Banking in uncertain times
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Banking in uncertain times
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Re: Banking in uncertain times
#2"This is a temporary program; banks can only tap this liquidity for about a year. In the ordinary course, bank runs don’t last for a year; they either cause an institution to fail very quickly or peter out. But the other reason this is time-bounded is to defang the moral hazard, on behalf of both banks and their customers. (Moral hazard in insurance is when the existence of insurance makes it incentive-compatible for you to be imprudent in your own risk taking, expecting someone else to bear the consequences.)"
This is likely the most important part. FED, Treasury and administration bought some time, but what happens after one year is anyone's guess.
Re: Banking in uncertain times
#3First, the article is a great explanation of what's going on. "Maturity Transformation" explains the cause. "Trying to forestall a banking crisis" is a great discussion of the important next stage of the non-headline-grabbing solution.
Just wondering about this "desert" word, in context:
> I am very frustrated by political arguments about desert, which start with an enemies list and celebrate when the enemies suffer misfortune for their sins like using the banking system.
Anyone know what "desert" refers to?
Re: Banking in uncertain times
#4First, the article is a great explanation of what's going on. "Maturity Transformation" explains the cause. "Trying to forestall a banking crisis" is a great discussion of the important next stage of the non-headline-grabbing solution. Just wondering about this "desert" word, in context: > I am very frustrated by political arguments about desert, which start with an enemies list and celebrate when the enemies suffer…
I believe this is a British person saying “during dessert”?
Re: Banking in uncertain times
#5What I still do not understand is why the whole SVB episode isn't a bailout and didn't just introduce much more risk into the system. Yes, the stock went to 0 and investors did not get compensated (if they didn't already cash out when they saw it coming due to inside information) but the gaping hole in the books was filled due to government intervention and explicitly lifting the 250K FDIC limit.
Why would any bank look at SVB and NOT think "oh, time to take more risk for more profit; the government will prop up the FDIC limit if we fail anyway". Saying that taxpayers won't pay for this is a joke too. The burden of filling the insurance gap won't come out of the pocket of other banks or their shareholders. Even though the FDIC receives no federal funding on paper, they seem to be fully invested in treasury securities and can borrow directly from the treasury, against rates not available to the common Joe. It's a perverse relation which the taxpayer contributes to.
Re: Banking in uncertain times
#6First, the article is a great explanation of what's going on. "Maturity Transformation" explains the cause. "Trying to forestall a banking crisis" is a great discussion of the important next stage of the non-headline-grabbing solution. Just wondering about this "desert" word, in context: > I am very frustrated by political arguments about desert, which start with an enemies list and celebrate when the enemies suffer…
A deserving; that which makes one deserving of reward or punishment; merit or demerit; good conferred, or evil inflicted, which merits an equivalent return: as, to reward or punish men according to their deserts.
"Just deserts" is a common phrase that uses it in the same way.
Re: Banking in uncertain times
#7First, the article is a great explanation of what's going on. "Maturity Transformation" explains the cause. "Trying to forestall a banking crisis" is a great discussion of the important next stage of the non-headline-grabbing solution. Just wondering about this "desert" word, in context: > I am very frustrated by political arguments about desert, which start with an enemies list and celebrate when the enemies suffer…
"desert" means something one deserves. You probably know it in the idiom "just deserts".
Re: Banking in uncertain times
#8First, the article is a great explanation of what's going on. "Maturity Transformation" explains the cause. "Trying to forestall a banking crisis" is a great discussion of the important next stage of the non-headline-grabbing solution. Just wondering about this "desert" word, in context: > I am very frustrated by political arguments about desert, which start with an enemies list and celebrate when the enemies suffer…
It should refer to "desert" as in "to deserve". Desert arguments typically ascribe a certain sort of moral responsibility on certain persons and them being liable to negative consequences in light of that ascription.
Re: Banking in uncertain times
#9First, the article is a great explanation of what's going on. "Maturity Transformation" explains the cause. "Trying to forestall a banking crisis" is a great discussion of the important next stage of the non-headline-grabbing solution. Just wondering about this "desert" word, in context: > I am very frustrated by political arguments about desert, which start with an enemies list and celebrate when the enemies suffer…
"desert" means something one deserves. You probably know it in the idiom "just deserts".
I knew the idiom, I just didn’t make the connection for some reason. Very interesting, the text is very close, but I didn’t get it.
Re: Banking in uncertain times
#10What I still do not understand is why the whole SVB episode isn't a bailout and didn't just introduce much more risk into the system. Yes, the stock went to 0 and investors did not get compensated (if they didn't already cash out when they saw it coming due to inside information) but the gaping hole in the books was filled due to government intervention and explicitly lifting the 250K FDIC limit. Why would any bank l…
> Why would any bank look at SVB and NOT think "oh, time to take more risk for more profit; the government will prop up the FDIC limit if we fail anyway".
Because they don’t want the stock to go to 0?
I think most businesses and investors would not want that.
We’ve seen bank stocks drop, it is in those banks interest to show they’re not taking chances like SBV.