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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?

#231

Post by jldugger »

discardedrefuse wrote: post #148
allie1 wrote: post #76

Earlier quoted context omitted.

There are exceptions. Ally bank has been paying reasonable yields on deposits, being a digital bank with lower operating costs. The bank model works, it’s the “too big to fail” model that is broke. The one upside of TBTF banks is you forfeit any deposit earnings to get “insurance” on the full amount.

Someone correct me if I'm wrong, but the reason banks like Ally are able to offer high-yeild savings account is because they are using your money to invest in (something like) a government money market fund. Take SPAXX, it currently has a 4.5% yield. Ally is only giving you 3.75% and keeping the rest.

This is how every bank works though.

The trick is in modelling and mitigating risk, of which there are many:

1. Duration risk. With demand deposits, banks borrow short and lend long. Demand deposits come and go daily, but the banks use them to make mortgages and other loans. Some stay on the books, others sell and either make more loans or hold other assets. The risk is that depositors may all ask for their money back, but you cant recall the loans you made.

2. Interest rate risk. Interlinked with duration, rate risk is the risk that the rates you loan at now are less favorable than rates later. A loan earning 1 percent is less valuable than one earning 2 percent. The strength of this relationship is tied to duration; losing out on 1 percent for 1 year is less bad than losing out for the next 30 years. The rule of thumb is that for every 1 percent rate hike your asset loses 1 percent of its value times the years until it matures -- so that 1 percent underperformer with a 30 year duration loses 30 percent of its value!

3. Default risk. Loans may go into default, and then instead of getting your money back in 10 years you get less, maybe even nothing. You try to price that into your underwriting, but the error term here might be called "underwriting risk" -- the risk that your risk estimate is wrong.

Theres more ive likely forgotten as a layman, but I'm sure you get the idea.

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

#232

Post by bombcar »

kevinventullo wrote: post #141
mint2 wrote: post #122

Earlier quoted context omitted.

Walked by a chase branch, they had some advertisement for a 4% cd. So Apparently the big banks are starting to feel the account drain. Also brokered cds from the likes of Wells Fargo and similar can be 5%. Big banks definitely are starting to feel it

CD’s are not the same thing as demand deposit accounts. They’re less liquid than treasuries.

My credit onion is offering 3.1% on the savings act which is lower but isn't insane.

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

#233

Post by l3mure »

lp0_on_fire wrote: post #33
wesapien wrote: post #16

Earlier quoted context omitted.

You guys should be flipping cars when bank execs didn't get jail time for the financial crisis

Occupy Wall Street was the beginning of that but the media and their allies in the government decided to push for a race war in the 2012 election. It’s not a coincidence the oppression Olympics were turned up to 11 at that time. That’s not to say that there aren’t issues with race in America but they pale in comparison to the socioeconomic ones. A nation obsessed over race and culture has little time to confront othe…

Race is the modality by which class is primarily expressed in America. There is no way to resolve socioeconomic problems without dealing with race at the same time, clearly demonstrated multiple times in US history. The failure of Reconstruction -- an "Unfinished Revolution" as Eric Foner puts it -- was precisely white workers' rejection of class solidarity with Black workers in favor of post-war white racial reconciliation.

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

#234

Post by tastyfreeze »

alberth wrote: post #172
cyclecount wrote: post #2

All of the rules put in place after 2008 are being ignored; the number of banks in the US pre-2008 financial crisis was about 31k. Now there are close to 3000. After this wave of mergers, there might be around 1000! And a few will be so large that they can make insane bets, betting on risky and novel new investment vehicles that will (maybe initially) pay off handsomely before ultimately failing dramatically. This wi…

Your numbers are wrong. 1974: ~14,000 banks 2008: ~7,000 banks 2023: ~4,000 banks This has been a steady decline since 1974 (not 2008) in the US. https://banks.data.fdic.gov/explore/historical?displayFields... As a comparison, Canada only has 34 banks. https://en.m.wikipedia.org/wiki/List_of_banks_and_credit_uni... . EDIT: In case anyone is curious, these are the credit union numbers. 1981: ~7,000 credit unions 2010:…

It goes back farther than that. In 1911 there were 29,000 banks. The Federal Reserve Act passed in December of 1913. By 1915 there were 19,000 banks. The expansion of credit in the 1920s cause a surge in new banks reaching more than 29,000 again. When the credit fueled stock market crashed in 1929 many banks closed. By 1933 there were about 14,000 banks. Each business/credit cycle the number of banks grows when credit is easy and collapse and consolidate as loans default. Each cycle results in more consolidated banks. Nation wide credit cycles would not be possible without the Federal Reserve pulling the interest rate lever.

https://www.fdic.gov/about/history/timeline/1900-1919.html https://www.bis.org/publ/work137.pdf

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

#235

Post by [deleted] »

chiefalchemist wrote: post #30
passwordoops wrote: post #20

I've said it before, I'll say it again - "too big to fail" should be recast as "too big to exist" I'm not sure what the best solution is here, but making the big banks even bigger is not it. This is just going to make the banking system more concentrated and no concentrated market is good for anyone. Least of all because the past decade+ has set the precedent that the banks will be bailed out... If they're big enough

Remember circa 2008 how "leader" after "leader" said that eight big banks was too few and that seven was a step in the wrong direction? Remember that? Apparently, no one remembers. Or it was simply more political / leadership theatre of tell the proles one thing while doing the opposite. Perhaps both. People complain about "the democracy" and they often falsely name names. It easy to blame a symptom when you don't un…

[deleted]

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

#236

Post by [deleted] »

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.

[deleted]

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

#237

Post by lcnPylGDnU4H9OF »

lockhouse wrote: post #211
lcnPylGDnU4H9OF wrote: post #162

Earlier quoted context omitted.

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.

I’m sure all the spooks in the three letter agencies will totally keep their hands out of that cookie jar. All the commenters here that think the federal government should directly provide their banking services are going to be in for a rude awakening if it ever actually happens.

At least it would give a private citizen recourse if snooping did happen; it would become private by law. It is currently not.

Maybe it all goes south and people are worse off with their privacy than now but I can't even imagine what "worse off" would be. The particular example you gave ("spooks in three letter agencies") currently happens and I can't exactly expect it to stop. How could it be worse?

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

#238

Post by lazide »

jgilias wrote: post #209
alexb_ wrote: post #175

Earlier quoted context omitted.

You are exactly describing what all of these banks did. What happens to the value of 4% bonds if interest rates go to 6%? What about if people want their money back before the bond duration is up, so you have to sell the 4% bonds in a 6% environment?

Note that in this interest rate environment banks don’t need to buy bonds in order to get 4%. Currently the Fed’s reverse repo facility provides more than that.

The issue is it takes years (decades) to stand up a new bank due to the extensive regulations, processes, etc. that need to happen - and who knows what is going to happen next year - let alone in that timeframe.

The reason why we have such consolidation is that merely existing in the Byzantine world of banking regulations is nearly impossible, and only the largest entities can afford the legal, IT, trading/financial mojo, capital, etc. resources necessary for it to occur.

The big 5 have not only such resources, but enough economic impact if they fail that they can force regulators to stop doing a regulation that would kill them.

Which is ultimately where this is all going. Either nationalization (unlikely) or the big banks writing their own regs (in practice).

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

#239

Post by jjav »

golergka wrote: post #160
omgomgomgomg wrote: post #152

Why exactly should banks be private companies at all? Theyre just skimming middle man between the government and end consumer. Sure, the government would know your bank balance and spendings, but that could be worked around If youre in trouble with the irs or the law, the government will have all the insight they request. Sounds crazy? We the people had to bail them out and never get anything of their profits. Too bi…

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…

> Banks exist because some people want to found banks and then other people want to use their services.

That's not quite true. Take a look a the various narrow banks which have been founded and people want to use their services, but the government won't approve them to operate.

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

#240

Post by willcipriano »

danaris wrote: post #193
fowtowmowcow wrote: post #185

Earlier quoted context omitted.

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.

In a manner of speaking.

Take a look at student loans, how have they been intending to collect on those lately?

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