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America will soon see a wave of bank mergers?

economist.com

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Re: America will soon see a wave of bank mergers?

#191

Post by ptero »

vkou wrote: post #153
graeme wrote: post #138

Earlier quoted context omitted.

You left out “zero risk” Banks have always been able to fail, then you lose the deposits. What people are now asking for is unlimited insurance, which encourages risk takings amongst banks

> What people are now asking for is unlimited insurance, which encourages risk takings amongst banks Except that when a bank is liquidated, the shareholders get zeroed out , and the executives get their money clawed back, which encourages banks to not risk-take. As a depositor, this sounds fine to me. I don't benefit from banks doing stupid, risky things, and I shouldn't suffer from it either. Raise the capital requi…

The problem is not what happens to the shareholders (they get zeroed out the same way that shareholders of other failing companies would be), but what happens to the depositors. The rules, as written, say that deposits above $250k can be wiped out. The rules, as the government applied to the SVB, made large depositors whole.

So we have the worst of both worlds: no depositor guarantee de jure (so depositors bailed and brought SVB down), but a de facto bailout which has significant actual costs and encourages risky depositor behavior. My 2c.

Re: America will soon see a wave of bank mergers?

#192

Post by vgatherps »

throwway120385 wrote: post #99
sclarisse wrote: post #90

Earlier quoted context omitted.

No, they’ll be replaced by something like The People’s Ledger, as proposed by Comptroller of the Currency nominee, Saule Omarova, in her paper of the same name. (She was nominated by President Biden in 2021. Not just a random kook!) Under such a regime all banks will put customer funds at the Fed, which will be the sole entity to allocate credit, with banks as mere customer service frontends. It will use that power t…

I would actually be fine with this if the mandate is simply to hold deposits and lend deposits with appropriate risk controls. But if the goal is to use that control to accomplish political ends like suppressing wage growth or providing stimulus then I don't think it's a good idea. If the Treasury wants a loan from the Fed to do these things that should be how it's done. Student Loan forgiveness is another thing enti…

> lend deposits with appropriate risk controls

Forget stimulus/inflation political goals, can you imagine how horribly this would get weaponised against "people the current administration doesn't like"? I don't have faith that this exceptionally powerful tool would not go unused.

Putting that aside, what risk controls are and aren't appropriate? An advantage of having a variety banks is that there's much less of a 'one size fits all' approach to banking services. I also don't have faith that a federally-run bank would be very flexible to anybody outside of the box. I've been in a situation where some bulge-brackets institutions wouldn't provide certain products since I didn't fit exactly in some pre-ordained image of what a customer would look like (and it wasn't even something you'd think a bank would have issue with.....)

Re: America will soon see a wave of bank mergers?

#193

Post by danaris »

fowtowmowcow wrote: post #185
manojlds wrote: post #180

Earlier quoted context omitted.

Why can't that be the central bank? We don't have private courts?

I ask again: What happens if the government makes a ton of bad loans that never get paid?

The government would seem to have every recourse to collect.

Re: America will soon see a wave of bank mergers?

#194

Post by samtho »

bootwoot wrote: post #165
oarsinsync wrote: post #113

Earlier quoted context omitted.

> People want zero risk, demand deposits that pay interest. There’s no business model that can provide that. > It would be perfectly possible for a business to provide zero risk demand deposits—-but the business would have to charge customers for its custodial operations rather than making money by writing loans That was true when we lived with 0% interest rates. Now, there’s no reason why a narrow bank couldn’t take…

That's exactly what Silicon Valley Bank did. While federal bonds are nearly risk free in terms of default, they still suffer from interest rate risk -- that is, they may lose significant value if interest rates rise. In the case of SVB, US treasury bonds lost enough value to make the bank insolvent.

Money market accounts use the same vehicle (treasuries) and still manage to be ostensibly safer than smaller banks at the moment. These funds manage their investments by continuously buying new bonds and selling off old thus limiting the risk exposure to all but the most sudden interest hikes.

Re: America will soon see a wave of bank mergers?

#195

Post by lesuorac »

bradleyjg wrote: post #135
lesuorac wrote: post #127

Earlier quoted context omitted.

Eh, this really seems like moving the goal posts. The problem with SVB &other is not that they fundamentally were losing money. They just weren't making _enough_ money so they took on additional risk. If SVB hedged the IRR they wouldn't have gone bankrupt; they just would've had less profit. The banks people want are technically feasible.

There’s no way to provide risk free returns on demand deposits, other than the government just deciding to give away money. Hedging doesn’t magically eliminate risk at zero cost.

Sure, in the technically true way.

However, in practical terms banks have done a great job of making loans that get repaid more often than not. People are ok with having a bank that pays 0% interest and uses the difference between loan's rate and the real rate to operate successfully; bankers are not ok with leaving money on the table.

Re: America will soon see a wave of bank mergers?

#196

Post by tastyfreeze »

lcnPylGDnU4H9OF wrote: post #162
kornhole wrote: post #158

Earlier quoted context omitted.

Yes banks should be better regulated to avoid letting them make risky moves. That aside, many regional banks rather than a centralized government controlled bank is critical to our freedom. Government controlled banks or CBDC will give government total surveillance and control over us since you cannot do much without money.

In the US, a government-controlled bank would have stronger privacy because privacy is enshrined in law. Specifically my government cannot snoop on certain things. If the government kept all of my banking records, they wouldn't be able to legally access them. Currently, they can just use taxpayer money to purchase these records from the corporations who gather them.

Sorry, you must not be paying attention or this is sarcasm. Giving the government the keys to your banking data and expecting them to respect rights is naive. Government ownership of data means they don't have to respect privacy because they already own the data.

The US government is wholesale spying on the entirety of electronic communications and working with social media sites to make some voices less prominent. Private business should be able to tell the government to pound sand when banking data is requested without a warrant or subpoena. Banks are not able to do that. Banks exist as long as they are in the good graces of regulators.

Laws prohibiting the sale of personal information (location, purchases, banking) closes the loophole.

The solution is less government, not more.

Re: America will soon see a wave of bank mergers?

#197

Post by SllX »

brightstep wrote: post #190
syntaxing wrote: post #188

Earlier quoted context omitted.

State owned banks are usually a bad idea for one reason, corruption. Historically, having the government control money supply is usually a recipe for prolific corruption. A good modern example is Turkey.

The same kind of behavior happens in the private sector. Since it’s not government, we don’t call it corruption.

While corruption is never good, I’ll take private-sector corruption over government corruption every day of the week if I’m forced to choose. Governments are sovereign.

Re: America will soon see a wave of bank mergers?

#198

Post by mhluongo »

citizenkeen wrote: post #167
golergka wrote: post #160

Earlier quoted context omitted.

There's no "should" because there's no high authority in humanity which decides what should and shouldn't exist. Banks exist because some people want to found banks and then other people want to use their services. The only way to prevent this from happening is to threaten violence or threat of violence to either of these people. The better question would be, why would anyone use violence to force his opinion on othe…

> The only way to prevent this from happening is to threaten violence or threat of violence to either of these people. That's a weird view. We could also just, you know, vote away banks. I'm not sure why a centralized bank would result in violence.

How are laws and the will of the people enforced? Typically via fines or jail time... both of which are backed by violence.

Re: America will soon see a wave of bank mergers?

#199

Post by [deleted] »

passwordoops wrote: post #187
2OEH8eoCRo0 wrote: post #168

Earlier quoted context omitted.

It's a fuzzy boundary. I agree in theory but where is the line where something is too big? We encourage companies to grow as large as possible and hope that competition will provide the counter friction. The only fail-safe is the government trust busting on a case by case basis which might not be optimal. Are there any regulations that could provide economic incentives to small businesses and make it increasingly dif…

The regulations already exist - don't buy the competition and don't use your market power to undercut the competition. Simple and worked excellently in the post-WW2 boom years. But regulators stopped enforcing those regulations in the 1980s because of "efficiency" and each administration after Reagan doubled down. Luckily some politicians are starting to see the error of their ways and listening to thinkers like Matt…

[deleted]

Re: America will soon see a wave of bank mergers?

#200

Post by SllX »

citizenkeen wrote: post #167
golergka wrote: post #160

Earlier quoted context omitted.

There's no "should" because there's no high authority in humanity which decides what should and shouldn't exist. Banks exist because some people want to found banks and then other people want to use their services. The only way to prevent this from happening is to threaten violence or threat of violence to either of these people. The better question would be, why would anyone use violence to force his opinion on othe…

> The only way to prevent this from happening is to threaten violence or threat of violence to either of these people. That's a weird view. We could also just, you know, vote away banks. I'm not sure why a centralized bank would result in violence.

The enforcement of this vote (or law) would be violence against others. Majoritarian tyranny is still just tyranny.
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