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America’s banks are missing hundreds of billions of dollars

economist.com

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Re: America’s banks are missing hundreds of billions of dollars

#51

Post by 75dvtwin »

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

@nostromo -- you are exactly correct. The US Fed govnt policies caused inflation, now trying to cool it down through raising interest rates on govn bonds. So investors that were buying commericial bonds, now go and buy govnt bonds.

Then, the commercial bonds (for good sound companies), loose values. Then commercial bonds investors loose their investment...

So the loose-loose sitation were are looking at:

a) continue printing money out of thin air -- raising inflation and indebting the generation of kids who do not even vote yet

b) get the current economy go into depression.

It seems like the current generation, with their choices of leadership and the habits is responsible -- so ( b ) has to be chosen (to be fair).

But since we do not live in the world where accountability is a thing -- ( a ) will be selected.

Re: America’s banks are missing hundreds of billions of dollars

#52

Post by 7e »

jkhdigital wrote: post #49
7e wrote: post #40

Earlier quoted context omitted.

1. Why is cash parked at the Fed not an option?

The article mentions the real core of the issue, but doesn’t make it clear that it is in fact the core: SLR (a banking regulation). SLR effectively requires banks to raise capital along with deposits . So if you flood the banking system with cash through fiscal policy, they can’t just accept all those deposits and leave them parked in their Fed reserve account. If they could, then the Fed wouldn’t need reverse repo—i…

If capital is too risky to raise, why can’t a bank refuse deposits?

Re: America’s banks are missing hundreds of billions of dollars

#53

Post by csomar »

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

This is a wrong characterization and makes it look like it's the Fed fault all along. Government bonds still have risks (ie: The government not paying) but more importantly, they are tightly linked to the main interest rate. Their prices can fluctuate significantly and do all the time.

Bankers know that. That's kind of the first or second lesson they'd teach you at a basic financial course. Everything is priced in terms of interest rate and time. They have been trading these things for decades.

Here is an article I wrote in 2020 that explores that volatility, though from another angle: https://omarabid.com/zero-rates-world

Another thing that I find funny is that everyone has "hindsight" now. Everyone is surprised how these banks are surprised that interest rates went up!

Here is a quote from that article in 2020:

> Maybe, but it's also possible that these high prices are here to stay.

I honestly was thinking we will stay in this zero-rate regime for the next decade or more. I suspect the people at SVB thought in a similar fashion and plan accordingly. The responsibility of the blow up is fully on them, however.

> now finding itself both tightening and loosening fiscal policy simultaneously

Wrong. This is corruption. Janet is picking winners and losers. Some people are losing their deposits and some are not. You are systemic if you had dinner with Janet yesterday.

Re: America’s banks are missing hundreds of billions of dollars

#54

Post by dr_dshiv »

JimboOmega wrote: post #28
snake_plissken wrote: post #17

"The answer begins with money-market funds, low-risk investment vehicles that park money in short-term government and corporate debt. Such funds, which yield only slightly more than a bank account, saw inflows of $121bn last week as svb failed." Which banks' savings accounts are yielding anything close to money-market rates?

SoFi offers 4.00%, and vanguards prime MMFA is 4.64% 64 basis points isn't nothing, but I think that qualifies at close - and I didn't go digging, those were just the first two that came to mind.

What’s the hidden risk of money markets?

Re: America’s banks are missing hundreds of billions of dollars

#55

Post by User23 »

simple-thoughts wrote: post #47
gen220 wrote: post #38

Earlier quoted context omitted.

Does the government require banks to buy long-term treasuries? [1] Or did banks choose to buy long-term treasury bills, chasing the highest paper returns (i.e. discounting the risk of potential rising interest rates in the future)? It's not a rhetorical question, but a sincere one. [1]: https://en.wikipedia.org/wiki/United_States_Treasury_securit... states that Treasuries are sold in all varieties of duration, from 4…

Imagine you run a small regional bank. You have marketing and operational expenses you need to cover, and you also need to be attractive enough to depositors to keep them from leaving to your giant to big to fail competitors who have explicit state backing. You’re required to buy from a very limited selection of assets that have government approval, especially government debt. Interest rates for short term debt are a…

> Of course the flaw in this story is that the interest rate risk should have been hedged, and it wasn’t.

How does the banking sector in aggregate hedge its interest rate risk exactly? They have to find a net counterparty outside the sector who wants exposure to interest rate risk. Who exactly would that be at sufficient scale to protect trillions in deposits?

Re: America’s banks are missing hundreds of billions of dollars

#56

Post by harry8 »

csomar wrote: post #53
nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

This is a wrong characterization and makes it look like it's the Fed fault all along. Government bonds still have risks (ie: The government not paying) but more importantly, they are tightly linked to the main interest rate. Their prices can fluctuate significantly and do all the time. Bankers know that. That's kind of the first or second lesson they'd teach you at a basic financial course. Everything is priced in te…

> Wrong. This is corruption. Janet is picking winners and losers. Some people are losing their deposits and some are not. You are systemic if you had dinner with Janet yesterday.

Big call. Huge. Got some data or similar to back it?

Edit: If there's clear picking of winners, or even plausibly so it's gonna look pretty bad. [1]

[1] https://www.theguardian.com/business/2021/jan/01/janet-yelle...

Re: America’s banks are missing hundreds of billions of dollars

#57

Post by bushbaba »

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

The Covid liquidity injections will be known as the worst decision of a generation. PPP loans were greater than student loan forgiveness for all. Greater than the new deal cost.

Such a missed opportunity.

Re: America’s banks are missing hundreds of billions of dollars

#59

Post by csomar »

harry8 wrote: post #56
csomar wrote: post #53

Earlier quoted context omitted.

This is a wrong characterization and makes it look like it's the Fed fault all along. Government bonds still have risks (ie: The government not paying) but more importantly, they are tightly linked to the main interest rate. Their prices can fluctuate significantly and do all the time. Bankers know that. That's kind of the first or second lesson they'd teach you at a basic financial course. Everything is priced in te…

> Wrong. This is corruption. Janet is picking winners and losers. Some people are losing their deposits and some are not. You are systemic if you had dinner with Janet yesterday. Big call. Huge. Got some data or similar to back it? Edit: If there's clear picking of winners, or even plausibly so it's gonna look pretty bad. [1] [1] https://www.theguardian.com/business/2021/jan/01/janet-yelle...

You don't need a direct financial kickback to define corruption.

From: https://www.cnbc.com/2023/03/16/svb-signature-bank-failures-...

> Treasury Secretary Janet Yellen told senators that government refunds of uninsured deposits will not be extended to every bank that fails, only those that pose systemic risk to the financial system.

Re: America’s banks are missing hundreds of billions of dollars

#60

Post by albertopv »

nostromo wrote: post #31

1. The government requires banks buy their debt and hold it as reserves because it's considered the safest investment. 2. The government decides that, oops, it printed too much money in 2020/21 and is causing inflation, so it raises rates very quickly. 3. New treasuries yield 4 or 5 times as much in interest as the ones from 1-2 years ago. Why would anyone want to buy those old treasuries near face value now? 4. The…

2. is wrong, we had years of central banks money printing without inflation, recovery from Covid19 and the war are the reasons of this high inflation.

Actually Fed real error has been raising rates to counter an inflation not caused by monetary policies.

SVB put all their investments in one bucket and it has been a very poor decision, really a rookie one

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