that's a great synopsis.  i actually read a research report yesterday which was very similar to your post, that wasn't yours was it?

 

where i've inserted **********

it's at this point in time they didn't have to put all of that cash into treasuries.  there was a minimum requirement they had to hold in treasuries but they went way past it.  they thought they were being conservative instead of pushing more cash into their main venture lending business.  

 

 

[Incredulity 11,686]

Just now, gsoda3 said:

they thought they were being conservative instead of pushing more cash into their main venture lending business.  

Up until March of last year the super-duper smartest people, even many on the surl, were absolutely certain inflation was permanently beaten.  MMT and so on.

[gsoda3 3,285]

3 minutes ago, Incredulity said:

Up until March of last year the super-duper smartest people, even many on the surl, were absolutely certain inflation was permanently beaten.  MMT and so on.

1.)  plenty of people realized that wasn't true.  it's mindblowing that the supposed experts at the highest levels didn't see it.  

2.)  even if you didn't believe rates were going to keep rising at that pace you *have* to hedge.  have to have to have to.  

[Trey3216 15,380]

17 minutes ago, gsoda3 said:

 

that's a great synopsis.  i actually read a research report yesterday which was very similar to your post, that wasn't yours was it?

 

where i've inserted **********

it's at this point in time they didn't have to put all of that cash into treasuries.  there was a minimum requirement they had to hold in treasuries but they went way past it.  they thought they were being conservative instead of pushing more cash into their main venture lending business.  

 

 

Yep.  Sometimes being "too conservative" is inherently risky.  they went coupon hunting when they should have been hunting depositors and loans in different business segments.  

[Guest]

2 hours ago, Neonmoon said:

Bank Employee A: We could make bigger bonuses if we make riskier investments. 

Bank Employee B: But there’s a bigger chance of losing money too 

A: Who cares, it’s not our money 

B: True, but that’s someone’s retirement money and 

B: The bank could fold 

A: The bank has tons of money

I just don’t see how deleting that part of the equation won’t affect the risk calculation. 

That’s because you’re a fucking idiot. 

[Dahobbs 17,802]

1 hour ago, Incredulity said:

Up until March of last year the super-duper smartest people, even many on the surl, were absolutely certain inflation was permanently beaten.  MMT and so on.

Citation? I can't believe anyone half-way intelligent believed that "inflation was permanently beaten." That's just ridiculous. 

[elfenix 34,385]

1 hour ago, Incredulity said:

Up until March of last year the super-duper smartest people, even many on the surl, were absolutely certain inflation was permanently beaten.  MMT and so on.

MMT doesn't say inflation doesn't happen.  in fact, it specifically says inflation can happen.

[wildcat09 29,453]

3 minutes ago, elfenix said:

MMT doesn't say inflation doesn't happen.  in fact, it specifically says inflation can happen.

You're talking to someone who thought $1,400 checks to some Americans in early 2021 was responsible for inflation in October 2022.

[Brian Fantana 6,704]

1 hour ago, wildcat09 said:

You're talking to someone who thought $1,400 checks to some Americans in early 2021 was responsible for inflation in October 2022.

More like Incredibility amirite

[StassneyHorn 6,692]

Friday, the business I work for said not to onboard new members or authorize any new appts for SVB. Late today got the message to keep onboarding and approve.

Take this info and invest accordingly 

[StassneyHorn 6,692]

Or don’t. Responsibly