61–70 of 93 posts
Banking on the West Coast is hard, even harder in further flung areas like Hawaii.
The banks open in normal business hours but cant get a single thing done if its after 4pm in New York City. So the further west you go, the fewer amount of hours you have to get anything moved.
My bank (in Canada) has limits on how much I can withdraw per day, per week, per month. Furthermore, there could be a delay of up to 5 business days before I can get the money to its destination. And that’s for money in the thousands only. How is that money in the billions can be withdrawn so quickly esp. since these were high value accounts each in the millions/billions? Couldn’t they just use one of their terms or…
The banks have corporate customers sign a number of complicated forms to put limits on things like who can wire, who can sign, who can weite cheques etc.
There are further controls in the online corporate banking
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No business is going to park their working capital with a bank that has those requirements.
no bank is going to give carte blanche to large customers to run the bank, they can't, and even if they promise it... As with all businesses, like a restaurant wants you to enjoy your food so you come back, the bank wants to provide the services the customers need. But everybody can't have everything especially all at once, and banks can't provide liquidity that has dried up. sure, customers will periodically get mad…
so it was a perfect storm, for them.
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What is the downside of this program? It sounds like it would be much better just to get that cash loan than deal with depositors? As in, does the program let you borrow cash from the government at a lower rate than the bonds are paying? How could that work?
The program charges market rates, so that part isn't a subsidy--they're effectively letting banks bleed out the loss over time instead of recognizing it all at once, hoping (probably correctly in most cases) that other parts of the bank's business will be profitable enough that they can slowly earn their way out of the hole. The program is undercollateralized though, so if a bank fails with such a loan outstanding th…
The banks share (and bond) capital is on the line as well.
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The program charges market rates, so that part isn't a subsidy--they're effectively letting banks bleed out the loss over time instead of recognizing it all at once, hoping (probably correctly in most cases) that other parts of the bank's business will be profitable enough that they can slowly earn their way out of the hole. The program is undercollateralized though, so if a bank fails with such a loan outstanding th…
"Advances made under the Program are made with recourse beyond the pledged collateral to the eligible borrower." The banks share (and bond) capital is on the line as well.
It's still a subsidy though. For example, if you lend my just-barely-solvent bank $100 unsecured, then I can bet it double or nothing on a fair coin flip. If I win then I keep all the gain, so it's +$50 EV to me. If I lose, then my bank fails and you take the loss, so it's -$50 EV to you. Banks are obviously regulated in many ways to discourage that kind of risk-taking, but this policy change slightly weakens that overall edifice.
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Does it, in fact, not permit you to get to the entire balance immediately via, say, cash or a bank check? It sounds like you are referring to something like an ATM withdrawal limit or online transfer limit which is just a risk / fraud limiting measure for those particular channels rather than a limitation on the account itself.
Live Oak Bank limits business account withdrawals to $250k/day.
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How does holding the bonds to maturity help? Sure, interest rates might go down, but the expectations are already factored into the market price. If they go down more than expected, the bigger bank wins. If they go down less than expected, the bigger bank loses. Overall, should be neutral.
My guess is that bond prices drop because there are better yielding things to buy instead. But for a bank the solvency concern is not that the yield will be "better" yielding, but merely sufficient to cover the obligations it owes along with its operating expenses. Having to fire sale bonds (to meet withdrawal obligations) that are selling at a discount because any potential buyers have better yielding instruments to…
Why should depositors leave more money than they need for short-term working capital in the SVB at 0% when a Treasury bill pays 4% with less risk? When all rates were roughly zero, it was easy to just lazily leave everything in the bank; but when rates increased, the reward for leaving and the risk of staying (because the bank is now mark-to-market insolvent, and thus particularly vulnerable to a run) both increased.
When interest rates increased, the NPV of the SVB's assets decreased. Someone had to take that loss. Their managers and shareholders presumably hoped that would be the depositors, by leaving their money in a risky bank earning interest below the risk-free rate, slowly accepting the loss over time. The depositors had no economic incentive to do that though, and they didn't.
For emphasis, the SVB's problem isn't that their bonds are trading at irrationally low prices due to liquidity problems (i.e., a "fire sale"). The market price for their bonds has behaved exactly like a textbook NPV model, and similar assets trade with normal tight spreads; the price is just lower than they wanted. Hold-to-maturity accounting allowed them to ignore that for regulatory purposes, but accounting doesn't change reality.
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> they should have legally obligated SVB to remain solvent! They did! When SVB failed to meet those regulatory obligations, the bank was seized and the depositors were made whole. So the system worked, right?
The FDIC and Fed made policy changes in response to the SVB's failure--the FDIC is insuring all the SVB's deposits, including those >$250k, and the Fed is allowing all banks to borrow more than the FMV against certain assets that lost value when interest rates increased. Without these changes, the SVB's depositors would have had access to maybe 50% or more of their uninsured money immediately, and maybe 90% or more e…
From what I understand (could be wrong) the discouragement to risk taking is that the risk takers were wiped out in this case, only the depositors kept their money.
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The FDIC and Fed made policy changes in response to the SVB's failure--the FDIC is insuring all the SVB's deposits, including those >$250k, and the Fed is allowing all banks to borrow more than the FMV against certain assets that lost value when interest rates increased. Without these changes, the SVB's depositors would have had access to maybe 50% or more of their uninsured money immediately, and maybe 90% or more e…
>it might have been a bad idea, since it encouraged future risk-taking in anticipation of a similar ad hoc rescue. From what I understand (could be wrong) the discouragement to risk taking is that the risk takers were wiped out in this case, only the depositors kept their money.
I don't think these are necessarily bad decisions--it's reasonable to make an example of the worst offender, and then help the rest survive to prevent systemic contagion. It's absolutely not "the system worked" though, except to the extent that the system is regulators making stuff up on the fly.
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> I'm not sure they'd apply if you wanted to send a wire. Not many people (at least, people who don't deal with large sums) have experience with doing a wire transfer. Sometimes they're a bitch to deal with - but it's what you'd use if you are doing very large sums (like, in the order of 6 or 7 figures or more).
Interesting. Where? In most of Europe, wire transfers are really easy to do, and where I live, most banks now support instant wire transfers (10 seconds) under some limit (in my case, 15 000 Eur). Doing them using QR codes and smart banking apps is really straightforward and user-friendly, so people do them routinely even for small sums.
that's not the wire transfer i am referring to - it's the one where you'd use a SWIFT code to designate the bank.