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First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

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Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#181

Post by mortehu »

WatchDog wrote: post #171
colechristensen wrote: post #148

Earlier quoted context omitted.

Everybody got bailed and and essentially nobody went to jail. Of course no lessons were learned. SVB though sounds like nobody should go to jail it was just really bad investment decisions.

The CEO of SVB sold $3.6 million of stock a couple of weeks ago. I’m sure the SEC will have some questions about that. https://fortune.com/2023/03/10/silicon-valley-bank-ceo-greg-...

Based purely on the amount and timing, it looks pretty typical for him compared to the last 20 years:

https://www.secform4.com/insider-trading/1259867.htm

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#182

Post by bradleyjg »

lordnacho wrote: post #169
dannyw wrote: post #98

Earlier quoted context omitted.

Institutions deemed relatively safer (e.g. JPM Chase) are the banks that people withdraw to. Nobody is taking out $20M in cash, they're moving it to the "too big to fail" banks.

That got me wondering why anyone leaves amounts over 250k anywhere else. If you have 5m are you going to open 20 bank accounts? If there's a wobble you'll need to dig out a lot of credentials to move your money, and you'd end up moving it to a TBTF anyway.

If you have $5 million why do you need it in demand accounts?

Treasuries (notes, etc) are backed by the full faith and credit of the USG and are available in effectively unlimited amounts.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#183

Post by tome »

salawat wrote: post #161
eastbound wrote: post #159

Earlier quoted context omitted.

Can’t they just not honor the run, so that they can honor it in the long term, rather than selling at a loss and not being able to honor 20% of them?

No. That's theft. That's not how deposits work. You lend out on shorter terms than you figure your depositor will need and pray they don't need it back. If they all do though, you're screwed. It's statistical multiplexing as applied to piles of other people's money.

Are there some legal terms preventing limiting withdrawls? If not it seems like there should be, exactly to cope with the risk of runs!

[EDIT: corrected "limiting withdrawls" to "preventing limiting withdrawls"]

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#184

Post by tome »

digitaltrees wrote: post #90
pishpash wrote: post #78

Earlier quoted context omitted.

How can they claw back withdrawals?

The bankruptcy code provides guidance for a 90 day look back period from the date of insolvency where transactions can be clawed back or must be repaid. The FDIC will talk to the recipient bank and get a court order to deposit the funds in to a trustee account so that all available assets can be distributed evenly and fairly.

If this happens then those who took their money out not only caused the bank run but didn't benefit having taken it out anyway!

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#185

Post by CPLX »

digitaltrees wrote: post #155
alex_young wrote: post #129

Earlier quoted context omitted.

A bit of a technical point - in the US banks cannot go into bankruptcy.

The correct term is receivership but that is confusing for most people and the general principle is the same. When you go bust, the court/trustee/receiver combs through transactions and claws back assets as part of gathering/selling all assets to pay creditors

Is there any evidence at all this is true for people who are not insiders withdrawing their own money from an account at a federally regulated bank?

I’ve never heard of anything even remotely like this happening. Can you provide even one example?

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#186

Post by alistairSH »

tome wrote: post #183
salawat wrote: post #161

Earlier quoted context omitted.

No. That's theft. That's not how deposits work. You lend out on shorter terms than you figure your depositor will need and pray they don't need it back. If they all do though, you're screwed. It's statistical multiplexing as applied to piles of other people's money.

Are there some legal terms preventing limiting withdrawls? If not it seems like there should be, exactly to cope with the risk of runs! [EDIT: corrected "limiting withdrawls" to " preventing limiting withdrawls"]

[simplified explanationfollows]

No, the inverse. Banks are required to keep a % of deposits available in cash, another % in easily sellable assets, etc (lots of regulations here, esp post 2008 crisis, though the US exempted community banks from the new rules, which contributes to the current crisis) in order to reduce the risk that a bank run puts them out of business.

But a big run can exceed those safeguards, as appears to be the case here. The bank can’t offload enough investments to meet withdrawal demands.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#187

Post by scotty79 »

digitaltrees wrote: post #99
scotty79 wrote: post #20

Earlier quoted context omitted.

Why are banks even allowed to buy assets? Every asset is a risk. Banks should have right to do exactly two things. Keep their customers saving and issue loans. There's plenty of risks even in that activity. Every other thing bank does is just piling up risk to unreasonable levels.

Issuing a loan is buying an asset. You give the borrower money and in exchange buy their promise to pay it back with interest. And in fact that’s what SVB did, except instead of originating the loans themselves they bought them from the original lender.

It's creating an asset. Creating and buying are different thing. Creating should be allowed, buying should be forbidden.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#188

Post by scotty79 »

kaashif wrote: post #39
scotty79 wrote: post #20

Earlier quoted context omitted.

Why are banks even allowed to buy assets? Every asset is a risk. Banks should have right to do exactly two things. Keep their customers saving and issue loans. There's plenty of risks even in that activity. Every other thing bank does is just piling up risk to unreasonable levels.

What's really the difference between issuing a loan and buying the same loan issued by someone else? SVB bought a load of treasury bonds which is equivalent from a risk perspective from issuing a 10 year (or whatever) loan to the government, right?

> What's really the difference between issuing a loan and buying the same loan issued by someone else?

Risk. When you are issuing a loan you, yourself are in control of the risk you have created. When you buy, you can easily buy massive amounts of risk someone else have created and you can easily be overwhelmed even when you try to do industry standard, responsible, "safe" thing.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#189

Post by scotty79 »

NovemberWhiskey wrote: post #42
Mimlitsch wrote: post #33

Earlier quoted context omitted.

https://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_legisla...

Glass-Steagall only prevented commercial banks from owning non-investment-grade securities - from what I have read, SVB’s portfolio (of Treasuries and MBS) would’ve been entirely consistent with pre-repeal Glass-Steagall.

So it was move in the right direction. Just didn't go far enough.

Banks should not gamble with their money no matter how safe the bet seems.

The only exception is issuing loans because that's one of core reasons for the bank to exist.

Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%

#190

Post by sokoloff »

eclipticplane wrote: post #102
hedora wrote: post #96

Earlier quoted context omitted.

I’m thinking our diversified stock portfolio is safe (in that the number of shares we hold should not change, and it’ll go back up before we need the money decades from now). I’m hoping that’s not naive. I’m curious about Wealthfront’s strategy of spreading savings across many partner banks to get $2M in FDIC insurance per account though.

I can't speak to Wealthfront specifically, but what you're describing with them is very commonly called a sweeps account. They are explicitly understood under FDIC's rules as automated balance accounts. Where you can run afoul is if you personally have accounts at the same banks that your sweep accounts use. And you might not even know it. E.g., Mercury isn't a bank: they use Evolve Bank and Choice Financial Group. S…

Note that the limit is $250K per person per ownership category per bank, so if your sweep account is in a different category (single vs joint) than your direct account, your ownership in both is insured up to $250K.

More details here: https://www.fdic.gov/resources/deposit-insurance/brochures/i...

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