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How deep is the rot in America’s banking industry?

finance.yahoo.com

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Re: How deep is the rot in America’s banking industry?

#211

Post by kristjansson »

digitaltrees wrote: post #145
cronix wrote: post #108

Earlier quoted context omitted.

They cashed in millions in stock just before they announced they needed to raise $2B in capital to offset losses on their bond sales, which led to a crash, on top of their bonuses. If that's getting hit with a steamroller, sign me up.

So far as I have seen, every equity sale was part of standard, pre-cleared and disclosed plans. And all those executives had significantly more equity they probably would have loved to sell but couldn't.

Interestingly, that second part appears to be true only for the CEO, who's lost ~$30m. Other executives (at least the ones on NASDAQ's insider transactions list) were holding only a few thousand shares at most.

Re: How deep is the rot in America’s banking industry?

#212

Post by dboreham »

rayiner wrote: post #183
tptacek wrote: post #18

People seem to have a really hard time with the idea that, in the SVB debacle, the system worked effectively and pretty much the way it was planned to. It's not even clear what people are upset about. There's an article on the front page of The Atlantic today about how angry we should be about SVB, and if you read it, it's hard to figure out who those angry people should be. Equity is getting zeroed out. Management w…

It’s also not clear to me what the material impact of this was on “Main Street” that would cause people to be worked up looking for someone to blame.

Well you begin with "California bad woke liberals" and take it from there...

Re: How deep is the rot in America’s banking industry?

#214

Post by modeless »

tenacious_tuna wrote: post #151

I'm seeing a lot of comments along the lines of "What should SVB have done? They bought the best bonds they could have for the time, and then the Fed screwed them over." Maybe I'm just naive when it comes to how these systems work, but couldn't SVB have just... done nothing? Nobody was compelling them to purchase any bonds at the time. Sure they have pressure from stockholders to make money, but if the deck was so st…

Doing nothing wasn't the best strategy. They could and should have bought short duration bonds instead of long duration bonds and mortgage-backed securities. That would have been fine.

If you ask me, the real problem is the fact that 30 year fixed rate mortgages with super low rates were being handed out like candy. Who in their right mind would seriously hand out a 30 year loan with a fixed 2.6% interest rate? It didn't cross their mind that just maybe sometime in the next 30 years interest rates would go higher?

It was completely obvious to me that whoever owned those loans was going to be sorry sooner or later. Turns out it was sooner. And in the meantime we got ridiculous house price inflation to boot. Why did those loans exist? Not because they make sense, but because of government policies intended to promote homeownership and pump up property values.

Re: How deep is the rot in America’s banking industry?

#215

Post by rippercushions »

sophacles wrote: post #206
mcherm wrote: post #32

Earlier quoted context omitted.

I am one of those who has been harmed. I work at a different bank. The rates charged to banks for FDIC insurance have been based on the assumption that the FDIC would cover depositor losses up to the insured limit. By choosing to cover all losses even above the insured limit, we have chosen to put the burden for paying for those losses on all of the other banks (and indirectly on those banks depositors). I suspect th…

I keep reading comments like this, but I've seen no well sourced material saying that the FDIC is raising rates. Do you have some reliable source about it? (NOT a "look at it logically" or "here's how my health insurance works, why would the FDIC be different", or "do your own research" or anything else that's some random internet comment - I'm looking for real meat about this claim).

From the Treasury announcement:

Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

In other words, if the FDIC's current funds can't cover the bill, an extra fee will be levied on banks to make up for it.

https://home.treasury.gov/news/press-releases/jy1337

Re: How deep is the rot in America’s banking industry?

#216

Post by dboreham »

zefalt wrote: post #180
rybosworld wrote: post #175

Earlier quoted context omitted.

It makes very little sense to treat depositors as risk takers. These aren't people investing in stocks or bonds. These accounts are places to park your cash. It would be very bad to discourage deposits. Putting a ceiling on FDIC insurance is effectively an outdated idea that doesn't work. Take the example of a company that keeps payroll in a cash account. Let's say that company has 100 employees. Should the FDIC trea…

They are choosing to place money in the bank. This is a risk in and of itself. Companies with treasury departments already know this. They can put money in money market funds, CDARs, cash sweeps, or any other vehicle to protect their cash. There are multiple ways to hold cash with very low duration risk that does not involve putting it in a bank. FDIC is not an outdated idea. It is just the reality of the current fin…

Although I knew about the FDIC coverage limit, it seems many did not. I've never had enough cash to test this, but I suppose I assumed if you put $251K in a bank account the web page turns red or something, or a dude calls you up to warn you that the last $1K is at risk. I'm guessing now that doesn't happen.

Re: How deep is the rot in America’s banking industry?

#217

Post by qqqwerty »

rcme wrote: post #125

All banks are suffering, buy some are suffering more than others. It's also unclear how the Fed's actions are going to impact the situation going forward. Here are my unanswered questions: 1. What's going to happen to risk management at banks now that the government has shown themselves willing to backstop all deposits. Is there really any reason to spend money hedging risk? 2. What's going to happen to the bond mark…

If BTFP can only be used by banks with hold to market bonds purchased before March 12th, then wouldn't the impact on bond prices be negligible? I suppose we could hypothesize what the bond market would like in the absence of BTFP and the much higher likely hood of contagion. Feels like yields would drop on the expectation that the Fed would be forced to lower rates due the crashing economy. So I guess one could argue that BTFP might cause yields to go down a little bit, but probably a lot less than they would have otherwise.

As to question 3, BTFP feels like a small dash of QE after pushing QT a little too hard and too fast. Banks will probably just put that extra cash into short term treasuries to shore up their balance sheet to protect against declining deposits. So I guess we should expect that extra cash to push short term yields down. Short term yields have already dropped a bit though, so maybe that is already priced in.

Re: How deep is the rot in America’s banking industry?

#218

Post by sophacles »

rippercushions wrote: post #215
sophacles wrote: post #206

Earlier quoted context omitted.

I keep reading comments like this, but I've seen no well sourced material saying that the FDIC is raising rates. Do you have some reliable source about it? (NOT a "look at it logically" or "here's how my health insurance works, why would the FDIC be different", or "do your own research" or anything else that's some random internet comment - I'm looking for real meat about this claim).

From the Treasury announcement: Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. In other words, if the FDIC's current funds can't cover the bill, an extra fee will be levied on banks to make up for it. https://home.treasury.gov/news/press-releases/jy1337

So they might raise rates. If they can't recovered from SVB assets via selloff, the government loans on bonds, etc.

Re: How deep is the rot in America’s banking industry?

#219

Post by rufus_foreman »

tptacek wrote: post #67
lackbeard wrote: post #65

Earlier quoted context omitted.

> the point of the FDIC system is for customers not to have to do this kind of risk assessment themselves It seemed self-evident to me, based on the explicitly stated limit on FDIC insurance, that if you had an amount of money over that limit, you really need to have a plan to deal with that risk, and people who failed to do so should suffer the consequences of their poor decisions. As things stand, the people who di…

As I understand it, the ordinary way FDIC resolves a situation like this is that they simply have the failing bank acquired by a peer bank (a bank of generally the same size and structure), which then takes over the depositor obligations. So it's not as if the ordinary course is that uninsured deposits get zeroed out; it's just that the mechanism FDIC is using is novel and abrupt.

>> they simply have the failing bank acquired by a peer bank

"Simply".

WaMu - acquired, depositors got 100 cents on the dollar

IndyMac - 50 cents on the dollar

Silver State - 11 cents on the dollar

Depositors have not always been made whole in the past. Calvinball has certainly been played in the past, for IndyMac the FDIC limit was retroactively raised from 100K to 250K.

That's what people are pissed about. The Calvinball rules.

And we know how that works out, if you're in the in group, you get paid, and if you're not in the in group, you get fucked.

As Black Flag once sang, "We're tired of being screwed. Revenge!"

Re: How deep is the rot in America’s banking industry?

#220

Post by strangattractor »

tptacek wrote: post #18

People seem to have a really hard time with the idea that, in the SVB debacle, the system worked effectively and pretty much the way it was planned to. It's not even clear what people are upset about. There's an article on the front page of The Atlantic today about how angry we should be about SVB, and if you read it, it's hard to figure out who those angry people should be. Equity is getting zeroed out. Management w…

Maybe somebody here can explain something I just doin't seem to be able to understand. Why is it so hard for banks to do a stress test?

They have all the data. If I was CEO of a bank I'd want to be able to get up in the morning and have some idea how much risk and what types of risk my bank was assuming. Especially in a dynamic environment of Fed interest rate changes. I would think they would be doing it all the time. Isn't that what computers do? Simulate scenarios like - What does our bank look like if the Fed raises rates to %2 etc. It makes me feel like they truly just don't want to know so they can do whatever they want.

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