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Banking in uncertain times

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Re: Banking in uncertain times

#171

Post by michael1999 »

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…

A bank deposit is a stablecoin.

SVB blew up because it was a bad stablecoin.

Re: Banking in uncertain times

#172

Post by Redoubts »

Not gonna lie, I feel like I've been reading this like a Rudin book, going back and over each paragraph again.

This is probably the companion report to have on hand while reading:

https://www.fdic.gov/analysis/quarterly-banking-profile/inde...

In particular

* Chart 8. Number and Assets of Banks on the "Problem Bank List"

* (Chart 13.) Unrealized Gains (Losses) on Investment Securities

Sadly, "Results are published approximately 55 days after the end of each quarter (i.e., 55 days after March 31, June 30, September 30, and December 31)." So there's nothing super new. Bit it strikes me that Chart 13 is going bonkers on unrealized losses, but Chart 8 isn't quite matching the same (assets in problem banks, and # of problem banks is going down since rate hikes??).

Really wanna see that number for 2023Q1. But the quote

> about a quarter of all equity in the banking sector has been vaporized by one line item.

Struck me as pretty wild.

Re: Banking in uncertain times

#173

Post by jijji »

banks investing in bonds that then get reduced in value, turning into losses, as the fed increases its rates seems like a bad investment from the very beginning... every month there are property tax auctions for property that happens every where in every state in different ways, and I remember when I used to go there in person before they moved to the online method in my state, I would meet with people who worked at specific retail banks and they would invest cash into property as long as the bidding met a margin of 33% of whatever the value of the property might have been worth at that time... That's a pretty safe bet, as property doesn't degrade the same way that a bond, stock or investment loan might degrade if someone defaults on it... I'm not sure why people like SVB would be not doing the same thing maybe it's too tricky for them to figure out or they're happy investing most of their money into wineries which apparently is what has happened.... not sure but it seems like when you're sitting on a pile of cash there's better ways to invest your money with a lot better returns....

Re: Banking in uncertain times

#174

Post by dorianG4 »

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,…

The answer is simple of course, which is why no one does anything; the political and finance systems are in cahoots to enrich themselves and so such common sense policing to insure the stability of the system everyone relies on is not allowed.

Finance crimes are low tech and have not evolved much as they don’t need to; there’s no policing.

Have a go at it, elites scream communism and the like, and rile up the 2nd Amendment fan boys, only to throw the ones that go over the line in jail to keep up appearances.

I’ve been noting and watching this same social ebb and flow since the 80s. The kids/teens then who soaked that reality up live it still today. IMO memory is why we had a mini-Reagan in Trump grow so popular.

The reason such things you point out are allowed is they’ve always been allowed from the perspective of those benefiting from them. If the system was stable and accountable to the masses, the phony winners rich off mathematical inference but too inept to keep themselves alive would of course be subject to a terrible regime should elites be required to pull on their boot straps; a figurative identity of being coddled is all they know!

Re: Banking in uncertain times

#175

Post by hnuser847 »

alxmng wrote: post #143
2143 wrote: post #112

Earlier quoted context omitted.

I just don't get this about the system in the US. If you keep creating money out of thin air — which as per my admittedly naive understanding is equivalent to just printing money without giving back anything in return — wouldn't it ultimately lead to a collapse or a hyper inflation? Like it did in Venezuela a few years ago (???). Why is the US seemingly immune to this kind of thing?

Because: 1) taxation destroys money. 2) new money can be absorbed by economic growth. Imagine you have $100 in an economy and 100 apples. $100 is added, so there’s $200/100 apples. Inflation might occur. But if you make 100 more apples, so there’s $200/200 apples, the ratio of money to goods didn’t change, and you wouldn’t get inflation. That’s an extremely contrived example, but it gets the point across. Considering…

Even in this example where inflation doesn’t occur, consumers will never benefit from the productivity gains that allowed producers to make more apples. Something clearly changed that allowed more apples to be produced. Maybe a significant amount of capital was invested in more machines, or a new, faster growing cultivar of apple was developed. In any case, the entire benefit of the free market economy is that competition creates an arm race for better products at lower prices. When the central bank steps in and creates a bunch of new money, it destroys any benefit of increasing productivity, since apples with always be $1, regardless of whether 100 are produced or 1,000.

Re: Banking in uncertain times

#176

Post by polux33 »

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.

The price on the "secondary market" dropped below 90 cents on the dollar.

Circle before and after the SVB crisis (which happened during a friday night and through the weekend) continued to issue/redeem their tokens at par with the dollar.

It is market sentiment which temporarily devalued USDC.

You would have obtained exactly the same thing if US dollars held in SVB bank accounts were denominated in a virtual currency named "USD-SVB" and a 24/7 blockchain operating the transactions.

Before/After the crisis each USD-SVB would be reedemable for $1 but DURING the crisis I bet you my house those USD-SVB would have fallen like a rock on the dollar.

I know it's good to be anti-crypto on HN but please, try to not completely close your mind to the subject

Re: Banking in uncertain times

#177

Post by pclmulqdq »

alxmng wrote: post #143
2143 wrote: post #112

Earlier quoted context omitted.

I just don't get this about the system in the US. If you keep creating money out of thin air — which as per my admittedly naive understanding is equivalent to just printing money without giving back anything in return — wouldn't it ultimately lead to a collapse or a hyper inflation? Like it did in Venezuela a few years ago (???). Why is the US seemingly immune to this kind of thing?

Because: 1) taxation destroys money. 2) new money can be absorbed by economic growth. Imagine you have $100 in an economy and 100 apples. $100 is added, so there’s $200/100 apples. Inflation might occur. But if you make 100 more apples, so there’s $200/200 apples, the ratio of money to goods didn’t change, and you wouldn’t get inflation. That’s an extremely contrived example, but it gets the point across. Considering…

Hence the new budget designed to tax everyone to the gills. The fed and the government is coming to terms with the fact that they can't magically conjure up growth.

Re: Banking in uncertain times

#178

Post by zhte415 »

dancingvoid wrote: post #90
bubbleRefuge wrote: post #85

There is allot of financial illiteracy regarding the banking system. For example, heard an NPR reporter this morning talking about a bank not having money to loan because of depositors fleeing. These are vestiges of the Gold standard. There is no loanable funds market. That is, the funding for loans does not come from deposits. It comes from thin air. Banks create loans which then become deposits. So called "Bank Mon…

I’ll add that the reserve requirement is currently zero. https://www.federalreserve.gov/monetarypolicy/reservereq.htm

It might be worth adding that regulatory capital requirements are not zero: https://www.federalreserve.gov/publications/large-bank-capit...

Re: Banking in uncertain times

#179

Post by notahacker »

2143 wrote: post #112
bubbleRefuge wrote: post #85

There is allot of financial illiteracy regarding the banking system. For example, heard an NPR reporter this morning talking about a bank not having money to loan because of depositors fleeing. These are vestiges of the Gold standard. There is no loanable funds market. That is, the funding for loans does not come from deposits. It comes from thin air. Banks create loans which then become deposits. So called "Bank Mon…

I just don't get this about the system in the US. If you keep creating money out of thin air — which as per my admittedly naive understanding is equivalent to just printing money without giving back anything in return — wouldn't it ultimately lead to a collapse or a hyper inflation? Like it did in Venezuela a few years ago (???). Why is the US seemingly immune to this kind of thing?

The money is mostly created as debt, with the obligation to repay more money. So it's not "not giving anything back in return".

A company wants some money to fund business expansion. So it borrows $1m with a promise to pay $1.06m back, which it can fund because it has customers. The bank in turn can fund this by borrowing $1m and promising to pay back $1.03m (when lending activity increases this money comes from the Fed, albeit normally indirectly via its bond market activity). It's not free money for the business: if they don't sell enough stuff they go bankrupt. It's not free money for the bank: if enough of it's customers don't pay they also get bankrupt. So the money created is based on market participants believing that the additional money will result in additional economic activity

Additionally, you've got the Fed actively intervening on a day-to-day basis to fix that base interest rate for borrowing and on a month-to-month basis to increase it if it thinks people are borrowing too much and prices are going up too fast

Re: Banking in uncertain times

#180

Post by jameshart »

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…

How do you create an institution which can guarantee that it will always be able to take the results of its short term treasuries maturing, and convert that back into more short term treasuries, forever?

That sounds like the financial equivalent of a perpetual motion machine.

If an institution has no choice but to buy short term treasuries, why wouldn’t sellers increase the price that institution has to pay?

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