Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Bank Failures Visualized

observablehq.com

Post reply on HN
Print view View original

61–70 of 424 posts

Re: Bank Failures Visualized

#61

Post by CPLX »

cperciva wrote: post #44
photochemsyn wrote: post #28

Community-scale banks (aka credit unions) are a better idea for local-regional communities (aka cities and towns and agricultural regions) because their managers have to live with their clients. Take a community of 100,000 families, in an economic system where they're all collecting income and paying bills and so on. The idea behind a bank is that they hold the community's money securely while making their own money…

The model you describe is exactly why S&L happened . Small banks with highly correlated deposits holding their own loan books is a recipe for maximizing vulnerability to economic shocks. Interest rates go up and the loan book loses value; the local housing market drops and the loans get foreclosed and lose value; a major local employer goes out of business and depositors all start pulling their money out instead of r…

Might be a bad way to run a bank, might not, but it's definitely not the cause of the S&L crisis. That was a story of deregulation leading to massive moral hazard, rampant speculation, and multiple high profile cases of outright fraud.

Economic shocks and rising interest rates aren't usually the reason that financial institutions engaging in risky or fraudulent behavior get caught, they usually just make it so the clock runs out on their scheme to roll over the losses or otherwise avoid getting caught.

The liquidity crisis of 2008 didn't cause Bernie Madoff's fund to collapse, the fact that it was a complete fraud from inception did. It just made it impossible to ignore.

Re: Bank Failures Visualized

#62

Post by jonhohle »

SamReidHughes wrote: post #60
photochemsyn wrote: post #54

Earlier quoted context omitted.

This is a rather skewed perspective that ignores the fact that if you have FDIC insurance for depositors then that can be gamed unless you have strict regulation of the banks: > "The roots of the S&L crisis lay in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees." https://www.investopedia.com/terms/s/sl-crisis.asp This is why a lot of p…

What? How do depositor bailouts affect bank managers' incentives?

If there is no risk, nothing is risky.

Re: Bank Failures Visualized

#63

Post by boringg »

DonsDiscountGas wrote: post #18
thehumanmeat wrote: post #2

That needs to go back to the 80s to capture the SnL crisis. It dwarfs 08 in bank failures. It better indicates the conglomeration of the many banks into the few we have today.

Going by Wikipedia, in 2021 dollars I count: 1980s S&L crisis: $654 Billion (summed 1984-1992 failures) across 23 banks 2008 crisis: $733 Billion (summed 2008-2011 failures) across 61 banks 2023 so far (it's only May): $556 Billion (Signature + SVB + FRC) across 3 banks. It looks like 2008-2011 is the "winner", although other commenters have mentioned forced mergers etc. may not be counted. https://en.wikipedia.org/w…

That on 2022 dollars?

Re: Bank Failures Visualized

#64

Post by cperciva »

photochemsyn wrote: post #54
cperciva wrote: post #44

Earlier quoted context omitted.

The model you describe is exactly why S&L happened . Small banks with highly correlated deposits holding their own loan books is a recipe for maximizing vulnerability to economic shocks. Interest rates go up and the loan book loses value; the local housing market drops and the loans get foreclosed and lose value; a major local employer goes out of business and depositors all start pulling their money out instead of r…

This is a rather skewed perspective that ignores the fact that if you have FDIC insurance for depositors then that can be gamed unless you have strict regulation of the banks: > "The roots of the S&L crisis lay in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees." https://www.investopedia.com/terms/s/sl-crisis.asp This is why a lot of p…

The S&L crisis started before the deregulation. In fact, the deregulation of S&Ls was an attempt to address the fact that many of them were already insolvent due to holding long-term fixed-rate mortgages in a rising-interest-rate environment.

Re: Bank Failures Visualized

#65

Post by coliveira »

photochemsyn wrote: post #54
cperciva wrote: post #44

Earlier quoted context omitted.

The model you describe is exactly why S&L happened . Small banks with highly correlated deposits holding their own loan books is a recipe for maximizing vulnerability to economic shocks. Interest rates go up and the loan book loses value; the local housing market drops and the loans get foreclosed and lose value; a major local employer goes out of business and depositors all start pulling their money out instead of r…

This is a rather skewed perspective that ignores the fact that if you have FDIC insurance for depositors then that can be gamed unless you have strict regulation of the banks: > "The roots of the S&L crisis lay in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees." https://www.investopedia.com/terms/s/sl-crisis.asp This is why a lot of p…

They're just the tip of the iceberg. Pretty much all medium size banks have lots of underperforming assets, and they're just one minor mistake from going under, like these 3 banks. Also notice that there are still many shoes to drop: comercial real estate (a disaster waiting to happen), car loan defaults, etc.

Re: Bank Failures Visualized

#66

Post by noduerme »

photochemsyn wrote: post #54
cperciva wrote: post #44

Earlier quoted context omitted.

The model you describe is exactly why S&L happened . Small banks with highly correlated deposits holding their own loan books is a recipe for maximizing vulnerability to economic shocks. Interest rates go up and the loan book loses value; the local housing market drops and the loans get foreclosed and lose value; a major local employer goes out of business and depositors all start pulling their money out instead of r…

This is a rather skewed perspective that ignores the fact that if you have FDIC insurance for depositors then that can be gamed unless you have strict regulation of the banks: > "The roots of the S&L crisis lay in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees." https://www.investopedia.com/terms/s/sl-crisis.asp This is why a lot of p…

One thing I don't understand, and perhaps you could explain, is why anyone in the US would ever keep more cash in any one bank account than what was covered by FDIC insurance. It's precisely the reason I don't e.g. take my savings to an offshore bank that offers much higher interest rates. Is this just a matter of people taking trust in a bank's solvency for granted?

Re: Bank Failures Visualized

#67

Post by tadfisher »

photochemsyn wrote: post #28

Community-scale banks (aka credit unions) are a better idea for local-regional communities (aka cities and towns and agricultural regions) because their managers have to live with their clients. Take a community of 100,000 families, in an economic system where they're all collecting income and paying bills and so on. The idea behind a bank is that they hold the community's money securely while making their own money…

Credit unions aren't insured by the FDIC, they have NCUA insurance.

Re: Bank Failures Visualized

#70

Post by llanowarelves »

cperciva wrote: post #44
photochemsyn wrote: post #28

Community-scale banks (aka credit unions) are a better idea for local-regional communities (aka cities and towns and agricultural regions) because their managers have to live with their clients. Take a community of 100,000 families, in an economic system where they're all collecting income and paying bills and so on. The idea behind a bank is that they hold the community's money securely while making their own money…

The model you describe is exactly why S&L happened . Small banks with highly correlated deposits holding their own loan books is a recipe for maximizing vulnerability to economic shocks. Interest rates go up and the loan book loses value; the local housing market drops and the loans get foreclosed and lose value; a major local employer goes out of business and depositors all start pulling their money out instead of r…

Evidently, the best way to run a bank is a 0% cash reserve minimum (as was granted to US banks starting during COVID), so you can make money off of literally every last penny, and then discourage and prevent customers from taking their money out, then [externalizing all costs]/[socialize losses] onto government (taxpayer) via bailout or customer via bail-in, while privatizing all profits in the meantime. And charge poor people $30 every time they dip under $0 even by a penny.

Doesn't mean it's a good idea for the rest of us non-banks.

Post reply on HN