How deep is the rot in America’s banking industry? • Hacker News Board

Re: How deep is the rot in America’s banking industry?

#11

Post by lostsoil » Thu, Mar 16, 2023, 5:37 PM UTC

toomuchtodo wrote: post #4

jgeada wrote: post #2

Bring back Glass Steagall and stop all this madness. Regular banking should be boring, not all that profitable and separated from speculation.

My hot take is that demand deposits should be only invested in (EDIT: short dated, thx codexb) US treasuries (a la Narrow Bank), backed by the Federal Reserve and if a bank (or anyone) wants to lend, they can issue bonds to borrow versus the Rube Goldberg mechanism we currently have of deposits, FDIC, and then the Fed still providing an unlimited guarantee anyway. The bond market already is built to handle this, and…

If that happens start preparing to pay money(instead of receiving interest) for your demand deposits.

Re: How deep is the rot in America’s banking industry?

#12

Post by tptacek » Thu, Mar 16, 2023, 5:38 PM UTC

andrewmutz wrote: post #7

jgeada wrote: post #2

Bring back Glass Steagall and stop all this madness. Regular banking should be boring, not all that profitable and separated from speculation.

Would Glass-Steagall have prevented the SVB failure?

I don't think so. SVB wasn't an investment bank, was it?

Re: How deep is the rot in America’s banking industry?

#13

Post by jollyllama » Thu, Mar 16, 2023, 5:39 PM UTC

How deep is the ocean?

Re: How deep is the rot in America’s banking industry?

#14

Post by ajkjk » Thu, Mar 16, 2023, 5:40 PM UTC

I was pleased to read Nathan Tankus' take[1] on all this, although I wish I understood it better, which was that a lot of policy ideas that have been somewhat fringe are becoming mainstream in the last week:

> The prospect of unlimited deposit insurance, whether de facto or de jure, is leading to a large-scale reconsideration of views among even “moderate” banking scholars.

I imagine that's usually how real policy progress happens: interesting ideas are always getting thought up and proliferated, but it takes a big upheaval to move them over to being really possible.

[1]: https://www.crisesnotes.com/every-complex-banking-issue-all-...

Re: How deep is the rot in America’s banking industry?

#15

Post by rolobio » Thu, Mar 16, 2023, 5:41 PM UTC

giantg2 wrote: post #8

jgeada wrote: post #2

Bring back Glass Steagall and stop all this madness. Regular banking should be boring, not all that profitable and separated from speculation.

Would that have made the difference? I thought that restricted banks to "safe" investments, which SVB's likely were. It's simply that they couldn't extract enough liquidity from that position to cover the run. Or were there other restrictions?

SVB failed because they bought government bonds, typically the most secure thing. The problem is the Federal Reserve raised interest rates, which made the bonds pointless. They Fed will supposedly keep raising rates, which I expect will make more banks fail. After all, if the most-secure thing (bonds) is not secure, what is?

Re: How deep is the rot in America’s banking industry?

#16

Post by toomuchtodo » Thu, Mar 16, 2023, 5:41 PM UTC

lostsoil wrote: post #11

toomuchtodo wrote: post #4

Earlier quoted context omitted.

My hot take is that demand deposits should be only invested in (EDIT: short dated, thx codexb) US treasuries (a la Narrow Bank), backed by the Federal Reserve and if a bank (or anyone) wants to lend, they can issue bonds to borrow versus the Rube Goldberg mechanism we currently have of deposits, FDIC, and then the Fed still providing an unlimited guarantee anyway. The bond market already is built to handle this, and…

If that happens start preparing to pay money(instead of receiving interest) for your demand deposits.

Most people do not receive interest in their deposit accounts (or its minimal) because banks keep the spread between paying depositors nothing and the interest the Fed pays on reserves held at the central bank. A Narrow Bank (which the Fed won't approve [1]) would cover their costs with that same spread. Failing that, one can invest in short dated government securities (US treasuries) directly. "All Roads Lead To Treasuries" if you will. If someone is going to gamble your money, might as well be the US government (treasuries are considered "risk free") vs your rando bank executive leadership team (the CEO of SVB collected ~$9.9 million in 2022 total comp for overseeing and approving suboptimal duration risk mgmt decisions).

If banking is to be boring and minimally profitable, that leads us to the idea that it should be a utility, not a risk taking venture, no? And if the Fed interest is covering the costs of banking, aren't we already all paying that cost as taxes?

[1] https://www.chicagobooth.edu/review/safest-bank-fed-wont-san...

Re: How deep is the rot in America’s banking industry?

#17

Post by soperj » Thu, Mar 16, 2023, 5:41 PM UTC

lostsoil wrote: post #11

toomuchtodo wrote: post #4

Earlier quoted context omitted.

My hot take is that demand deposits should be only invested in (EDIT: short dated, thx codexb) US treasuries (a la Narrow Bank), backed by the Federal Reserve and if a bank (or anyone) wants to lend, they can issue bonds to borrow versus the Rube Goldberg mechanism we currently have of deposits, FDIC, and then the Fed still providing an unlimited guarantee anyway. The bond market already is built to handle this, and…

If that happens start preparing to pay money(instead of receiving interest) for your demand deposits.

that already happens for many.

Re: How deep is the rot in America’s banking industry?

#18

Post by tptacek » Thu, Mar 16, 2023, 5:42 PM UTC

People seem to have a really hard time with the idea that, in the SVB debacle, the system worked effectively and pretty much the way it was planned to. It's not even clear what people are upset about. There's an article on the front page of The Atlantic today about how angry we should be about SVB, and if you read it, it's hard to figure out who those angry people should be.

Equity is getting zeroed out. Management was fired. Depositors were made whole almost immediately. SVB's assets are apparently not impaired; SVB would have held them to maturity had the bank run not happened, and now somebody else will instead. A bank made bad risk management decisions and got zeroed out; all the right incentives not to do that again are there. Meanwhile: the point of the FDIC system is for customers not to have to do this kind of risk assessment themselves.

It is remarkable how badly SVB managed to fuck this whole situation up. But SVB is gone, so it's not much fun calling them out. I feel like people are flailing looking for someone else to blame.

Re: How deep is the rot in America’s banking industry?

#19

Post by SilasX » Thu, Mar 16, 2023, 5:46 PM UTC

jgeada wrote: post #2

Bring back Glass Steagall and stop all this madness. Regular banking should be boring, not all that profitable and separated from speculation.

Buying long-term Treasurys and booking them as high-grade capital (whatever they call it) was legal under GS too, and was the cause of SVB's failure.

SVB was killed by the boring part, not the startup banking risk.

Re: How deep is the rot in America’s banking industry?

#20

Post by bwb » Thu, Mar 16, 2023, 5:46 PM UTC

lol, the media frenzy is hilarious to watch. This was a badly run bank facing some headwinds. I forget how much people like writing about things in a flurry instead of taking a step back and providing real analytics oversight.