Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

finance.yahoo.com

Post reply on HN
Print view View original

161–170 of 325 posts

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

#161

Post by mindslight »

tptacek wrote: post #18

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 w…

It's hitting the cultural memories of both 2008 (where banks themselves were bailed out) and multiple cryptocurrency exchanges (where "failed" means all deposits vanish).

Then add in some vocal VCs' hypocritical stance on bailouts coupled with Surveillance Valley's overarching hypocritical stance on freedom, and here we are.

It seems that in this day and age of instant communication and social media mobs, even three days is too long for the precise fate of deposits to remain unknown. IMO the right way to proceed is to calmly raise bank capital requirements, create a few new tiers of FDIC coverage (eg coverage on accounts between $250k and $10M is funded from assessment on accounts between $250k and $10M), and institute criminal penalties for executives of banks that go bust beyond their capital buffer (otherwise nothing reigns in TBTF accounts that have too much variance to be absorbed by higher FDIC tiers).

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

#162

Post by watwut »

digitaltrees wrote: post #136
tangjurine wrote: post #126

Earlier quoted context omitted.

No. First SVB was bailed out by FDIC funds which all banks pay into. Second, to say 'privatized gains, socialized losses', you are assuming that banking is like gambling, with no value being created through the banking process. Even if banks were being very very safe, they would still make money by lending out deposits. (Whether that is good or bad for society, is another question, which I would argue the answer to w…

These are great points and show that the system worked as designed. There will always be bank failures. We want depositors to have confidence that their deposits are safe, not altruistically, but to prevent bank runs since those serve no one and re totally avoidable. Management and Shareholders were wiped out. Honestly, it looks like in a year or two, the Government will make money off of this because as soon as inte…

That is what insurance was supposed to be for and it was up to 250000. Anything above that was supposed to be returned from sold assets. When assets are not enough, those money would be lost.

There are literal products to insure money in excess of 250000. But people who are getting bailout now were not using those products. They were not paying for insurance in excess of that.

The system did not worked purely as designed. The system socialized loses of well connected rich people.

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

#164

Post by steve76 »

tptacek wrote: post #18

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 w…

[dead]

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

#165

Post by wootland »

zefalt wrote: post #149
wootland wrote: post #112

Earlier quoted context omitted.

Why does that make you mad? If my money is at risk, I expect to be compensated with an interest rate. If I'm not earning interest, my money should have zero risk. We should remove the FDIC $250k limit and if bank's business models don't work with that, we should nationalize the banks. It's in society's best interest to not have our money wiped out overnight for things beyond our control.

No, your money should not have zero risk. There is always risk in the system. The FDIC was created as an insurance for this specific risk hence the name (Federal DEPOSIT INSURANCE Corporation). This was mainly to help the common person when bank failures were more prevalent...not the wealthy who were the predominant beneficiaries of this bailout. You should learn that you the moment you put a deposit in the bank, the…

If there's risk, I should be compensated for it with interest on the account.

I'm fine with banks being not for profit institutions run by the government. Allowing people to safely store their money is baseline civilization. If banks are private, the government is going to have to back them up because you can't have the operational accounts of nearly every business in the country getting wiped out randomly.

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

#166

Post by landemva »

upsidesinclude wrote: post #144

Steeped. Americas banks are still investment firms. Until we categorically prevent banks from attempting to "satisfy shareholders" with returns, these occurances will continue in one form or another. Banks dont need to be sexy or shake up the industry. We need boring people in banking making okay-ish money.

Boring banking for the people: member-owned credit unions.

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

#167

Post by UncleEntity »

basseq wrote: post #85
tptacek wrote: post #79

Earlier quoted context omitted.

They're volatile if you trade them, right? But they're not volatile in the sense that there's uncertainty that they'll pay back. Do banks normally actively trade their long-dated bonds?

No, and that's the point. I understand that banks mark long-term bonds as hold-to-maturity (and only then can list them at par on their balance sheet). But they actually have to hold them . Otherwise, they have to mark them to market, and any sales of HTM bonds flip the entire tranche over to MTM. So part of the problem is that SVB had a reasonable-looking balance sheet of HTM bonds, then had to sell some at market,…

And people saw this is what they were doing and were tweeting about it in advance of all their “problems”.

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

#168

Post by UncleEntity »

taeric wrote: post #124
tptacek wrote: post #18

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 w…

I confess I feel like I've taken crazy pills with all of the takes I've seen. This post sums up my understanding perfectly. Many of the takes further complicate by implying that they had no assets. Which just feels like lying at this point.

It’s not that they had no assets it’s that they couldn’t liquidate them to pay out their depositors.

Sure, if everyone had just waited for the 10 year bonds to mature to access their funds their bank was in perfect shape.

—edit—

Assuming they could come up with enough money to pay the over market interest rates on deposits while also seeing their money flows reversing because of VC capital drying up.

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

#169

Post by jahewson »

462436347 wrote: post #141

Today the big banks collectively agreed to inject $30bn of deposits into First Republic to sure it up: https://www.bloomberg.com/news/articles/2023-03-16/first-rep... Meanwhile, all the benevolent VC techbros had to do was collectively agree to just not withdraw all of their deposits from SVB en masse, and they couldn't even muster that. How deep is the rot in SV?

That would be irrational. It’s a Prisoner’s Dilemma and no matter what any individual would prefer to do the only rational move is to assume others will betray you. I don’t think it’s fair to ask SV to behave irrationally.

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

#170

Post by greenhatman »

mcherm wrote: post #32
tptacek wrote: post #18

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 w…

I am one of those who has been harmed. I work at a different bank. The rates charged to banks for FDIC insurance have been based on the assumption that the FDIC would cover depositor losses up to the insured limit. By choosing to cover all losses even above the insured limit, we have chosen to put the burden for paying for those losses on all of the other banks (and indirectly on those banks depositors). I suspect th…

> we have chosen to put the burden for paying for those losses on all of the other banks

But isn't it likely to cause more bank runs if depositors lost money? So in a real sense, many other banks were saved from going under, by assuring depositors that their money is safe, whichever bank they're at.

My understanding is that other banks have massive unrealized losses as well, due to the steep interest rate increases. So they're all kind of vulnerable.

Post reply on HN