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

finance.yahoo.com

191–200 of 325 posts

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

#191
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…

The system is designed to be a private scheme supported by a government which supports that scheme. That's the issue. Profits are privatized and losses are socialized. If deposit insurance becomes limitless as Yellen announced, then the issue is our kids will pay for this.

Re effective system: Maybe dinosaurs had to swallow rocks to digest their food, but we don't have to maintain this practice just so dinosaurs can keep existing. The system needs to be deprecated in favor of better tech that takes it out of the hands of dinosaurs. Legacy banking and gov/political class need to be replaced by a better solution.

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

#192
post #32
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…

What's the rationale behind not breaking up the accounts of large depositors into FDIC-insurable accounts? Apparently this is called a 'cash sweep'. Typical ad blurb:

> "Insured cash sweep is a safe and convenient service that provides FDIC insurance on large balances while giving you access to your money, as well as the ability to earn interest. Choose between demand accounts, which offer unlimited withdrawals, and money market accounts that permit up to six withdrawals per month."

I've heard some claims that SVB was offering incentives to depositors who kept their funds in one lump account, is this true and if so what's the benefit to SVB from doing that?

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

#193

So what should SVB have done instead? It's well known.. https://www.proshares.com/browse-all-insights/insights/bond-... But even then: Some professor was on Bloomberg today wondering about the hedge strategy. The hedge providers may be at risk if all of the sudden there are a huge amount of sales there. But this only happens during heavy withdrawals...

SVB should have decided not to grow so much so fast. More companies have gone kaput for fast growth than for any other reason.

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

#194
post #148

Earlier quoted context omitted.

I agree about 400 banks failing would likely be due to some greater catastrophe. But financially I think it's the same. If 400 customers each use 1 bank each, then a single bank failure means the FDIC needs to make whole one customer. But if every customer put 1/400th of their wealth into each of the 400 banks, then FDIC has to cover all customers for 1/400th each. The cost to us as depositors/taxpayers is equal.

I'm not sure I'm following. If the FDIC only needs to insure 1/400 of all deposits, then they only need to have on balance 1/400 of the total funds. So the cost to all accounts is in effect 1/400, no? If customers are only utilizing a single bank, and the FDIC will insure all deposits regardless of amount, they would need 400 times as much than would be necessary if the balances were swept.

The FDIC insures the entirety of the deposits either way.

> Insurance only pays out . . . if a bank fails

That's a good point. So one difference is that while the money is equally insured in both cases, the payout dynamics would change. Very roughly, the amount of a payout might be expected to go down in the cross-bank case (smaller account values, but then also more accounts per bank, so it isn't quite so simple), and the likelihood of a payout might be expected to go up (higher chance of failure with more and smaller banks). But this all depends on how interlocked the banks become; in the extreme they could end up functionally a single bank.

The first thing that came to mind for me is somewhat related: Spreading deposits across banks is relatively better for small banks and worse for big ones, since the small banks gain deposits and the big banks lose them. So you can definitely argue there's some advantage to keeping a lower insurance limit, although it gets murkier when we bring behavioral considerations and "too big to fail" into the picture.

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

#195
post #124

Earlier quoted context omitted.

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.

Right, I'm not arguing that they made no mistakes. That is, as the post above me said, things seem to have worked out about how they should have.

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

#196
post #32

Earlier quoted context omitted.

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…

What's the rationale behind not breaking up the accounts of large depositors into FDIC-insurable accounts? Apparently this is called a 'cash sweep'. Typical ad blurb: > "Insured cash sweep is a safe and convenient service that provides FDIC insurance on large balances while giving you access to your money, as well as the ability to earn interest. Choose between demand accounts, which offer unlimited withdrawals, and…

It’s called brokered deposits, there is not reason to not do it if it’s just sitting in bank acccount, but if the $ size gets large (>$25m it can be cumbersome), and if there is a lot of operational activity it doesn’t make much sense.

What’s unforgivable is why these large depositors that didn’t tend this cash for short term operational needs didn’t have the funds in govt securities in an insured brokerage account at a trust company…

Where many venture backed companies got hung up though is that the terms of venture debt provided by SVB required the borrowers to keep use SVB as their bank…

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

#198

I'm seeing a lot of comments along the lines of "What should SVB have done? They bought the best bonds they could have for the time, and then the Fed screwed them over." Maybe I'm just naive when it comes to how these systems work, but couldn't SVB have just... done nothing? Nobody was compelling them to purchase any bonds at the time. Sure they have pressure from stockholders to make money, but if the deck was so st…

As the saying goes, 'Make hay while the sun shines'. If you don't take advantage of a good opportunity while it's there, it'll eventually go away and you won't have benefitted from it, while others have.

Not saying that to justify SVB or anything, as they're in the business of securing people's money long-term, and they made bad decisions that they had plenty of time to course correct for (rates have been continuously rising for well over a year, with a clear goal of lowering inflation to around 2%, and you can see how slowly that was lowering and predict roughly how high that would get).

Car companies also had a big faceplant moment with cancelling chip orders, but we were in the midst of a novel global pandemic that no one really knew how people were going to react to, or how big or how long it would last. Health officials were predicting around 100k total deaths in the US, and we blew way past that.

But for tech hiring I can clearly see why they were like 'let's take all this zero interest cash, get a bunch of people, use them to get a competitive advantage, and then when everything starts to unwind we'll just lay people off'. It's a shitty thing to do to people, but I get the reasoning.

I know they all claim they didn't see this coming and 'take full responsibility' or whatever in their layoff announcement/apology letters, but behind closed doors I bet they knew exactly what they were doing, at least the vast majority of them.

I've had quite a few opportunities in my life that I didn't really leap on 100% like I should have, and as a result those opportunities slipped by, and I didn't end up making that hay at all as a result, the opportunities passed and I'll have to find some other way to make that hay.

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

#199
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…

[flagged]

He was in a different arm.

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

#200
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…

The system is designed to be a private scheme supported by a government which supports that scheme. That's the issue. Profits are privatized and losses are socialized. If deposit insurance becomes limitless as Yellen announced, then the issue is our kids will pay for this. Re effective system: Maybe dinosaurs had to swallow rocks to digest their food, but we don't have to maintain this practice just so dinosaurs can…

> need to be replaced by a better solution.

Which is...?

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