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

Bonds have only ever been considered ‘safe’ from a repayment perspective (it’s the only thing they really get graded on risk wise), and even then junk bonds are a real thing. The value of the bond shrinking due to inflation is always a unquantifiable future risk that typically gets priced in price/interest wise by the buyer/underwriter - but with the fed suppressing rates? All bets are off.

Those who got those 2% mortgages though have a lot to be thankful for. As long as the zombie hordes don’t get them in the coming debt apocalypse anyway (/s).

The regulatory regime is one that makes depositors whole when doing otherwise seems likely to cause a major crisis in the banking system. Which we've had for a long time. It merely seems inconsistent because evidence of "likely to cause a major crisis" differs by current possible crisis.

As https://www.bitsaboutmoney.com/archive/banking-in-very-uncer... explains in painful detail, the reasons why they likely concluded that there is systemic risk. But long story short, rising interest rates caused the banking sector to have $620 billion in unrealized losses. Unsurprising since the interest rate rise was *INTENDED* to make people lose money, making money more valuable relative to goods and services, which reduces inflations.

But $620 billion is substantially more than the $130 billion in the FDIC insurance fund. It is substantially less than the $2 trillion in equity in the banking sector, but both losses and equity are unevenly spread. Therefore there are banks under water, and others that are fine. But nobody is sure which are which. And given cash outflows from worried people, we were about to find out the hard way. And once there is a bank panic, even fine banks become not fine.

Like Wile E. Coyote, running off this cliff works fine until you look down. But we've looked down. And now the whole sector needs saving. Thus these actions.

They will go back to normal behavior once the crisis is over.

> Equity is getting zeroed out. Management was fired. Depositors were made whole almost immediately. SVB's assets are apparently not impaired; SVB would have held them to maturity had the bank run not happened, and now somebody else will instead.

Part of the problem is that the system that enabled them to end up in this situation is the erosion of Dodd-Frank. The systemic risk to depositors isn't going away. If pissant SVB (relative to it's contemporaries) can lobby congress effectively imagine what other banks are up to. Speculation? Sure you can say I'm speculating. But the apple doesn't fall far from the tree.

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

The issue of course is that the total balances required the FDIC to dip into special capital reserves in order to make the bold faced lie the taxpayer won't front this.

Anyone who knows the surface level details of a bank know that these FDIC "loans" are effectively collateralized by the taxpayer. Banks pay an assessment. With what money? The depositor's money. A perfect example of a hidden tax.

> But SVB is gone, so it's not much fun calling them out. I feel like people are flailing looking for someone else to blame.

Credit Suisse is in big trouble and getting a bailout. Several other banks have collapsed in the wake of SVB. The only people not worried have their heads buried so deep in the sand only their feet are showing. Calling Chicken Little because you believe it was only SVB and not a massive market level problem suddenly beginning to show it's head is not a very effective argument.

I'd ask you to consider the economy that allowed these levels of capital to even exist. Years of ZIRP and near-ZIRP allowing effectively free money. As it stands, the mainstream media currently blames the fed for this and implores it to once again lower rates. The problem of course is that there has been no sign of stoppage in market speculation and we are only now starting to see VCs really tighten their belts. History doesn't repeat itself but it often rhymes and terrible, borderline predatory, VC funding practices begin to approximate NINJA loans in the limit. There's no reason to believe it's just SVB and there are plenty of reasons to believe we have very serious economic concerns ahead of us. Only difference this time is the criminals responsible will be wearing Patagonia.