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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?

#251

Post by JumpCrisscross »

strangattractor wrote: post #220
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…

Maybe somebody here can explain something I just doin't seem to be able to understand. Why is it so hard for banks to do a stress test? They have all the data. If I was CEO of a bank I'd want to be able to get up in the morning and have some idea how much risk and what types of risk my bank was assuming. Especially in a dynamic environment of Fed interest rate changes. I would think they would be doing it all the tim…

> Why is it so hard for banks to do a stress test?

They're super involved, requiring a full-time department to prepare for and run. That's a multi-million dollar recurring expense a bank with tens of millions of dollars of profit may not be able to afford.

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

#252

Post by [deleted] »

0xcde4c3db wrote: post #77
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…

The main source of upset I've seen (disregarding the silly "woke bank" hot air) is less about banking industry regulations per se and more about viewing government priorities writ large through a blurry sense of class warfare. For example, there's a particular feeling of a double standard between SVB depositors and people with student loan debt. When the government decided to bend the rules for the former, it was don…

[deleted]

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

#253

Post by acchow »

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…

They handled SVB itself, fine. It's a bank that didn't manage interest rate risk sufficiently so its equity holders got zero'd out but depositors are made whole. That's fine. Wish they would handle the next SVB the same way, and the one after that, since there are many other banks that mismanaged risk.

But they're not.

The next banks all get to keep their equity because the fed is putting out a lifeline (the new BTFP facility) so that they won't be zero'd out the way SVB was.

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

#254

Post by JumpCrisscross »

lackbeard wrote: post #70
tptacek wrote: post #67

Earlier quoted context omitted.

As I understand it, the ordinary way FDIC resolves a situation like this is that they simply have the failing bank acquired by a peer bank (a bank of generally the same size and structure), which then takes over the depositor obligations. So it's not as if the ordinary course is that uninsured deposits get zeroed out; it's just that the mechanism FDIC is using is novel and abrupt.

I wonder why that didn't happen in this case? Perhaps fear that would just trigger a run on the acquiring bank?

> why that didn't happen in this case

Buyers of banks in the last round got screwed. Dimon has been vocal about this. They inherit a string of liabilities that take a decade (or more) to resolve. Add to that, the number of private equity buyers for a $200bn bank is limited.

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

#255

Post by JumpCrisscross »

digitaltrees wrote: post #138
checkcircuits wrote: post #100

Earlier quoted context omitted.

I dont know if I agree with your assessment. > Equity is getting zeroed out. Management was fired. Depositors were made whole almost immediately. SVB's assets are apparently not impaired; SVB would have held them to maturity had the bank run not happened, and now somebody else will instead. Part of the problem is that the system that enabled them to end up in this situation is the erosion of Dodd-Frank. The systemic…

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…

> wouldn't have been solved by any thing in Dodd-Frank

Duration risk is specifically tested for in larger banks. The stress tests SVB successfully lobbied out of would have saved them.

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

#256

Post by JumpCrisscross »

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…

Short answer is we nationalized commercial banking, over a weekend and without a vote. I agree it was the best thing to do. But there will be consequences, politically and financially.

The surprising part is, if we were willing to do this, why not just revise the Fed's discount window rules? They discount from market value. Why not change that to face value for Treasuries?

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

#257

Post by bandofthehawk »

upsidesinclude wrote: post #140
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…

>interest rate on savings accounts go up as much as it might... No sensical person is concerned with the interest rate on savings, it is nearly zero and effectively negative. I dont believe anyone should have a single account with 100 million dollars nor should banks allow that, but they do. Perhaps part of the problem is that the $250k coverage is a value that should adjust annually and coverage should be relative t…

> No sensical person is concerned with the interest rate on savings, it is nearly zero and effectively negative

This might have been true for the past ten years or more, it's not true now. You can easily find savings accounts now which offer over 3%, and it's going up as the fed continues to raise rates.

This still might not be the best investment when you consider the high inflation, but it's great for emergency fund type accounts that need low risk, high liquidity.

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

#258

Post by JumpCrisscross »

Waterluvian wrote: post #250
loandbehold wrote: post #246

Earlier quoted context omitted.

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.

> What’s the delta though

For the Treasuries, this is known but not public. For the MBS, a theoretical value is known but not public. (The federal government has to sell these securities. It doesn't make sense to announce the holdings so they can be front run.)

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

#259

Post by s1artibartfast »

TuringNYC wrote: post #239
s1artibartfast wrote: post #230

Earlier quoted context omitted.

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.…

This is a lie. Look at the 10K yourself. It shows the fair market value of AFS securities. Sure, it shows the purchase price for hold too maturity securities, but right God damn next to it it shows the fair market value and losses too. Silicon Valley Bank reported 15 billion in unrealized losses on there hold to maturity portfolio. They also clearly documented the different durations of those securities, and their annual interest yield.

The idea that this was somehow hidden needs to die. People knew they were vulnerable to a run not due to some shady rumor Network, but because they reported exactly what they were doing plain as day.

They were making low but positive interest profit on those assets. They simply locked up too much money in a long-term investment to withstand a coordinated Bank Run. This was a real mistake, but it is not at all about secret accounting.

Anyone who can do simple arithmetic could determine that they were at risk in a bank run from their published documents. Most of the world simply did not care because they did not think the Run would happen

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

#260

Post by WorldMaker »

el_nahual wrote: post #72
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…

Have the FDIC rates actually changed or is this a hypothetical. It's relevant because the FDIC limit has not actually increased--it's still de jure $250K. The fact that the FDIC said they would cover 100% of deposits at SBV could be related to the fact they weren't actually insolvent and could have covered the run if given enough time to liquidate assets.

Relatedly, the FDIC is built as an insurance pool and has always stated coverage as a minimum with no explicit maximum coverage. It's entirely possible to see the FDIC's over-coverage here as an explicit "this pool has seen lower portfolio risk than expected" which may only indicate that past rates were higher than necessary versus real world risk profiles and that serves no expectation of future rate changes just a sign of a very healthy risk pool. (It's just as possible to argue that if the insurance pool was able to 100% cover the deposits in this event that actuaries should reevaluate the risks for the entire pool and decrease rates moving forward to stronger align with the expected minimum coverage and present risk assesment knowledge of the likelihood of events of this scale.)
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