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Bank Failures Visualized

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Re: Bank Failures Visualized

#121

Post by zamnos »

kortilla wrote: post #98
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…

This doesn’t work. The very failures we are seeing today are why this doesn’t work. Why would someone leave their money in the regional bank offering 0.3% that all of their issued loans average barely above when people can take it to a bank offering 3% or get CDs offering that? Community scale banks aren’t a solution for this.

When Chase, BofA, and Citigroup are all offering approximately 0.0000% APY on their CDs, and it's credit unions that are offering 3+% (you should be shooting for at least 4% right now), it's not clear that big banks are actually better than a smaller, community-focused bank or credit union.

https://online.citi.com/US/ag/current-interest-rates/cd

https://www.bankofamerica.com/deposits/bank-cds/cd-accounts/

https://www.chase.com/personal/savings/bank-cd

I double checked, and it turns out they all have a couple of products offering closer to 4.5% APY, but the tables on those linked pages still have far too many numbers like 0.05% APY on them to be taken seriously.

Re: Bank Failures Visualized

#122

Post by ghayes »

bobbylarrybobby wrote: post #110
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 c…

FWIW, I think the size of the insolvency is more telling of the failure than the AUM. E.g. First Republic was about ~$13B in the hole when it was taken over. Otherwise a large bank with a large hole looks way worse than a small bank with a huge hole.

Re: Bank Failures Visualized

#123

Post by haldujai »

jeremyjh wrote: post #74
rrrrrrrrrrrryan wrote: post #33

Earlier quoted context omitted.

It depends on what we're trying to visualize. From an investor's perspective, a bank whose assets get sold for pennies on the dollar in a fire sale is essentially a failure. Lehmann Brothers was also a massive (investment) bank failure with huge second order effects on the economy. This graphic seems to be modeling things from a taxpayer perspective. These banks failed and the government needed to step in to do somet…

FDIC premiums are not payed by taxpayers. What we're visualizing here are bank failures assumed by FDIC. The too big to fail banks didn't technically fail, but to give an accurate picture of a financial crisis they should be on the graph.

Agree, this representation also makes WaMu’s failure look like the worst in recent history but it felt like one of the smaller problems at the time with what was going on with the investment banks, Fannie/Freddie and AIG.

Re: Bank Failures Visualized

#124

Post by rocqua »

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…

The difference between a ponzi and real finance is mostly lying.

In a Ponzi you lie about asset growth. In real investments you report real asset growth. If the system fails it won't be because people lied about what their assets were. It might be because they mis-estimated what those assets were worth. But that isn't a Ponzi.

Crucially though, it is actually possible for assets to grow. As long as there is new good business to finance, the whole thing doesn't need to be zero sum. And annoyingly, growing business is so much faster with a conplex financial system, that countries with such financial systems stand no chance. So even if you don't like the risk and excess in a complex financial system, it's really hard to go without.

Re: Bank Failures Visualized

#126

Post by fisherjeff »

wavefunction wrote: post #107
fisherjeff wrote: post #87

Earlier quoted context omitted.

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.

I think an overlooked issue here is that, beginning in 2020, SVB suddenly had tons of deposits. Yields all around were zero-ish and they had money burning holes in their pockets. I can sorta see how they could be incentivized to close some loans.

Also, I think that as with FRC, their loans tended to have fairly low credit risk, so again not super sketchy, just poorly hedged.

Re: Bank Failures Visualized

#127

Post by haldujai »

jeremyjh wrote: post #78
fragsworth wrote: post #31

Earlier quoted context omitted.

You are correct. Additionally, the size of the bank(s) are not really what matters. I want to see the scale (sum) of what was actually lost when they went bankrupt, and how much we (the public) have to put up to keep the system from collapsing. Does anyone have an actual visualization of how much we ponied up to keep our banking system from collapsing? Did the public just provide a reasonable interest rate loan for a…

There were winners and losers, but the government made money on TARP. That doesn't fit anyone's narrative very well, so you don't hear that much about it, but its a fact. So far not a public dollar has been lost in the current crisis. FDIC, like other insurance, is paid for by the insured. Every FDIC bank in the country is paying the cost of this. https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program

Nominally yes, but not when you consider borrowing cost and effects on deficit. The CBO has TARP costing 31 billion. [0]

FDIC is paid by the banks but it seems probable it will be passed down to customers in banking fees at the end of the day.

[0] https://www.cbo.gov/publication/59062

Re: Bank Failures Visualized

#128

Post by haldujai »

fwlr wrote: post #89

Highly suggest sorting by date rather than size. Putting the smallest failures at the top causes a little bit of an optical illusion making the first tower appear smaller than it really is. It also highlights that whatever is happening here is drastically different than what happened in 2008 - here we have three “big bank” failures while 2008 had only one, but we have zero “little bank” failures while 2008 had hundre…

The difference is this is missing the biggest failures of 2008 (Lehman, Bear, Merrill) as well as Fannie, Freddie, AIG and TARP.

Re: Bank Failures Visualized

#129

Post by Agent-Cooper »

bobbylarrybobby wrote: post #110
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 c…

The circles' areas are showing the failed assets. Observable Plot defaults to using a square root scale when encoding a quantity with the radius of a circle.

https://observablehq.com/plot/marks/dot#dot-options

Re: Bank Failures Visualized

#130

Post by lazide »

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.

Not in an ‘08 sized crisis - yet. Wait until commercial property debt finally ‘looks down’. It’s been running off the cliff for a long time already, and is in exactly the same boat as the securities that took out SVB, etc.
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