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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?

#61

Post by jandrese »

tptacek wrote: post #50
corbulo wrote: post #44

Earlier quoted context omitted.

There isn't clear messaging on where the money is coming from to cover depositors. Thats whats leading to no one even factually knowing whats happening.

In SVB's case, can't you cover depositors simply by holding their assets to maturity and waiting for them to be repaid? SVB couldn't do that because there was a run that was forcing them to sell early, in unfavorable conditions.

This doesn't make sense though. Sure they would have to take a haircut on those securities thanks to the fed jacking up the interest rate so much, but if you offer the right price they should still sell.

Investing involves risk. Sometimes that means losing money, even if you are the bank.

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

#62

Post by jjoonathan »

SkyMarshal wrote: post #40
jjoonathan wrote: post #26

Earlier quoted context omitted.

Yeah, people are flailing. The only party that made out like bandits is the SVB management that piled on the risk in the first place -- but investors are ultimately responsible for letting them do that and investors have been punished.

They didn’t even pile on the risk, at least not in the 2007/2008 sense. They bought long-dated 10yr US Treasuries (or was it MBS’s? I’ve heard both), since that was one of the lowest risk assets they could invest in and still get enough spread vs their deposits to remain a viable business. It’s strange days when that is considered piling on risk. While there wasn’t counterparty risk with those assets, there was durat…

2008 is an extremely low bar. They still piled on risk.

> that was one of the lowest risk assets they could invest in and still get enough

Was it? They had enormous deposit inflows and were struggling to scale, so their costs should have been undersized by default. They really ought to have been able to survive off the pennies that weren't in front of the steamroller.

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

#63

Post by unixraider »

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…

"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."

Does that have anything to do with this article at all? First few lines of this article: Banking is a confidence trick. Financial history is littered with runs, for the straightforward reason that no bank can survive if enough depositors want to be repaid at the same time. The trick, therefore, is to ensure that customers never have cause to whisk away their cash.

This article is about the possibility of the total loss of confidence in the banking industry leading to a run on a system that can't handle it. I understand the context you meant when you said things like "the system works, why is everyone upset", but I find those a pretty poor choice of words regardless with this much fear circulating.

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

#64

Post by jandrese »

phkahler wrote: post #34
tptacek wrote: post #9

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. The problem wasn't that they too exciting bets; its that they played the standard playbook incompetently.

>> 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.

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

#65

Post by lackbeard »

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 point of the FDIC system is for customers not to have to do this kind of risk assessment themselves

It seemed self-evident to me, based on the explicitly stated limit on FDIC insurance, that if you had an amount of money over that limit, you really need to have a plan to deal with that risk, and people who failed to do so should suffer the consequences of their poor decisions. As things stand, the people who did spend the time and/or money to provision for that risk have suffered for it.

I think what many people are having a hard time with (myself as well, sort of...) is how the rules were changed out from under everyone in yet another example of how the rules don't apply to the politically connected.

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

#66

Post by tptacek »

kasey_junk wrote: post #48
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…

Covering uninsured deposits is common as they retain their senior debt status. Guaranteeing them on the other hand is very new. And if we are going to expect them to be guaranteed in the future insurance rates must go up, not just to cover more things but to cover the riskier behavior it creates. If we aren’t going to cover them 100% in the future then apparently it’s true that there are not just different classes of…

Or just different circumstances? IndyMac famously paid uninsured depositors back 85 cents on the dollar, right? But IndyMac was also plowing depositor dollars into a portfolio of Alt-A MBS's.

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

#67

Post by tptacek »

lackbeard wrote: post #65
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 point of the FDIC system is for customers not to have to do this kind of risk assessment themselves It seemed self-evident to me, based on the explicitly stated limit on FDIC insurance, that if you had an amount of money over that limit, you really need to have a plan to deal with that risk, and people who failed to do so should suffer the consequences of their poor decisions. As things stand, the people who di…

As I understand it, the ordinary way FDIC resolves a situation like this is that they simply have the failing bank acquired by a peer bank (a bank of generally the same size and structure), which then takes over the depositor obligations. So it's not as if the ordinary course is that uninsured deposits get zeroed out; it's just that the mechanism FDIC is using is novel and abrupt.

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

#68

Post by kasey_junk »

tptacek wrote: post #66
kasey_junk wrote: post #48

Earlier quoted context omitted.

Covering uninsured deposits is common as they retain their senior debt status. Guaranteeing them on the other hand is very new. And if we are going to expect them to be guaranteed in the future insurance rates must go up, not just to cover more things but to cover the riskier behavior it creates. If we aren’t going to cover them 100% in the future then apparently it’s true that there are not just different classes of…

Or just different circumstances? IndyMac famously paid uninsured depositors back 85 cents on the dollar, right? But IndyMac was also plowing depositor dollars into a portfolio of Alt-A MBS's.

A regulatory regime that makes depositors whole when a bank fails due to not managing their interest rate risk appropriately but not when they mismanage their credit risk feels even stranger than just admitting that the fdic cares more about some depositors than others.

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

#69

Post by AmVess »

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…

Banks failing is how it is planned to work? Zero oversight from agencies charged with keeping their eyes on them is how it is supposed to work?

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

#70

Post by lackbeard »

tptacek wrote: post #67
lackbeard wrote: post #65

Earlier quoted context omitted.

> the point of the FDIC system is for customers not to have to do this kind of risk assessment themselves It seemed self-evident to me, based on the explicitly stated limit on FDIC insurance, that if you had an amount of money over that limit, you really need to have a plan to deal with that risk, and people who failed to do so should suffer the consequences of their poor decisions. As things stand, the people who di…

As I understand it, the ordinary way FDIC resolves a situation like this is that they simply have the failing bank acquired by a peer bank (a bank of generally the same size and structure), which then takes over the depositor obligations. So it's not as if the ordinary course is that uninsured deposits get zeroed out; it's just that the mechanism FDIC is using is novel and abrupt.

I wonder why that didn't happen in this case? Perhaps fear that would just trigger a run on the acquiring bank?
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