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Bank Failures Visualized

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Re: Bank Failures Visualized

#101

Post by btilly »

jeremyjh wrote: post #76
btilly wrote: post #25

Earlier quoted context omitted.

Credit Suisse is not included because it is a Swiss bank, not an FDIC insured US bank. Lehman Brothers is also not included because, even though it was a US bank, it was an investment bank with no FDIC insured deposits. It was around the size of all of this year's failures, combined. As you note, bank bailouts that were not FDIC bankruptcies are also not included.

I think GP knows this, but I also think you know that the graph is trying to paint a particular picture, and that picture is misleading because a lot of information is missing. We are not in the midst of a financial crisis that approaches 2008, and the graph is trying to make us think something different.

I know nothing of the sort.

I think someone found an interesting dataset, tried to visualize it, and thought it looked interesting. I doubt that there was any motive to the dataset other than, "Here's what I get from the FDIC, what does it look like?" Then shared code and source so that anyone else could reproduce it.

If you can find another data source that gives a fuller picture, you should. But compiling these data sources takes work. And the ones you get are all going to be a particular slice that represents some things but not others.

I did not personally find it misleading.

Re: Bank Failures Visualized

#102

Post by foota »

fisherjeff wrote: post #100
foota wrote: post #92

Earlier quoted context omitted.

The only safe investment is a hedged investment, antthing else is up to your priors. While interest rates going up as much as they did may have seemed unlikely, it was still irresponsible not to hedge their risk.

Oh absolutely. My point was just that if you truly wanted to make a big risky bet, you would definitely not be going out and buying a bunch of agency bonds.

Sure, I'm just pedantic :) Re: the risk of interest rate backed securities "I too like to live dangerously" as they say.

Re: Bank Failures Visualized

#103

Post by kortilla »

NoMoreNicksLeft wrote: post #71
cperciva wrote: post #44

Earlier quoted context omitted.

The model you describe is exactly why S&L happened . Small banks with highly correlated deposits holding their own loan books is a recipe for maximizing vulnerability to economic shocks. Interest rates go up and the loan book loses value; the local housing market drops and the loans get foreclosed and lose value; a major local employer goes out of business and depositors all start pulling their money out instead of r…

> Banks don't work that way any more because it's a really bad way to run a bank. As compared to what we have now? With dubious financial instruments so opaque I'd have to spend 30 years lurking underneath desks on Wall Street eavesdropping on conversations just to have any clue at all how the fuck those work? I'm almost comforted when there's a Bernie Madoff, because at least I can wrap my head around how a Ponzi sc…

> And while we haven't quite reached that pinnacle of absurdity, it did hit 37,000 not so long ago.

Why do you think this is absurd? You know inflation means we’ll get there even without ridiculous multiples, right?

Re: Bank Failures Visualized

#104

Post by judge2020 »

candiddevmike wrote: post #93
photochemsyn wrote: post #28

Community-scale banks (aka credit unions) are a better idea for local-regional communities (aka cities and towns and agricultural regions) because their managers have to live with their clients. Take a community of 100,000 families, in an economic system where they're all collecting income and paying bills and so on. The idea behind a bank is that they hold the community's money securely while making their own money…

Why are drug addicts not good bets? Coffee drinkers seem pretty successful?

Sure, "Coffee is a drug" just as much as Caffeine and sugar are. OP likely meant that those who abuse scheduled drugs (outside of weed) are more likely to develop a habit of putting off work to feed that addiction, or to be fired for misconduct in connection with their use, resulting in more late payments and eventual repossessions/foreclosures on loans. It's all in terms of managing risk, but I'm sure chronic alcoholics are just as risky, if not more risky, as meth heads, since they blend in and have a good credit score but are more likely to lose their job for being intoxicated at work or go to jail for something like drunk driving.

Re: Bank Failures Visualized

#105

Post by dnissley »

DonsDiscountGas wrote: post #18
thehumanmeat wrote: post #2

That needs to go back to the 80s to capture the SnL crisis. It dwarfs 08 in bank failures. It better indicates the conglomeration of the many banks into the few we have today.

Going by Wikipedia, in 2021 dollars I count: 1980s S&L crisis: $654 Billion (summed 1984-1992 failures) across 23 banks 2008 crisis: $733 Billion (summed 2008-2011 failures) across 61 banks 2023 so far (it's only May): $556 Billion (Signature + SVB + FRC) across 3 banks. It looks like 2008-2011 is the "winner", although other commenters have mentioned forced mergers etc. may not be counted. https://en.wikipedia.org/w…

Aren't there some relevant details missing from this kind of analysis? Banks failing just means that the value of the banks assets fall below the value of their deposits, right? In which case the degree to which that happens seems to be highly relevant to this kind of comparison. E.g. the value of assets falling to 50% of deposits in bank failures in financial crisis A vs 90% in financial crisis B

Re: Bank Failures Visualized

#106

Post by photochemsyn »

tiedieconderoga wrote: post #72
noduerme wrote: post #66

Earlier quoted context omitted.

One thing I don't understand, and perhaps you could explain, is why anyone in the US would ever keep more cash in any one bank account than what was covered by FDIC insurance. It's precisely the reason I don't e.g. take my savings to an offshore bank that offers much higher interest rates. Is this just a matter of people taking trust in a bank's solvency for granted?

Banks can offer incentives for certain levels of deposits. Better interest rates, better cards, better loans. SVB offered perks to bank exclusively with them. https://www.cnbc.com/2023/03/12/silicon-valley-bank-signed-e... If you took that sort of agreement and bet on being bailed out in the event of a failure, you won your bet.

This is the answer that makes the most sense.

Re: Bank Failures Visualized

#107

Post by wavefunction »

fisherjeff wrote: post #87
photochemsyn wrote: post #54

Earlier quoted context omitted.

This is a rather skewed perspective that ignores the fact that if you have FDIC insurance for depositors then that can be gamed unless you have strict regulation of the banks: > "The roots of the S&L crisis lay in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees." https://www.investopedia.com/terms/s/sl-crisis.asp This is why a lot of p…

SVB and FRC did not “leverage themselves on risky speculation bets.” They made lots of very safe investments but did not adequately hedge against large and rapid rate increases. Also not good but it’s a big difference, IMO.

I read one of their customers on here raving about the mortgage rate they got through SVB because it was so much better than anything offered by anyone else.

I don't see any evidence of any overall prudent investing on their part considering the entire bank had to be bailed out and FDIC limits relaxed.

Re: Bank Failures Visualized

#108

Post by opportune »

cperciva wrote: post #44
photochemsyn wrote: post #28

Community-scale banks (aka credit unions) are a better idea for local-regional communities (aka cities and towns and agricultural regions) because their managers have to live with their clients. Take a community of 100,000 families, in an economic system where they're all collecting income and paying bills and so on. The idea behind a bank is that they hold the community's money securely while making their own money…

The model you describe is exactly why S&L happened . Small banks with highly correlated deposits holding their own loan books is a recipe for maximizing vulnerability to economic shocks. Interest rates go up and the loan book loses value; the local housing market drops and the loans get foreclosed and lose value; a major local employer goes out of business and depositors all start pulling their money out instead of r…

It’s more complex than that. The ideal situation for a bank is when all its depositors are customers of each other. The deposits never leave the bank so the bank has very stable liabilities.

So a local bank will be great when a community transacts mostly with itself. SL happens right around when multinationals and corporate centralization started becoming more of a thing..

We live in the era of trillion dollar corporations, fintech, and the internet so a community bank ends up more like a small big bank. Its depositors are getting paid by corporations from way outside the community, and they’re spending money on the internet or at giant multinational retailers and thus shifting deposits outside the community. In this paradigm, it’s actually better to be huge and have a diversified customer base because the best way to keep your liabilities stable is to have the largest market share possible.

You’ll notice, banks usually have generous incentives for setting up direct deposit. Direct deposit is the best way for them to have a predictable measure of incoming deposits when there isn’t a high likelihood of one particular account transaction with another.

Re: Bank Failures Visualized

#109

Post by photochemsyn »

fisherjeff wrote: post #87
photochemsyn wrote: post #54

Earlier quoted context omitted.

This is a rather skewed perspective that ignores the fact that if you have FDIC insurance for depositors then that can be gamed unless you have strict regulation of the banks: > "The roots of the S&L crisis lay in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees." https://www.investopedia.com/terms/s/sl-crisis.asp This is why a lot of p…

SVB and FRC did not “leverage themselves on risky speculation bets.” They made lots of very safe investments but did not adequately hedge against large and rapid rate increases. Also not good but it’s a big difference, IMO.

Hindsight may be 20/20 (01/11/2023)

> "SVB's focus on the innovation economy was a big winner in the past but may not remain so in the future, according to Dick Bove, the prominent banking analyst at Odeon Capital Group. The U.S. economy, in Bove's view, is shifting from a consumer-oriented economy driven by plenty of low-cost capital to a manufacturing economy marked by limited access to capital that's relatively costly."

https://www.bizjournals.com/sanfrancisco/news/2023/01/11/svb...

> "And despite his downcast report, Bove maintained his hold rating on SVB's stock. Investors seem to be a bit more optimistic. After SVB's shares lost two-thirds of their value last year, they're up nearly 11% so far this year, closing Wednesday at $254.99 a piece."

Reading the tea leaves is an imprecise art, I guess.

Re: Bank Failures Visualized

#110

Post by bobbylarrybobby »

kypro wrote: post #79

Would be slightly more insightful if it was inflation adjusted. The circles on the right should be ~30% smaller.

And if the circles’ areas, not their radii, were the failed assets. As it is, a circle’s apparent size (we judge 2D shapes by their area, not any one linear dimension — although this is difficult to do in practice, and linear marks are generally superior) is the failure size squared, which distorts the data a boatload.

Here is a, er, more faithful representation of the data. The recent failures don't look quite so crazy anymore!

https://observablehq.com/d/d85ce0c639bc4df7

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