Earlier quoted context omitted.
It's creating an asset. Creating and buying are different thing. Creating should be allowed, buying should be forbidden.
Why?
Because it's way easier to buy a lot of unknown risk than create it by lending.
First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
221–230 of 237 posts
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#222Earlier quoted context omitted.
So it was move in the right direction. Just didn't go far enough. Banks should not gamble with their money no matter how safe the bet seems. The only exception is issuing loans because that's one of core reasons for the bank to exist.
SVB would have failed even it held only Treasuries on its book. Those are literally used to define the risk-free rate of return . The assets were not risky. It was their duration mismatch that was the problem.
Every asset has some risk. If they were only allowed to own dollars and loans they created themselves there would be no problem.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#223Earlier quoted context omitted.
[simplified explanationfollows] No, the inverse. Banks are required to keep a % of deposits available in cash, another % in easily sellable assets, etc (lots of regulations here, esp post 2008 crisis, though the US exempted community banks from the new rules, which contributes to the current crisis) in order to reduce the risk that a bank run puts them out of business. But a big run can exceed those safeguards, as ap…
Sorry, I meant is there a law preventing limiting withdrawls. If not, I don't see why banks don't just do that, when subject to a run, so I guess there must be. In other words, the government says that deposits must be always withdrawlable immediately on request, which seems like a surefire recipe for runs.
Normally contract law. You select an account offering with different procedures for liquidation.
A demand deposit or checking accound has little or no notice. A money market may take a day or so for underlying assets to be exited. CoD's and such typically don't even have the option for withdrawal. You just have to wait for maturation.
Point is, you know this when you open the account. They should take great pains to ensure you understand the instrument... And to manage things appropriately, which apparently, SVB did not.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#224Earlier quoted context omitted.
SVB would have failed even it held only Treasuries on its book. Those are literally used to define the risk-free rate of return . The assets were not risky. It was their duration mismatch that was the problem.
Every asset has some risk. If they were only allowed to own dollars and loans they created themselves there would be no problem.
That’s also totally wrong. What do you think the financial difference between originating a loan and buying a bond is? You pay out a principal sum, then (as long as the borrower is creditworthy) you get back the principal and interest.
Unless you only make floating rate loans (which is extremely rare outside of revolving lines like credit cards) then you have exactly the same duration risk problems and you’re actually exposed to much greater credit risk with a loan than you are with a government bond.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#225Ahhh yes. History doesn’t repeat, it rhymes. And, this limerick reminders me of the post-1985 S&L crisis. But, no banksters go to jail anymore. Thing is, once it’s no longer politically tolerable through threats and fear mongering and some blackmail, eventually the government will bail them out again for another rinse - wash - repeat cycle. The schedule is likely as prior. Warnings. Government involvement. Followed by a market crash (a la 1987), and maybe even both a stock market and bank holiday for a time in the hopes back door dealings can paper over the concerns until they re-open. It’s either a cliche or a trope at this point. Not sure which. The FED knew what its rate increases would do to its member banks. If you don’t think the regulators have direct knowledge of balance sheets of its members, there’s this oceanfront property in Arizona you might be interested in purchasing. It also knew which banks could withstand it (either through no or private or public or both private and public assistance) and voted in favor of the chosen winners, result will be greater consolidation with the majors always coming out on top in the end and the smalls and mids either bellying up or taken over / bought out at pennies on the dollar. Double win for the majors. It’s an old playbook and publicly available script given the data (deemed mildly trustworthy). Good luck all.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#226As a customer of FRB, I know this to be a very sound and well run bank. They also have strong relationships with customers. This is not a Silicon Valley Bank story. I am going to buy some of their stock tomorrow, as it is an amazing buy at this price.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#227As a long time customer of First Republic, I know them to be sound and very well managed. They are not Silicon Valley, which is also a good bank with a very valuable franchise I expect money center banks to be vying to acquire from the FDIC shortly, with some undertakings from FDIC, and all depositors to be protected. These two banks are very different in their balance sheets. As to First Republic, the concern is way overblown and I'm going to buy some First Republic stock tomorrow, as this price is ridiculous now.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#228Earlier quoted context omitted.
Probably not if the assets are short. The FDIC can claw back withdrawals from what I understand.
Source? That's wild if true.
Replies by glasshug on a previous comment on mine might be worth reading.
https://news.ycombinator.com/item?id=35096418
I admit that I don't know enough to vouch for the validity of those comments though.
Re: First Republic Bank files 8-K – Tech only 4% of total deposits; no sector >9%
#229Earlier quoted context omitted.
If you can't trust them to buy good assets you sure can't trust them to issue them
You can trust them because if they issue a loan they shouldn't be able to sell it.
LOL if a bank can't sell loans they'd have liquidity issues before a bank run could even happen.