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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?

#271

Post by s1artibartfast »

JumpCrisscross wrote: post #267
s1artibartfast wrote: post #264

Earlier quoted context omitted.

This is a lie. It says on their SEC filings. They state clear as day that they had 91 billion of securities, currently worth 76 billion in their hold to maturity portfolio. In their avalable for sale (AFS) portfolio, they had 28 billion, currently worth 26. They break it all down by asset type, MBS, treasuries, foreign debt, ect. They break it down by the duration, eg There is no mystery. I dont know why people keep…

> break it all down by asset type, MBS, treasuries, foreign debt, ect. They break it down by the duration, eg Yes, categorically. No, not specifically. 5 and 10 years produce different answers, particularly with current convexity. (It is fine if you're trying to get broad-grained answers.) Potential buyers over the weekend got a list of CUSIPs. The public does not get that until ex post facto .

The public does know the current value of all securities, and of several different buckets. Yes, these market values will change at different rates for individual assets, and we dont have a list of every stock, bond, and loan.

We still have a very good understanding of the "delta" and the magnitude of the loss, if not with crystal clarity.

Nearly all of the unrealized loss was in securities more than >10 years. They had 15.1 billion in unrealized HTM losses. 14.7 billion of this had a maturity >30

9 billion is agency MBS

2 billion in agency collateralized mortgage obligations

2.3 billion in commercial mortgage backed securities, and

1.2 in municipal bonds and notes.

They actually have relatively few treasuries, and none in their HTM portfolio. Unrealized losses on treasuries are ~1 billion, And mostly treasuries from treasuries less than 12 months ( contrary to what most people report).

I really recommend actually looking at their filing. It is extremely detailed.

https://d18rn0p25nwr6d.cloudfront.net/CIK-0000719739/f36fc4d...

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

#272

Post by upsidesinclude »

bandofthehawk wrote: post #257
upsidesinclude wrote: post #140

Earlier quoted context omitted.

>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 fun…

3% savings in a 6% inflation year is negative returns.

I cant believe this got downvotes...

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

#274

Post by mercyandgrace »

FreakLegion wrote: post #194
mercyandgrace wrote: post #155

Earlier quoted context omitted.

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), a…

>The FDIC insures the entirety of the deposits either way.

This is new with SVB. I get the whole "250K minimum" argumemt, but this is the first where we are seeing major 10M++ depositors getting 100% guarantees.

I don't see issue with spreading money across smaller banks - other than perhaps they may not be able to assess risk as well as larger banks. But again, SVB.

I think one thing to keep in mind is that most bank depositors hold far, far less than the 250K guaranteed by FDIC. By a large margin. Id be surprised if the average was above 10K. There are $17T in deposits across the country [1]. The FDIC at the beginning of the year had $128B in balance as insurance to depositors [2].

[1] https://fred.stlouisfed.org/series/DPSACBW027SBOG

[2] https://www.fdic.gov/analysis/quarterly-banking-profile/inde...

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

#275

Post by stefan_ »

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 system worked when we declared a bank not system relevant, then, on a weekend, declared a systemic exception to save it's depositors?

I mean, this comment almost wrote itself.

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

#276

Post by tripletao »

NovemberWhiskey wrote: post #261
tripletao wrote: post #95

Earlier quoted context omitted.

I think you're assuming here that the HTM accounting means the bonds don't actually lose value if they're held to maturity? That's not the case; it's just arbitrary accounting treatment, and the regulatory decision to permit such accounting is a big part of why the SVB blew up. Accounting rules are supposed to reflect economic reality to some extent, but they obviously don't do so exactly. For example, under FIFO inv…

Say you buy a theoretical 10 year zero-coupon bond with a 5% yield and a face value of $1,000. You should pay about $614 for it. You intend to hold it to maturity. Interest rates take a random walk from now until maturity. Under fair-value accounting, the balance sheet value starts at fair-value (obviously), then gyrates, but tends towards face value, and reaches it at maturity, due to time decay of bond premium. As…

Assuming I buy the bond today, the two accounting treatments agree (correctly) that in 2033, the bond is worth $1000 2033-dollars. The problem is that when interest rates increase, a 2033-dollar becomes worth relatively less than a 2023-dollar. So that agreement in future says nothing about the economic value of the bond today.

That's the loss that took down the SVB, and it's a real economic loss. If the SVB's depositors behaved like the simplest textbook model, then as soon as short-term Treasury rates increased, they'd insist on correspondingly increased interest on their deposits. The cost of that extra interest would be the SVB's loss--the cash flows in from the bonds stay the same, but the cash flows out to the depositors would need to increase.

In reality, I understand that depositors are generally "stickier" than that, leaving their funds at their existing banks even when bank interest rates increase slower than Treasury rates. That gave the SVB some hope that they could earn their way out of the hole, passing the loss slowly to their depositors over time by paying below-market interest rates. That's the behavior that HTM accounting roughly models. The SVB's depositors had no economically rational incentive to accept that though, and they didn't.

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

#277

Post by stefan_ »

jahewson wrote: post #169
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?

That would be irrational. It’s a Prisoner’s Dilemma and no matter what any individual would prefer to do the only rational move is to assume others will betray you. I don’t think it’s fair to ask SV to behave irrationally.

You know the most important part in "prisoners dilemma" is the prison.

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

#278

Post by prottog »

maximinus_thrax wrote: post #173
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…

> I am one of those who has been harmed. How were you harmed specifically? > you will not see the interest rate on savings accounts go up as much as it might have otherwise. Bullshit. Interest rates for savings accounts are and have been an absolute joke. Are they going to become a more hilarious joke? Probably but seriously, who cares? > I'm not saying this outcome is terrible, perhaps it was the best solution for t…

> How were you harmed specifically?

That's like asking how you were specifically harmed as a result of there being one more CO2-spewing pickup truck in the world. Bad things amortized over millions of people are still bad, even if the harm to any individual is too small to verbalize.

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

#279

Post by JumpCrisscross »

s1artibartfast wrote: post #271
JumpCrisscross wrote: post #267

Earlier quoted context omitted.

> break it all down by asset type, MBS, treasuries, foreign debt, ect. They break it down by the duration, eg Yes, categorically. No, not specifically. 5 and 10 years produce different answers, particularly with current convexity. (It is fine if you're trying to get broad-grained answers.) Potential buyers over the weekend got a list of CUSIPs. The public does not get that until ex post facto .

The public does know the current value of all securities, and of several different buckets. Yes, these market values will change at different rates for individual assets, and we dont have a list of every stock, bond, and loan. We still have a very good understanding of the "delta" and the magnitude of the loss, if not with crystal clarity. Nearly all of the unrealized loss was in securities more than >10 years. They…

We can estimate the delta as of filing dates. We don’t know what the delta is.

That doesn’t matter, because they’re federally backed. But it’s a crucial difference to appreciate less than one week after a run.

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

#280

Post by prottog »

digitaltrees wrote: post #136
tangjurine wrote: post #126

Earlier quoted context omitted.

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…

These are great points and show that the system worked as designed. There will always be bank failures. We want depositors to have confidence that their deposits are safe, not altruistically, but to prevent bank runs since those serve no one and re totally avoidable. Management and Shareholders were wiped out. Honestly, it looks like in a year or two, the Government will make money off of this because as soon as inte…

> Honestly, it looks like in a year or two, the Government will make money off of this because as soon as interest rates come down the securities will go back to book value.

Government will get back the number of dollars equal to the par value of those bonds. Inflation between now and then, however, will mean that in real terms there will have been losses.

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