Is the stock market going to tank?
Quote:
Originally Posted by
LeeLau
More on FRC -from their latest 8k. Last 2 bullets probably raises concerns.
- if they're so healthy why do they need that 30B?
- What happened to the 70b from BTFP (haven't dug but probably held on books to meet cap reserve requirements)
- What are terms of the last borrowings from the last 2 bullets. IIRC they are payback at any time short term loans
Concern is probably FRC firesale and/or cascading loss of confidence.
Quibble: the $30b and/or holding BTFP borrowings in cash won’t do anything vis-a-vis capital requirements. If anything they grow the balance sheet and increase capital requirements. Both just shore up liquidity. Probably feels like a nice cool drink of water.
The $30b deposit and the borrowings are both liabilities, and the other side of the transaction is cash. None of it is equity. Curious what the COF is on that $30b….
Fed reserve borrowings are probably discount window, which is literally overnight, probably to satisfy cash letter that then gets rolled into FHLB which will almost always be short term with the same kind of pledged collateral.
I think I mentioned upthread, BTFP is great but it’s only good for a year. The $30b doesn’t have an expiration date. Also, BTFP is likely similar or substantially the same as what they have going with FHLB, but slightly better terms. Same collateral types, so they don’t layer necessarily, but no haircuts and opened up.
Is the stock market going to tank?
Quote:
Originally Posted by
sirbumpsalot
Republican Sen. James Lankford of Oklahoma pressed Yellen about how widely the uninsured deposit backstops will apply across the banking industry.
“Will the deposits in every community bank in Oklahoma, regardless of their size, be fully insured now?” asked Lankford. “Will they get the same treatment that SVB just got, or Signature Bank just got?”
Yellen acknowledged they would not.
…Uninsured deposits, she said, would only be covered in the event that a “failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”
Lankford said the impact of this standard would be that small banks would be less appealing to depositors with more than $250,000, the current FDIC insurance threshold.
“I’m concerned you’re … encouraging anyone who has a large deposit at a community bank to say, ‘we’re not going to make you whole, but if you go to one of our preferred banks, we will make you whole.’”
“That’s certainty not something that we’re encouraging,” Yellen replied.
It’s an interesting quandary for sure. MA requires banks to carry excess deposit insurance, and it’s available to any bank, but if big banks get it for free and the smaller payers have to pay they further tip the already tipped scales. However, I’m a bit skeptical that it leads to that significant a competitive advantage with rational entities. Keeping my $10M in a “too big to fail” bank without excess deposit insurance based on a maybe does not a reasonable risk management strategy make.
That’s the same kind of thinking that killed SVB in the first place. Listening to tweets to manage risk instead of forming a cogent strategy.
And I guess here we are….
Requiring excess deposit insurance for the Entire System or unlimited FDIC feels like a massive undertaking and everybody would scream. It would become a tax on holding wealth since the cost to hold huge deposits would certainly get passed through to that depositor, and maybe that would make sense.
Is the stock market going to tank?
Part of the contagion is online “banks”offering much higher rates on deposits and consumers are moving money pressuring reserves at traditional banks.
JPMORGAN: “We expect more bank deposits to flow into Money Market Funds.. especially if the Fed raises its policy rate.. As a result,.. relief from the decline in the Fed’s reverse repo facility will likely prove temporary, potentially creating more strain in the banking system.”
