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

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

#231

Post by s1artibartfast »

landemva wrote: post #150
digitaltrees wrote: post #138

Earlier quoted context omitted.

This wouldn't have been solved by any thing in Dodd-Frank. SVB invested in highly liquid securities that are considered the safest asset class, interest rate risk wasn't expected to materialize as quickly as it did as the Fed would have been expected to raise rates more gradually over a longer time horizon or provide an asset exchange mechanism for member banks. SVB is not an example of a bank that had engaged in Inv…

> The fed ... could simply allow all member banks to exchange low interest rate long term bonds for new higher yield bonds and pay the Fed for the spread with a loan. Maybe we should admit Congress will never repay the national debt and simply have the Fed purchase new federal debt issuance. The current complicated charade just pays banker bonuses.

SVB was holding 91 billion dollars of underwater securities (with a fair market value of 76) . The FED is currently holding 2.7 trillion with a t dollars of underwater securities

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

#232

Post by cameronh90 »

whatshisface wrote: post #120
HPMOR wrote: post #114

Earlier quoted context omitted.

As somebody employed by a company which kept all their assets in SVB, I strongly support the FDIC bailout. Even a couple percent haircut would've resulted in many many second order economic implications. I think even for member banks, strong economic activity not realized through a systemic contagion is much better than slightly lower premiums.

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?

Isn't the point of banking regulations that we are relying on the government to do that checking?

Relying on customers to check their bank, besides being fairly impractical for all but the largest and most sophisticated customers, is just going to trigger bank runs as soon as customers get any whiff of a problem.

I don't see the problem with unlimited FDIC provided the regulations are congruent with that. If you want to go the private route for better interest rates and take on the regulatory burden yourself, you can always go with an uninsured bank. If you just want a simple place to stash a few hundred million, why make you jump through hoops?

What I don't understand is why start-ups were apparently keeping millions of dollars of capital in a bank account rather than government bonds or other instruments, given that the FDIC limit was well known.

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

#233

Post by Waterluvian »

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…

Could you quantify your harm?

How much extra are they taking from your bank to cover the delta between what the FDIC will recover and what they have to pay out?

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

#234

Post by hackernewds »

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?

I think you meant to say shore it up

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

#235

Post by unyttigfjelltol »

sophacles wrote: post #218
rippercushions wrote: post #215

Earlier quoted context omitted.

From the Treasury announcement: Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. In other words, if the FDIC's current funds can't cover the bill, an extra fee will be levied on banks to make up for it. https://home.treasury.gov/news/press-releases/jy1337

So they might raise rates. If they can't recovered from SVB assets via selloff, the government loans on bonds, etc.

No one has published what kind of discount the gov't applied to the assets it is leveraging to make uninsured SVB depositors whole. For all we know the government correctly forecast the likely future losses, allocated some extra assets from the SVB carcass, and functionally prepaid those maybe rate increases.

The problem, as it were, isn't some lurking or hidden loss, it's arguably that these answers aren't currently available and we don't have the slightest idea in the public what will happen if profits result from the bailout venture. This shouldn't be a "heads-I-win-tails-you-lose" redux.

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

#236

Post by Waterluvian »

JumpCrisscross wrote: post #224
sophacles wrote: post #206

Earlier quoted context omitted.

I keep reading comments like this, but I've seen no well sourced material saying that the FDIC is raising rates. Do you have some reliable source about it? (NOT a "look at it logically" or "here's how my health insurance works, why would the FDIC be different", or "do your own research" or anything else that's some random internet comment - I'm looking for real meat about this claim).

> I've seen no well sourced material saying that the FDIC is raising rates Beyond the special assessment, they almost certainly need to raise a new assessment to cover $250k+ deposits. Full insurance can't be on a discretionary basis.

Minus the assets they recovered from SVB which will probably cover most of it given they were just illiquid, not fraudulent. All those bonds didn’t just disappear.

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

#237

Post by 462436347 »

hackernewds wrote: post #234
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?

I think you meant to say shore it up

You're right.

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

#238

Post by unyttigfjelltol »

s1artibartfast wrote: post #225
sophacles wrote: post #218

Earlier quoted context omitted.

So they might raise rates. If they can't recovered from SVB assets via selloff, the government loans on bonds, etc.

Well we already know there are some nominal losses, because the FDIC did take over SVB.

FDIC took over because SVB failed to make a margin call Thursday 9 March. Not having the money today while operating as a going concern, and having the money never after a liquidation, are different things.

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

#239

Post by TuringNYC »

s1artibartfast wrote: post #230
TuringNYC wrote: post #102

Earlier quoted context omitted.

>> SVB would have held them to maturity had the bank run not happened, and now somebody else will instead. If that were the case, they wouldn't have had to raise emergency funding last week. The assets were indeed impaired. Hiding the true values via AFS accounting treatment doesn't magically make the dire circumstances sustainable.

Nothing was hidden. Losses were clearly reported. Check out page 125 of their 10k for excruciating detail. This misinformation needs to stop.

>> Noting was hidden. Losses were clearly reported. Check out page 125 of their 10k for excruciating detail. This misinformation needs to stop.

Note: AFS treatment reports the BOOK VALUE not MARKET VALUE

You can read this: https://corporatefinanceinstitute.com/resources/accounting/a... to understand AFS vs MTM treatment.

Losses are reported, definitely not clearly. Losses are hidden under "Other Comprehensive Income." If you want to be transparent about it, then it should show up in the Profit and Loss. You'd choose MTM accounting treatment. Not choosing MTM accounting treatment is literally hiding the losses into a vague bucket of income.

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

#240

Post by xenadu02 »

s1artibartfast wrote: post #225
sophacles wrote: post #218

Earlier quoted context omitted.

So they might raise rates. If they can't recovered from SVB assets via selloff, the government loans on bonds, etc.

Well we already know there are some nominal losses, because the FDIC did take over SVB.

No, that is not known at this time. It will take a few years to fully wind down the assets so as of right now no one knows if recovery will be 100% of deposits (in which case general creditors may get some money).

The only thing we can be certain of is shareholders are wiped out and general creditors will take a significant haircut.

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