Is the stock market going to tank?

[Ted Striker]

[JaytaeMoney]

They didn’t bail out the bank. The bank failed. Poof. Done. They guaranteed the deposits.

This is exactly what everyone wanted to happen to the banks during the last recession btw

[LeeLau]

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.

Was being tongue in cheek but partially so

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.

[MultiVerse]

They could have hedged their bond position against interest rate risks

They could have managed the timing of the offering to bolster the balance sheet in a much better manner

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.

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.

[Brock Landers]

This is exactly what everyone wanted to happen to the banks during the last recession btw

Not everyone. Not people who would want a mortgage, job, pension, 401k, credit card, car financing, blah blah blah, in the foreseeable future.

[Mustonen]

Was being tongue in cheek but partially so

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.

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.

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.

[LeeLau]

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.

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.

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?

At the very least this fed backstop perception exists to a degree more than before

[Mustonen]

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?

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.

[MultiVerse]

it just protects checking accounts.

To put a number on it the Treasury just backstopped $20 trillion of deposits.

[JimmyCarter]

With the top down, screaming out “MONEY AINT A THANG”

[LeeLau]

it just protects checking accounts. Liquidity fixes bank stocks.

It also protects reputations and confidence. Confidence gives liquidity. Can't put a price on that. IMO that's what Mr Market sees

[LeeLau]

With the top down, screaming out “MONEY AINT A THANG”

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 goes

[Cono Este]

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.

[JimmyCarter]

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 goes

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.

[MultiVerse]

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.

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.

it’s like nuclear power plants. All looks good on paper, until that asshole leans on the wrong button for too long.

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.

[dschane]

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.”

[MultiVerse]

Yeah, it's a relative pittance too. According to the reporting it's something like $36 million versus $18 million in profits.

[LeeLau]

I really want this shirt. Anyone have one?

[sb]

https://m.youtube.com/watch?v=j2VQdTOMQbg

[MakersTeleMark]

I really want this shirt. Anyone have one?

Would compliment your stonks gear.

[dunfree]

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.




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.

Orderly resolution of this bank failure would have greatly impacted the investments of these “elites”. Your startup shitco with no revenue doesn’t have the same levers to pull or ability to weather the disruption

[MultiVerse]

Yeah, that was a real problem. This still could have been handled quickly and quietly. Not to mention the depositors brought it on themselves by panicking. The bank was in trouble, no question, but it wasn't on the verge of collapse until the bank run. There are no good options here:

- Let depositors take losses which ends up consolidating the banking sector into To Big To Fail only
- Guarantee deposits and also expand regulation to the point where the shadow banking sector not subject to regulatory oversight becomes much bigger

[Mustonen]

To put a number on it the Treasury just backstopped $20 trillion of deposits.

But that’s a given. A bank being a safe and secure home to place deposits is hardly a part of the calculus, is it? Deposits are not equity. Deposits are not assets. Whether a bank loses $500B or $500 in deposits doesn’t make a hill of beans of difference. Both are failures and they both impact investors virtually the same. They impact the economy in very different ways though.

[Mustonen]

It also protects reputations and confidence. Confidence gives liquidity. Can't put a price on that. IMO that's what Mr Market sees

Confidence aids efforts to aid liquidity. But when you’re $80B deep in illiquid underwater assets it doesn’t do much.

But maybe. I really don’t know. If we’re talking irrational Mr Market I back away from the discussion. That guy’s weird and I don’t understand him well.

[Mustonen]

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.”

This. Also though, NIM have been compressed forever and every exec was looking for some yield SOMEWHERE. Not to be an apologist at all, but this is the core of the problem. Rates weren’t gonna go up until the FRB was allowed to go bananas since COVID got canceled. Nobody predicted that. Not really.