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

finance.yahoo.com

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

#171

Post by lordfrito »

digitaltrees wrote: post #154
lordfrito wrote: post #86

Earlier quoted context omitted.

It's been reported [1] (no paywall [2]) that executives were aware of the risk and continued to purchase higher yielding assets in spite of internal protests. The actions are borderline criminal. To avoid a $36M hit they literally bet the bank. This was a step beyond regular incompetent mismanagement. From the article: In late 2020, the firm’s asset-liability committee received an internal recommendation to buy short…

Thank you for posting. This actually changes my view entirely and makes many of my other posts invalid.

Yeah I feel this point isn't well known, but likely will be soon.

I love HN because many of us actually listen to each other and debate in good faith, helping each other sharpen our views.

Glad you found it helpful.

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

#172

Post by jjtheblunt »

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 not even clear what people are upset about.

The upset seems centered around the perception that rules were changed ex post facto to protect political donors.

I get that impression from HN, from newspapers of all ilks and biases as well.

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

#173

Post by maximinus_thrax »

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…

> I am one of those who has been harmed.

How were you harmed specifically?

> you will not see the interest rate on savings accounts go up as much as it might have otherwise.

Bullshit. Interest rates for savings accounts are and have been an absolute joke. Are they going to become a more hilarious joke? Probably but seriously, who cares?

> I'm not saying this outcome is terrible, perhaps it was the best solution for the system as a whole.

Yes, it is the best solution, otherwise you'd have written a completely different statement if the bank run went viral and you would have been really harmed.

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

#174

Post by idontpost »

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…

[dead]

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

#175

Post by rybosworld »

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…

It makes very little sense to treat depositors as risk takers. These aren't people investing in stocks or bonds. These accounts are places to park your cash. It would be very bad to discourage deposits.

Putting a ceiling on FDIC insurance is effectively an outdated idea that doesn't work.

Take the example of a company that keeps payroll in a cash account. Let's say that company has 100 employees. Should the FDIC treat the account as belonging to 1 person or 100? If you say 1, I say you are irrational.

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

#176

Post by AlexandrB »

RC_ITR wrote: post #153
whatshisface wrote: post #120

Earlier quoted context omitted.

If we're not going to let economic signals tell companies to check who they're banking with before putting all their assets in one place, how can that happen? Regulations saying every small business needs to have a risk officer, and more regulations specifying how that officer has to make decisions?

>If we're not going to let economic signals tell companies to check who they're banking with before putting all their assets in one place, how can that happen The assumption that an operating company should understand fixed income pricing dynamics, have a POV on future FED interest rate moves, and dive into each potential banking partners' asset duration is an interesting one, especially when most of SVB's deposits w…

Maybe not each company, but the VCs who encouraged their portfolio companies to put everything in SVB should have some inkling of the risks involved in doing that.

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

#177

Post by phkahler »

tptacek wrote: post #53
phkahler wrote: post #34

Earlier quoted context omitted.

>> By all accounts, SVB's banking was boring. They borrowed short and lent long, and their long bets were very safe. Clearly not safe. IMHO anyone buying 10 year treasuries in the last several years is an idiot. Those rates were guaranteed to rise, as they could not fall below zero. Next up: anyone who bought a house in the last few years is gonna get hurt. We knew rates would be rising, and hence prices falling. So…

Safe, as in they're going to be paid back dollar for dollar. People are talking about SVB's assets as if they were toxic, rather than just not as attractive as other available bonds.

The problem with SVBs bonds is that they're long term, so if they need the money early they have to sell them at a loss.

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

#178

Post by tensor »

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 really pretty easy to understand. Imagine if some tech company went from fine to bankrupt overnight in a surprise to everyone. All the shareholders zeroed, not just management but public shareholders, employees, etc. Would you seriously be surprised that all those people who lost their shares would be upset?

Hell, even with just layoffs the outrage on this site has been deafening. I can see shareholders and employees of SVB rightly being pissed off. It's not your place to tell them they should not be.

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

#179

Post by DubiousPusher »

joekar wrote: post #160
DubiousPusher wrote: post #131

Earlier quoted context omitted.

> A bank made bad risk management decisions and got zeroed out; all the right incentives not to do that again are there. This kind of assumes that the risk matrix of an executive is singularly indexed on the long term viability of their institution. But the short term gain of bad behavior is still in full effect. Bonuses for the years up to this crisis have already been paid and were probably inflated based on the ba…

The unintended consequences here are having a guarantee on uninsured deposits. Most people are unaware they are loaning money to a bank when they open a bank account. You've effectively said that bank deposits are now risk-free, meaning that the government is back-stopping 9.2 Trillion of deposits (40% of all deposits). Can banks still provide a yield for these guaranteed deposits? Are they still able to loan out the…

Yeah, I agree. I think this a situation where the individual decisions mostly make sense. But when you add them up, you get a system that creates some questionable implications.

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

#180

Post by zefalt »

rybosworld wrote: post #175
zefalt wrote: post #149

Earlier quoted context omitted.

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…

It makes very little sense to treat depositors as risk takers. These aren't people investing in stocks or bonds. These accounts are places to park your cash. It would be very bad to discourage deposits. Putting a ceiling on FDIC insurance is effectively an outdated idea that doesn't work. Take the example of a company that keeps payroll in a cash account. Let's say that company has 100 employees. Should the FDIC trea…

They are choosing to place money in the bank. This is a risk in and of itself.

Companies with treasury departments already know this. They can put money in money market funds, CDARs, cash sweeps, or any other vehicle to protect their cash. There are multiple ways to hold cash with very low duration risk that does not involve putting it in a bank.

FDIC is not an outdated idea. It is just the reality of the current financial system because it would require an excess of $20 trillion dollars to insure every deposit in the banks.

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