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Banking in uncertain times

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Re: Banking in uncertain times

#371

Post by lordnacho »

skybrian wrote: post #358
lordnacho wrote: post #320

Earlier quoted context omitted.

> B/c of the above coupled with rules of "you need to mark to market" and "if value falls X% you have to sell", lots of selling happens in low liquidity environments and therefore prices fall more, the downward cycle begins This is a _good_ thing. We don't want a house of cards that's so fragile as soon as it looks like it it's going to fall down, we pour glue all over it and prop it up with cardboard. Assets need to…

It seems like there are limits, though. Do you really need to contribute to a flash crash [1], or is some longer time period okay? Not getting triggered by a flash crash seems more robust, and getting triggered by it more fragile? Some of the time, anyway. [1] https://en.wikipedia.org/wiki/2010_flash_crash

Flash crash came right back and nobody is suggesting settling intraday. But even if you had to check your books monthly, SVB would have had to recognize losses sooner and less catastrophically.

Re: Banking in uncertain times

#372

Post by jscipione »

The Federal Funds Target Range chart shows how President Trump was targeted by partisan forces at the fed. Interest rates went up to slow the economy just as soon as Trump was inaugurated in 2016 so that it would appear that President Trump's economic plan was failing. Yet after suffering through two consecutive years of the destruction of the US economy under Joe Biden it is clear that President Trump's economic plan was working well, and that he was railroaded by the Fed that has been weaponized against the American people.

Re: Banking in uncertain times

#373

Post by salawat »

bombcar wrote: post #142
lordnacho wrote: post #104

As a former trading desk guy I struggle to see how the system allows things to be marked-to-cost. Or rather, why is it that we allow a bank to not mark-to-market a security for which there is a liquid market? Allowing the bank to pretend it has more assets than it actually has seems to be an invitation to hide risk. If they had to MTM their underwater bonds, they would would have been pushed to raise capital earlier,…

It seems to me (being uneducated in the matter) that if a bank is holding US government debt (treasuries) as "hold to maturity" that the US Government should have some ability to offer a line of credit against those assets for cases like this one was. Or that the bank should be able to say "depositor X transferred $100 million to Chase, so we sent Chase a wire for $10 million and treasuries marked HTM worth $90 milli…

That would fall over as soon as people decided to "Cash out" the United States. Which would be an interesting exercise tbqh. Probably catastrophic, but interesting. If the People went one way, and the Government another. We're most certainly entering Failed State territory at that point.

Re: Banking in uncertain times

#374

Post by michael1999 »

michael1999 wrote: post #171
spir wrote: post #47

Stablecoins are conspicuous in their absence in patio11's post. Personally, I believe that patio11's loathing of crypto has made him incurious about its potential. But that's not the point here. The point is that stablecoins are about to become a Very Good Deal for ordinary people: In the near future, stablecoins like USDC will become immune to bank runs because the US Dollar reserves backing them will be held in veh…

A bank deposit is a stablecoin. SVB blew up because it was a bad stablecoin.

All stablecoins are inevitably fallible stablecoins. Wealth is social, and can not be "stored" outside a social context.

Re: Banking in uncertain times

#375

Post by stevedekorte »

"Society depends on this mismatch existing. It must exist somewhere."

I see no reason why bank deposits can be fully backed, and ppl who choose to can buy into bonds funds separately. For example, only ~6% of gov bonds are held by banks: https://www.statista.com/statistics/201881/holders-of-the-us...

Re: Banking in uncertain times

#376

Post by GrinningFool »

meghan_rain wrote: post #261
GrinningFool wrote: post #259

Earlier quoted context omitted.

Was this ChatGPT?

No, why? Or how even? Is there an Hackernews API for it?

Thanks - I was curious because the 'feel' of it was very similar that what ChatGPT generates for argumentative writing.

Re: Banking in uncertain times

#377

Post by skwirl »

kasey_junk wrote: post #168
skwirl wrote: post #54

Earlier quoted context omitted.

I don't think it's a big change. I think very few people are qualified to do due diligence on their banks. It's a bit like expecting people to inspect bridges before they drive over them. It's a piece of financial infrastructure that we expect to just work. It would be a big change to not have that expectation, and would likely result in the collapse of the regional banking system as people flock to the Big Four "sys…

> I don’t think it’s a big change This is a big part of the problem in tech apparently. It _is_ a big change and in other industries it is very common for large cash holders to do normal due diligence on their banks and to have technology and procedures to mitigate the counterparty risk. The flocking concern was literally cited as one of the problems with “too big to fail” in 2008 and it happened! Lots of corporate &…

I think the fact that a bank called "Silicon Valley Bank" collapsed is really breaking a lot of people's brains. The big tech companies (and other big companies) have treasury departments that manage short and long term cash. The companies that are impacted by the current banking instability are largely small (and some medium) businesses that generally only manage cash reserves for short term expenses. The tech companies that were impacted are largely startups that are depositing their runway which they generally quickly burn through. Many of these startups are small enough to not even have a CFO, let alone a treasury.

But it's not a tech startup-specific problem - it's a small business problem. Signature Bank (collapsed) and First Republic Bank (barely hanging on) largely handle bread and butter small business accounts. These are companies that just need a place to store cash that they use for payroll and recurring business expenses. Many of SVB's customers were also non-tech small businesses.

One SVB customer interviewed here in Boston was an electrical contractor. I'm not sure that it's wise to expect electrical contractors to have CFOs and treasury departments to "mitigate counterparty risk" with their banks if you want to have functioning small businesses in your community.

Not sure of the relevance of the last line of your comment, but it's wrong. A bank run can either be the cause or the effect of bank insolvency. My point was that there's no real orderly way of noticing that a previously healthy bank is now unhealthy and transferring out your money. As soon as the bank is believed to be unhealthy you get a run and near-instantaneous collapse, as we have been seeing. Notice that I used the words "healthy" and "sound" and not "solvent." Any bank will become insolvent in a bank run.

Re: Banking in uncertain times

#378

Post by ted_dunning »

jnwatson wrote: post #287
forsakenTadpole wrote: post #241

Earlier quoted context omitted.

recently had a call with Fidelity about this. many places including Fidelity will automatically split your cash between many banks on the bank end. for Fidelity the money in my Cash Management account will be split into up to 20 different banks which means that up to $5 million is FDIC insured. https://www.fidelity.com/why-fidelity/safeguarding-your-acco...

It seems like a hack that really should be built into the system. It is insurance only for those in-the-know.

That is the point of having a competent CFO.

The letters "CFO" are pronounced "those in the know".

Doing a cash sweep is NOT rocket science and there are lots of services that can do it for you.

A company can also project forward and ladder treasury instruments to mature at the right times to provide liquidity. T-{notes,bills,bonds} are issued by the US government and thus have at least as much resiliency as the SDIC.

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