Printable View
This.Quote:
Originally Posted by Brock Landers
Those guys don’t work there anymore.
But nobody was punished for trusting the US banking system. IMO they shouldn’t be. However, if and as this increases FDIC exposure the banking industry can expect additional oversight and regulation.
Good times to be had by all….
My understanding is that SVB held its assets largely in treasury bonds, so the real issue was one of timing. It's not like there is some sort of safer option than T Bills, so what were they supposed to do? If the SV techbro herd hadn't tried to arbitrarily withdraw all at once the bank would probably have been fine, eventually.
The Fed wants to backstop depositors and let the investors in the actual bank business fall on their faces. This seems like a perfect outcome to me.
They could have hedged their bond position against interest rate risksQuote:
Originally Posted by climberevan
They could have managed the timing of the offering to bolster the balance sheet in a much better manner
All in treasuries. Actually NOT in t bills. They were longer dated. When they had to dip into the balance sheet to meet withdrawals, normally not ideal but something that could happen, they had to recognize a loss because of the extreme rate moves. Tried to offset it with an equity raise, depositors caught wind, boom run on the bank. May have actually helped having some other mortgage or credit risk on the book.Quote:
Originally Posted by climberevan
Shitty asset/liability matching. Probably shouldn’t have done the equity raise. Most depositors all correlated with each other and large in size.
They did it to themselves, it just didn’t have to be fatal
That makes sense, too niche to fail I guess. Still, Oprah is out 500 mm apparently, she probably told 199 other banks no, fuck off, or something like that, and paying above mkt price on treasuries to bail these guys out, is still a loss to taxpayers. Depending on the accounting you use, no pun intended.Quote:
Originally Posted by Brock Landers
The general consensus is that they were pretty shitty at ALM and didn’t take ALCO seriously. It’s not so much about asset/liability matching - almost nobody really does that, but it is about NMD forecasting and sensitivity analysis. Homogenous deposit base and lots of large accounts that move quickly and inadequate liquidity analysis, grossly underestimating how much could move how quickly and not maintaining adequate sources of liquidity to cover it. Most financial institutions keep 5% to 10% of emergency liquidity sources. These guys obviously needed closer to 25%+. Plus normal liquidity to fund ops expressed as some percentage of quarterly or annual projected cash needs.Quote:
Originally Posted by Brock Landers
No, the taxpayers really aren’t paying for this, doesn’t matter what accounting you use. The FDIC fund is taking care of this, and the FDIC is funded by banks, not the government. If the FDIC went bankrupt then we bring in taxpayer funding…but things would be pretty dystopian if we ever got there such that taxpayer funding the FDIC making depositors whole is the least of your worries.Quote:
Originally Posted by Cono Este
Sadly this is what I have come to believe as well. I really think that the average person is screwed going forward.Quote:
Originally Posted by MCS5280
But TARP to deposits doesn’t even make sense, does it? TARP took the form of backstopping weakened collateral and capital infusions and etc. Not to promote or defend or castigate TARP… it just doesn’t even seem to fit in the analysis. This is telling a person (or business) that they’ll get their money that is in their savings account so they can make payroll next week.Quote:
Originally Posted by LeeLau
You guys are smart, though, so it feels like I’m missing something. What am I missing?
Yeah life is so hardQuote:
Originally Posted by Kevo
When was the average person NOT screwed? I can't recall any good old time when it was the case. Yet, here we are living pretty decent lives. Count our blessings I guess? :DQuote:
Originally Posted by Kevo
Well, the reality is the FDIC is going to levy an additional charge to the banks to cover this event. That charge will inevitably be passed on to consumers, I assume in the form of a standard fee on all accounts. And the people with massive accounts at the banks tend to get the account fees waived, so it may very well end up being paid for directly by your average taxpayer.Quote:
Originally Posted by Mustonen
Why is that we always hear about fees, taxes, costs, etc. all being passed on to consumers, but we never hear about executive compensation being "passed on" to consumers?
Oh sure. Though it certainly won’t be a standard fee but ROA is ROA and whether you see that in reduced dividends and increased interest rates and whatever else, the bank is going to fund operations and chase their profitability goals.Quote:
Originally Posted by JimmyCarter
What do you think the cost to all FDIC banks will be, on an asset basis, to cover even $20B in losses (it won’t be anywhere close to $20B, ultimately)?
Also consider that this is hitting the FDIC, not the NCUA (credit unions). So even if you imagined a significant assessment that hits all banks relatively equally, it’s not going to hit the entire financial system evenly which will have a chilling effect on any obvious fees or pricing adjustments, at least when you’re discussing normal consumers.
But as has been covered plenty, the money is there, it just isn’t there Right Now. Nobody anticipates significant losses that will need to be passed on.
ETA: Do you know what would cost the taxpayer more? Having to substantially increase liquidity targets will have a more significant effect on the bottom line than any assessment, with actual costs to the consumer that WOULD hit the entire financial sector. Maybe that’s necessary and good, but it ain’t free.
I tried this with my landlord, didn't work.Quote:
Originally Posted by Mustonen
Funny. But also… right, so you get a loan to make rent. The cost isn’t the rent payment, it’s the loan….which is quite a bit less than the rent payment. I don’t know what the opportunity cost is on the FDIC balance sheet for funding the shortfall, but probably a lot less than you can get a signature loan for.Quote:
Originally Posted by MCS5280
Do not look behind the curtain!Quote:
Originally Posted by BobMc
From now on, I’m going to bank wherever Oprah banks. Quite possibly bulletproof to any administration.
Remember the free cars she gave her audience?
Bob Barker bought more stuff for his audience
This is exactly what everyone wanted to happen to the banks during the last recession btwQuote:
Originally Posted by Brock Landers
Was being tongue in cheek but partially soQuote:
Originally Posted by Mustonen
FDIC is funded by banks but is backstopped by the Fed. It's even in the enabling laws which don't go into detail about the backstop but just have a declaration essentially saying that FDIC is Fed guaranteed.
FDIC just told all banks that +250K deposits are guaranteed even if the bank was negligent/screwed-up and even if uninsured depositors had ways to ensure their deposits could be administered in such a way that they were insured. To me, that is the fed protecting depositors who could have/would have/should have protected themselves. And by doing so, the fed protects the banks *reputation*.
Hear me out here. If FRC, WAL, ZION, etc etc defaulted on paying out any depositor that would damage their reputation (potentially irreparably); which would probably cause a bank run; and would probably cause the FDIC to step in. That FDIC action wipes out equity and bonds.
Therefore, *Effectively* (but not in name), the FDIC's action (and the Fed very strong implicit backstop) is an implicit backstop to bank equity and bondholders. Therefore Citadel and me, and other punters strong buy on banks and the comparison to TARP.
EDIT _ couldn't find the relevant statement in the FDIC act but see here https://www.fdic.gov/resources/depos...sit-insurance/
Federal deposit insurance goes to the heart of the FDIC’s mission: to promote confidence and stability in the nation’s financial system. FDIC deposit insurance enables consumers to confidently place their money at thousands of FDIC-insured banks across the country, and is backed by the full faith and credit of the United States government. Since the founding of the Federal Deposit Insurance Corporation in 1933 no depositor has lost a penny of FDIC-insured funds.
Yeah, bankers in other countries manage interest rate risk just fine. Heck, so far anyway bankers in other states seem to be doing ok. For some reason California has a ZIRP problem. They should hire some Argentinians for perspective.Quote:
Originally Posted by LeeLau
I think us American are being way too sanguine about all of this. US regulators are setting a dangerous precedent with the SVB bailout. The Fed is also adding onto its balance sheet the mark-to-market losses from the banking sector through its new Bank Term Funding Program (BTFP). The Fed is in effect transferring interest rate risk from bondholders to taxpayers.
Not everyone. Not people who would want a mortgage, job, pension, 401k, credit card, car financing, blah blah blah, in the foreseeable future.Quote:
Originally Posted by JaytaeMoney
Ok sure. FDIC is backed by full faith and credit, that isn’t in dispute. But that co-signer isn’t even close to needed here and isn’t proposed to be either, it just ensures stability and trust … GOOD things. But FDIC insurance has less to do with an individual bank’s success or failure than the success or failure of the SYSTEM.Quote:
Originally Posted by LeeLau
FDIC insuring deposits above $250k isn’t what makes citadel’s play interesting or smart, though. That has more to do with the BTFP. Not that you aren’t correct, but your work is wrong. Insuring depositors above $250K doesn’t keep banks afloat, it just shores up confidence in the system.
Edit: BTFP sure is nice though, and it really directly addresses the core problem that inadvertently killed SVB. If BTFP was in place they wouldn’t have had to sell at a loss, nobody would have been spooked. No news story. Safe and sound financial system. That’s a good thing for everybody.
Good convo. Perhaps we're splitting hairs? I buy the argument that intervention is geared towards preventing systemic risk. I also like the argument that allowing SIVB equity and bondholders to be wiped out via FDIC action is fair. However, I put it to you that Mr Market sees a degree of Fed backstop behind banks now. What else to call BTFP other than a very safe, low interest lending facility which won't be arbitrarily called?Quote:
Originally Posted by Mustonen
At the very least this fed backstop perception exists to a degree more than before
Ehhhhh maybe. That gets back into your world and out of mine. But if Mr Market feels better it’s because of a misapprehension re: the safety and stability of Mr Market’s own bank accounts, not the system he’s investing in. These aren’t rational things and I fully get that, and if the answer is that Mr Market doesn’t really understand what’s going on but feels better because deposits are insured I get that, but for discussions like this let’s call a spade a spade. This doesn’t fix bank stocks, it just protects checking accounts. Liquidity fixes bank stocks.Quote:
Originally Posted by LeeLau
To put a number on it the Treasury just backstopped $20 trillion of deposits.Quote:
Originally Posted by Mustonen
With the top down, screaming out “MONEY AINT A THANG”
It also protects reputations and confidence. Confidence gives liquidity. Can't put a price on that. IMO that's what Mr Market seesQuote:
Originally Posted by Mustonen
Held my nose, joined the money printer go brrr crowd and sold more puts on the end of day WAL FRC meltdown. Either I lose some carbon skis or I win some bananas. Let's see where this goesQuote:
Originally Posted by JimmyCarter
I’d be careful buying banks. Last yr more money was wiped from the mkt than ever before. We’ve been talking about it.
it’s like nuclear power plants. All looks good on paper, until that asshole leans on the wrong button for too long.
You better be overall bullish the next few yrs. Personally, I am not.
Sure is interesting. Part of me hopes people will quickly realize they’re being unnecessarily fearful. The other part of me reads WSB comments and thinks that information is only useful if you understand it and most people don’t understand it.Quote:
Originally Posted by LeeLau
Banks fail all the time. It's normal. It's typically handled quietly and everything turns out fine. This really does appear to be a case of elites agitating over the possibility of a systemic collapse to protect themselves.Quote:
Originally Posted by JimmyCarter
This is the wrong thread for this discussion, but that really is a terrible analogy. Anyway you slice it, include all the accidents in the history of the industry versus just one year of any alternative and it's not even close, nuclear power is orders of magnitude safer than any other energy source. It's ridiculously safe by comparison with everything else.Quote:
Originally Posted by Cono Este
According to Bloomberg, “in late 2020, [SVB's] asset-liability committee received an internal recommendation to buy shorter-term bonds as more deposits flowed in,” to reduce its duration risk, but that would have reduced earnings, and so “executives balked” and “continued to plow cash into higher-yielding assets.”
Yeah, it's a relative pittance too. According to the reporting it's something like $36 million versus $18 million in profits.
I really want this shirt. Anyone have one? Attachment 451868
Would compliment your stonks gear.Quote:
Originally Posted by LeeLau