2023 bank failures

[Skipper 6,127]

21 minutes ago, Porterhouse said:

They don’t have a choice and it doesn’t matter 100% of the time. 

Even when they actually do have a choice (i.e., loans from non-bank lenders) nobody ever cared who the cash management bank was as long as they would sign a control agreement until last Thurs.

[HamsterHookah 112]

Giannis knew:

Quote

Last year, Marc Lasry, the owner of the Milwaukee Bucks basketball team, revealed that its star player, Giannis Antetokounmpo, at one time had been putting his money in 50 banks, with no single account holding more than $250,000. Why? Because Antetokounmpo wanted every cent to be insured by the Federal Deposit Insurance Corporation. And $250,000 is the cap on insured deposits.

 

[Beau Vine 54,207]

2 hours ago, DefinitelyNotHollywoodColt said:

Go back and read @Jackson P. Neighbors post up thread…the bank didn’t do anything wrong. Just bad luck really.

Yeah, not hedging a balance sheet with a massive duration mismatch is just bad luck.  Wait, wut?

[Chopper 17,230]

33 minutes ago, Skipper said:

I'm 100% confident

I mean, if you're 100 percent confident does that mean your post is self-authoritative? There's literally nothing else the FDIC could have done other than give the depositors of SVB special treatment, and create a scenario where every bank is TBTF but only the largest receive the TBTF risk assessment. Really glad you could crystallize it.

Edited March 20, 2023 by Chopper

[wildcat09 29,345]

9 minutes ago, Skipper said:

Huh?  Tens of Billions in deposits were moved from regionals to top 4 banks last week.  It had absolutely nothing to do with any actual balance sheet risk at those banking institutions and 100% to do with CEO realization/panic that there is deposit risk outside of a clear TBTF bank.   It was a social media/twitter induced panic like we've never seen.   Without the FDIC's announcement Sunday it would have been worse and I'm 100% confident additional banks would have failed as no bank can withstand an all out run on deposits.   There will be long term ramifications of the last 10 days that still aren't clear but I don't think positive outcome for anyone.

Even on the micro level I needed to send a wire today for a personal investment which I do 3-4X annually.  This was the first time BOA didn't waive the wire fee.  Branch manager told me they took the button away from him.  So without even thinking through what this means for small and regional bank lending and the impact that will have on growing businesses, mega banks no longer needing to compete for deposits is not ideal for the consumer either.

It was actually a VC group chat.

[Guest]

32 minutes ago, Skipper said:

Even when they actually do have a choice (i.e., loans from non-bank lenders) nobody ever cared who the cash management bank was as long as they would sign a control agreement until last Thurs.

a) non-bank lenders are appreciably more expensive and therefore not a choice. 
b) depositors and banks alike most certainly cared where deposits were held. Whoever told you that has no idea what they’re talking about. 

[crash_davis 23,100]

29 minutes ago, HamsterHookah said:

Giannis knew:

 

Obviously he received and outstanding Greek education on the US banking system. Maybe we should send our kids to Greece to get a proper education.

[Schulz2.0 28,951]

3 minutes ago, crash_davis said:

Obviously he received and outstanding Greek education on the US banking system. Maybe we should send our kids to Greece to get a proper education.

At the rate we've been defunding our public school system? Probably will.

[washparkhorn 9,939]

Good read on the SVB and CS failures. 
 

https://www.nakedcapitalism.com/2023/03/fed-central-banks-created-the-current-crisis-and-are-on-course-to-making-matters-worse.html

The best solution according to William Dudley (GS and Fed alum):

The only remedy in all the years I have read about that might have a real impact quickly creates real skin in the game. It proposed by of all people former Goldmanite, later head of the New York Fed William Dudley. 

Dudley recommended putting most of executive and board bonuses in a deferred account, IIRC on a rolling five-year basis. If a bank failed, was merged as part of a regulatory intervention, or wound up getting government support, the deferred bonus pool would be liquidated first, even before shareholder equity.

Skin in the game would do a lot more to curb reckless behavior than complex new rules. Of course, Dudley’s proposal landed like a lead balloon.

[Skipper 6,127]

35 minutes ago, Porterhouse said:

a) non-bank lenders are appreciably more expensive and therefore not a choice. 
b) depositors and banks alike most certainly cared where deposits were held. Whoever told you that has no idea what they’re talking about. 

I represent both banks and non-banks.  There are hundreds of billions of dollars in non-bank loans out there across various asset classes.  For the specific sector I primarily work in, nobody ever batted an eye if deposits were at regional banks (including SVB up until 10 days ago when my phone started ringing).  I'm not sure if that will be the case going forward.  Hopefully there will be solutions that don't result in massive consolidation across the banking industry.  Clearly bank lenders (no matter the size of the bank) want/require the deposits.  Nobody is disputing that.

Edited March 20, 2023 by Skipper

[Mullet Free 40]

First Republic Bank down another 42% today even after coalition of big banks pledged $30B. Seems like they’re next up. 

[Trey3216 15,344]

41 minutes ago, Mullet Free said:

First Republic Bank down another 42% today even after coalition of big banks pledged $30B. Seems like they’re next up. 

JPM advising on strategic alternatives. Pretty inevitable now

[Sawbonz 27,537]

More bad luck?

[Mullet Free 40]

 

 

[Schulz2.0 28,951]

34 minutes ago, Sawbonz said:

More panicked idiots withdrawing their money causing a self-fulfilling prophecy.

Fify

[Jackson P. Neighbors 136]

6 hours ago, Beau Vine said:

Yeah, not hedging a balance sheet with a massive duration mismatch is just bad luck.  Wait, wut?

Gosh, I didn't know I ever made a statement that the bank wasn't properly risked. My only posts were related to the reason that regulators took it to receivership, which has nothing to do with funding mismatch. My first post on the thread clearly identified deposit concentration risk as the biggest problem once all things were considered. What do you see as the reason regulators took it to receivership at 9:30AM time on the west coast? Risk management practices?

[bernorange 8,359]

WSJ sees Operation Choke Point for what it is.

https://www.wsj.com/articles/signature-bank-new-york-community-bancorp-flagstar-bank-crypto-barney-frank-fdic-9b825e2e

[bonnieblue 542]

18 hours ago, Skipper said:

Even when they actually do have a choice (i.e., loans from non-bank lenders) nobody ever cared who the cash management bank was as long as they would sign a control agreement until last Thurs.

Somewhat amusingly, the non-bank lenders I work with would typically steer borrowers into using Signature Bank as their cash management bank.

[Skipper 6,127]

1 hour ago, bonnieblue said:

Somewhat amusingly, the non-bank lenders I work with would typically steer borrowers into using Signature Bank as their cash management bank.

Yep.  The smaller banks and regional banks typically had significantly better customer service and could move quickly so I don't doubt that (although ironically I have had by far the worst experience dealing with SVB from that sector so other than the fact they are hurting all other regional banks I'm not shedding tears for them).  I'm hoping the fed comes up with a solution to bring back confidence to the smaller and regional banks that are just guilty by association.  The mega banks were always slow to deal with before this and I have zero faith they will scale up to meet increased demand. 

[bonnieblue 542]

2 hours ago, Skipper said:

Yep.  The smaller banks and regional banks typically had significantly better customer service and could move quickly so I don't doubt that (although ironically I have had by far the worst experience dealing with SVB from that sector so other than the fact they are hurting all other regional banks I'm not shedding tears for them).  I'm hoping the fed comes up with a solution to bring back confidence to the smaller and regional banks that are just guilty by association.  The mega banks were always slow to deal with before this and I have zero faith they will scale up to meet increased demand. 

Yep, my absolute favorite regional bank lender got wrapped up in all of this and I really hope they weather the storm. Everything from the counsel they hire to the draw process to communication is just top notch. Dealing with some of the TBTF on the other hand…

[tbone_ 14,110]

Subscribed

[Mullet Free 40]

21 hours ago, Trey3216 said:

JPM advising on strategic alternatives. Pretty inevitable now

Getting more help. 
 

 

 

 

[Shaggy3.0 1,695]

4 hours ago, Mullet Free said:

Getting more help. 
 

 

 

 

McK involved.  The bank is digging a bigger hole.

And this tweet response had me lolz.  Exemplifies do-nothing buzzword non-sense that created the current shit fest.

 

 

Eolie Tradewinds

 

@eolietrader

·

4h

 

Replying to

@laurenthomas

Great idea. Time to ideate outside the box. A deep dive into the core competencies so they can strategize disruption in the space. A couple of dialogs off-line, with some brainstorming break outs to see how much bandwidth they have to move the needle. I like it.

 

 

 

HAHAHHAHAHA,  Poppycock.

 

 

[wackawacka 177]

On the totally making shit up at this point scale, I think the political blow back of "saving" SVB has made it impossible to save First Republic. The FDIC has to let it fail. 

[Ignatius Reilly 48]

35 minutes ago, wackawacka said:

On the totally making shit up at this point scale, I think the political blow back of "saving" SVB has made it impossible to save First Republic. The FDIC has to let it fail. 

is First Republic more or less Woke than SVB

[hullabelew 3,723]

13 hours ago, wackawacka said:

On the totally making shit up at this point scale, I think the political blow back of "saving" SVB has made it impossible to save First Republic. The FDIC has to let it fail. 

The chartering agency has to make that decision, not the FDIC.  

[HamsterHookah 112]

Was reading today how the older and archaic infrastructure and process/policies of the Fed was one of the reasons SVB couldn’t use the mechanisms in play to save itself, to save itself, which is kind of funny.

 

[Trey3216 15,344]

Just now, HamsterHookah said:

Was reading today how the older and archaic infrastructure and process/policies of the Fed was one of the reasons SVB couldn’t use the mechanisms in play to save itself, to save itself, which is kind of funny.

 

I'm gonna go get the papers, get the papers.  

[John Cougar Melonballer 12]

1 hour ago, HamsterHookah said:

Was reading today how the older and archaic infrastructure and process/policies of the Fed was one of the reasons SVB couldn’t use the mechanisms in play to save itself, to save itself, which is kind of funny.

 

That honestly sounds like some technobro bullshit.

[HamsterHookah 112]

47 minutes ago, John Cougar Melonballer said:

That honestly sounds like some technobro bullshit.

It’s Matt Levine (quoted below; long read):

Quote

 

The very stylized facts of SVB are that it had about $190 billion of deposits and invested much of that money — call it $120 billion — in a portfolio of mostly Treasury and agency bonds. The rest was invested in more complicated, riskier, traditional banking assets (loans, etc.), but SVB actually did relatively little lending, for a bank, and had rather a lot of safe bonds. 

Of course those bonds turned out to be risky, too, since interest rates went up, the market value of the bonds declined, the bank became insolvent on a mark-to-market basis, depositors noticed, and there was a run on the bank. About $42 billion of deposits fled on SVB’s worst day, Thursday, March 9, leaving the bank with “a negative cash balance of approximately $958 million”; it closed the next day. Fine. But SVB had invested about $120 billion in high-quality liquid bonds, and even after rates went up and the bonds lost value, they were probably still worth about $100 billion. But losing $42 billion of deposits broke the bank. These numbers are imprecise, they don’t account for outflows prior to that Thursday, etc., but still, 100 is a lot more than 42. If you have $100 billion of Treasuries, you can probably use them to acquire much more than $42 billion of cash.

You can sell them, for instance, though that might take a while. But more to the point you can borrow against them; you can post them as collateral to a lender to get cash. In particular, in modern banking systems, a bank can post Treasuries as collateral to borrow money from its lender of last resort, the central bank (in the US, the Federal Reserve); the Fed can just create money, so lending billions of dollars against good collateral is no sweat for it. In the US, there is also a “lender of next-to-last resort,” the Federal Home Loan Bank system, which will also lend cash to banks with Treasuries as collateral. If Silicon Valley Bank had had $190 billion of deposits and $190 billion of weird bespoke risky small-business loans, it might have had a hard time borrowing $42 billion against those loans to pay out fleeing depositors. But it had $100 billion-ish of simple high-quality Treasury and agency bonds, so it’s a little weird that it couldn’t find $42 billion. 

These numbers are all approximate and hand-wave-y, and you could imagine a reasonable explanation like “sure it lost $42 billion of deposits that day, but it lost billions in the previous days too, and even if it had been able to borrow the $42 billion it would have lost billions more the next day, so the Fed and FHLB pulled the plug when they saw it was hopeless.” And I have vaguely assumed that was the explanation for why SVB couldn’t get the money to pay out its depositors.

But today at the Wall Street Journal Hannah Miao, Gregory Zuckerman and Ben Eisen have the actual, horrifying explanation, which is that the Fed’s computers go to bed at 4 p.m. and you can’t wake them up until the next morning:

Withdrawals accelerated late in the morning on the West Coast on Thursday, March 9. Executives paced the office on phone calls as employees watched and texted details to each other.  

That is when SVB, at the time controlled by SVB Financial Group, started looking for help, only to run into the U.S.’s bank-funding system, which wasn’t built for speed. First it turned to the San Francisco Federal Home Loan Bank, asking for a $20 billion loan. …

It was already midday in California, and SVB’s unusually large request came too late for the San Francisco FHLB to process that day, people familiar with the matter said. It offered SVB a smaller loan but the bank turned that down, the people said.

SVB turned to plan B, asking the San Francisco FHLB to move $20 billion of collateral to the Federal Reserve’s discount window, where it could get emergency funding, the people said. SVB had roughly $20 billion available for financing at the San Francisco FHLB, according to the people familiar with the matter.

The bank hit another roadblock. The transfer required procedural steps. SVB had outstanding loans at the San Francisco FHLB, which had to determine how much collateral it needed to hold, the people familiar with the matter said.

SVB also tried to get $20 billion in assets to the Fed through Bank of New York Mellon Corp., one of its custodial banks. SVB was too late—it had missed BNY Mellon’s daily cutoff for instructions for Fed transfers from custodial accounts.

BNY tried to extend its cutoff, but:

The Fed needed a test trade to be run before the actual transfer could occur. That took time and the Fed didn’t extend its own daily deadline of 4 p.m. PT for collateral transfers to help SVB. Time ran out on the bankers and SVB couldn’t get the money that day.

It did get the money the next day, but by that point the FDIC had already seized it. Now, again, even if it had gotten the cash, it was facing continuing deposit flight, it seems to have been economically insolvent and it probably would not have survived the weekend. The Journal notes:

Some people at SVB remain angry about the takeover and frustrated that a possible rescue took so long. They say the bank was seized just before it got a lifeline from the Fed or a buyer, but they also acknowledge that the scale of withdrawals doomed the bank. 

I do not actually think that the banking crisis of the last two weeks — in which SVB and Signature Bank of New York have failed, other US regional banks have teetered, the Fed and FDIC have provided extraordinary support to the banking system, Credit Suisse Group AG disappeared over the weekend, etc. — all could have been avoided if the Fed had said “hmm, normally we do a test transaction first, but you seem to be in a rush and it’s getting toward closing time so we’ll just skip that and go straight to lending you the money.” SVB’s problems were bigger than the Fed’s 4 p.m. transfer cutoff.

And yet! Man! What the heck! A lot has beenwritten about how SVB was a bank run for a speedier, modern age. Instead of hearing a rumor at the coffee shop and running down to the bank branch to wait on line to withdraw your money, now you can hear a rumor on Twitter or the group chat and use an app to withdraw money instantly. A tech-friendly bank with a highly digitally connected set of depositors can lose 25% of its deposits in hours, which did not seem conceivable in previous eras of bank runs. 

But the other part of the problem is that, while depositors can panic faster and banks can give them their money faster, the lender-of-last-resort system on which all of this relies is still stuck in a slower, more leisurely era. “When the user interface improves faster than the core system, it means customers can act faster than the bank can react,” wrote Byrne Hobart. You can panic in an instant and withdraw your money with an app, but the bank can’t get more money without a series of phone calls and test trades that can only happen during regular business hours. And so sometimes a bank that theoretically has a lot of liquidity can just run out of cash.

 

 

[John Cougar Melonballer 12]

Yeah, that’s messed up. Usually takes me about a week to procure a $20 billion loan, but I’m in the Eastern time zone.

[gsoda3 3,245]

1 hour ago, HamsterHookah said:

It’s Matt Levine (quoted below; long read):

 

there's a practical explanation for the 4pm eastern cutoff time.  the FHLB doesn't have a vault filled with cash (physical or digital) it calls upon in times like this.  to raise the money it has to issue debt which can only be done during market hours.  guess what time the market closes.

[Jackson P. Neighbors 136]

19 hours ago, wackawacka said:

On the totally making shit up at this point scale, I think the political blow back of "saving" SVB has made it impossible to save First Republic. The FDIC has to let it fail. 

How was SVB saved? It failed, went into receivership, and the FDIC still can't find a buyer(s) for the assets. The shareholders and at least one class of bondholders have been largely wiped out. The only group that was saved were depositors by the temporary deposit limit increase, which also applies to FRB depositors.

[Jackson P. Neighbors 136]

51 minutes ago, gsoda3 said:

there's a practical explanation for the 4pm eastern cutoff time.  the FHLB doesn't have a vault filled with cash (physical or digital) it calls upon in times like this.  to raise the money it has to issue debt which can only be done during market hours.  guess what time the market closes.

Absolutely. Plus, article states FHLB offered a smaller amount which was refused, so they could have funded some, but not all $20B. Also, those FHLBs aren't required to make a loan if its not safe - the fact that it was offered tells me the theory that fed/fhlb wanted to cut them off is maybe far-fetched.

[Dahobbs 17,526]

44 minutes ago, Jackson P. Neighbors said:

Absolutely. Plus, article states FHLB offered a smaller amount which was refused, so they could have funded some, but not all $20B. Also, those FHLBs aren't required to make a loan if its not safe - the fact that it was offered tells me the theory that fed/fhlb wanted to cut them off is maybe far-fetched.

All this, plus, deadlines exist in business and the law. Sometimes those deadlines are arbitrary. And they often have severe consequences if missed. But, it is a hardly an indictment on the existence of deadlines that someone managed to miss one. 

[John Cougar Melonballer 12]

4 hours ago, gsoda3 said:

there's a practical explanation for the 4pm eastern cutoff time.  the FHLB doesn't have a vault filled with cash (physical or digital) it calls upon in times like this.  to raise the money it has to issue debt which can only be done during market hours.  guess what time the market closes.

is it 4 pm

[Mullet Free 40]

 

 

[Hefeweizen 5,310]

I see a risk that this bowl of beans is going to cause me some issues…

 

The banks are not done fucking us over.  

[Trey3216 15,344]

10 hours ago, Mullet Free said:

 

 

Deutsche up to bat this morning. 

[Skipper 6,127]

11 hours ago, Mullet Free said:

 

 

Yep.  Regionals are a material provider of CRE Loans.  Obviously credit was tighter in this environment anyways but I'm guessing many/most regionals are now flat out closed for new originations for the foreseeable.  So you have a bunched of (low) fixed rate CRE maturing in a high interest rate environment and a massive chunk of refi sources closed for business + lower demand for office space in major markets due to increased work from home.  Going to be a big mess.

[Mullet Free 40]

26 minutes ago, Skipper said:

Yep.  Regionals are a material provider of CRE Loans.  Obviously credit was tighter in this environment anyways but I'm guessing many/most regionals are now flat out closed for new originations for the foreseeable.  So you have a bunched of (low) fixed rate CRE maturing in a high interest rate environment and a massive chunk of refi sources closed for business + lower demand for office space in major markets due to increased work from home.  Going to be a big mess.

 

bailouts eventually coming to CRE?

[Skipper 6,127]

42 minutes ago, Mullet Free said:

 

bailouts eventually coming to CRE?

LOL. Don't know that guy but sure he's incentivised.  I don't know what the answer is.  This is why I still think it was such a massive mistake for the fed to not signal all deposits are protected during the first weekend of the SVB fiasco.  I don't know how we ever get the tens of Billions of deposit outflows from early that next week back to the banks that do so much small and middle market lending (including CRE in particular which seems to be biggest problem in the short term)

[Mullet Free 40]

could be nothing.  Could be planning for some new measures this weekend. 

[bernorange 8,359]

Quote

Deutsche Bank shares slid Friday while the cost of insuring against its default spiked, as the German lender was engulfed by market panic about the stability of the European banking sector.

However, many analysts were left scratching their heads as to why the bank, which has posted 10 consecutive quarters of profit and boasts strong capital and solvency positions, had become the next target of a market seemingly in "seek and destroy" mode.
...

Some of the concerns around Deutsche Bank have centered on its U.S. commercial real estate exposures and substantial derivatives book.

However, research firm Autonomous, a subsidiary of AllianceBernstein, on Friday dismissed these concerns as both "well known" and "just not very scary," pointing to the bank's "robust capital and liquidity positions."

"Our Underperform rating on the stock is simply driven by our view that there are more attractive equity stories elsewhere in the sector (i.e. relative value)," Autonomous strategists Stuart Graham and Leona Li said in a research note.

"We have no concerns about Deutsche's viability or asset marks. To be crystal clear - Deutsche is NOT the next Credit Suisse."
...

https://www.cnbc.com/2023/03/24/deutsche-bank-is-not-the-next-credit-suisse-analysts-say-as-panic-spreads.html

Will those comments age well?

[ryskey 447]

3 hours ago, Mullet Free said:

 

bailouts eventually coming to CRE?

Another example of temporary ZIRP - created bubbles wanting to extend the bubble, at least long enough to find a bagholder.

Maybe, MAYBE, when underwriting a real estate investment involving lots of debt, run a sensitivity analysis on the most important variable?  

[Skipper 6,127]

55 minutes ago, ryskey said:

Another example of temporary ZIRP - created bubbles wanting to extend the bubble, at least long enough to find a bagholder.

Maybe, MAYBE, when underwriting a real estate investment involving lots of debt, run a sensitivity analysis on the most important variable?  

I agree with this to some extent.  But it was hard to underwrite pre 2020 for COVID impact on occupancy and certainly could not underwrite the impact of the last 3 weeks.   There were inherently bad loans out there but what happens if Regionals Banks that typically make over 2/3 of CRE loans are largely out of the refi/origination market due to sudden liquidity issues as loans (properly structured at the time) mature?   

[Jackson P. Neighbors 136]

17 hours ago, Mullet Free said:

 

 

Ol' Johnny-on-the-spot Moody's with a timely warning - everyone panic!

Pretty rich considering that they had SVB's LT debt at A3 for years right up until it blew up and only then did it go to Baa3 to C to WR within 3 days.  

[tbone_ 14,110]

the most important variable?  

You mean my fee percentage?

[Shaggy3.0 1,695]

19 minutes ago, Jackson P. Neighbors said:

Ol' Johnny-on-the-spot Moody's with a timely warning - everyone panic!

Pretty rich considering that they had SVB's LT debt at A3 for years right up until it blew up and only then did it go to Baa3 to C to WR within 3 days.  

[ryskey 447]

40 minutes ago, Skipper said:

I agree with this to some extent.  But it was hard to underwrite pre 2020 for COVID impact on occupancy and certainly could not underwrite the impact of the last 3 weeks.   There were inherently bad loans out there but what happens if Regionals Banks that typically make over 2/3 of CRE loans are largely out of the refi/origination market due to sudden liquidity issues as loans (properly structured at the time) mature?   

100% it was hard to underwrite COVID, but where does one draw the line?  Every industry was impacted by COVID.  

Refinancing here is only a problem if the outstanding loan amount is greater than the property value.  That only happens when you buy a property in a bubble and put a ton of debt on it.  There has to have been a huge (50%?) write down for some of the property values, depending on how much debt was used to finance all this.  Regardless of whether underwriting standards were normal at the time of issuance, they clearly did not incorporate an interest rate sensitivity, and I'm not sure we should feel bad for CRE investors who've lost all their equity because they assumed low interest rates forever.  And unfortunately the bank is the bagholder on the negative equity value - shouldn't banks that made a lot of bad loans go under?  Individuals and households probably shouldn't be expected to do that, but CRE investors and banks doing CRE loans should be sophisticated enough to do that.

Do you know how much of those loans are under water?  If it's as widespread as the tweeter is saying then yes this is a problem.  I'm bitter because there are lots of businesses that planned well, didn't use a lot of leverage, properly stress-tested their businesses, and aren't asking for help.