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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?

#241

Post by sidewndr46 »

dboreham wrote: post #216
zefalt wrote: post #180

Earlier quoted context omitted.

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 FDIC is not an outdated idea.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 fin…

Although I knew about the FDIC coverage limit, it seems many did not. I've never had enough cash to test this, but I suppose I assumed if you put $251K in a bank account the web page turns red or something, or a dude calls you up to warn you that the last $1K is at risk. I'm guessing now that doesn't happen.

Most depositors treat US banks as magic entities where they can safely store unlimited amounts of funds.

Why, I do not understand.

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

#242

Post by blihp »

greenhatman wrote: post #170
mcherm wrote: 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…

> 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.…

I'd say it's more likely that there will be at least slower rolling runs on smaller banks by large depositors. Keep in mind that the unlimited coverage only applies to the depositors of the two banks that were taken over, not all depositors everywhere. Keeping large balances in a bank that may not be deemed a systemic risk is still rolling the dice if said bank fails. (i.e. unless a bunch of other banks fail around the same time getting national attention, you'd probably be out of luck)

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

#243

Post by sidewndr46 »

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…

This, exactly this. If my bank had collapsed and I had more than $250k in the bank we know the FDIC's answer would be "there is a limit of $250,000 for deposit insurance".

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

#244

Post by s1artibartfast »

aeyes wrote: post #104
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…

> SVB would have held them to maturity had the bank run not happened, and now somebody else will instead This "somebody" is the government aka the central bank putting these bonds on their balance sheet. This is a new form of quantitative easing.

This is not true. SVB had 91 billion in hold-to-maturity securities. These were auctioned off to other Banks. The FED did not take them.

If the Fed did take them, it would be a drop in the ocean. The FED is already holding 2.7 trillion dollars of underwater mortgage-backed securities they bought.

They have six trillion dollars of other securities they are holding.

Nobody can do a bank run on the Fed and they control the interest rate, so despite their colossal unrealized losses, they can wait it out.

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

#245

Post by modeless »

cableshaft wrote: post #198
tenacious_tuna wrote: post #151

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 continuousl…

It wasn't a good opportunity though. Their mortgage-backed securities were making 1.56%. All that risk for 1.56%? I understand that it was hard to find good investments at the time, but that doesn't mean you have to run out and buy bad ones.

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

#246

Post by loandbehold »

Waterluvian wrote: post #236
JumpCrisscross wrote: post #224

Earlier quoted context omitted.

> 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.

The value of those bonds is less than what it says on the balance sheet. They were not able to sell them at price X meaning they are no longer worth that much. The rate on those bonds is less than inflation, meaning keeping them to maturity won't recover original value.

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

#247

Post by lossolo »

tangjurine wrote: post #126
Ilverin wrote: post #105

Earlier quoted context omitted.

Stylized example of how the game works: Bet on every number but 0 on a roulette wheel Not 0: you and your investors make 3 billion this year 0: you and your investors lose your 20 billion you have invested, and the government bails out your depositors who kept 200 billion with you This stylized bet is a good deal for the investors and management and bad for the government. Sometimes investors lose everything but it's…

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…

> First SVB was bailed out by FDIC funds which all banks pay into.

And from where this money is coming from you think? From you and me and everyone else because costs of doing business are transferred to clients, so to the whole society because almost everyone have a bank account.

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

#248

Post by tptacek »

TuringNYC wrote: post #110
dh2022 wrote: post #106

Earlier quoted context omitted.

The assets are impaired at today's interest rates. The yield curve is very inverted (is that gramatically correct??) this signals interest rates will be quite a lot lower in a few years. At that time the assets will not be impaired - they may even be at above-par value.

>> At that time It doesn't matter that prices might recover in the future. I'd argue they might not -- and if anyone believed otherwise they would buy up the assets at inflated prices (why arent they?!) SVN rolled the dice, made bets, the value is way down and... they didnt have enough money to allow customers to withdraw money. That is a fail. They needed to raise a lot of cash, they didnt/couldnt raise enough. That…

These assets will all be redeemable for par value when they mature. The only impairment they have is that they pay less interest in the interim than other available bonds, because their rates were locked in before the interest rate spike.

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

#249

Post by dboreham »

modeless wrote: post #214
tenacious_tuna wrote: post #151

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…

Doing nothing wasn't the best strategy. They could and should have bought short duration bonds instead of long duration bonds and mortgage-backed securities. That would have been fine. If you ask me, the real problem is the fact that 30 year fixed rate mortgages with super low rates were being handed out like candy. Who in their right mind would seriously hand out a 30 year loan with a fixed 2.6% interest rate? It di…

US mortgage market is within the political sphere, decoupled from financial reality. Other countries don't do this.

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

#250

Post by Waterluvian »

loandbehold wrote: post #246
Waterluvian wrote: post #236

Earlier quoted context omitted.

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.

The value of those bonds is less than what it says on the balance sheet. They were not able to sell them at price X meaning they are no longer worth that much. The rate on those bonds is less than inflation, meaning keeping them to maturity won't recover original value.

What’s the delta though? Nobody seems to be able to quantify how much this is, but still are able to muster outrage over some unknown amount of harm done to them as bank users.
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