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Bill Ackman: I expect there will be bank runs beginning Monday at non-SIB banks

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Re: Bill Ackman: I expect there will be bank runs beginning Monday at non-SIB banks

#41

Post by digitaltrees »

maxbond wrote: post #30
UncleOxidant wrote: post #25

Earlier quoted context omitted.

So why do there seem to be runs against other banks being encouraged now? It's the induced panic that can do damage... in stampedes or bank runs.

When it's revealed that one bank has a bad balance sheet, it suggests that other banks do too, because they all went through similar circumstances and had access to similar markets and probably came to similar decisions about what securities to buy (and when to buy them). Kind of like how when you learn that one major application has vulnerabilities due to misuse of log4j, it suggests other major applications will ha…

That’s right in general but not in the case of SVB. It was a bank that had a highly narrow client mix that all stopped raising money at the exact same time after a decade of raising tons of money. So SVBs depositors all started withdrawing money at the exact same time. No other bank in the world has that same client mix. If there is another Run it’s because of heard mentality not because of a real problem

Re: Bill Ackman: I expect there will be bank runs beginning Monday at non-SIB banks

#42

Post by tomato_123 »

digitaltrees wrote: post #38
tomato_123 wrote: post #28

Earlier quoted context omitted.

He is (likely self-interestedly) angling for a system-wide guarantee on uninsured deposits. He's pretending something like this is true: SVB's failing will have a contagion effect on other banks (though some mechanism that he doesn't explain or have evidence for, although guys like him menacingly gesture towards MBS or something to remind us of 2008, even though it's completely different). By stopping the SVB run, we…

Even if it doesn’t create contagion it may wipe out a generation of start ups and destroy trillions of dollars of value that will be created in 10 years, destroying the most valuable ecosystem the world has ever seen and all just at the time AI is about to lead to the next revolution and economic transformation. Given these implications, the policy choices are easy. Why allow these long term consequences in the name…

Calm down. No it won't. We have financial markets. Good startups/innovations will get funding elsewhere. This is already happening. The current equity holders will lose a bit. No big deal.

Re: Bill Ackman: I expect there will be bank runs beginning Monday at non-SIB banks

#44

Post by mcphage »

stillbourne wrote: post #32

There's only one way to fix this folks. We need to abolish the FDIC and use the money saved to give a tax cut to the rich. The rich then trickle down onto the failing banks and their depositors to resolve this problem.

Woah, that would absolutely increase my confidence in banking and would gladly put all my money in banks in such a situation! No way that’s gonna go wrong, nosireebob.

Re: Bill Ackman: I expect there will be bank runs beginning Monday at non-SIB banks

#45

Post by panarky »

tomato_123 wrote: post #28
sql-spy wrote: post #2

Even though I dislike this guy, he is not wrong. First Republic is most certainly going into receivership tomorrow.

He is (likely self-interestedly) angling for a system-wide guarantee on uninsured deposits. He's pretending something like this is true: SVB's failing will have a contagion effect on other banks (though some mechanism that he doesn't explain or have evidence for, although guys like him menacingly gesture towards MBS or something to remind us of 2008, even though it's completely different). By stopping the SVB run, we…

> though some mechanism that he doesn't explain

I believe the mechanism he's talking about is that large, uninsured depositors will wire funds out of regional banks that are "small enough to fail" to more diversified national banks that are designated "systemically important banks", which means they're too big to fail.

Re: Bill Ackman: I expect there will be bank runs beginning Monday at non-SIB banks

#46

Post by panarky »

digitaltrees wrote: post #39
dougSF70 wrote: post #3

Earlier quoted context omitted.

That's the rumor and I imagine they got to pull the same tricks as SVB as regards to buying risky MBS without alerting the FED. But is there any evidence to support this?

They didn’t buy risky MBS. They bought standard vanilla MBS and Treasury Bonds. The problem is the speed of interest rates rising which cause 2 unrelated circumstances to hit at the same time. 1. The net present value of the long term MBS/treasury’s went down. 2. Start ups had trouble raising capital so their normal business activities shifted from net inflows to SVB to net outflows. So instead of being able to hold…

*> ... make the members pay for their bad investments ...

SVB was a $209 billion dollar balance sheet with only $16 billion of shareholder equity. That means an 8% decline in the value of their assets makes them insolvent.

That also means that 8% is the maximum shareholders will have to "pay" for the bank's bad investments.

Doesn't seem like nearly enough skin in the game.

Re: Bill Ackman: I expect there will be bank runs beginning Monday at non-SIB banks

#47

Post by gremlinsinc »

Ekaros wrote: post #26
ginko wrote: post #8

Let's say you're a company with well over the 250k limit on a bank account. How would you even withdraw that? Get it deposited on some other account (why trust the other bank more?), get the money in cash?

Big enough bank should be more safe as they are too big to be run. Also there is other options to hold safe enough amount of cash.

In a way that's kind of shitty, I mean... it's basically turning the world into Potter's ville from it's a wonderful life.

I mean, we're already mostly there, personally I think FDIC should insure 1mill+ for smaller/regional banks and 0 for "too big to fail" banks that will likely just get a handout if they ever were to "be close to failing".

Re: Bill Ackman: I expect there will be bank runs beginning Monday at non-SIB banks

#48

Post by stillbourne »

mcphage wrote: post #44
stillbourne wrote: post #32

There's only one way to fix this folks. We need to abolish the FDIC and use the money saved to give a tax cut to the rich. The rich then trickle down onto the failing banks and their depositors to resolve this problem.

Woah, that would absolutely increase my confidence in banking and would gladly put all my money in banks in such a situation! No way that’s gonna go wrong, nosireebob.

That lack of confidence is why I've moved all my money to crypto where no such mechanisms exist!

Re: Bill Ackman: I expect there will be bank runs beginning Monday at non-SIB banks

#50

Post by digitaltrees »

panarky wrote: post #46
digitaltrees wrote: post #39

Earlier quoted context omitted.

They didn’t buy risky MBS. They bought standard vanilla MBS and Treasury Bonds. The problem is the speed of interest rates rising which cause 2 unrelated circumstances to hit at the same time. 1. The net present value of the long term MBS/treasury’s went down. 2. Start ups had trouble raising capital so their normal business activities shifted from net inflows to SVB to net outflows. So instead of being able to hold…

*> ... make the members pay for their bad investments ... SVB was a $209 billion dollar balance sheet with only $16 billion of shareholder equity. That means an 8% decline in the value of their assets makes them insolvent. That also means that 8% is the maximum shareholders will have to "pay" for the bank's bad investments. Doesn't seem like nearly enough skin in the game.

But that’s a very standard ratio in banking. And to be blunt treasuries don’t decrease that much. In fact that’s not really what happened here. Instead, SVB had significant deposit inflows over the last 10 years as their VC back clients raised massive rounds. Their deposit base went from something like $60b to $180b. Then all in unison, as interest rates increased, the same inflows reversed and nearly 100% of their depositors started withdrawing. so SVB had to come up with massive amounts of cash and had to sell things at a loss. That would have been fine if panic hadn’t set in and a Run initiated.

To play devils advocate, what would you have done as the CEO of SVB? Imagine over the last 10 years your clients are successful in raising large rounds and deposit the money in your account, you are required to keep those deposits safe and have to buy something. Would buying US treasuries and investment grade MBS be an unacceptable risk? They could have and should have hedged interest rate risk more perhaps but this isnt some irrational exuberance at work.

To your point about skin in the game, a shareholders skin in the game isn’t the percentage of equity in the firm, it’s what that equity represents in their portfolio. If a shareholders entire net worth is worth

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