[Bank failure discussion mega-thread]

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Geologist
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Re: [Bank failure discussion mega-thread]

Post by Geologist »

nisiprius wrote: Thu Mar 16, 2023 3:32 pm There are intermediate possibilities. After the collapse of the Reserve Primary money market fund, for about a year the FDIC insured money market [mutual] funds (up to $250,000), presumably because it was thought to be in the public interest for the public to have faith in the safety of these funds. Let's see, 9/18/2008. But they only did it for about a year, and then stopped.

Another reason that money market mutual funds were insured was that many invested in corporate commercial paper and many corporations were likely to have short-term financing problems if money market funds weren't functioning to buy their commercial paper.
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simplesimon
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Re: [Bank failure discussion mega-thread]

Post by simplesimon »

exodusing wrote: Thu Mar 16, 2023 3:23 pm
simplesimon wrote: Thu Mar 16, 2023 2:08 pm
exodusing wrote: Thu Mar 16, 2023 11:19 am
simplesimon wrote: Thu Mar 16, 2023 10:44 amLoans aren't marked to market, but instead provisioned against credit losses based on projections and internal credit ratings.
Ignoring changes in interest rates, is there much of a difference between marking to market and provisioning against credit loses?

If there's no change in interest rate, a treasury bond will be valued at par since there's no credit risk. Most business borrowers will have higher credit risk than the U.S. government so there's going to be a provision for credit loss.

I had thought much of their loans were floating rate, which would help deal with loan value being affected by interest rate changes, but I haven't looked closely.

Floating rate helps with profitability but doesn't help with liquidity. If a company's got outstanding debt on a committed line of credit and there's a bank run, you can't call the loan.
Responses above.
Is the main difference between mark to market and ACL that the former considers quick liquidation value while the latter is focused on credit losses, but not sale prices or the effects of interest rate changes?
Correct, there's not really a good way to determine FMV since different institutions could risk rate borrowers a bit differently.
Makefile
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Re: [Bank failure discussion mega-thread]

Post by Makefile »

nisiprius wrote: Thu Mar 16, 2023 3:32 pm So in this case, one thing they could do is to temporarily raise the insurance limit to some high enough number--$10 million?--to cover small-to-medium business accounts. Or even "all deposits." But only temporarily.
It's been done before: https://archive.fdic.gov/view/fdic/3913
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Re: [Bank failure discussion mega-thread]

Post by BParham »

Are retail money market funds (MMFs) considered part of the balance sheet of the financial institution that invests the capital or does the invested capital remain the property of the individual investors that invested in the MMF? For a concrete example, take the Schwab retail MMFs with symbols SNAXX (invests in short-term bank assets like commercial paper and CDs) or SUTXX (invests in short-term US Treasuries and repo agreements). If Schwab were to become insolvent but the MMFs in question were able to recover all invested capital, would the recovered capital be returned to the retail investors that put their money in the MMF or would the aggregate balance in the MMF be pooled with all Schwab's other assets and divided among all of Schwab's creditors. (Please note, this is not a question about what happens when there is run on an MMF like Reserve Primary which "broke the buck.")
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Re: [Bank failure discussion mega-thread]

Post by alex_686 »

BParham wrote: Thu Mar 16, 2023 6:32 pm Are retail money market funds (MMFs) considered part of the balance sheet of the financial institution that invests the capital or does the invested capital remain the property of the individual investors that invested in the MMF? For a concrete example, take the Schwab retail MMFs with symbols SNAXX (invests in short-term bank assets like commercial paper and CDs) or SUTXX (invests in short-term US Treasuries and repo agreements). If Schwab were to become insolvent but the MMFs in question were able to recover all invested capital, would the recovered capital be returned to the retail investors that put their money in the MMF or would the aggregate balance in the MMF be pooled with all Schwab's other assets and divided among all of Schwab's creditors. (Please note, this is not a question about what happens when there is run on an MMF like Reserve Primary which "broke the buck.")
A fund is a independent stand alone corporation. The fund’s assets are held at a 3rd party bank, segregated. The assets belong exclusively to the fund’s shareholders. This even includes some intangible things like brokerage.

The fund’s sponsor is just that, a sponsor. They get paid for their services like portfolio management and accounting. But that is it. As such the fund’s holdings are not reflected on the fund’s sponsor balance sheet- just their own.

If the fund sponsor blew up then the fund’s management rights would be sold on, probably to be merged onto a existing mutual fund with the new sponsor.
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novolog
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Re: [Bank failure discussion mega-thread]

Post by novolog »

discount window borrowing skyrocketing. $150 billion this week

https://twitter.com/NickTimiraos/status ... 21057?s=20

seems like a lot of banks were in the same situation as SVB, gasping for liquidity
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Re: [Bank failure discussion mega-thread]

Post by alex_686 »

novolog wrote: Thu Mar 16, 2023 7:00 pm discount window borrowing skyrocketing. $150 billion this week

https://twitter.com/NickTimiraos/status ... 21057?s=20

seems like a lot of banks were in the same situation as SVB, gasping for liquidity
That, or banks are afraid of lending overnight to other banks. In normal times this is more common.
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Re: [Bank failure discussion mega-thread]

Post by exodusing »

alex_686 wrote: Thu Mar 16, 2023 7:08 pm
novolog wrote: Thu Mar 16, 2023 7:00 pm discount window borrowing skyrocketing. $150 billion this week

https://twitter.com/NickTimiraos/status ... 21057?s=20

seems like a lot of banks were in the same situation as SVB, gasping for liquidity
That, or banks are afraid of lending overnight to other banks. In normal times this is more common.
First Republic said Thursday that it had borrowed as much as $109 billion from the Fed one night within the past week.
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Re: [Bank failure discussion mega-thread]

Post by alex_686 »

exodusing wrote: Thu Mar 16, 2023 7:10 pm
alex_686 wrote: Thu Mar 16, 2023 7:08 pm
novolog wrote: Thu Mar 16, 2023 7:00 pm discount window borrowing skyrocketing. $150 billion this week

https://twitter.com/NickTimiraos/status ... 21057?s=20

seems like a lot of banks were in the same situation as SVB, gasping for liquidity
That, or banks are afraid of lending overnight to other banks. In normal times this is more common.
First Republic said Thursday that it had borrowed as much as $109 billion from the Fed one night within the past week.
Yeah, it has echoes of 2008. The credit market is sizing up a bit. Hopefully it won’t get as bad as that.
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retire2022
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Re: [Bank failure discussion mega-thread]

Post by retire2022 »

All Axios mentioned First Republic was given a lifeline today:

"News of a new $30 billion financial lifeline for First Republic sparked a broad market reversal that bolstered stocks and drove down bond prices, while momentarily allaying simmering investor fears about a banking crisis."

https://www.axios.com/2023/03/16/first- ... ue-markets?
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Re: [Bank failure discussion mega-thread]

Post by LadyGeek »

I removed a contentious interchange "clarifying" what Janet Yellen stated on FDIC guarantees.
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exodusing
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Re: [Bank failure discussion mega-thread]

Post by exodusing »

alex_686 wrote: Thu Mar 16, 2023 7:12 pm
exodusing wrote: Thu Mar 16, 2023 7:10 pm
alex_686 wrote: Thu Mar 16, 2023 7:08 pm
novolog wrote: Thu Mar 16, 2023 7:00 pm discount window borrowing skyrocketing. $150 billion this week

https://twitter.com/NickTimiraos/status ... 21057?s=20

seems like a lot of banks were in the same situation as SVB, gasping for liquidity
That, or banks are afraid of lending overnight to other banks. In normal times this is more common.
First Republic said Thursday that it had borrowed as much as $109 billion from the Fed one night within the past week.
Yeah, it has echoes of 2008. The credit market is sizing up a bit. Hopefully it won’t get as bad as that.
Hopefully. But if FRC was $109 of $150, and today's actions fixed FRC, then maybe things are looking up.
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simplesimon
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Re: [Bank failure discussion mega-thread]

Post by simplesimon »

The move by 11 banks to deposit $30B into First Republic Bank is pretty incredible to me. When there was first mention of a rescue plan in place I was expecting equity. I can see how it's a self-preservation move although JPM is too big to fail and perhaps figured it would be more costly dealing with contagion. I look forward to hearing more details about how this came together.
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Re: [Bank failure discussion mega-thread]

Post by Fpdesignco »

simplesimon wrote: Thu Mar 16, 2023 8:15 pm The move by 11 banks to deposit $30B into First Republic Bank is pretty incredible to me. When there was first mention of a rescue plan in place I was expecting equity. I can see how it's a self-preservation move although JPM is too big to fail and perhaps figured it would be more costly dealing with contagion. I look forward to hearing more details about how this came together.
On the JPM front, for sure - also the optics more than anything. Bad optics when your regulator = the OCC, is way worse than a 5 bn deposit.
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Re: [Bank failure discussion mega-thread]

Post by srt7 »

sid hartha wrote: Thu Mar 16, 2023 2:23 pm
srt7 wrote: Thu Mar 16, 2023 2:17 pm
nisiprius wrote: Thu Mar 16, 2023 10:25 am They probably don't know yet. It's probably a close thing.

All of the following is cribbed from what I've read recently, mostly Matt Levine's column.

The issue is whether SVB is insolvent (more liabilities than assets) or merely illiquid (enough assets, but not liquid enough to meet current expenses.) All banks work by borrowing short and lending long. They have enough to cover withdrawals eventually, but take a calculated risk that they won't need all of it right now.

SVB needed to pay out now, but the bonds were going to pay later. They couldn't afford to wait. They couldn't meet their obligations now by liquidating their bonds now--selling them on the market--because the value of those bonds is depressed because of the rise in interest rates.

The "magic" is the difference in time frame between SVB and the FDIC. The FDIC can afford to just wait for the bonds to mature. When they do, they will pay out their full face value--not their currently depressed market value--and the FDIC will be fully repaid.

I gather that nobody is quite sure what the bottom line is, but SVB was roughly solvent and had roughly enough assets to meet obligations. That's why SVB and some people feel so aggrieved about the situation, because in their hearts they feel that SVB was sound and failed due to bad luck and scare talk on Twitter. The argument, as always, is whether they took too much risk, or whether they took a reasonable amount of risk and were done in by abnormal events that nobody could have possibly foreseen, that they shouldn't be punished for.
Thanks for the simple explanation. But how does FDIC have the funds to wait? I mean I've been hearing all along that it won't affect the tax payers but isn't that a usage of tax payer money? Confused.
There was an announcement below that explains it:

To support American businesses and households, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.

The Federal Reserve is prepared to address any liquidity pressures that may arise.

The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.
Say one of their investments was bought at $1MM and is now valued at $700K meaning when the Fed bails them out they'd do so at $1MM. Who bears the $300K difference?

With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.

After receiving a recommendation from the boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, Treasury Secretary Yellen, after consultation with the President, approved actions to enable the FDIC to complete its resolutions of Silicon Valley Bank and Signature Bank in a manner that fully protects all depositors, both insured and uninsured. These actions will reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy.
Why the uninsured? Are they saying depositors who deposited in millions didn't know that FDIC only covers up to $250K?

The Board is carefully monitoring developments in financial markets. The capital and liquidity positions of the U.S. banking system are strong and the U.S. financial system is resilient.

Depository institutions may obtain liquidity against a wide range of collateral through the discount window, which remains open and available. In addition, the discount window will apply the same margins used for the securities eligible for the BTFP, further increasing lendable value at the window.

The Board is closely monitoring conditions across the financial system and is prepared to use its full range of tools to support households and businesses, and will take additional steps as appropriate.
Not sure how it supports households when it's making payroll on one hand but burdening the tax payers with more debt on the other hand.

https://www.federalreserve.gov/newseven ... 30312a.htm
Thank you for posting this article. I'm only trying to understand this long winded way of the govt. trying to save a couple incompetently run banks and a few (thousand?) depositors while setting a very wrong precedence for the future risk takers and incompetent financiers/bankers.
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Re: [Bank failure discussion mega-thread]

Post by exodusing »

simplesimon wrote: Thu Mar 16, 2023 8:15 pm The move by 11 banks to deposit $30B into First Republic Bank is pretty incredible to me. When there was first mention of a rescue plan in place I was expecting equity. I can see how it's a self-preservation move although JPM is too big to fail and perhaps figured it would be more costly dealing with contagion. I look forward to hearing more details about how this came together.
Pretty much the entire list falls into the too big to fail category. There are now reports that other banks want to join, on the theory that it would make them look strong. I had been thinking of deposits with an equity kicker.

I'd phrase the fear as major macro problems which would not be good for them. On an individual business basis, contagion would likely lead to more deposits for JPM, BofA, Citi and maybe some others of that ilk, which would be good for them. OTOH, the economy being messed would be bad.

Dimon met with Yellin today to discuss the matter.
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Re: [Bank failure discussion mega-thread]

Post by srt7 »

exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
They can say whatever they want but the fact of the matter is that American public bailed out the incompetent management of Silicon Valley Bank (Greg Becker's exec. team), and Signature Bank (Joseph DePaolo's exec. team) while First Republic Bank is being thrown a bone by more competent bankers. Such an embarrassment!
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Re: [Bank failure discussion mega-thread]

Post by LadyGeek »

I merged AQ's thread into the ongoing discussion.
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Re: [Bank failure discussion mega-thread]

Post by srt7 »

simplesimon wrote: Thu Mar 16, 2023 8:15 pm The move by 11 banks to deposit $30B into First Republic Bank is pretty incredible to me. When there was first mention of a rescue plan in place I was expecting equity. I can see how it's a self-preservation move although JPM is too big to fail and perhaps figured it would be more costly dealing with contagion. I look forward to hearing more details about how this came together.
Well, it wasn't too long ago that JPM was forced to take over WaMU. As much as the govt. wants to make it look like it's only a couple bad players (SVB, Signature etc.) maybe JPM knows there are other worse ones coming?
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Re: [Bank failure discussion mega-thread]

Post by nisiprius »

srt7 wrote: Thu Mar 16, 2023 8:33 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
They can say whatever they want but the fact of the matter is that American public bailed out the incompetent management of Silicon Valley Bank (Greg Becker's exec. team), and Signature Bank (Joseph DePaolo's exec. team) ...
I don't think so. They were bailed out by the FDIC using money that will be repaid partly by sales of SVB's assets and partly by assessments levied on FDIC member banks. The latter case is banks bailing out banks--just like First Republic--the difference being that it's compulsory instead of voluntarily.
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Re: [Bank failure discussion mega-thread]

Post by technovelist »

exodusing wrote: Thu Mar 16, 2023 5:00 pm
Tanelorn wrote: Thu Mar 16, 2023 3:50 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
Looks like FRC is going to make it

https://www.wsj.com/articles/jpmorgan-m ... c-4f9eeb76
"Four of the country’s biggest banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — agreed to contribute $5 billion each. Goldman Sachs and Morgan Stanley will contribute $2.5 billion each and BNY Mellon, PNC Bank, State Street, Truist and US Bank will each add $1 billion.

"The deposits are uninsured, the banks said"

I wonder what other terms there may be. If I were one of those banks I'd want some form of equity.
What does this even mean? Deposits are liabilities of the bank. How does increasing the amount of their liabilities help them?
And where did the other banks get $30 billion to "contribute"?
Can someone explain how this is reassuring?
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Re: [Bank failure discussion mega-thread]

Post by ivgrivchuck »

srt7 wrote: Thu Mar 16, 2023 8:33 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
They can say whatever they want but the fact of the matter is that American public bailed out the incompetent management of Silicon Valley Bank (Greg Becker's exec. team), and Signature Bank (Joseph DePaolo's exec. team) while First Republic Bank is being thrown a bone by more competent bankers. Such an embarrassment!
- The management and shareholders of SVB and SB lost their jobs/options/shares.
- The management and shareholders of FRB still have their jobs/options/shares.

I'd rather say that the account holders of SVB/SB were bailed out, not the banks themselves (they will likely cease to exist).
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srt7
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Re: [Bank failure discussion mega-thread]

Post by srt7 »

nisiprius wrote: Thu Mar 16, 2023 8:41 pm
srt7 wrote: Thu Mar 16, 2023 8:33 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
They can say whatever they want but the fact of the matter is that American public bailed out the incompetent management of Silicon Valley Bank (Greg Becker's exec. team), and Signature Bank (Joseph DePaolo's exec. team) ...
I don't think so. They were bailed out by the FDIC using money that will be repaid partly by sales of SVB's assets and partly by assessments levied on FDIC member banks. The latter case is banks bailing out banks--just like First Republic--the difference being that it's compulsory instead of voluntarily.
I really wish it was banks bailing out banks but unfortunately it will all trickle down to the American public to somehow bear the brunt of it down the road (higher interest rates etc.)

My point is no one (not the public or FDIC or member banks) should be saving these rogue banks who took the risky route. Let them pay the consequences and it will be a warning for future bankers as well. NY Times has an article today on how economists and bankers were blindsided and never anticipated interest rates to go up ... ever! Why are we rewarding such behavior?

Feds/Govt. are walking a tight rope here with their messaging striking a delicate balance between "it's nothing like 2008" but also "we'd like to bail out these big players".

My apologies, Nisiprius, if this is coming off wrong. I hope you know it's not directed at you or your post.

I should probably get off the key board and chill :sharebeer
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Re: [Bank failure discussion mega-thread]

Post by srt7 »

technovelist wrote: Thu Mar 16, 2023 8:45 pm
exodusing wrote: Thu Mar 16, 2023 5:00 pm
Tanelorn wrote: Thu Mar 16, 2023 3:50 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
Looks like FRC is going to make it

https://www.wsj.com/articles/jpmorgan-m ... c-4f9eeb76
"Four of the country’s biggest banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — agreed to contribute $5 billion each. Goldman Sachs and Morgan Stanley will contribute $2.5 billion each and BNY Mellon, PNC Bank, State Street, Truist and US Bank will each add $1 billion.

"The deposits are uninsured, the banks said"

I wonder what other terms there may be. If I were one of those banks I'd want some form of equity.
What does this even mean? Deposits are liabilities of the bank. How does increasing the amount of their liabilities help them?
And where did the other banks get $30 billion to "contribute"?
Can someone explain how this is reassuring?
LOL! Robbing Peter to pay Paul ...
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Re: [Bank failure discussion mega-thread]

Post by srt7 »

ivgrivchuck wrote: Thu Mar 16, 2023 8:47 pm
srt7 wrote: Thu Mar 16, 2023 8:33 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
They can say whatever they want but the fact of the matter is that American public bailed out the incompetent management of Silicon Valley Bank (Greg Becker's exec. team), and Signature Bank (Joseph DePaolo's exec. team) while First Republic Bank is being thrown a bone by more competent bankers. Such an embarrassment!
- The management and shareholders of SVB and SB lost their jobs/options/shares.
- The management and shareholders of FRB still have their jobs/options/shares.

I'd rather say that the account holders of SVB/SB were bailed out, not the banks themselves (they will likely cease to exist).
Good to hear. Thanks for that clarity. I'm also hoping there are clawbacks on bonuses going back at least a couple years. No one in a capitalist society should get paid for failure.
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Re: [Bank failure discussion mega-thread]

Post by HP-12Cing »

technovelist wrote: Thu Mar 16, 2023 8:45 pm What does this even mean? Deposits are liabilities of the bank. How does increasing the amount of their liabilities help them?
And where did the other banks get $30 billion to "contribute"?
Can someone explain how this is reassuring?
If First Republic was facing a liquidity crisis, it needs sources of funds to use to cover withdrawals. One option would be converting a liquid asset, such as investment security, to cash. However, as seen with SVB there is the danger of having to realize securities losses if current holdings have depreciated. Another option is acquiring additional liabilities in order to bolster cash reserves (since an increase to liabilities results in a corresponding increase to assets in this case). That is what First Republic was doing when it borrowed $100+ billion from the Fed - the borrowed funds are then available in the short-term to cover the depositors' outflows.

As far as where the other banks found the money to contribute, it was likely coming from existing on-balance sheet liquidity. Banks will invest a portion of their assets in some combination of interest-bearing liquid assets, such as investment securities, Federal funds sold, their Excess Balance Account at the FRB, and balances held at other banks. Just like consumers, banks will place money in CDs and other accounts at banks. So, in this case it is possible they simply moved funds held at Bank A to new accounts at First Republic.
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Re: [Bank failure discussion mega-thread]

Post by simplesimon »

technovelist wrote: Thu Mar 16, 2023 8:45 pm
exodusing wrote: Thu Mar 16, 2023 5:00 pm
Tanelorn wrote: Thu Mar 16, 2023 3:50 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
Looks like FRC is going to make it

https://www.wsj.com/articles/jpmorgan-m ... c-4f9eeb76
"Four of the country’s biggest banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — agreed to contribute $5 billion each. Goldman Sachs and Morgan Stanley will contribute $2.5 billion each and BNY Mellon, PNC Bank, State Street, Truist and US Bank will each add $1 billion.

"The deposits are uninsured, the banks said"

I wonder what other terms there may be. If I were one of those banks I'd want some form of equity.
What does this even mean? Deposits are liabilities of the bank. How does increasing the amount of their liabilities help them?
And where did the other banks get $30 billion to "contribute"?
Can someone explain how this is reassuring?
1) Deposits are liabilities and when customers decide to take their deposits the bank needs to give them the cash. Since FRB (and most banks) do not have enough cash to immediately pay out a huge drawdown of deposits, the deposits from the bank rescue group provided $30B of relief. $30B to pay out the depositors that left and replaced it with their own deposits.

2) It seems like the $30B came from the deposits that came from FRB/SVB. It just circled back.

3) At first glance it is reassuring because the banks are willing to support each other although I find it a little odd that the banks are telling their new ex-FRB customers "we took your deposits that you brought over and are giving it back".
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Re: [Bank failure discussion mega-thread]

Post by technovelist »

simplesimon wrote: Thu Mar 16, 2023 9:24 pm
technovelist wrote: Thu Mar 16, 2023 8:45 pm
exodusing wrote: Thu Mar 16, 2023 5:00 pm
Tanelorn wrote: Thu Mar 16, 2023 3:50 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
Looks like FRC is going to make it

https://www.wsj.com/articles/jpmorgan-m ... c-4f9eeb76
"Four of the country’s biggest banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — agreed to contribute $5 billion each. Goldman Sachs and Morgan Stanley will contribute $2.5 billion each and BNY Mellon, PNC Bank, State Street, Truist and US Bank will each add $1 billion.

"The deposits are uninsured, the banks said"

I wonder what other terms there may be. If I were one of those banks I'd want some form of equity.
What does this even mean? Deposits are liabilities of the bank. How does increasing the amount of their liabilities help them?
And where did the other banks get $30 billion to "contribute"?
Can someone explain how this is reassuring?
1) Deposits are liabilities and when customers decide to take their deposits the bank needs to give them the cash. Since FRB (and most banks) do not have enough cash to immediately pay out a huge drawdown of deposits, the deposits from the bank rescue group provided $30B of relief. $30B to pay out the depositors that left and replaced it with their own deposits.

2) It seems like the $30B came from the deposits that came from FRB/SVB. It just circled back.

3) At first glance it is reassuring because the banks are willing to support each other although I find it a little odd that the banks are telling their new ex-FRB customers "we took your deposits that you brought over and are giving it back".
OK, I guess that makes some sense.
But they stressed that these deposits are uninsured.
Doesn't that mean if First Republic goes under anyway, then all those deposits are lost?
That isn't very reassuring.
In theory, theory and practice are identical. In practice, they often differ.
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Re: [Bank failure discussion mega-thread]

Post by simplesimon »

technovelist wrote: Thu Mar 16, 2023 9:30 pm
simplesimon wrote: Thu Mar 16, 2023 9:24 pm
technovelist wrote: Thu Mar 16, 2023 8:45 pm
exodusing wrote: Thu Mar 16, 2023 5:00 pm
Tanelorn wrote: Thu Mar 16, 2023 3:50 pm
Looks like FRC is going to make it

https://www.wsj.com/articles/jpmorgan-m ... c-4f9eeb76
"Four of the country’s biggest banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — agreed to contribute $5 billion each. Goldman Sachs and Morgan Stanley will contribute $2.5 billion each and BNY Mellon, PNC Bank, State Street, Truist and US Bank will each add $1 billion.

"The deposits are uninsured, the banks said"

I wonder what other terms there may be. If I were one of those banks I'd want some form of equity.
What does this even mean? Deposits are liabilities of the bank. How does increasing the amount of their liabilities help them?
And where did the other banks get $30 billion to "contribute"?
Can someone explain how this is reassuring?
1) Deposits are liabilities and when customers decide to take their deposits the bank needs to give them the cash. Since FRB (and most banks) do not have enough cash to immediately pay out a huge drawdown of deposits, the deposits from the bank rescue group provided $30B of relief. $30B to pay out the depositors that left and replaced it with their own deposits.

2) It seems like the $30B came from the deposits that came from FRB/SVB. It just circled back.

3) At first glance it is reassuring because the banks are willing to support each other although I find it a little odd that the banks are telling their new ex-FRB customers "we took your deposits that you brought over and are giving it back".
OK, I guess that makes some sense.
But they stressed that these deposits are uninsured.
Doesn't that mean if First Republic goes under anyway, then all those deposits are lost?
That isn't very reassuring.
Right now bank survival is dependent on deposits staying where they are. Certainly if the only deposits left at the end of the day are the bank group's $30B, FRB will collapse. But it doesn't necessarily mean the deposits are lost. You'll have to read upthread about why, as there is a strong chance that all of SVB's depositors will be made whole simply by liquidation of the bank's assets and not cost taxpayers much, if anything.

"Uninsured" does not mean non-recoverable. It's not like life insurance where if you're covered there's a payout and if you're not insured you don't. It just means you're not guaranteed to be made whole by the FDIC.
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Re: [Bank failure discussion mega-thread]

Post by Tanelorn »

Hard to know exactly what went wrong at SVB, and hence what we should do to prevent it, when the officials who know refuse to disclose it.

https://www.nytimes.com/2023/03/16/busi ... n-svb.html
Jerome H. Powell, the chair of the Federal Reserve, blocked efforts to include a phrase mentioning regulatory failures in the joint statement released early Sunday evening by the Fed, the Treasury Department and the Federal Deposit Insurance Corporation... Some administration officials wanted to include that lapses in bank regulation and supervision had contributed to the problems that helped fell the bank.
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Re: [Bank failure discussion mega-thread]

Post by CuriousTacos »

srt7 wrote: Thu Mar 16, 2023 8:26 pm
sid hartha wrote: Thu Mar 16, 2023 2:23 pm The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.
Say one of their investments was bought at $1MM and is now valued at $700K meaning when the Fed bails them out they'd do so at $1MM. Who bears the $300K difference?
It works differently from that. If their treasury and/or mortgage backed securities were bought at $1m and are now valued at $700k, then the Fed will loan them up to $1m for one year. By the end of that year, the bank has to pay back that $1m plus interest, and their investments will still be worth whatever the market says they're worth. The Fed doesn't make up the difference on these investments. It does offer them a favorable loan, so the "cost" to the Fed for this program is the opportunity cost of what the Fed otherwise would have done with this money. In the event that the bank fails before the loan is paid back, the loans are "recourse beyond the pledged collateral," meaning the FDIC can claim the collateral and additional assets to recover its loan. I'm not sure where that puts them in the priority though, so there's still potentially some risk if one of these banks fails really badly- but the FDIC generally tries to step in before it gets to that point anyway, so the loans are probably pretty safe.

The key is that these banks are not insolvent even considering their investment losses (at least now), but merely getting closer than comfort, and many of their assets can't be sold in a hurry (except at fire-sale prices because some of their loans are difficult for buyers to value). If the Fed can convince depositors that there's no reason to panic, then perhaps it buys these banks some time to sell a few things and restore a cushion of liquidity.

I'm not necessarily endorsing this plan, but just trying to correct some misunderstandings that probably make it sound much worse.
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Re: [Bank failure discussion mega-thread]

Post by Random Musings »

srt7 wrote: Thu Mar 16, 2023 8:33 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
They can say whatever they want but the fact of the matter is that American public bailed out the incompetent management of Silicon Valley Bank (Greg Becker's exec. team), and Signature Bank (Joseph DePaolo's exec. team) while First Republic Bank is being thrown a bone by more competent bankers. Such an embarrassment!
I wonder how much of the $30 billion came from depositors who moved money from other regional banks (some of them perhaps in better shape than FBR) to the very large banks who in turn deposited those $ in FBR. In the aggregate, the $30 billion may be in weaker hands.

I don't think this party is done yet, because where there is smoke, there is fire.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ
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Re: [Bank failure discussion mega-thread]

Post by technovelist »

Random Musings wrote: Thu Mar 16, 2023 10:24 pm
srt7 wrote: Thu Mar 16, 2023 8:33 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
They can say whatever they want but the fact of the matter is that American public bailed out the incompetent management of Silicon Valley Bank (Greg Becker's exec. team), and Signature Bank (Joseph DePaolo's exec. team) while First Republic Bank is being thrown a bone by more competent bankers. Such an embarrassment!
I wonder how much of the $30 billion came from depositors who moved money from other regional banks (some of them perhaps in better shape than FBR) to the very large banks who in turn deposited those $ in FBR. In the aggregate, the $30 billion may be in weaker hands.

I don't think this party is done yet, because where there is smoke, there is fire.

RM
Yes, exactly. I know I'm happier having most of my cash in t-bills and t-bill money markets.
In theory, theory and practice are identical. In practice, they often differ.
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Re: [Bank failure discussion mega-thread]

Post by theac »

technovelist wrote: Thu Mar 16, 2023 10:39 pm
Random Musings wrote: Thu Mar 16, 2023 10:24 pm
srt7 wrote: Thu Mar 16, 2023 8:33 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
They can say whatever they want but the fact of the matter is that American public bailed out the incompetent management of Silicon Valley Bank (Greg Becker's exec. team), and Signature Bank (Joseph DePaolo's exec. team) while First Republic Bank is being thrown a bone by more competent bankers. Such an embarrassment!
I wonder how much of the $30 billion came from depositors who moved money from other regional banks (some of them perhaps in better shape than FBR) to the very large banks who in turn deposited those $ in FBR. In the aggregate, the $30 billion may be in weaker hands.

I don't think this party is done yet, because where there is smoke, there is fire.

RM
Yes, exactly. I know I'm happier having most of my cash in t-bills and t-bill money markets.
I hold my cash at Schwab in their Value Advantage Money Fund® – Investor Shares (SWVXX) at 4.49%

So would you say it's a good idea to move it to a safer place like Schwab U.S. Treasury Money Fund - Investor Shares at 4.31%

I'm guessing the answer is "yes"?

Edit: Wow,
I skimmed thru the SWVXX holdings and I think I have to change that answer to:
DEFINITELY YES! :D

I'd still like to hear any views on it tho.
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha (a George Harrison song)
technovelist
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Re: [Bank failure discussion mega-thread]

Post by technovelist »

theac wrote: Thu Mar 16, 2023 11:38 pm
technovelist wrote: Thu Mar 16, 2023 10:39 pm
Random Musings wrote: Thu Mar 16, 2023 10:24 pm
srt7 wrote: Thu Mar 16, 2023 8:33 pm
exodusing wrote: Thu Mar 16, 2023 3:35 pm Eleven Banks Deposit $30 Billion in First Republic Bank
U.S. regulators say the group’s deposit ‘demonstrates the resilience of the banking system’
They can say whatever they want but the fact of the matter is that American public bailed out the incompetent management of Silicon Valley Bank (Greg Becker's exec. team), and Signature Bank (Joseph DePaolo's exec. team) while First Republic Bank is being thrown a bone by more competent bankers. Such an embarrassment!
I wonder how much of the $30 billion came from depositors who moved money from other regional banks (some of them perhaps in better shape than FBR) to the very large banks who in turn deposited those $ in FBR. In the aggregate, the $30 billion may be in weaker hands.

I don't think this party is done yet, because where there is smoke, there is fire.

RM
Yes, exactly. I know I'm happier having most of my cash in t-bills and t-bill money markets.
I hold my cash at Schwab in their Value Advantage Money Fund® – Investor Shares (SWVXX) at 4.49%

So would you say it's a good idea to move it to a safer place like Schwab U.S. Treasury Money Fund - Investor Shares at 4.31%

I'm guessing the answer is "yes"?

Edit: Wow,
I skimmed thru the SWVXX holdings and I think I have to change that answer to:
DEFINITELY YES! :D

I'd still like to hear any views on it tho.
Commercial paper is what froze up in one of the previous crises. I would avoid it.

I looked up SNSXX (Schwab U.S. Treasury Money Fund) and it looks fine. It's all short Treasurys. And of course if you live in a state with an income tax, then that fund will be better from a tax standpoint than SWVXX, so you may come out about even with greater safety.

What I'm doing is buying T-bills with my FDLXX money fund, mostly because the latter has a 0.42% ER. I bought some T-bills yesterday in the secondary market and will buy more at the auction on Tuesday. This is through Fidelity. I'm buying 52 week bills because they mature next year, which is when the interest is taxable, and I already have enough taxable income this year so I want to defer it. Otherwise I would probably go with 3-month bills in three pieces so there's one maturing every month.
In theory, theory and practice are identical. In practice, they often differ.
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Re: [Bank failure discussion mega-thread]

Post by exodusNH »

CuriousTacos wrote: Thu Mar 16, 2023 10:23 pm The key is that these banks are not insolvent even considering their investment losses (at least now), but merely getting closer than comfort, and many of their assets can't be sold in a hurry (except at fire-sale prices because some of their loans are difficult for buyers to value). If the Fed can convince depositors that there's no reason to panic, then perhaps it buys these banks some time to sell a few things and restore a cushion of liquidity.

I'm not necessarily endorsing this plan, but just trying to correct some misunderstandings that probably make it sound much worse.
And guess who'd swoop in to gobble up those fire-sale assets? Hedge funds. Private equity. Sovereign wealth funds.
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Re: [Bank failure discussion mega-thread]

Post by JoMoney »

technovelist wrote: Fri Mar 17, 2023 12:05 am...
Commercial paper is what froze up in one of the previous crises. I would avoid it...
In addition to 'commercial paper', bank CD's are also common in "Prime" money market funds... but for the quantities of a money market fund, probably not FDIC insured (presuming there are still limits on that)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: [Bank failure discussion mega-thread]

Post by technovelist »

JoMoney wrote: Fri Mar 17, 2023 12:19 am
technovelist wrote: Fri Mar 17, 2023 12:05 am...
Commercial paper is what froze up in one of the previous crises. I would avoid it...
In addition to 'commercial paper', bank CD's are also common in "Prime" money market funds... but for the quantities of a money market fund, probably not FDIC insured (presuming there are still limits on that)
Sure, but what's the downside to T-bills? Are bank CD's paying more, and if so, enough to take any additional risk?
If I want risk, I know where to find it but it has to have an upside too.
In theory, theory and practice are identical. In practice, they often differ.
exodusNH
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Re: [Bank failure discussion mega-thread]

Post by exodusNH »

technovelist wrote: Fri Mar 17, 2023 12:32 am
JoMoney wrote: Fri Mar 17, 2023 12:19 am
technovelist wrote: Fri Mar 17, 2023 12:05 am...
Commercial paper is what froze up in one of the previous crises. I would avoid it...
In addition to 'commercial paper', bank CD's are also common in "Prime" money market funds... but for the quantities of a money market fund, probably not FDIC insured (presuming there are still limits on that)
Sure, but what's the downside to T-bills? Are bank CD's paying more, and if so, enough to take any additional risk?
If I want risk, I know where to find it but it has to have an upside too.
If you need to sell a T-Bill before maturity, you may take a haircut. With a CD, if you break it early, you sacrifice some amount of interest, but will get all of your principal back. BUT, banks don't have to honor requests to break a CD. So you have the risk that you can't get your money back before maturity. And if you're not paying attention, when the CD matures, they'll auto roll it into a product probably paying a bad rate.
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Re: [Bank failure discussion mega-thread]

Post by nps »

theac wrote: Thu Mar 16, 2023 11:38 pm I hold my cash at Schwab in their Value Advantage Money Fund® – Investor Shares (SWVXX) at 4.49%

So would you say it's a good idea to move it to a safer place like Schwab U.S. Treasury Money Fund - Investor Shares at 4.31%

I'm guessing the answer is "yes"?

Edit: Wow,
I skimmed thru the SWVXX holdings and I think I have to change that answer to:
DEFINITELY YES! :D

I'd still like to hear any views on it tho.
Schwab already saw $8.8B in net outflows from its Value Advantage funds this week. You would be in good company.
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Re: [Bank failure discussion mega-thread]

Post by Valuethinker »

nisiprius wrote: Thu Mar 16, 2023 10:25 am
sid hartha wrote: Thu Mar 16, 2023 8:44 am Would you mind explaining this more for someone that really doesn't understand? I didn't see where they explicitly said that SVB has sufficient assets to cover depositors. I saw this

https://www.fdic.gov/news/press-release ... 23019.html

which just said "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law."

But forgive my ignorance but I didn't see where they explicitly said the assets of SVB are sufficient to cover depositors.
They probably don't know yet. It's probably a close thing.

All of the following is cribbed from what I've read recently, mostly Matt Levine's column.

The issue is whether SVB is insolvent (more liabilities than assets) or merely illiquid (enough assets, but not liquid enough to meet current expenses.) All banks work by borrowing short and lending long. They have enough to cover withdrawals eventually, but take a calculated risk that they won't need all of it right now.

SVB needed to pay out now, but the bonds were going to pay later. They couldn't afford to wait. They couldn't meet their obligations now by liquidating their bonds now--selling them on the market--because the value of those bonds is depressed because of the rise in interest rates.
Complicating this is that the crisis itself produces the outcome everyone feared - pressure on the liquidity of all but the "Too Big to Fail" banks. Would you be a corporate Treasurer right now caught with money at a Regional Bank? Wouldn't you, out of prudence, move it all to TBTF banks?
The "magic" is the difference in time frame between SVB and the FDIC. The FDIC can afford to just wait for the bonds to mature. When they do, they will pay out their full face value--not their currently depressed market value--and the FDIC will be fully repaid.

I gather that nobody is quite sure what the bottom line is, but SVB was roughly solvent and had roughly enough assets to meet obligations. That's why SVB and some people feel so aggrieved about the situation, because in their hearts they feel that SVB was sound and failed due to bad luck and scare talk on Twitter.
So unlike in 2008, the quality of the underlying assets is not in question. These are not dodgy CDOs. (In fact, the default risks are much more in their loan book - they are lending to a high risk sector which is in recession and even meltdown. However the loan book will be typically 0 to 5 years at max, so the liquidity issue isn't there, or wasn't).
The argument, as always, is whether they took too much risk, or whether they took a reasonable amount of risk and were done in by abnormal events that nobody could have possibly foreseen, that they shouldn't be punished for.
In fact, both could be true. And probably are.

They made some very elementary mistakes in terms of holding long duration assets to pick up (then) a tiny amount of yield. Whether that was lack of financial sophistication, or pure greed, or some combination of both. History suggests both factors.

On the other hand, no bank can withstand losing 25% of their deposits in 24 hours, without some kind of external help.
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Re: [Bank failure discussion mega-thread]

Post by theac »

nps wrote: Fri Mar 17, 2023 4:33 am
theac wrote: Thu Mar 16, 2023 11:38 pm I hold my cash at Schwab in their Value Advantage Money Fund® – Investor Shares (SWVXX) at 4.49%

So would you say it's a good idea to move it to a safer place like Schwab U.S. Treasury Money Fund - Investor Shares at 4.31%

I'm guessing the answer is "yes"?

Edit: Wow,
I skimmed thru the SWVXX holdings and I think I have to change that answer to:
DEFINITELY YES! :D

I'd still like to hear any views on it tho.
Schwab already saw $8.8B in net outflows from its Value Advantage funds this week. You would be in good company.
Yep, I already put in my sell/buy orders!
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha (a George Harrison song)
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Re: [Bank failure discussion mega-thread]

Post by technovelist »

exodusNH wrote: Fri Mar 17, 2023 12:56 am
technovelist wrote: Fri Mar 17, 2023 12:32 am
JoMoney wrote: Fri Mar 17, 2023 12:19 am
technovelist wrote: Fri Mar 17, 2023 12:05 am...
Commercial paper is what froze up in one of the previous crises. I would avoid it...
In addition to 'commercial paper', bank CD's are also common in "Prime" money market funds... but for the quantities of a money market fund, probably not FDIC insured (presuming there are still limits on that)
Sure, but what's the downside to T-bills? Are bank CD's paying more, and if so, enough to take any additional risk?
If I want risk, I know where to find it but it has to have an upside too.
If you need to sell a T-Bill before maturity, you may take a haircut. With a CD, if you break it early, you sacrifice some amount of interest, but will get all of your principal back. BUT, banks don't have to honor requests to break a CD. So you have the risk that you can't get your money back before maturity. And if you're not paying attention, when the CD matures, they'll auto roll it into a product probably paying a bad rate.
Yes, the haircut is a possibility when interest rates go up after you buy the bill. But if you have bills maturing every month or so, it's unlikely that you will have to sell at a time when you would lose a substantial amount of money unless it is a real emergency where you need to sell everything.
In theory, theory and practice are identical. In practice, they often differ.
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Re: [Bank failure discussion mega-thread]

Post by technovelist »

Valuethinker wrote: Fri Mar 17, 2023 5:07 am
nisiprius wrote: Thu Mar 16, 2023 10:25 am
sid hartha wrote: Thu Mar 16, 2023 8:44 am Would you mind explaining this more for someone that really doesn't understand? I didn't see where they explicitly said that SVB has sufficient assets to cover depositors. I saw this

https://www.fdic.gov/news/press-release ... 23019.html

which just said "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law."

But forgive my ignorance but I didn't see where they explicitly said the assets of SVB are sufficient to cover depositors.
They probably don't know yet. It's probably a close thing.

All of the following is cribbed from what I've read recently, mostly Matt Levine's column.

The issue is whether SVB is insolvent (more liabilities than assets) or merely illiquid (enough assets, but not liquid enough to meet current expenses.) All banks work by borrowing short and lending long. They have enough to cover withdrawals eventually, but take a calculated risk that they won't need all of it right now.

SVB needed to pay out now, but the bonds were going to pay later. They couldn't afford to wait. They couldn't meet their obligations now by liquidating their bonds now--selling them on the market--because the value of those bonds is depressed because of the rise in interest rates.
Complicating this is that the crisis itself produces the outcome everyone feared - pressure on the liquidity of all but the "Too Big to Fail" banks. Would you be a corporate Treasurer right now caught with money at a Regional Bank? Wouldn't you, out of prudence, move it all to TBTF banks?
The "magic" is the difference in time frame between SVB and the FDIC. The FDIC can afford to just wait for the bonds to mature. When they do, they will pay out their full face value--not their currently depressed market value--and the FDIC will be fully repaid.

I gather that nobody is quite sure what the bottom line is, but SVB was roughly solvent and had roughly enough assets to meet obligations. That's why SVB and some people feel so aggrieved about the situation, because in their hearts they feel that SVB was sound and failed due to bad luck and scare talk on Twitter.
So unlike in 2008, the quality of the underlying assets is not in question. These are not dodgy CDOs. (In fact, the default risks are much more in their loan book - they are lending to a high risk sector which is in recession and even meltdown. However the loan book will be typically 0 to 5 years at max, so the liquidity issue isn't there, or wasn't).
The argument, as always, is whether they took too much risk, or whether they took a reasonable amount of risk and were done in by abnormal events that nobody could have possibly foreseen, that they shouldn't be punished for.
In fact, both could be true. And probably are.

They made some very elementary mistakes in terms of holding long duration assets to pick up (then) a tiny amount of yield. Whether that was lack of financial sophistication, or pure greed, or some combination of both. History suggests both factors.

On the other hand, no bank can withstand losing 25% of their deposits in 24 hours, without some kind of external help.
This last statement is not necessarily true. I was once a customer of a bank that had over 100% liquidity so if everyone who had a demand deposit presented it at the same time, the bank would just sell liquid assets and give them their money. For obvious reasons, they didn't ever have a run.
In theory, theory and practice are identical. In practice, they often differ.
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Re: [Bank failure discussion mega-thread]

Post by simplesimon »

technovelist wrote: Fri Mar 17, 2023 6:33 am This last statement is not necessarily true. I was once a customer of a bank that had over 100% liquidity so if everyone who had a demand deposit presented it at the same time, the bank would just sell liquid assets and give them their money. For obvious reasons, they didn't ever have a run.
Were they not in the business of lending? How did they make money?
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Re: [Bank failure discussion mega-thread]

Post by Valuethinker »

technovelist wrote: Fri Mar 17, 2023 6:33 am


This last statement is not necessarily true. I was once a customer of a bank that had over 100% liquidity so if everyone who had a demand deposit presented it at the same time, the bank would just sell liquid assets and give them their money. For obvious reasons, they didn't ever have a run.
Hoare & Co in London is (or was) still a partnership, owned by the family that founded it in the 1600s. Unlimited liability. One bad decision could wipe out the wealth of a family accumulated over 300 years.

So yes they kept an incredibly high quality loan book (typically they lent to wealthy & aristocratic clients, with fixed and floating charges over family-owned businesses and especially farms, etc). And huge amounts of short term govt securities.

The British economy as a whole would not work on such a basis. For example the home loans market-- we don't have the UK government guaranteeing large amounts of home loans in the way the US does. Retail banks lend for 30 years, and they do so by borrowing from retail depositors.

There is a lot of talk about Fintech & how that will change all this. DiFi-- Distributed Finance. London being a leading Fintech centre, globally. AFAIK Fintech banks work like regular banks - loan aggregation and maturity transformation are still very much "a thing".

Peer-to-peer lending died a death.

Historical Note

The banking hall of Hoare & Co includes a display case of weapons from the early 1800s.

Had Napoleon ever invaded Britain (Nelson put paid to that at the Battle of Trafalgar), then the employees of the Bank would have been rousted as militia to defend London against the invading French Army. "There will always be an England".

History does not relate whether, in 1940, when the Local Defence Volunteers aka The Home Guard were being rousted out with shotguns, pitchforks and packets of pepper (to discomfit invading German paratroops) the Bank considered reactivating its arsenal. :wink: :wink:
Last edited by Valuethinker on Fri Mar 17, 2023 7:18 am, edited 1 time in total.
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Re: [Bank failure discussion mega-thread]

Post by Valuethinker »

simplesimon wrote: Fri Mar 17, 2023 6:50 am
technovelist wrote: Fri Mar 17, 2023 6:33 am This last statement is not necessarily true. I was once a customer of a bank that had over 100% liquidity so if everyone who had a demand deposit presented it at the same time, the bank would just sell liquid assets and give them their money. For obvious reasons, they didn't ever have a run.
Were they not in the business of lending? How did they make money?
You would drive short term interest rates down to zero. There would be massive (see my post above about Hoare & Co) demand for short term securities from banks that held that much ST collateral against deposits.
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novolog
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Re: [Bank failure discussion mega-thread]

Post by novolog »

if BTFP is a 1 year loan, what are we doing 1 year from now?

presumably the only way banks can pay off the BTFP loan is if the bonds return to their original value, and it seems like the only way that occurs is if rates go back down significantly?

am i missing something?
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Re: [Bank failure discussion mega-thread]

Post by anoop »

A couple of interesting trends, esp if you bank with a small bank.
https://mobile.twitter.com/SantiagoAuFu ... 1149604866
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Re: [Bank failure discussion mega-thread]

Post by simplesimon »

novolog wrote: Fri Mar 17, 2023 8:25 am if BTFP is a 1 year loan, what are we doing 1 year from now?

presumably the only way banks can pay off the BTFP loan is if the bonds return to their original value, and it seems like the only way that occurs is if rates go back down significantly?

am i missing something?
They will likely do all of these things: repay the loan with earnings, push to raise more deposits, repay the loan with bonds that mature. They can try to sell equity. Assuming no reinvestment the duration of the portfolio will fall and improve the FMV. And obviously interest rate changes can help or hurt.
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