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Banking in uncertain times

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Re: Banking in uncertain times

#51

Post by antibasilisk »

Semaphor wrote: post #36
tetrep wrote: post #6

Earlier quoted context omitted.

A deserving; that which makes one deserving of reward or punishment; merit or demerit; good conferred, or evil inflicted, which merits an equivalent return: as, to reward or punish men according to their deserts. "Just deserts" is a common phrase that uses it in the same way.

Oh wow. I (non-native) never realized it only had one s, I always assumed it was "just desserts", as in, you are getting the dessert you deserve, after the food (the evil you did) :D

I (native) also did not realize this.

Re: Banking in uncertain times

#52

Post by spir »

pjc50 wrote: post #50
spir wrote: post #47

Stablecoins are conspicuous in their absence in patio11's post. Personally, I believe that patio11's loathing of crypto has made him incurious about its potential. But that's not the point here. The point is that stablecoins are about to become a Very Good Deal for ordinary people: In the near future, stablecoins like USDC will become immune to bank runs because the US Dollar reserves backing them will be held in veh…

This is essentially fanfiction, as stablecoins so far have been very opaque about what they do with their reserves. Especially Tether. (largely because the mechanics of holding $60bn in treasuries would attract some questions about KYC which stablecoins are unable to answer)

You're right that internationally-run Tether (USDT) is the largest stablecoin and has opaque reserves.

However, American-run USDC is growing faster and has excellent transparency:

https://www.circle.com/en/transparency

Re: Banking in uncertain times

#53

Post by mtoner23 »

spir wrote: post #47

Stablecoins are conspicuous in their absence in patio11's post. Personally, I believe that patio11's loathing of crypto has made him incurious about its potential. But that's not the point here. The point is that stablecoins are about to become a Very Good Deal for ordinary people: In the near future, stablecoins like USDC will become immune to bank runs because the US Dollar reserves backing them will be held in veh…

USDC may have instant 24/7 access to global markets. But why did the price of USDC drop to 90 cents this weekend. It isn't immune bank runs.

Re: Banking in uncertain times

#54

Post by skwirl »

kasey_junk wrote: post #24
pearjuice wrote: post #5

What I still do not understand is why the whole SVB episode isn't a bailout and didn't just introduce much more risk into the system. Yes, the stock went to 0 and investors did not get compensated (if they didn't already cash out when they saw it coming due to inside information) but the gaping hole in the books was filled due to government intervention and explicitly lifting the 250K FDIC limit. Why would any bank l…

The bailout to the banks is two fold. First the direct bailout in form loan guarantees. The moral hazard on those are limited by the time limit on when the assets had to have been bought (in the past) and on how long they can be used (a year). The second is a third or fourth order bailout of banks. By moving the goal posts on depositors responsibilities to “none if you are a powerful lobby”, risky banks no longer hav…

I don't think it's a big change. I think very few people are qualified to do due diligence on their banks. It's a bit like expecting people to inspect bridges before they drive over them. It's a piece of financial infrastructure that we expect to just work. It would be a big change to not have that expectation, and would likely result in the collapse of the regional banking system as people flock to the Big Four "systemically important banks" which have stricter regulatory requirements and the implicit backing of the federal government. We are seeing a lot of that flocking despite the actions of treasury on Sunday.

Moody's gave SVB an A rating until they were already collapsing. The State of California said SVB was financially sound until March 8.

And the problem is, even if it were possible to know the health of a bank as a depositor, a sound bank that people come to believe may be unsound collapses in a bank run the instant that the realization occurs, so you would lose your money anyway even though the bank was sound when you first deposited unless you got in early on the run.

Re: Banking in uncertain times

#55

Post by floathub »

The claim that, "when interest rates rise, all asset prices must fall" seems, uhm, somewhat off. If this were true, it would be trivial to stop and reverse inflation (i.e. deflate) with any increase in interest rates (?).

While it's certainly useful to think about prices as signals that, "embed an interest rate derivative", it seems a stretch to claim every single one of those derivatives is perfectly negatively correlated with interest rate changes.

[EDIT: change "interest price" to "interest rate"]

Re: Banking in uncertain times

#56

Post by lifty »

mtoner23 wrote: post #53
spir wrote: post #47

Stablecoins are conspicuous in their absence in patio11's post. Personally, I believe that patio11's loathing of crypto has made him incurious about its potential. But that's not the point here. The point is that stablecoins are about to become a Very Good Deal for ordinary people: In the near future, stablecoins like USDC will become immune to bank runs because the US Dollar reserves backing them will be held in veh…

USDC may have instant 24/7 access to global markets. But why did the price of USDC drop to 90 cents this weekend. It isn't immune bank runs.

They held cash at SVB. They will probably smarten up and start holding short term treasuries and avoid as much as possible bank liabilities. Just a guess.

Re: Banking in uncertain times

#57

Post by snarf21 »

spir wrote: post #47

Stablecoins are conspicuous in their absence in patio11's post. Personally, I believe that patio11's loathing of crypto has made him incurious about its potential. But that's not the point here. The point is that stablecoins are about to become a Very Good Deal for ordinary people: In the near future, stablecoins like USDC will become immune to bank runs because the US Dollar reserves backing them will be held in veh…

Except that 99.9% of people will buy "stable" coins on Coinbase. Not your keys, not your crypto. If Coinbase gets leveraged or goes the way of SFB, you have literally the same non-immunity as a bank run except you also don't get FDIC backstops.

Re: Banking in uncertain times

#58

Post by spir »

mtoner23 wrote: post #53
spir wrote: post #47

Stablecoins are conspicuous in their absence in patio11's post. Personally, I believe that patio11's loathing of crypto has made him incurious about its potential. But that's not the point here. The point is that stablecoins are about to become a Very Good Deal for ordinary people: In the near future, stablecoins like USDC will become immune to bank runs because the US Dollar reserves backing them will be held in veh…

USDC may have instant 24/7 access to global markets. But why did the price of USDC drop to 90 cents this weekend. It isn't immune bank runs.

You're right, last weekend, USDC dropped to a low of ~$0.88.

However note

- SVB was closed on a Friday (as is the FDIC's custom). This meant that USDC could not process redemptions over the weekend as banks were closed, and this created fear in the market.

- USDC had 8% of their reserves trapped in SVB. The fair market value of USDC would have been $0.92 if all SVB deposits were lost, which was never likely.

- crucially, USDC operator Circle has acknowledged the need to transition to a "full reserve" model where reserves aren't subject to bank runs. https://twitter.com/jerallaire/status/1635548066185871360

- over the weekend, USDC did lose its $1 peg and trade as low as ~$0.88. However, all USDC holders were able to maintain access their USDC to do whatever they wanted with it, which is a lot better than SVB depositors frozen and waiting to see what happened.

Re: Banking in uncertain times

#59

Post by brvsft »

> We recently went through that cycle faster than we thought possible with regards to a bank which responsible people considered very safe. According to the official record, one of the institutions went from being financially healthy one day to insolvent the next. I believe that narrative to be face-saving, but it is what The System currently is messaging as the truth, so let’s accept it for now. If this is the truth, what unfortunate truths might we learn in the near future?

Yeah, this is a good quote, and I find it unbelievable that a bank goes from financially healthy one day to insolvent the next. I also find it far more discomforting than the alternative (that it was financially unhealthy for a while, and many other banks are as well). Is this really the 'official' record?

Re: Banking in uncertain times

#60

Post by airstrike »

O__________O wrote: post #37

Mentioned in the article, Chart 7 from an FDIC report [1] is concerning, specifically that currently there are “unrealized losses on available–for–sale and held–to–maturity securities totaled $620 billion” — which appears to be not only a recent trend, but roughly 10x more than any point in recent history, including during 2008. Is anyone able to provide more context and clarify how significant these losses are to th…

these are unrealized losses so not necessarily significant if just held to maturity or sold when prices are less punishing

they can be an issue if, say, all your depositors decide to make huge withdrawals and the bank's immediate cash needs balloon, or if they have specific payments they need to make in the near term which would force those "available for sale" securities to be actually sold

none of this is an inevitable risk. there are ways to hedge against rising rates. the current rate hikes, although historic in their pace, have also long been anticipated by the market and telegraphed by the Fed. that bank administrators failed to plan accordingly is honestly baffling

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