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McKinsey: Half the World’s Banks Too Weak to Survive Downturn

bloomberg.com

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Re: McKinsey: Half the World’s Banks Too Weak to Survive Downturn

#21

Post by riffraff »

IAmEveryone wrote: post #10
omginternets wrote: post #7

Earlier quoted context omitted.

>do another bailout. I know you're being tongue-in-cheek, but in theory, are governments even capable of doing another bailout? My understanding is that public debt in most Western countries (not sure about China/India) is through the roof. Other than printing money and risking a cataclysmic devaluation, what can be done?

The problem was never with banks failing, it was with some of them being "too big to fail". This news therefore doesn't mean attempts to prevent another 2008-like crisis have been unsuccessful. Also, let's the remember the last bailout was a somewhat underrated success: " TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6%…

> Italy going bankrupt is a far more imminent danger than private banks, and one that would be too big to contain, for example.

people don't realize how much italian debt is around, i.e. if you own an EMU sovereign bond ETF it will >30% italian debt. If you own a global government bonds fund, it will be 7-8% italian debt.

Yet, total bankruptcy seems unlikely, if anything I guess we'd see some restructuring and a loss of 10-20% which would be bad, but could be bearable for some operators.

Re: McKinsey: Half the World’s Banks Too Weak to Survive Downturn

#22

Post by roenxi »

IAmEveryone wrote: post #5
richliss wrote: post #2

AKA On behalf of our banking customers we're going to be advising that governments get ready to do another bailout.

That's a cynical, conspiratorial, and woefully uninformed take on this. On the most basic level, what you're suggesting doesn't make sense: "getting ready for a bailout" doesn't imply any real action any government would take. If anything, being warned about financial instability will lead to an increase in requirements for banks: capital requirements might increase, M&A might become harder, etc. But those are the so…

The conversation around bank bailouts involves more money than the wealth of entire countries flowing through the financial system like a leviathan; so deep that we paddlers in the oceans of finance barely see the shadow.

It is an excellent time to be cynical; and a great time to recognise that if anyone were ever to be tempted to conspiracy this is the sort of value that would tempt them.

The woefully uninformed I'm not going to quibble on because agree with you on that point.

Re: McKinsey: Half the World’s Banks Too Weak to Survive Downturn

#23

Post by turk73 »

The US is doing QE in a big way right now, something is up.

I am observing other late cycle signs as well. Suddenly tech hiring dried up in my city and there is a construction boom underway as though many construction permits were suddenly all approved in order to bolster hiring among blue collar workers who are further out on the edge financially.

Re: McKinsey: Half the World’s Banks Too Weak to Survive Downturn

#24

Post by ChrisLomont »

howard941 wrote: post #11
IAmEveryone wrote: post #10

Earlier quoted context omitted.

The problem was never with banks failing, it was with some of them being "too big to fail". This news therefore doesn't mean attempts to prevent another 2008-like crisis have been unsuccessful. Also, let's the remember the last bailout was a somewhat underrated success: " TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit or an annualized rate of return of 0.6%…

From the bank shareholder's perspective the bailout was a stunning success. For the rest of us debtors, for those who greased the runways for the shareholders with their lost homes and lost savings that went to paying off debts in disinflationary dollars when stimulus and reasonable inflation would have made paying debts off easier, it remains an ongoing disaster.

>For the rest of us debtors...it remains an ongoing disaster

Taxpayers didn't pay for bailouts. The Fed did. Taxpayers did make a profit form them, however, since the profits the Fed saw from the bailouts were, by law, handed over to Treasury (except for statutory operating expenses), offsetting taxes.

>those who greased the runways for the shareholders with their lost homes

Most of those those losing homes did so by taking loans they could not pay, and the ripples were felt by those not taking such loans, in their retirement funds. Those who left those funds alone recovered the value and then some after the recession. Those who did not, or could not, did lose value.

But don't just blame bankers. Also blame borrowers defaulting.

Re: McKinsey: Half the World’s Banks Too Weak to Survive Downturn

#25

Post by throwaway66920 »

I believe this is the actual article

https://www.mckinsey.com/industries/financial-services/our-i...

Broadly it seems to be less extreme than Bloomberg’s summary and more nuanced to particular conditions.

I like how exhibit 6 is rotated to encourage reading it from either direction. Haven’t seen that before in charts.

Re: McKinsey: Half the World’s Banks Too Weak to Survive Downturn

#26

Post by treypitt »

hocuspocus wrote: post #19
omginternets wrote: post #7

Earlier quoted context omitted.

>do another bailout. I know you're being tongue-in-cheek, but in theory, are governments even capable of doing another bailout? My understanding is that public debt in most Western countries (not sure about China/India) is through the roof. Other than printing money and risking a cataclysmic devaluation, what can be done?

Central banks printing money to acquire bad assets from collapsing commercial banks would not cause any inflation.

Some would argue it causes "inflation" in financial markets like the US equities market

Re: McKinsey: Half the World’s Banks Too Weak to Survive Downturn

#27

Post by raxxorrax »

ChrisLomont wrote: post #24
howard941 wrote: post #11

Earlier quoted context omitted.

From the bank shareholder's perspective the bailout was a stunning success. For the rest of us debtors, for those who greased the runways for the shareholders with their lost homes and lost savings that went to paying off debts in disinflationary dollars when stimulus and reasonable inflation would have made paying debts off easier, it remains an ongoing disaster.

>For the rest of us debtors...it remains an ongoing disaster Taxpayers didn't pay for bailouts. The Fed did. Taxpayers did make a profit form them, however, since the profits the Fed saw from the bailouts were, by law, handed over to Treasury (except for statutory operating expenses), offsetting taxes. >those who greased the runways for the shareholders with their lost homes Most of those those losing homes did so by…

True, looking forward to blaming a lot of US students for wanting education.

While I do think borrowers are partly responsible, I also think there was a strong incentive for lenders to spread loans like candy and they probably de-emphasized the risks.

So the correct strategy would have been to take even larger loans and probably bury the money somewhere.

Re: McKinsey: Half the World’s Banks Too Weak to Survive Downturn

#28

Post by pjmorris »

ChrisLomont wrote: post #24
howard941 wrote: post #11

Earlier quoted context omitted.

From the bank shareholder's perspective the bailout was a stunning success. For the rest of us debtors, for those who greased the runways for the shareholders with their lost homes and lost savings that went to paying off debts in disinflationary dollars when stimulus and reasonable inflation would have made paying debts off easier, it remains an ongoing disaster.

>For the rest of us debtors...it remains an ongoing disaster Taxpayers didn't pay for bailouts. The Fed did. Taxpayers did make a profit form them, however, since the profits the Fed saw from the bailouts were, by law, handed over to Treasury (except for statutory operating expenses), offsetting taxes. >those who greased the runways for the shareholders with their lost homes Most of those those losing homes did so by…

> Taxpayers didn't pay for bailouts. The Fed did.

The 2+ Trillion dollar expansion of the Fed balance sheet during the crisis costs taxpayers every day that they pay interest on a loan enabled by that 2T+ expansion. Every house that used to be $200K and is now $500K is part of the price people are paying for how the crisis was managed.

> But don't just blame bankers. Also blame borrowers defaulting.

The core function of a bank is to evaluate risk. Being able to do so correctly enables the bank to make loans at a profit. Being unable to do so means that the people involved should go do something else. Debtors have been defaulting for millennia, it's a well-understood process. The financialization and securitization of housing was the creation of bankers, not borrowers.

Re: McKinsey: Half the World’s Banks Too Weak to Survive Downturn

#29

Post by avs733 »

throwaway66920 wrote: post #25

I believe this is the actual article https://www.mckinsey.com/industries/financial-services/our-i... Broadly it seems to be less extreme than Bloomberg’s summary and more nuanced to particular conditions. I like how exhibit 6 is rotated to encourage reading it from either direction. Haven’t seen that before in charts.

Well of course it's more nuanced. Bloomberg is about speed not MECE.

Re: McKinsey: Half the World’s Banks Too Weak to Survive Downturn

#30

Post by Spooky23 »

hocuspocus wrote: post #19
omginternets wrote: post #7

Earlier quoted context omitted.

>do another bailout. I know you're being tongue-in-cheek, but in theory, are governments even capable of doing another bailout? My understanding is that public debt in most Western countries (not sure about China/India) is through the roof. Other than printing money and risking a cataclysmic devaluation, what can be done?

Central banks printing money to acquire bad assets from collapsing commercial banks would not cause any inflation.

It’s blowing up the cost of many equities as borrowing has been so cheap for so long.

I live in a boring small city with awful schools and mediocre economy. My house value went up in real dollars about 3x from 1999-2018z The apartment complex that I rented from in 1998 is about 2x more expensive in real terms since that time.

The supply of capital is inflating real property values even without growth in demand. Given that most consumer product manufacturing has completed its move offshore, I’d expect increasing consumer prices as there isn’t much room left to shrink by lowering labor costs.

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