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Mirthless posted:You're overstating what the FDIC did while understating the implications of what you are suggesting. The FDIC has traditionally limited deposit insurance for a reason. We very clearly can't print unlimited money with no consequence and bank failure is supposed to be a thing we want banks to avoid. If the FDIC is willing to be a parachute for every bank every bank is gonna jump off the cliff on responsible decisionmaking. The FDIC insurance program does not involve printing any money at all. Banks pay premiums into an insurance pool which the FDIC manages, and pays out of to make whole depositors at failed banks. Moreover, FDIC insurance is for depositors: the affect it has on banks is that it makes depositors more willing to place their money into the hands of an institution that intends to use that money to seek profits via investments. Essentially, it distributes the risk-taking of an individual bank to all banks via an insurance product, so that depositors do not have to become bank risk evaluators in order to trust them with their cash, and also so that depositors do not become flighty scared rabbits and engage in bank runs at the first sign of trouble. The proposal here is that FDIC insurance be expanded to cover larger deposits and paid for by higher premiums charged to banks. This is in no way a printing of money, it costs taxpayers nothing. quote:At this point regional bank depositors outside of what has already been announced still shouldnt expect insured deposits In the long run, this issue of fairness seems to me to be very important, and I expect that if backstopping deposits at the big, troubled banks works, the insurance program may be extended to cover all depositors. I'm not smart enough to know what all of the consequences of that would be, but at least in theory it again would not be a bailout of the banks themselves, but might encourage more risk-taking if the profits of high risk behavior exceed the additional insurance costs. High-risk behavior by banks is regulated, has been regulated more strictly in the past, was relaxed under Trump, and could be made more restrictive again. quote:Edit: fwiw i dont think the FDIC should insure a single loving dollar over 250k for anyone, we are long overdue for an economic realignment in this country and i don't see the benefit in dragging this out for months and months. I also dont see the benefit on changing the rules or the system to accomodate the banking class. The working and middle class will suffer but we are already suffering. Without drastic failure and drastic reform the system is unlikely to improve. I find this argument uncompelling. My personal view is that no matter how much the poor are suffering, intentionally exploding systems that our entire society is built on increases their suffering greatly, and there is never a guarantee that a new system that replaces the destroyed one is actually better for the poor people who survive. If we allow a cascading failure of all of the banks in America, that would wreak an economic destruction never before seen in the US, including during the civil war. Half of all Americans work for large businesses, many of which are hedged and might be able to make payroll, but essentially all small businesses would fail immediately if all the banks closed, and if the banks are closed, a check from your employer is useless. The Great Recession saw unemployment peaking above 10% in many states, but we would be looking at something approaching 100% unemployment. Without banks, the government would not even be able to send people checks - where would they deposit them? Our entire country runs on systems of credits, there literally isn't enough cash printed to go around, people would be unable to buy food. I am not a big fan of banks. Regulation needs to be radically improved. Too Big to Fail shouldn't be a thing, a bank that isn't allowed to fail shouldn't be allowed to make profits from risk; but the right solution isn't to just let a bank run domino and see every american bank fail one after another in the course of a few days or weeks. It's to learn from a big fuckup (allowing banks to take on large risks and reap profits therefrom) and fix things. PoundSand posted:If the solution involves the federal government covering all deposits at all banks and the way to implement that is through bank assessments that ultimately are passed off to everyone that uses banks (so p much everyone) aren’t we just socializing losses so individual banks can gamble for private gains? If FDIC is going to blanket cover everything then shouldn’t we just nationalize the banks directly? That is one option, but I think it's not possible in today's political climate. There is no appetite by any major party to do this. I think a much more viable solution is to use regulation to prevent banks from taking on excessive risk, including (as happened in this case) huge amounts of unhedged interest rate risk. Leperflesh fucked around with this message at 20:39 on Mar 17, 2023 |
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Mar 17, 2023 20:36
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I've heard some compelling arguments for the Fed offering checking and savings accounts (in particular, that they then have a more direct lever for cooling demand by just increasing the interest rates in those accounts, causing more people to want to spend less and save more). One big issue with that is trying to find a way to make this available without causing massive runs on all the other banks as people pulled their money and put it into the new Fed accounts.
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Mar 17, 2023 20:56
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LanceHunter posted:I've heard some compelling arguments for the Fed offering checking and savings accounts (in particular, that they then have a more direct lever for cooling demand by just increasing the interest rates in those accounts, causing more people to want to spend less and save more). One big issue with that is trying to find a way to make this available without causing massive runs on all the other banks as people pulled their money and put it into the new Fed accounts. I'm in favor of it causing massive runs on all the other banks.  Alternatively, maybe the other banks could do something innovative to keep people banking with them, like maybe not offering insultingly-low savings interest rates or trying to charge you for the privilege of talking to a teller. Maybe bring back lollipops for children.
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Mar 17, 2023 21:05
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Lance Reddick dead, but the banks still here. No Justice E: nationalize all the banks Rexicon1 fucked around with this message at 21:10 on Mar 17, 2023 |
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Mar 17, 2023 21:08
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I think Leperflesh has a pretty solid analysis there, including the 'reality' of the situation with respect to covering deposits via the FDIC and what is politically possible. The only thing I want to contribute here is on the topic of 'printing money' and how perception dictates reality here. Sovereign finance operates on a completely different set of rules than personal or even enterprise finance. It all ties back to the perceived ability of a national government to make good on its debts, and the United States has the best reputation on the playground here. No one questions the ability of the U.S. government to pay out its T-bills, despite what deficit hawks cry about. Can we print mathematically infinite money? No, of course not. But we can print functionally infinite money, in the sense that the government can raise an arbitrary amount of cash through bonds sufficient to cover any crisis short of an actual apocalypse. But just because we can doesn't mean we should or will, which is where the Fed's comments come into play. Because of the role of perception in the economy, even governments with functionally infinite money printing capacity--those who no actor questions the ability to pay out debt--have to act as though they can't. Because that is the expectation of the other actors in the room. The Fed has to play the role of the inflation moderator as was codified by Volker back in the 1980s. If it doesn't, that flies in the face of expectations and creates a negative perception even worse than a rate hike. So whether or not we can do something, we have to act like that option isn't on the table so that economic activity doesn't rapidly change in unexpected ways. As someone else put it, it is "Don't think about elephants" on a macroeconomic scale. You can't go up on stage in the middle of a crisis and declare "we will bail out everyone no matter the cost" because it will push activity into unpredictable extremes. Will some actors take that at face value and suddenly start taking incredible risks? Will others call the bluff and immediately pull out in a panic? Both outcomes are plausible and incredibly bad for the economy at large. So no one can talk about "infinite money printing" until there is no other option on the table, despite it very much being a tool in the toolbox for historically stable governments and sufficiently large national economies. I'd make a nuclear weapons analogy too, but governments are plenty willing to saber-rattle with nukes when they definitely are not with their economic tools. But in summary: there are plenty of 'extreme' tools in the toolbox for dealing with a crisis, some better defined than others, but perception is everything in economics and as much as people love to make hay about numbers, there's a lot of vibes-based grease on the gears that would suddenly dry up if the government says the quiet parts out loud.
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Mar 17, 2023 21:09
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The problem is a bank run doesn't lead to every bank failing, it leads to every bank smaller than I dunno, capital one? TD? dying and all that money going to the top 10 banks. People didn't pull their money from Silicon Valley Bank in cash, they moved it to Chase or Citi or BoA. The truly big banks are probably the only ones safe here, it's the local banks that are in trouble. You want to see who would ultimately benefit in a bank run, look who invested in FRC.
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Mar 17, 2023 21:13
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LanceHunter posted:I've heard some compelling arguments for the Fed offering checking and savings accounts (in particular, that they then have a more direct lever for cooling demand by just increasing the interest rates in those accounts, causing more people to want to spend less and save more). One big issue with that is trying to find a way to make this available without causing massive runs on all the other banks as people pulled their money and put it into the new Fed accounts. Another advantage of this is that it would allow a whole lot of disadvantaged people who have been locked out of the banking system a way to regain access to those services. I've known far too many people who were stuck giving up a percent of their paycheck to some sleazy check cashing company because they had unresolved overdrafts. Lack of access to banks leaves people open to some frighteningly predatory stuff.
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Mar 17, 2023 21:19
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The risk of the bank run is that it causes a bank to fail, and that drops confidence in any other bank that has underlying numbers similar to the failed bank. So if SVB failed because it had huge amounts of unhedged bonds with plummeting values due to rising rates, the market looks at the disclosures from all the other banks and says "hey, this other bank, it had slightly less but still large amounts of unhedged bonds..." and depositors do a run on that bank. Then everyone goes "I guess having slightly less but still large amounts of bonds is bad, who is next?" and whoever is next gets a run, and so on and so on. None of the banks can actually pay out cash for 100% of deposits on a short timeframe. That's just not how banks work. A cascade of failures is a cascade of increasing doubt, with no clear end to it. There is a reason a bunch of big banks are sending money to First Republic, of their own volition: they do not want FR to fail because that increases the pressure on themselves (and also they don't want harsher regulations, and the worse this becomes the more likely it gets that they'll be harshly regulated). Also small banks may not have large unsecured bond positions, so they're not necessarily all at risk solely due to SVB's failure. The point was made in that video of Yellen being yelled at though, that if we provide an unlimited deposit guarantee but only at large banks risking failure, that could pull deposits from small banks regardless of their relative health and that could kill all small banks, maybe.
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Mar 17, 2023 21:21
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It seems like there is an underlying assumption here that small banks are good(or at least better) and large banks are bad(or at least worse). Is that really the case? They all seem like different flavors of the same poo poo sandwich we all have to hold our nose and eat out of necessity. If we waved a magic wand and safely moved all the deposits from small banks to large ones would anyone other than shareholders and bank execs even notice that the letterhead their statements are printed on had changed?
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Mar 17, 2023 21:28
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Leperflesh posted:I am not a big fan of banks. Regulation needs to be radically improved. Too Big to Fail shouldn't be a thing, a bank that isn't allowed to fail shouldn't be allowed to make profits from risk; but the right solution isn't to just let a bank run domino and see every american bank fail one after another in the course of a few days or weeks. It's to learn from a big fuckup (allowing banks to take on large risks and reap profits therefrom) and fix things. I think more things would need to fail for this to happen. The most effective financial regulations are created when something terrible happens to the economy.
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Mar 17, 2023 21:33
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Leperflesh posted:None of the banks can actually pay out cash for 100% of deposits on a short timeframe. I mean I guess it depends how short you consider "short" to be. SIVB's problem was that it was insolvent. See cell I12 here: https://docs.google.com/spreadsheets/d/1dROQQuJmoLbrNgkM3ZYiuvVzj3dfRw2LESsIP7t5u5c/edit#gid=0 Few banks have that problem. But yeah, unwinding their assets to pay out all depositors 100% probably isn't an intraday kinda thing for most banks?
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Mar 17, 2023 21:37
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DapperDraculaDeer posted:It seems like there is an underlying assumption here that small banks are good(or at least better) and large banks are bad(or at least worse). Is that really the case? They all seem like different flavors of the same poo poo sandwich we all have to hold our nose and eat out of necessity. If we waved a magic wand and safely moved all the deposits from small banks to large ones would anyone other than shareholders and bank execs even notice that the letterhead their statements are printed on had changed? the small banks have more political power within smaller entities, all the big banks just set up shop in nyc
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Mar 17, 2023 21:45
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pmchem posted:I mean I guess it depends how short you consider "short" to be. I typed that and then started thinking about weirdo nontraditional banks who have like a small amount of deposits and mostly do some other form of banking and could I guess cash out all of their depositors because of huge assets from other business... but I decided to leave it because we're mostly talking about a particular kind of bank right now anyway - the kind that's theoretically vulnerable to bank runs.
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Mar 17, 2023 21:53
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DapperDraculaDeer posted:It seems like there is an underlying assumption here that small banks are good(or at least better) and large banks are bad(or at least worse). Is that really the case? They all seem like different flavors of the same poo poo sandwich we all have to hold our nose and eat out of necessity. If we waved a magic wand and safely moved all the deposits from small banks to large ones would anyone other than shareholders and bank execs even notice that the letterhead their statements are printed on had changed? I don't know how much this bares out in reality, but I'm instantly suspect of a small group of supermassive banks being the only game in town because it's way easier to consolidate the kind of political power that gets them deregulated in such an environment. I'd rather that financial and political power be spread out across a large group of small, nominally independent banks who then actually have to put effort into organizing their political and fiscal interests. It's not competition in the capital sense of "competition encourages innovation" or some such, but competition in the feudal sense of "best be cautious of the lordling in the next county over." Such a balkanized system would be easier for government interests to clamp down on because cooperation between large groups is inherently more complicated than Wells Fargo deciding they want to I suppose whether that's a good thing depends on your political and class interests. I think it is important to have a fabric for this balkanized banking system to work smoothly, but that's one of the jobs of the national bank and bank regulation in general.
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Mar 17, 2023 22:02
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Even if the small banks aren't directly colluding they still have largely similar incentives so they're going to operate as a class.
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Mar 17, 2023 22:05
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ultrafilter posted:Even if the small banks aren't directly colluding they still have largely similar incentives so they're going to operate as a class. Nothing will stop a sufficiently motivated group from organizing. But you can make it harder and more expensive. Letting all the little banks fail and rolling them up into big banks is the opposite of that. (Probably need more bureaucracy to manage the tens of thousands of little banks, but that's a small price to pay to avoid kingmaking the banking equivalent of Amazon.)
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Mar 17, 2023 22:07
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I think a key issue here is that the large uninsured depositors at SVB have been portrayed to be these poor innocent babes who only wanted a checking account. Can Roku not afford risk managers that can evaluate a banks balance sheet? Doesn't seem like these companies were complaining when they were getting savings yield on their millions in deposits or white glove banking services from SVB like preferred access to low-rate lending. To me the takeaway is maybe we need to divide the fractional banking system into two regulatory regimes. One in which large depositors keep payroll reserves in banks funded by low-risk financing sources such as fees or short duration treasury bonds but accept little/no yield on holdings, and another where deposits generate yield but accept that comes with risk. Backstopping the whole system with blanket FDIC insurance seems crazy. We shouldn't be treating large deposits funding payroll the same as those that are seeking yield. And if you want loving yield, you accept the loving risk. Banks can compete in this regime and large depositors can decide how to allocate their cash piles. Picking and choosing which banks win, and writing them blank checks, is the worst of all possible worlds, it's anti-competitive crony-ism. We need competition in the banking sector and unfortunately right now every bank smaller then SVB should be quaking in their boots hobbez fucked around with this message at 01:51 on Mar 18, 2023 |
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Mar 18, 2023 01:39
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Most companies actually get forms of insurance just in case banks ever can't pay out, such things do exist even before that such as https://www.wintrust.com/max.html . Average customers were not bank running SVB, it was large investors pushed by Thiel. So there's a whole lot of issues and systemic problems but bank runs are not common or likely in general, even now.
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Mar 18, 2023 02:11
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At the beginning of the new stock trading thread we wrote down some "memoriam"s which is already kind of interesting to review Here are a few for this thread. I guess the context missing from the OP is that SVIB (silicon valley bank) imploded on march 10 (one week from this post) there's already a wikipedia article about it https://en.wikipedia.org/wiki/Collapse_of_Silicon_Valley_Bank. Silicon valley bank being a significant pipe for VC money to flow through in california. Also Silvergate bank failed, a more conservative bank. Both of these followed the collapse of Signature Bank which was a crypto bank and wasn't a massive surprise compared to the other two. As of this writing First Republic Bank was struggling but seeming like they will likely not collapse in the immediate future but might be the next domino to fall. As I write this bitcoin is $27,000 although for most of 2023 it's been trading at $20k - $24k regular gas is $3.45/gal diesel is $4.25/gal milk is still $4.41 which is suspiciously exactly how much it was in November 2022 30 year mortgage is 6% although beginning of last week it was closer to 7% before capital started to look for other places to move their money besides banks Gold has "spiked" recently to $1988 after fluctuating around $1850
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Mar 18, 2023 03:19
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It's the spring steam equity sale! I'm gonna stock up.
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Mar 18, 2023 04:09
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pmchem posted:Few banks have that problem. But yeah, unwinding their assets to pay out all depositors 100% probably isn't an intraday kinda thing for most banks? In a lot of cases, doesn’t unwinding their assets mean calling (or selling at some discount) long term loans? Like the model is: borrow short to lend long. And the entire system is under stress because a whole lot of long term low interest loans are facing the reality that new interest rate loans are now competing with them, which means a lot of banks might be on the edge or over the edge of insolvency if they had to unwind their assets in a week.
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Mar 18, 2023 13:21
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UBS is "examining" a takeover of CS, as reported by Reuters (originally reported at FT which is paywalled). Possibly as soon as today
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Mar 18, 2023 16:49
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drk posted:UBS is "examining" a takeover of CS, as reported by Reuters (originally reported at FT which is paywalled). Came here to post this too. If this doesn't happen by Monday, it'll be absolute mayhem. https://www.ft.com/content/5746165a-3a0c-42c7-9a2e-cb7cf5f33f46 quote:UBS and regulators rush to seal Credit Suisse takeover deal The bolded statements above are pretty unequivocal, but in the Swiss press the quotes from Finma are "we don't talk about rumours". Exciting times to be one month away from the end of construction on our new apartment, when the last bit of our mortgage (at CS) will be due.
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Mar 18, 2023 19:39
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CS might get nationalized. Anyway, I found a document to help their management: https://research-doc.credit-suisse....F0pezqIKyi1lTQ= (it's actually a good read, Mauboussin is widely respected)
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Mar 19, 2023 16:44
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FT reporting the deal for UBS to acquire CS is finalquote:UBS has agreed to buy Credit Suisse after increasing its offer to more than $2bn, with Swiss authorities poised to change the country’s laws to bypass a shareholder vote as they rush to announce a deal before Monday. You can imagine shareholders are not pleased at the country literally changing the law to bypass their approval, and losing ~70% of what little value their equity had left (though, better than losing 100%).
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Mar 19, 2023 18:33
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Aren't the Saudis a pretty big shareholder in CS? I'm sure they're thrilled. (but on the other hand, gently caress the house of saud)
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Mar 19, 2023 19:24
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LostCosmonaut posted:Aren't the Saudis a pretty big shareholder in CS? I'm sure they're thrilled. (but on the other hand, gently caress the house of saud) From the same FT article: quote:The deal with UBS comes just months after the Saudi National Bank and the Qatar Investment Authority injected close to SFr3bn into Credit Suisse as part of a SFr4bn capital raise. They are the bank’s two largest shareholders and jointly own 17 per cent of the stock.
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Mar 19, 2023 19:31
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I just want them to sort their poo poo out pronto over there, because part of my annual bonus is in RSUs based on the Swiss stock market, and they're just doing loving dandy right now, let's say. Fix your poo poo long enough for me to cash out my bonus and then you can crash all you like. (yeah yeah, world's smallest violin and all that)
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Mar 19, 2023 19:40
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Lots of notes and pundits or analysts calling for fed hike pause but futures still pricing in reasonably high chance of 25 bps for this week’s meeting. Rare to see so much uncertainty without a fed leak to WSJ.
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Mar 20, 2023 16:04
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The meeting might actually be contentious today, well as contentious as a fed meeting can get. These are their people getting smashed the last couple weeks. The minutes might be interesting. I think they do stick with the 25, just because "that's what we said we would do". Although I hope to God they are done. Everything is deflating or close to it, except shelter which is a lagging indicator. Having mortgages at 7% is making shelter pretty drat expensive too. Just sticking at these rates for a few months is going to cause enough pain. (Alright "everything is deflating" is an exaggeration, but outside of shelter components have been under control for nearly a year now).
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Mar 20, 2023 17:09
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Jamie Dimon is trying to cobble together another rescue of first republic bank today. FRB is down ~90% from only a month ago. Starting to question if the extreme rescue packages, both private and public, we've seen so far are going to stabilize the banking system sufficiently. Not only in the short term, but on a long term enough basis for the Fed to continue to do the hard and destabilizing work of fighting inflation. Too much smoke, just feels like there have to be more fires out there
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Mar 20, 2023 18:26
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hobbez posted:Jamie Dimon is trying to cobble together another rescue of first republic bank today. FRB is down ~90% from only a month ago. Are they still having massive deposit outflows or is it just the equity getting punished? The latter is at least rational -- big likelihood of a ton of dilution and very limited upside for the foreseeable future, even if the bank survives.
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Mar 20, 2023 19:03
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dunno about deposit flows but equity having a rough day. it seems the next issue to be raised at this banks isn't their BTFP-eligible securities, but their loan books. a lot of mortgage loans out there, whether personal or commercial, that are loans on the books and not agency MBS. I think FRC did a lot of jumbo loans that were ineligible to be packaged to fanny/freddie
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Mar 20, 2023 20:31
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broad question it's been proven that inflation can cause bank failures via treasury bonds. is there any correlation with bank failures causing inflation? for example, if we had another S&L crisis and liquidity was impacted it might somehow drive up inflation, possibly due to making generating goods and services very expensive
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Mar 21, 2023 03:28
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Hadlock posted:broad question off the top of my head, the 3 largest episodes of bank failures in US history are at the start of the Great Depression, the Great Financial Crisis, and the '80s S&L crisis the GD was uh, not inflationary. eyeballing it, the S&L crisis is responsible for the only stretch in the entire 1980s that CPI went down > 2 months in a row (deflation, not just disinflation): https://fred.stlouisfed.org/series/CPIAUCSL GFC bank crisis was also deflationary, see same chart starting in late 2008
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Mar 21, 2023 03:41
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Hadlock posted:broad question The short answer is no. You'll see price increases, but these are unrelated to inflation. In fact, a mass bank collapse would have deflationary effects from a lack of money being created through the issuing of loans. But that effect is secondary to the overall effects: I find inflation easiest to grasp when you think of it as "too much money chasing too few goods and services." There's an imbalance in the amount of money in the money supply vs the actual output of the economy. Fewer entities capable of issuing loans represents a contraction in the supply of loans, pushing the cost of a loan (the interest rate) up as fewer suppliers exist in the market to satisfy the same level of demand. The price rises and fewer entities are willing to purchase loans at the new rates and thus a new equilibrium is established. I'm using 'entities' to refer to both individuals and firms, since both are affected by the cost of loans. While they have different reasons for getting them, the microeconomic effects are the same for both, as we'll see in the next paragraph. This liquidity crises lowers both the suppliers' ability to produce goods and consumers' ability to demand goods. On the supply side, they can't easily adjust production because they can't secure loans for new factories, payroll expenses, or any other activity they may have used a loan to finance. Everything needs to be done with cash on hand. Which might also be hosed if the bank holding that cash went under... whoops! The hundreds of little effects this have produce a negative supply shock, meaning fewer goods and services are produced and driving up the cost of the remaining for the same reason the remaining banks had to raise their interest rates--too many demanders and not enough suppliers. On the consumer side, no credit means no big purchases of appliances or other expensive durables and luxuries that they'd normally pay on installment. In the worst case, mom and dad's bank went under and their savings were wiped out because they were storing that money in a way that wasn't FDIC insured--or at least they've got a problem accessing their checking account for a bit while they change to a new bank and the FDIC pays them out. "But Warmachine, didn't both supply and demand contract? Shouldn't the new equilibrium be near the old one in terms of price?" To that I say, maybe, but you've got terminal Econ 101 brain and aren't considering how producers and consumers rely on each other. Less demand means less cash flowing to firms, which means they produce less, causing them to downsize and buy less labor (layoffs) and input goods (consumption from other firms; repeat this exercise for the orange seller after the orange juice seller cuts back on juice production), which creates less demand as consumers have less money to buy goods and services. GOTO less_demand. Now you're in a demand spiral and the economy is dying. This could very well not be reflected in prices yet, but it is very apparent in lines at food banks and unemployment insurance outflows. During all this, inflation is actually remaining constant or falling because less money is being created via loan issuances. But your economy is also dying because those loans are what grease all the economic gears and without them the system grinds to a halt.
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Mar 21, 2023 04:17
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I know (though its been years since I spoke to) a senior credit structurer who was at credit Suisse and who left just before archegos hit the fan and I'm gonna be keeping a close eye on his linkedin on the basis that he's going to be hot on counterparty risk for where he is now which is.... Deutsche Bank.
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Mar 21, 2023 12:26
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So hypothetically if you were buying a house this month, would you choose to rate lock today at 6.25% or wait and see what the fed does tomorrow
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Mar 21, 2023 21:17
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Hadlock posted:So hypothetically if you were buying a house this month, would you choose to rate lock today at 6.25% or wait and see what the fed does tomorrow Rate lock. Related: A big positive about current rates is that absolutely nobody is sending me refinancing spam anymore.
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Mar 21, 2023 21:19
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Rate Lock. I also wouldn't touch any variable interest rate poo poo. Just refinance when we inevitably and rashly crash interest rates again.
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Mar 21, 2023 21:31
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