71–80 of 93 posts
"The Fed needed a test trade to be run before the actual transfer could occur. That took time and the Fed didn’t extend its own daily deadline of 4 p.m. PT for collateral transfers to help SVB. Time ran out on the bankers and SVB couldn’t get the money that day."
Though, maybe they should never been in that situation to begin with.
So a bank is in distress, it has collateral, but the FED - THE lender of last resort - chooses to fkem basically. "The Fed needed a test trade to be run before the actual transfer could occur. That took time and the Fed didn’t extend its own daily deadline of 4 p.m. PT for collateral transfers to help SVB. Time ran out on the bankers and SVB couldn’t get the money that day." Though, maybe they should never been in th…
That’s such an embarrassing indictment of the US payment system. 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.
Often, overregulation by Hawaiian authorities is cited which is a just criticism.
So it is for crypto as well, nonzero but very limited
Without reading the article, I can give you the answer immediately. SVB failed because they were bankrupt. This is what it is called when your liabilities are in excess of your assets.
I don't think it would have mattered. A loan wouldn't have helped their situation much - the extra liquidity might have kicked the can down the road a few days or weeks, but they still would have been basically insolvent. Probably only a big capital injection and the interest rate quickly dropping by a significant amount would have saved them (or being bought by a bigger bank that could absorb the losses and hold the…
What does this say about the rest of the banks in a similar situation wrt their balance sheet?
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Live Oak Bank limits business account withdrawals to $250k/day.
If you have a business which pays fortnightly and the average employee makes $250K, then just payroll for 26 employees will reach your limit.
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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.
> support instant wire transfers 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.
Between EU countries, you need SWIFT, but within a single country, you usually don't (I think the exception is Poland, where SWIFT is the default...?).
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"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.
Yeah, that's why I said "if a bank fails". They can't selectively default on just that loan, since that would be stupid--they'd just all do that immediately. 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 lo…
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Yeah, that's why I said "if a bank fails". They can't selectively default on just that loan, since that would be stupid--they'd just all do that immediately. 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 lo…
Yes. Of course, it's a subsidy. If the private sector did it, they would make bets and take positions, and that would be their incentive. That would be the way that the liquidity is funded, and they get paid. If the public sector manages the finances, as is the case with this scheme, then the risk taking is subsidized by the fact that the "traders" don't have to have the incentive of a gain because they're well paid…
I think the program might not work like you think? Beyond the initial decision to create the program, no one at the Fed exercises significant discretion. It's open to essentially all American banks, most of which are private businesses with the usual profit motives, whose managers decide when to borrow and how to use the proceeds. If such a bank gets in trouble, then its managers now have slightly greater incentive and ability to try gambling their way out, since their shareholders get all the upside and the Fed gets some of the downside.
https://www.federalreserve.gov/newsevents/pressreleases/file...
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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…
> (along with the cost of the money you used to pay for them, which is very cheap for most large banks) 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 (beca…