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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?

#291

Post by s1artibartfast »

aeyes wrote: post #290
s1artibartfast wrote: post #244

Earlier quoted context omitted.

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…

You might want to have another look at the Fed balance sheet this week: https://fred.stlouisfed.org/series/WALCL Months of work undone by loaning to banks which made risky investments betting against high interest rates. Any uptick on this graph is equal to printing money which causes inflation. They can wait it out while we collectively pay the cost of this increased money supply.

Im not sure if you are agreeing with me or not. This seems consistent with what I was saying.

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

#292

Post by csomar »

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.

If you can recover full capital from a selloff, SVB wouldn't be insolvent in the first place. The reality is that you can't, which is why we are here. The haircut is probably, also, deeper than 1-10% because otherwise SVB would have borrowed this money against its own "capital". Clearly, that was not possible too. The haircut seems to be quite big but there is no information whatsoever about how big the losses are.

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

#293

Post by csomar »

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.

Janet has just declared that. The Banana court will determine whether you are worthy of full insurance or not. As a bank. I wouldn't be surprised if we have more of these in the future, that the insured parties will be favored too. "Oh, we are only covering X and Y, because they are systemically important to the rest of the economy".

Buy Banana futures while it's still cheap.

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

#294

Post by csomar »

rcme wrote: post #125

All banks are suffering, buy some are suffering more than others. It's also unclear how the Fed's actions are going to impact the situation going forward. Here are my unanswered questions: 1. What's going to happen to risk management at banks now that the government has shown themselves willing to backstop all deposits. Is there really any reason to spend money hedging risk? 2. What's going to happen to the bond mark…

It's just petty corruption. The FED has raised rates (many people will lose from that). Some people don't want to lose from that. The FED decided to not raise rates (ie: holding your low-rate bond to maturity is basically that) for some people. This "some people" are denominated "systemically important"; in other countries they are called "friends of friends", or "oligarchs".

This is the closest the West can be to the East. We finally had the "rapprochement"!

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

#295

Post by perrygeo »

csomar wrote: post #292
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.

If you can recover full capital from a selloff, SVB wouldn't be insolvent in the first place. The reality is that you can't, which is why we are here. The haircut is probably, also, deeper than 1-10% because otherwise SVB would have borrowed this money against its own "capital". Clearly, that was not possible too. The haircut seems to be quite big but there is no information whatsoever about how big the losses are.

Nope. The haircut was only severe because of the immediacy of the bank run. With more buffer (presumably the new holders of SVB's assets have more cash!) and no bank run fears, those assets will eventually mature to their full value. The "haircut" only applies if you're forced to take the marked-to-market value today.

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

#296

Post by quickthrowman »

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.

They don’t have enough treasuries to cover deposits even if they could liquidate them for par value. They’re also holding a bunch of startup loans which I doubt are going to fetch the valuation they assigned to them on their balance sheet, otherwise they would’ve been acquired whole by one of the big banks. Nobody put in a bid for the whole book of business, there must be a good reason for that. Not wanting to assume the credit risk of SVBs loan portfolio is a reasonable guess.

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

#297

Post by [deleted] »

JamesBarney wrote: post #282
tptacek wrote: post #37

Earlier quoted context omitted.

Here is my question about that: whatever the increased costs to insure other banks by making uninsured depositors whole, aren't they ultimately based on the resolution costs for SVB itself? That is to say: in the limit, if it costs almost nothing to wrap up SVB, because their assets are fine (just inconveniently structured), what drives insurance costs up at other banks? I'd also add that covering uninsured depositor…

I think this move probably saved the FDIC money. If you had a massive bank run(1), it's probably cheaper to pay back 250k+ depositors of one bank than for the FDIC to pay out 1. which seemed pretty likely, I know people who over the weekend were planning to pull all of their money out of a regional bank and put it in one of the 4 super banks Monday morning)

[deleted]

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

#298

Post by tripletao »

perrygeo wrote: post #295
csomar wrote: post #292

Earlier quoted context omitted.

If you can recover full capital from a selloff, SVB wouldn't be insolvent in the first place. The reality is that you can't, which is why we are here. The haircut is probably, also, deeper than 1-10% because otherwise SVB would have borrowed this money against its own "capital". Clearly, that was not possible too. The haircut seems to be quite big but there is no information whatsoever about how big the losses are.

Nope. The haircut was only severe because of the immediacy of the bank run. With more buffer (presumably the new holders of SVB's assets have more cash!) and no bank run fears, those assets will eventually mature to their full value. The "haircut" only applies if you're forced to take the marked-to-market value today.

You're conflating two reasons why an asset might be worth less now, but more later:

1. Illiquidity. For example, there might be few people anywhere in the world with the expertise to accurately value some weird loan to a startup. If those prospective buyers are busy or undercapitalized, then the market may become inefficient, with best bids well below FMV. If we wait for those expert buyers to research the startup's credit risk, to raise more money themselves, etc., then the bids will eventually come back up to FMV. This is the classic "It's a Wonderful Life" style bank run, and was an important dynamic in 2008.

2. Time value of money. Assuming positive interest rates, a dollar later is worth less than a dollar now. The NPV of a given cash flow will remain constant, which means that its current value will increase steadily with time. When interest rates increase, the NPV of a future cash flow decreases, and the FMV of the corresponding asset decreases. This isn't a market inefficiency. If you assume that money is lent at interest and no riskless arbitrage opportunities exist, then it's just how money works.

The SVB's problem was #2. There's a liquid and orderly market for their assets, trading at prices close to those predicted by a simple NPV calculation; that price is just lower than the SVB wished. Hold-to-maturity accounting allowed them to ignore that, but that didn't change the economic reality.

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

#299

Post by blackoil »

jandrese wrote: post #64
phkahler wrote: post #34

Earlier quoted context omitted.

>> By all accounts, SVB's banking was boring. They borrowed short and lent long, and their long bets were very safe. Clearly not safe. IMHO anyone buying 10 year treasuries in the last several years is an idiot. Those rates were guaranteed to rise, as they could not fall below zero. Next up: anyone who bought a house in the last few years is gonna get hurt. We knew rates would be rising, and hence prices falling. So…

> Next up: anyone who bought a house in the last few years is gonna get hurt. We knew rates would be rising, and hence prices falling. So far it's mostly sales volume dropping near zero, but soon... People who bought a house as an investment might be in trouble, but people who bought a home to live in are making out like bandits with their 30 year fixed mortgages.

Also people who bought house borrowing money from friend on promising to return it whenever asked for. This is what SVB did.

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

#300

Post by digitaltrees »

lordfrito wrote: post #171
digitaltrees wrote: post #154

Earlier quoted context omitted.

Thank you for posting. This actually changes my view entirely and makes many of my other posts invalid.

Yeah I feel this point isn't well known, but likely will be soon. I love HN because many of us actually listen to each other and debate in good faith, helping each other sharpen our views. Glad you found it helpful.

I went back and edited a few of my posts specifically mentioning your post and the article you cited to clarify the record of discussion.

I agree that it is important to argue I good faith and help each other sharpen our views. Thank you for providing an important resource in the discussion.

While I still feel the instinct for vengeance or rage at SVB is counterproductive given that you showed evidence that the leadership of SVB knowingly, willfully, and with reckless disregard for the consequences, decided to invest in more long term securities than they were advised by their own team does justify some of that instinct.

That being said I still feel the system worked as expected. I think, given human nature as on display with SVB, the regulatory environment should go back to the stronger standard but I also think getting bank failures to 0 isn’t a laudable goal. Some failures will happen and as long as we eliminate the motivation for a run on the bank the system should allow for a degree of risk and failure.

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