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Banking in uncertain times

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Re: Banking in uncertain times

#151

Post by lifty »

rabf wrote: post #140
lifty wrote: post #56

Earlier quoted context omitted.

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.

Tha majority of their reserves were in short term tresuries, only a fraction of thier reserves were stored in 4 different banks as cash in order to be able process redemtions.

So I guess for them the only option for their short term redemption buffer is to keep money in the 4 systemically important banks. There are no other options. Relevant note, FED won't approve full reserve banks (several tried) as they might suck too many deposits out of the rest of the banks, posing a risk to the other banks.

Re: Banking in uncertain times

#152

Post by ianferrel »

lordnacho wrote: post #104

As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Allowing the bank to pretend it has more assets than it actually has seems to be an invitation to hide risk. If they had to MTM their underwater bonds, they would would have been pushed to raise capital earlier,…

>Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market?

I agree with your main point.

You'd have to be careful with regulation around this, because what you might end up with is banks preferentially seeking assets for which there is not a liquid market so they can pretend they are worth more. That's... not an obvious improvement.

Re: Banking in uncertain times

#153

Post by WorkerBee28474 »

"This was complicated by some banks finding it surprisingly difficult to add numbers quickly… We have a report of Friday outflows, but it gets crunched by an ETL job which only finishes halfway through Saturday, and Cindy who understands all of this is on vacation, and… and eventually very serious people said Figure Addition The #*(%#( Out And Call Me Back Soonest"

As someone who has written ETL jobs for banks, this hits home.

Re: Banking in uncertain times

#154

Post by nightpool »

ascotan wrote: post #12
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.

desert i don't think means deserving. It comes from the latin desertus which means to "make barren or empty/forsake". I think in this context it means to have something fail or be abandoned at a critical moment.

https://webstersdictionary1828.com/Dictionary/desert

Re: Banking in uncertain times

#155

Post by IntFee588 »

Not to be conspiratorial, but the situation is much worse than the fed is letting on. "Trying to forestall" might be optimistic.

https://www.bloomberg.com/news/articles/2023-03-12/us-moves-...

https://archive.is/FMuYW (archive)

Think of what this means, and how precarious a position the nation's banks must be in for the fed to take actions like this. We needed to reimplement Glass-Steagall yesterday.

Re: Banking in uncertain times

#156

Post by SilasX »

WorkerBee28474 wrote: post #153

"This was complicated by some banks finding it surprisingly difficult to add numbers quickly… We have a report of Friday outflows, but it gets crunched by an ETL job which only finishes halfway through Saturday, and Cindy who understands all of this is on vacation, and… and eventually very serious people said Figure Addition The #*(%#( Out And Call Me Back Soonest" As someone who has written ETL jobs for banks, this…

I thought financial companies had regulations against bottlenecks like that? Something like, every employee has to have their access turned off for one uninterrupted week, to ensure they didn't leave something in that depends on them or they're controlling a (fraudulent) process no one else knows about?

Re: Banking in uncertain times

#157

Post by nightpool »

airstrike wrote: post #64
patio11 wrote: post #30

Earlier quoted context omitted.

Per Merriam-Webster, which for the benefit of international HNers I will mention is a well-known English dictionary: “the quality or fact of meriting reward or punishment”

This seems like a good opportunity to plug the American Heritage Dictionary, which in my experience is at least a couple notches better than Merriam-Webster despite their website being stuck in 1999 (maybe that's a good thing?) https://ahdictionary.com/word/search.html?q=desert de·sert (dĭ-zûrt) n. 1. (often "deserts") Something that is deserved or merited, especially a punishment: They got their just deserts when th…

Also a good opportunity to plug Webster's original English dictionary, which has a lot of very florid and evocative definitions that make it much more fun to open a dictionary https://webstersdictionary1828.com/Dictionary/desert

> DESERT, noun > > 1. A deserving; that which gives a right to reward or demands, or which renders liable to punishment; merit or demerit; that which entitles to a recompense of equal to the offense; good conferred, or evil done, which merits an equivalent return. A wise legislature will reward or punish men according to their deserts. > > 2. That which is deserved; reward or punishment merited. In a future life, every man will receive his desert

S/o to https://jsomers.net/blog/dictionary for opening my eyes here

Re: Banking in uncertain times

#158

Post by timcavel »

lordnacho wrote: post #104

As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Allowing the bank to pretend it has more assets than it actually has seems to be an invitation to hide risk. If they had to MTM their underwater bonds, they would would have been pushed to raise capital earlier,…

[dead]

Re: Banking in uncertain times

#159

Post by revel »

lordnacho wrote: post #104

As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Allowing the bank to pretend it has more assets than it actually has seems to be an invitation to hide risk. If they had to MTM their underwater bonds, they would would have been pushed to raise capital earlier,…

There are liquidity, jurisdiction and tax considerations that go into bond accounting. Under both US GAAP and IFRS you can't flip between held to maturity, available for sale and m2m asset classification advantageously. I think this is ok -- it's impractical and misleading for a bank to value every liability and asset by rebaselining value constantly. How would you determine fair value for a bespoke security anyway? No matter what you did it would be largely guesswork anyway. This change would make banks more difficult to value and increase volatility since performance would be even more heavily driven by market conditions. In my opinion, accounting statements aren't really the right place for the kind of disclosure you're looking for.

The Basel accords are supposed to establish a risk-oriented way of measuring and controlling capital risk limits across asset classes. SVB and other regional banks fought heavily against being subject to this kind of oversight. I think it makes more sense to rework Basel 4 based on this failure rather than change the accounting standards.

Re: Banking in uncertain times

#160

Post by vkou »

photochemsyn wrote: post #135
mooreds wrote: post #25

Read this all the way to the disclaimers at the bottom. It's just a fantastic piece of writing, digging deep into some of the unseen structures that underlie our society. I'm not close enough to the banking system to judge the truth of it, but it was beautiful. PS If you are on email lists, make sure to respond occasionally to the author. It's hard out there and they are shouting into the void. If a piece makes you s…

It seems to avoid discussing a rather basic issue, which is that as Fed interest rates rose, the interest rates on deposits (i.e. individual savings accounts) did not increase at all due to bank executives wanting to harvest more of that pie for themselves. Hence people seem to have an incentive to move money out of banks and into money market accounts that were giving much higher returns on those deposits. The histo…

It avoids discussing it because neither SVB nor most other banks offered their customers interest rate increases.
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