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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?

#311

Post by maximinus_thrax »

prottog wrote: post #278
maximinus_thrax wrote: post #173

Earlier quoted context omitted.

> 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.

No, it's not. One more CO2-spewing pickup truck doesn't take the headlines for a week.

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

#312

Post by stametseater »

creato wrote: post #76
stametseater wrote: post #47

Earlier quoted context omitted.

> I think people are finding a general lack of self-awareness common among SV startup founders infuriating. Exactly this. I even read a comment from such a founder saying essentially: "Why are people so angry, don't they know I oppose brogrammer culture?" As if brogrammer culture were the meat of of the reason why people are sick of the hypocrisy of the capital class, or even American startup culture specifically. To…

> If all the depositors were merely semi-wealthy commoners with only $300k in their accounts, they would have only gotten $250k back. No, they would have gotten $250k + ~90% of the balance. Maybe even 100%. Annoying but I wouldn’t care enough to take to twitter about it. To explain why: it’s an overall loss of a few percent. The same as the daily fluctuation if I had kept the money in the stock market or whatever.

Quibble. The point is that the rules would not be changed for such a person. Neither you nor I would expect the rules to change mid-game for a common sort of person.

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

#313

Post by basseq »

UncleEntity wrote: post #167
basseq wrote: post #85

Earlier quoted context omitted.

No, and that's the point. I understand that banks mark long-term bonds as hold-to-maturity (and only then can list them at par on their balance sheet). But they actually have to hold them . Otherwise, they have to mark them to market, and any sales of HTM bonds flip the entire tranche over to MTM. So part of the problem is that SVB had a reasonable-looking balance sheet of HTM bonds, then had to sell some at market,…

And people saw this is what they were doing and were tweeting about it in advance of all their “problems”.

Sure, though in all fairness, I understand it's standard GAAP accounting for all banks, and your balance sheet has to have a footnote explaining the market value as well. I.e., this particular play or accounting standard is extremely common.

It seems like SVB was perhaps a little more exposed to interest rate risk than others, and had a pool of depositors that were more likely to withdraw significant funds in lockstep.

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

#314

Post by basseq »

lmm wrote: post #269
digitaltrees wrote: post #145

Earlier quoted context omitted.

So far as I have seen, every equity sale was part of standard, pre-cleared and disclosed plans. And all those executives had significantly more equity they probably would have loved to sell but couldn't.

> every equity sale was part of standard, pre-cleared and disclosed plans Not really. They were sold 1 month after the 10-Qs were filed, which is shorter than the holding period most reputable banks require for their executives, and the 1O-Qs had only that one sale in them.

My point in all this is that the FDIC's actions to guarantee the deposits did not benefit bank management.

They may have "made out like bandits" in taking advantage of equity holders, and perhaps without duty of care to depositors... but all that is true regardless of the subsequent actions. They did not "make out like bandits" because of the Government's actions. And I think that's important, given the criticism levied against the "bailout".

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

#315

Post by tripletao »

NovemberWhiskey wrote: post #309
tripletao wrote: post #276

Earlier quoted context omitted.

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 deposi…

> 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. ... but SVB expected to have positive net-interest-income with increasing rates. Look here: https://www.sec.gov/Archives/edgar/data/719739/0000719739230... A 100bp increase in interest rates would've increased net-interest-income by 1.8%; a 200bp i…

Why should economically rational depositors leave more money than they need for short-term working capital at the SVB at ~0% when a Treasury bill pays ~5% and carries less risk? Back when rates for everything were ~0%, a startup might lazily just put everything in the bank; but when interest rates increased, the reward for moving and the risk of staying both increased. I agree (and already noted above) that depositors are often irrationally sticky in practice; but nothing obligates them to be, and these ones weren't.

Of course most of the money left in a self-sustaining bank run, not directly for the reason above. There's a quite rational reason for someone to start that run, though. That reason wouldn't exist if the bank were well-capitalized on a MTM or NPV basis.

The SVB's expectation in that 10-K is a model of depositor behavior, predicting that depositors will leave their funds at a MTM-insolvent bank earning below-market interest for long enough for the SVB to earn its way out of the hole. That prediction obviously didn't come true. So doesn't that just mean their model was wrong, and shouldn't be relied upon elsewhere either?

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

#316

Post by CatWChainsaw »

mikewarot wrote: post #283

Minority?? Opinion follows: The rot is at the core, the Federal Reserve. My parents saved money in a savings account for their eventual retirement. It was a prudent and accepted way to do things. Over time, with Reagan and deregulation of everything that followed, their savings rate effectively dropped from 5-8% to zero. That income was expected to fund part of their retirement, and it was stolen from them in order t…

Hate to break it to you!

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

#317

Post by peyton »

mercyandgrace wrote: post #287
FreakLegion wrote: post #285

Earlier quoted context omitted.

If you look through the thread I replied to and the broader conversation, some people objected to backstopping deposits without limit and think rates have to go up if this is the new status quo. The question is in what way(s) does it matter whether deposits are insured without limit in a single account, which is new, or with limits when spread across an arbitrary number of accounts, which isn't? If one costs 1x, why…

>The question is in what way(s) does it matter whether deposits are insured without limit in a single account, which is new, or with limits when spread across an arbitrary number of accounts, which isn't? It matters because only 1 (SVB) bank failed. If those depositors had their money swept across multiple banks this point would be moot. Edit: If deposits are spread about multiple banks, the FDIC does not need to car…

I don’t follow the math. A bank failure is a bank failure. There’s no difference to the FDIC between 100 depositors with $250k swept across 100 banks and 1 depositor with $25m.

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

#318

Post by JumpCrisscross »

s1artibartfast wrote: post #284
JumpCrisscross wrote: post #279

Earlier quoted context omitted.

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.

Like I said above, you won't have a crystal clear number but you have some brackets on the fair market value. The assets under management belong to the account holders so you can zero them out. You can zero out the shareholder value which is zero. This mainly leaves there other cash assets and physical assets. I'm not willing to do it to win a hn debate, but there's enough public information to estimate the size of t…

> they were evasive or hiding things in their financial reportings are off base

Nobody (in this thread) claimed this? And I disagree with the “within a billion or two,” though do think within a few tens of billions is accurate. The problem isn’t the specificity of the filing per se but the delay; that isn’t the balance sheet anymore.

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

#319

Post by s1artibartfast »

JumpCrisscross wrote: post #318
s1artibartfast wrote: post #284

Earlier quoted context omitted.

Like I said above, you won't have a crystal clear number but you have some brackets on the fair market value. The assets under management belong to the account holders so you can zero them out. You can zero out the shareholder value which is zero. This mainly leaves there other cash assets and physical assets. I'm not willing to do it to win a hn debate, but there's enough public information to estimate the size of t…

> they were evasive or hiding things in their financial reportings are off base Nobody (in this thread) claimed this? And I disagree with the “within a billion or two,” though do think within a few tens of billions is accurate. The problem isn’t the specificity of the filing per se but the delay; that isn’t the balance sheet anymore.

>And I disagree with the “within a billion or two,” though do think within a few tens of billions is accurate.

It is clear from the statement that we are almost entirely talking about 30 year MBS purchased in 2021.

3% 30yr MBS were about $105 throughout 2021. These were about $89.2 at the end of 2022 (10-k filing), and about $89.4 today.

You might say, "but they may have put it 30yr MBS!". The thing is, you can validate this by the ammount they lost from 2021 to 2022. It also doesnt make much of a difference if they bought slightly different rate MBS at 2.5% or 3.5%, as they track pretty closely. Lastly, MBS value havent changed much since the time of the 10-k filing.

To get "a few tens of billions" difference, they would have had to tripple their losses on MBS in a time when MBS value has been stable.

https://fred.stlouisfed.org/series/MORTGAGE30US

https://www.mortgagenewsdaily.com/mbs/umbs/30/30

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

#320

Post by salawat »

peyton wrote: post #317
mercyandgrace wrote: post #287

Earlier quoted context omitted.

>The question is in what way(s) does it matter whether deposits are insured without limit in a single account, which is new, or with limits when spread across an arbitrary number of accounts, which isn't? It matters because only 1 (SVB) bank failed. If those depositors had their money swept across multiple banks this point would be moot. Edit: If deposits are spread about multiple banks, the FDIC does not need to car…

I don’t follow the math. A bank failure is a bank failure. There’s no difference to the FDIC between 100 depositors with $250k swept across 100 banks and 1 depositor with $25m.

If that one depositor with 25m banks only at the bank that fails, FDIC is on the hook for all 25m.

If the deposit is 250k across 100 banks, and only 1 bank fails, FDIC is only on the hook for at most the 250k.

Now multiply that by number of depositors. It's RAID for banks. You're gaining fault tolerance by decreasing the impact of any particular failure.

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