[Bank failure discussion mega-thread]

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trustquestioner
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Re: [Bank failure discussion mega-thread]

Post by trustquestioner »

Like, you know what was a government bailout? PPP. I personally know of law firms with profits per partner over $1 million per year who took that money when their businesses were thriving. Enough with the moral outrage.
muffins14
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Re: [Bank failure discussion mega-thread]

Post by muffins14 »

I’m going to bow out here. Good luck to all
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Beensabu
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Re: [Bank failure discussion mega-thread]

Post by Beensabu »

dsasdg wrote: Mon Mar 13, 2023 6:06 pm Here is the obvious self-serving struggle: big savers want the government to bail them out, while others don't want to be the cost of the bailout. This is not "to cut off your nose to spite your face". It is "to save my face (big savers) so cut off your nose (small taxpayers)"
The issue was not that they were "big savers". The issue was that they were employers who needed to make payroll and continue operating, and almost all of their cash was frozen in the same collapsed bank that was also their primary lender.

I don't mind that people who work for companies that made unwise decisions get to actually get paid for their already performed work and keep their jobs and continue to participate in their local economies. I don't mind that vendors of those companies get to actually get paid for goods/services already rendered and keep a client that they may rely heavily on business from. If I were one of those people, I certainly would want to get paid and I certainly would want to remain employed / keep the client. And so would you, probably, if you were one of them.

I don't mind if the government takes action to attempt to prevent bank runs on a mass scale. It would be a complete disaster for everyone, including "small taxpayers", if that happened.

I pay taxes (albeit a lot less than others) to the government so they can take care of stuff like this. That's their job. I'd be upset if they weren't doing their job. There are knock-on effects to these kinds of messes. If some of those effects can be prevented and the situation can be salvaged to any extent, then just do it. Why anyone would wish misfortune on others, or fail to understand what it would mean for thousands of companies to suddenly just go out of business *poof* like that in a handful of weeks... I'm literally mind blown.
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trustquestioner
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Re: [Bank failure discussion mega-thread]

Post by trustquestioner »

The banks that are literally out of business with their owners’ investments wiped out entirely “always win?” Ok!
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Harry Livermore
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Re: [Bank failure discussion mega-thread]

Post by Harry Livermore »

strummer6969 wrote: Mon Mar 13, 2023 7:23 pm
Yelling fire in a crowded theater is a crime. Perhaps causing bank runs should also be.
Amen, brother. No argument here.
Cheers
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Harry Livermore
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Re: [Bank failure discussion mega-thread]

Post by Harry Livermore »

beachtech wrote: Mon Mar 13, 2023 5:09 pm SVB small business depositor update: hopefully my last :D As of 5:52pm ET, after more than half a day "In Process", the wire transfer out of SVB is now "Sent" and has been received at the new bank. So we should be able to meet mid-month payroll :beer
Great news! Happy for you, as a fellow small business owner.
:sharebeer
Cheers
erp
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Re: Signature Bank failure - why?

Post by erp »

Kinda ironic that Frank is a board member,
Signature board member Barney Frank, the former congressman who formed one half of the landmark Dodd-Frank financial law after the 2008 financial crisis, said Signature suffered a bank run of billions of dollars on Friday.
https://www.wsj.com/articles/signature- ... e-a5f9e0f7
dsasdg
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Re: [Bank failure discussion mega-thread]

Post by dsasdg »

Beensabu wrote: Mon Mar 13, 2023 8:21 pm
dsasdg wrote: Mon Mar 13, 2023 6:06 pm Here is the obvious self-serving struggle: big savers want the government to bail them out, while others don't want to be the cost of the bailout. This is not "to cut off your nose to spite your face". It is "to save my face (big savers) so cut off your nose (small taxpayers)"
The issue was not that they were "big savers". The issue was that they were employers who needed to make payroll and continue operating, and almost all of their cash was frozen in the same collapsed bank that was also their primary lender.

I don't mind that people who work for companies that made unwise decisions get to actually get paid for their already performed work and keep their jobs and continue to participate in their local economies. I don't mind that vendors of those companies get to actually get paid for goods/services already rendered and keep a client that they may rely heavily on business from. If I were one of those people, I certainly would want to get paid and I certainly would want to remain employed / keep the client. And so would you, probably, if you were one of them.

I don't mind if the government takes action to attempt to prevent bank runs on a mass scale. It would be a complete disaster for everyone, including "small taxpayers", if that happened.

I pay taxes (albeit a lot less than others) to the government so they can take care of stuff like this. That's their job. I'd be upset if they weren't doing their job. There are knock-on effects to these kinds of messes. If some of those effects can be prevented and the situation can be salvaged to any extent, then just do it. Why anyone would wish misfortune on others, or fail to understand what it would mean for thousands of companies to suddenly just go out of business *poof* like that in a handful of weeks... I'm literally mind blown.
You can say other reasons as "key", but others can see the key: their premiums are being used to fund people who are not paying premiums.

"They won't be able to afford their employees' wages, so they should receive insurance compensation for their uninsured loss of unsecured credits." This is not the purported "free market" in which businesses should bear the responsibility of their own decisions.

Do you think bankrupt companies should receive funding from BND ETF to ensure they can pay their employees?

This is just moral hazard and a soft budget constraint
Fpdesignco
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Re: [Bank failure discussion mega-thread]

Post by Fpdesignco »

Harry Livermore wrote: Mon Mar 13, 2023 8:40 pm
strummer6969 wrote: Mon Mar 13, 2023 7:23 pm
Yelling fire in a crowded theater is a crime. Perhaps causing bank runs should also be.
Amen, brother. No argument here.
Cheers
I mean, not if there is a fire, or you have to stem some other catastrophic event. Kinda hard to tell exactly what we are referring to here, but I dont blame the VC's for telling their friends to get out and get out now. The data has been there for a while showcasing the issues with SVB, and some of the same could have been said about 2008, folks just didnt fully pay attention.

I personally am all for actually throwing KPMG and the other auditors under the bus, as well as the credit rating agencies like Moody's as the real bad guys in this whole thing. But then again, what the heck do we expect when public traded companies pay for and hire their own... rating agencies, and "independent..." auditors....
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nisiprius
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Re: Signature Bank failure - why?

Post by nisiprius »

curmudgeon wrote: Mon Mar 13, 2023 7:21 pm...At one level, SBNY seems to have been "tainted" by association with cryptocurrency. But it didn't seem that they had holdings in crypto, or investments in crypto, just that some of their customers (depositors) were involved in the business...
Cribbing from Matt Levine's columns...

The problem with the two crypto banks (Silvergate and Signature) and wasn't guilt by association with crypto. And the problem was structurally the same with Silicon Valley Bank.

The problems were that at each bank
  • too many depositors were all in the same business, which was catastrophically hit by interest rate rises, resulting in withdrawals all at the same time, and
  • their depositors were awash in money and did not need loans, which led to the bank putting too much in fixed-rate securities--which lost market value due to the interest rate rise just at the time they needed it to meet withdrawals.
In both cases, they catered to and had a huge portion of their depositors were all in the same business, and thus in danger of needing to withdraw cash all at the same time, and that their depositors were awash in cash and did not need loans. Banks normally make a lot of their money from loans, but these customers didn't need loans. So instead of investing the depositors' mone in loans, they invested them in Treasury bonds, and through misjudgment or greed they put too much of it in bonds that had too long a term. They had much more exposure to Treasury bonds than normal banks, and the reason was that their customers did not need loans.

So it wasn't crypto per se, it was a) customers with common risks, b) customers with no need for loans, and thus c) too much investment in fixed-rate Treasury issues. This was true for SVB as well; "fixed-rate securities were 56 per cent of SVB’s assets. At Fifth Third, the figure is 25 per cent; at Bank of America, it is 28 per cent," according to someone quoted in Matt Levine's column.

In other words, the crypto business (as well as the tech startup businesses) objectively has characteristics that mean it is not good for a bank to have them as their predominant depositors.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Dolcetto
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Re: [Bank failure discussion mega-thread]

Post by Dolcetto »

I commented on a thread that got merged into this one so I am now receiving far too many notifications. Is it possible to unsubscribe to notifications for a particular thread (I still want notifications for other threads that I have commented on)? I can’t seem to find that button. Tonight seems like a good night to watch “The Big Short” and that is what I will do.
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technovelist
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Re: [Bank failure discussion mega-thread]

Post by technovelist »

Dolcetto wrote: Mon Mar 13, 2023 8:51 pm I commented on a thread that got merged into this one so I am now receiving far too many notifications. Is it possible to unsubscribe to notifications for a particular thread (I still want notifications for other threads that I have commented on)? I can’t seem to find that button. Tonight seems like a good night to watch “The Big Short” and that is what I will do.
It's the little wrench icon near the top of the page next to "post reply". Click that wrench and it will let you unsubscribe.
In theory, theory and practice are identical. In practice, they often differ.
Dolcetto
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Re: [Bank failure discussion mega-thread]

Post by Dolcetto »

technovelist wrote: Mon Mar 13, 2023 8:55 pm
Dolcetto wrote: Mon Mar 13, 2023 8:51 pm I commented on a thread that got merged into this one so I am now receiving far too many notifications. Is it possible to unsubscribe to notifications for a particular thread (I still want notifications for other threads that I have commented on)? I can’t seem to find that button. Tonight seems like a good night to watch “The Big Short” and that is what I will do.
It's the little wrench icon near the top of the page next to "post reply". Click that wrench and it will let you unsubscribe.
Thank you. I have turned the wrench. Now time to watch “The Big Short.”
“Wealth consists not in having great possessions, but in having few wants.” —Epictetus
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whodidntante
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Re: [Bank failure discussion mega-thread]

Post by whodidntante »

I love a good anxiety thread. Imagine what would happen if we combine actual losses with anxiety.
Fpdesignco
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Re: [Bank failure discussion mega-thread]

Post by Fpdesignco »

Dolcetto wrote: Mon Mar 13, 2023 8:58 pm
technovelist wrote: Mon Mar 13, 2023 8:55 pm
Dolcetto wrote: Mon Mar 13, 2023 8:51 pm I commented on a thread that got merged into this one so I am now receiving far too many notifications. Is it possible to unsubscribe to notifications for a particular thread (I still want notifications for other threads that I have commented on)? I can’t seem to find that button. Tonight seems like a good night to watch “The Big Short” and that is what I will do.
It's the little wrench icon near the top of the page next to "post reply". Click that wrench and it will let you unsubscribe.
Thank you. I have turned the wrench. Now time to watch “The Big Short.”
Don’t worry Netflix will make a docudrama about this in a month or two
Dolcetto
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Re: [Bank failure discussion mega-thread]

Post by Dolcetto »

Fpdesignco wrote: Mon Mar 13, 2023 9:00 pm
Dolcetto wrote: Mon Mar 13, 2023 8:58 pm
technovelist wrote: Mon Mar 13, 2023 8:55 pm
Dolcetto wrote: Mon Mar 13, 2023 8:51 pm I commented on a thread that got merged into this one so I am now receiving far too many notifications. Is it possible to unsubscribe to notifications for a particular thread (I still want notifications for other threads that I have commented on)? I can’t seem to find that button. Tonight seems like a good night to watch “The Big Short” and that is what I will do.
It's the little wrench icon near the top of the page next to "post reply". Click that wrench and it will let you unsubscribe.
Thank you. I have turned the wrench. Now time to watch “The Big Short.”
Don’t worry Netflix will make a docudrama about this in a month or two
Hahaha! Yep. I subscribe to Netflix for two months out of every year to catch up on the few things they produce that I actually like.
“Wealth consists not in having great possessions, but in having few wants.” —Epictetus
ebeb
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Re: Signature Bank failure - why?

Post by ebeb »

Are these two banks the proverbial canary in the mine and there are lot more mid-size banks ready to fail on account of following similar strategy. Which may explain why the feds quickly bailed them out. Maybe time to fasten our seat belts and watch the upcoming fireworks :shock:
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alex_686
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Re: Signature Bank failure - why?

Post by alex_686 »

To extend a bit, Signature lost 10b of its 88b in deposits in a short week.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Beensabu
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Re: [Bank failure discussion mega-thread]

Post by Beensabu »

dsasdg wrote: Mon Mar 13, 2023 8:48 pm You can say other reasons as "key", but others can see the key: their premiums are being used to fund people who are not paying premiums.
Are they, though? If you really think so, then convince me how I'm paying a premium here. I'm definitely a small taxpayer, and I don't see this coming out of my pocket to the tune of anything more than a few cents.
"They won't be able to afford their employees' wages, so they should receive insurance compensation for their uninsured loss of unsecured credits."
Well done with the paraphrasing in quotation marks. Are they, though? We don't even know if they will be receiving insurance compensation (or how much) yet.
This is not the purported "free market" in which businesses should bear the responsibility of their own decisions.
If this was a true "free market", most of us wouldn't have been born, because our parents or grandparents would have starved to death in the streets. Ideology has its practical limitations.
Do you think bankrupt companies should receive funding from BND ETF to ensure they can pay their employees?
No, I don't. Now you're just being silly.
This is just moral hazard
I could argue that the oft mentioned "Fed put" is the same thing. But people don't seem to mind that. Nobody minds when it's to their own direct benefit.
and a soft budget constraint
Sure. It is. In this particular instance. Just because a precedent can be perceived to have been set, that doesn't mean it has to be followed.

If you would like to watch it all burn, I will watch it with you from within the ring of fire. Just don't cry when it becomes clear we're not making it out.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
MadHungarian
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Re: Signature Bank failure - why?

Post by MadHungarian »

Has a lot to do with public perception. A serious enough bank run will kill any bank, regardless of how strong it is financially.
Thus the Feds have to maintain public confidence. In this case, the "public" is businesses with >$250K, rather than John Q Public.
Feds: "No you won't lose your money, so you don't have to all go run and withdraw it now!"
BernardShakey
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Re: Signature Bank failure - why?

Post by BernardShakey »

Three issues here.

1) Rollback of some of Dodd-Frank regulations back in 2018 that limited / minimized requirements and stress tests
2) Lack of attention / oversight from regulators
3) Inept and/or corrupt bank executives
An important key to investing is having a well-calibrated sense of your future regret.
aghusker
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Re: Signature Bank failure - why?

Post by aghusker »

:|
BernardShakey wrote: Mon Mar 13, 2023 9:41 pm Three issues here.

1) Rollback of some of Dodd-Frank regulations back in 2018 that limited / minimized requirements and stress tests
2) Lack of attention / oversight from regulators
3) Inept and/or corrupt bank executives
Please cite which specific regulations that were rolled back would have prevented either bank failure. I don’t think you can.
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Re: Signature Bank failure - why?

Post by muffins14 »

Crom laughs at your Four Winds
CuriousTacos
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Re: [Bank failure discussion mega-thread]

Post by CuriousTacos »

Beensabu wrote: Mon Mar 13, 2023 9:21 pm
dsasdg wrote: Mon Mar 13, 2023 8:48 pm You can say other reasons as "key", but others can see the key: their premiums are being used to fund people who are not paying premiums.
Are they, though? If you really think so, then convince me how I'm paying a premium here. I'm definitely a small taxpayer, and I don't see this coming out of my pocket to the tune of anything more than a few cents.
"They won't be able to afford their employees' wages, so they should receive insurance compensation for their uninsured loss of unsecured credits."
Well done with the paraphrasing in quotation marks. Are they, though? We don't even know if they will be receiving insurance compensation (or how much) yet.
This is not the purported "free market" in which businesses should bear the responsibility of their own decisions.
If this was a true "free market", most of us wouldn't have been born, because our parents or grandparents would have starved to death in the streets. Ideology has its practical limitations.
Do you think bankrupt companies should receive funding from BND ETF to ensure they can pay their employees?
No, I don't. Now you're just being silly.
This is just moral hazard
I could argue that the oft mentioned "Fed put" is the same thing. But people don't seem to mind that. Nobody minds when it's to their own direct benefit.
and a soft budget constraint
Sure. It is. In this particular instance. Just because a precedent can be perceived to have been set, that doesn't mean it has to be followed.

If you would like to watch it all burn, I will watch it with you from within the ring of fire. Just don't cry when it becomes clear we're not making it out.
I kind of disagree with both of you...

- it doesn't even look like this will be a bailout. Instead, it's more like the government taking over a bankrupt company and dispersing it's remaining assets according to the normal predefined order (since the bond market thinks there will be some left over for them). Perhaps the government advertised it as more of a bailout of depositors initially, and maybe they were prepared to do that, but maybe that was just an attempt to calm the system down before any ill-informed bank runs happened.
- it's quite extreme to suggest a true free market would have caused mass starvation, especially when, historically, most mass starvation events were caused by nefarious governments. There's a lot of room in between utopia and mass starvation, and things would likely be closer to the middle of those extremes with a "true" free market, although there is a wide variety of definitions of such a market
- as much as I'm in favor of free markets, once the government props up a huge banking bubble and it appears to be possibly on the brink of panic, it's a bit late to call for the free market to play out. A transition to a freer market should be done in as orderly a fashion as possible
Last edited by CuriousTacos on Mon Mar 13, 2023 10:27 pm, edited 1 time in total.
coachd50
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Re: [Bank failure discussion mega-thread]

Post by coachd50 »

Cash is King wrote: Mon Mar 13, 2023 8:38 pm
muffins14 wrote: Mon Mar 13, 2023 8:37 pm
Cash is King wrote: Mon Mar 13, 2023 8:36 pm
What assets does the bank have that will allow them to make all depositors whole? To my knowledge, the answer is none.
multiple people in this thread have explained this
That didn't answer my question. Feel free to point those out as I have not read every post.
https://d18rn0p25nwr6d.cloudfront.net/C ... 71b386.pdf

Here is a link to the 2022 Financial Statements. You can look for yourself at the balance sheet if you desire.

A quick view shows what has been stated repeatedly in this thread-- SVB didn't make enough loans. Therefore, they were forced to find other uses of their cash. Due to the extremely low interest rates- in order to try and turn a profit- they had to buy longer term Treasuries. This proved to be problematic once rates started to go up. Throw in the depositors demand for funds...and there you go.
Last edited by coachd50 on Mon Mar 13, 2023 10:33 pm, edited 1 time in total.
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curmudgeon
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Re: Signature Bank failure - why?

Post by curmudgeon »

nisiprius wrote: Mon Mar 13, 2023 8:49 pm
The problems were that at each bank
  • too many depositors were all in the same business, which was catastrophically hit by interest rate rises, resulting in withdrawals all at the same time, and
  • their depositors were awash in money and did not need loans, which led to the bank putting too much in fixed-rate securities--which lost market value due to the interest rate rise just at the time they needed it to meet withdrawals.
In both cases, they catered to and had a huge portion of their depositors were all in the same business, and thus in danger of needing to withdraw cash all at the same time, and that their depositors were awash in cash and did not need loans. Banks normally make a lot of their money from loans, but these customers didn't need loans. So instead of investing the depositors' mone in loans, they invested them in Treasury bonds, and through misjudgment or greed they put too much of it in bonds that had too long a term. They had much more exposure to Treasury bonds than normal banks, and the reason was that their customers did not need loans.
I'm not sure I buy the first point. The depositors were by no means catastrophically hit by interest rate rises. They were affected, but much more in a slow, rolling process, one that I would expect banks to be able to deal with. Even the FTX blowup didn't seem to generate that large of a need for withdrawals. Is it perhaps that the banks had built in an assumption of perpetually growing deposits? A subtle variation of a Ponzi scheme?

The second point is very much true, but it would seem to apply across much of the banking industry. Maybe it was the rate of growth, combined with the regulators preference for government bonds as "safe" holdings that left them hung out to dry.

The run on SBNY seems to have not gotten quite as far along as the SVB one, but I suppose the expectation was that it would continue after the weekend. It's not clear to my why interbank borrowing, secured by all those government bonds, couldn't deal with the run. It feels like there was knowledge behind the scenes that these banks were practically insolvent (due to the market valuation of those HTM bonds), even though the banking regulations had allowed them to show a solid appearing balance sheet.
strummer6969
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Re: [Bank failure discussion mega-thread]

Post by strummer6969 »

Fpdesignco wrote: Mon Mar 13, 2023 8:48 pm
Harry Livermore wrote: Mon Mar 13, 2023 8:40 pm
strummer6969 wrote: Mon Mar 13, 2023 7:23 pm
Yelling fire in a crowded theater is a crime. Perhaps causing bank runs should also be.
Amen, brother. No argument here.
Cheers
I mean, not if there is a fire, or you have to stem some other catastrophic event. Kinda hard to tell exactly what we are referring to here, but I dont blame the VC's for telling their friends to get out and get out now. The data has been there for a while showcasing the issues with SVB, and some of the same could have been said about 2008, folks just didnt fully pay attention.

I personally am all for actually throwing KPMG and the other auditors under the bus, as well as the credit rating agencies like Moody's as the real bad guys in this whole thing. But then again, what the heck do we expect when public traded companies pay for and hire their own... rating agencies, and "independent..." auditors....
My brother is an auditor (though not at firm that audited SVB), so I know a little about that world. My understanding is that the auditor does not conduct stress testing of banks. That's the regulator's job. The auditor's concern is the accuracy of financials. The losses were disclosed in the 10-K. $15B mark to market loss disclosed on page 125: https://www.sec.gov/ix?doc=/Archives/ed ... c5e2a_199

I suppose there could be an argument about 'going concern' which I think is like a 'catch all' thing. But a $42 billion bank run in a single day is outside the realm of predictable scenarios for going concern. The auditors can't stop people from pulling money out of banks.

In any case, I'm sure KPMG will be named in some suits and dragged in front of committees for good measure.
Boomer89
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Re: Signature Bank failure - why?

Post by Boomer89 »

curmudgeon wrote: Mon Mar 13, 2023 10:32 pm
nisiprius wrote: Mon Mar 13, 2023 8:49 pm
The problems were that at each bank
  • too many depositors were all in the same business, which was catastrophically hit by interest rate rises, resulting in withdrawals all at the same time, and
  • their depositors were awash in money and did not need loans, which led to the bank putting too much in fixed-rate securities--which lost market value due to the interest rate rise just at the time they needed it to meet withdrawals.
In both cases, they catered to and had a huge portion of their depositors were all in the same business, and thus in danger of needing to withdraw cash all at the same time, and that their depositors were awash in cash and did not need loans. Banks normally make a lot of their money from loans, but these customers didn't need loans. So instead of investing the depositors' mone in loans, they invested them in Treasury bonds, and through misjudgment or greed they put too much of it in bonds that had too long a term. They had much more exposure to Treasury bonds than normal banks, and the reason was that their customers did not need loans.
I'm not sure I buy the first point. The depositors were by no means catastrophically hit by interest rate rises. They were affected, but much more in a slow, rolling process, one that I would expect banks to be able to deal with. Even the FTX blowup didn't seem to generate that large of a need for withdrawals. Is it perhaps that the banks had built in an assumption of perpetually growing deposits? A subtle variation of a Ponzi scheme?

The second point is very much true, but it would seem to apply across much of the banking industry. Maybe it was the rate of growth, combined with the regulators preference for government bonds as "safe" holdings that left them hung out to dry.

The run on SBNY seems to have not gotten quite as far along as the SVB one, but I suppose the expectation was that it would continue after the weekend. It's not clear to my why interbank borrowing, secured by all those government bonds, couldn't deal with the run. It feels like there was knowledge behind the scenes that these banks were practically insolvent (due to the market valuation of those HTM bonds), even though the banking regulations had allowed them to show a solid appearing balance sheet.
SBNY had a run Friday evening, but by Sunday morning and afternoon it was fine, executives have already come out and said that this was because they were a crypto-friendly bank. This seems extremely far-reaching by the feds and something that should be investigated in more detail.
softwaregeek
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Re: Signature Bank failure - why?

Post by softwaregeek »

I have dealt with all of the banks in the news over the last few weeks.

First Republic is an odd choice for a run on the bank, they are the most conservative bank I have ever dealt with. They don't issue credit cards and mostly only make jumbo mortgages. They have a big wealth management business and bank a lot of the professional services firms in my area - doctors, law firms, etc. They focus on the high end net worth - their average INDIVIDUAL depositor in SoCal is 300k+. They have great rates for certain types of loans - student loan refinance and jumbo mortgages.

SVB was our business bank after First Republic booted us out for being crypto-related. Many, many firms in silicon valley deal with them because other banks won't deal with startups. A money losing P&L is causes fear at Wells Fargo or Chase. SVB also did venture loans against revenue. Unfortunately, they bought 10 year mortgage bonds just before interest rates went up and lost $20 billion. Then they had a run on the bank. The main perk of banking with SVB as an individual was sweetheart deals on mortgages and the ability to coinvest with the bank on the best venture debt deals (if you were a favored customer).

Signature bank was our alternate bank. We picked them because we knew the team there and also because they were crypto friendly. They had the most aggressively intense KYC that I have ever seen. They banked crypto but their actual loans using crypto as collateral were very small and almost irrelevant. They were mostly commercial real estate lenders.

I also dealt with Silvergate. Arrogant, irritating and I swore I would never work with them again. I'm glad they failed.
Last edited by softwaregeek on Mon Mar 13, 2023 10:51 pm, edited 1 time in total.
muffins14
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Re: Signature Bank failure - why?

Post by muffins14 »

Boomer89 wrote: Mon Mar 13, 2023 10:42 pm
curmudgeon wrote: Mon Mar 13, 2023 10:32 pm
nisiprius wrote: Mon Mar 13, 2023 8:49 pm
The problems were that at each bank
  • too many depositors were all in the same business, which was catastrophically hit by interest rate rises, resulting in withdrawals all at the same time, and
  • their depositors were awash in money and did not need loans, which led to the bank putting too much in fixed-rate securities--which lost market value due to the interest rate rise just at the time they needed it to meet withdrawals.
In both cases, they catered to and had a huge portion of their depositors were all in the same business, and thus in danger of needing to withdraw cash all at the same time, and that their depositors were awash in cash and did not need loans. Banks normally make a lot of their money from loans, but these customers didn't need loans. So instead of investing the depositors' mone in loans, they invested them in Treasury bonds, and through misjudgment or greed they put too much of it in bonds that had too long a term. They had much more exposure to Treasury bonds than normal banks, and the reason was that their customers did not need loans.
I'm not sure I buy the first point. The depositors were by no means catastrophically hit by interest rate rises. They were affected, but much more in a slow, rolling process, one that I would expect banks to be able to deal with. Even the FTX blowup didn't seem to generate that large of a need for withdrawals. Is it perhaps that the banks had built in an assumption of perpetually growing deposits? A subtle variation of a Ponzi scheme?

The second point is very much true, but it would seem to apply across much of the banking industry. Maybe it was the rate of growth, combined with the regulators preference for government bonds as "safe" holdings that left them hung out to dry.

The run on SBNY seems to have not gotten quite as far along as the SVB one, but I suppose the expectation was that it would continue after the weekend. It's not clear to my why interbank borrowing, secured by all those government bonds, couldn't deal with the run. It feels like there was knowledge behind the scenes that these banks were practically insolvent (due to the market valuation of those HTM bonds), even though the banking regulations had allowed them to show a solid appearing balance sheet.
SBNY had a run Friday evening, but by Sunday morning and afternoon it was fine, executives have already come out and said that this was because they were a crypto-friendly bank. This seems extremely far-reaching by the feds and something that should be investigated in more detail.
“Executives” are going to be defensive and posture for the audiences they want to impress. If I were a crypto person, it would be my job to claim that anything remotely bad was due to the forces of fiat conspiring against me. Not my fault at all

Again, the Matt Levine article is helpful context for the similarities between these two banks
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Re: Signature Bank failure - why?

Post by DonIce »

softwaregeek wrote: Mon Mar 13, 2023 10:49 pm First Republic is an odd choice for a run on the bank, they are the most conservative bank I have ever dealt with. They don't issue credit cards and mostly only make jumbo mortgages. They have a big wealth management business and bank a lot of the professional services firms in my area - doctors, law firms, etc. They focus on the high end net worth - their average INDIVIDUAL depositor in SoCal is 300k+.
That's exactly what makes it a prime candidate for a run on the bank. A large portion of the deposits are above the FDIC $250k limit. Given the current situation, many individuals and companies that didn't previously consider the risk of keeping accounts above the FDIC limit at a single bank will suddenly start considering it, and pull money out to transfer it to other accounts to diversify / be fully insured. This outflow of deposits will stress FRC's balance sheet.
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Re: [Bank failure discussion mega-thread]

Post by Beensabu »

CuriousTacos wrote: Mon Mar 13, 2023 10:23 pm - it doesn't even look like this will be a bailout. Instead, it's more like the government taking over a bankrupt company and dispersing it's remaining assets according to the normal predefined order (since the bond market thinks there will be some left over for them). Perhaps the government advertised it as more of a bailout of depositors initially, and maybe they were prepared to do that, but maybe that was just an attempt to calm the system down before any ill-informed bank runs happened.
Yup.
it's quite extreme to suggest a true free market would have caused mass starvation
There are no bread lines in a true free market.
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Re: [Bank failure discussion mega-thread]

Post by OnTrack »

I looked up some SEC filings from the SVB Financial Group which was the holding company for the Silicon Valley Bank. There have been a flurry of filings recently. I'll quote from an FWP dated 3/8/23 below.

Free Writing Prospectus
Filed pursuant to Rule 433
Relating to the
Preliminary Prospectus Supplements each dated March 8, 2023 to the
Prospectus dated March 2, 2023
Registration No. 333-270229

I thought this was an interesting statement:
"We are experienced at navigating market cycles and are well positioned to serve our clients through market volatility, with a high-quality, liquid balance sheet and strong capital ratios."

It mentions 4 businesses of which 1 is the bank:
"Over the last several years, we’ve made significant progress deepening and expanding our four core businesses:
- Silicon Valley Bank – global commercial banking
- SVB Private – private banking and wealth management
- SVB Securities – investment banking
- SVB Capital – venture capital and credit investing"

Does anyone know, does the holding company itself have any liability to depositors of the bank (or the FDIC)? Will the other businesses be allowed to continue operating independently as if nothing happened to the bank itself?
colddeadfish
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Re: [Bank failure discussion mega-thread]

Post by colddeadfish »

As a small investor ~5 years from retirement. I am disheartened and quite frankly scared.

I'm not planning to do anything but the way the billionaires can manipulate the system time and time again makes me think that no matter what I do it won't make a difference.

Run to cash = losing $
Invest = losing $
stand still = losing $

I work, I save, I invest, I live below my my means. I miss the free falling thread because I could commiserate in real time.

Not actionable but heartfelt.

Cheers
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typical.investor
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Re: [Bank failure discussion mega-thread]

Post by typical.investor »

gubernaculum wrote: Mon Mar 13, 2023 11:05 pm
Apathizer wrote: Mon Mar 13, 2023 10:41 pm
DonIce wrote: Mon Mar 13, 2023 10:30 pm
gubernaculum wrote: Mon Mar 13, 2023 10:25 pm The sooner Biden stops the war in Ukraine, the sooner we will solve inflation and banking problems.
Biden is President of the US, not of the world. He does not have the power to simply order Russia to stop invading Ukraine, or to order Ukraine to roll over and die. In any case this is off topic, despite the loose chain of causation of the Russian invasion of Ukraine contributing to inflationary pressure which led to the rapid rise in interest rates.
Seriously. How did the Ukraine situation get dragged into this? It seems unrelated, or only vaguely and very weakly.

The world is largely chaotic and random, and there will probably always be some problems regardless of who is president. I certainly don't know everything and know significantly less than many others, but from what I can tell the government is handling this about as well as can be expected. Banks fail. It's happened in the past it's happening now and it will probably happen in the future.
Bank failed because of inflation sensitive instrument. What is causing inflation to persist? Ask the Europeans.
I'd say it has more to do with risk management at the bank. They knew who their customers were (many FinTechs in a volatile, volatile so volatile industry that we are not even allowed to discuss it here because it's outside the realm of investing) and yet they chose longer dated bonds instead of finding customers to take loans.

Also, I'd argue that the SEC has been lax in regulating securities which many of the banks customers are effecting dealing in (though unregulated).

And the causes of inflation ... sure you are right higher defense expenditures will not help ... go far, far beyond aid to those suffering from Russian aggression.
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Re: [Bank failure discussion mega-thread]

Post by DonIce »

typical.investor wrote: Mon Mar 13, 2023 11:36 pm I doubt it. Higher rates are not generally bad for financial institutions who can profit more from their loans.
Something "generally" being the case doesn't mean that it is the case in the specific instances in question. Specifically, the balance sheets of the banks that are seeing large drops in their stock value are presently structured such that they are being hurt by the rise in rates, not helped by it. Loans they make now / bonds they buy now at the higher rates will start to help them, but it will be some years before that counteracts the losses they have already taken on their pre-existing loans/bonds that have declined in mark-to-market value as rates have risen (and who knows what will happen to rates in the meanwhile).
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Re: [Bank failure discussion mega-thread]

Post by Northern Flicker »

Another view about SVB:
Sonnenfeld and Tian said not only was the announcement of an unsubscribed $2.25 billion capital raise Wednesday night “unnecessary” because Silicon Valley Bank had sufficient capital far in excess of regulatory requirements, but there was no need to simultaneously reveal the $1.8 billion loss.
https://www.cnn.com/2023/03/13/business ... index.html
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Re: Signature Bank failure - why?

Post by BernardShakey »

aghusker wrote: Mon Mar 13, 2023 9:46 pm :|
BernardShakey wrote: Mon Mar 13, 2023 9:41 pm Three issues here.

1) Rollback of some of Dodd-Frank regulations back in 2018 that limited / minimized requirements and stress tests
2) Lack of attention / oversight from regulators
3) Inept and/or corrupt bank executives
Please cite which specific regulations that were rolled back would have prevented either bank failure. I don’t think you can.
From what I have read (TITLE IV, Sec 401), the bill raised the threshold for regulation standards from $50 billion to $250 billion. It also reduced the frequency and number of scenarios required for stress testing. I believe the bank also would have been required to maintain higher levels of liquidity under the original Dodd-Frank rules but I can't cite the specific paragraph.

I did not suggest that any one of the three issues noted were the "primary" cause. As is often the case with complex systems (electrical, mechanical, biological, etc.), there are multiple factors that contribute to failure.
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Apathizer
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Re: [Bank failure discussion mega-thread]

Post by Apathizer »

typical.investor wrote: Mon Mar 13, 2023 11:29 pm
gubernaculum wrote: Mon Mar 13, 2023 11:27 pm Yep. Guess why?
Because that is what equity does ... overreacts.

Isn't that why we have such an equity premium - because the volatility is difficult?
Yes while the market seems reasonably efficient most of the time, it's only as efficient as the aggregate of investors who aren't always rational and efficient. Sometimes they might overreact and as I said previously I think that might be happening now. I guess we'll see.
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typical.investor
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Re: [Bank failure discussion mega-thread]

Post by typical.investor »

DonIce wrote: Mon Mar 13, 2023 11:42 pm
typical.investor wrote: Mon Mar 13, 2023 11:36 pm I doubt it. Higher rates are not generally bad for financial institutions who can profit more from their loans.
Something "generally" being the case doesn't mean that it is the case in the specific instances in question. Specifically, the balance sheets of the banks that are seeing large drops in their stock value are presently structured such that they are being hurt by the rise in rates, not helped by it. Loans they make now / bonds they buy now at the higher rates will start to help them, but it will be some years before that counteracts the losses they have already taken on their pre-existing loans/bonds that have declined in mark-to-market value as rates have risen (and who knows what will happen to rates in the meanwhile).
Ok fine but still over-reaction explains more.

Why suddenly would investors need suddenly to look at the balance sheets of all these banks if they were structured to get hit with rising rates. Why wouldn't have analysts been watching all along? Hint: they have. Any analysts report is going to cite the risk to profitability and stability from rising rates.

I think just rather SVB didn't forsee such a drastic reaction to their capital raising and loss announcements and consequent outflows. And analysts probably didn't expect such a big bank run though given the SVB client base (many FinTechs in a very volatile field), perhaps they ought have.

Anyway, what has really changed since a month ago other than we learned start ups (many related to an unregulated industry in recent turmoil) are very leery of banks going under.

Bank customers will now see their deposits are safe, investors will feel less worried about the impacts of bank runs, and valuations will return more to where they were no so long ago.

And banks will be more careful about announcements going forward, as well as having a risk manager on board. How many major banks went much of 2022 without a head of risk management do you think?
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Re: Signature Bank failure - why?

Post by mervinj7 »

aghusker wrote: Mon Mar 13, 2023 9:46 pm :|
BernardShakey wrote: Mon Mar 13, 2023 9:41 pm Three issues here.

1) Rollback of some of Dodd-Frank regulations back in 2018 that limited / minimized requirements and stress tests
2) Lack of attention / oversight from regulators
3) Inept and/or corrupt bank executives
Please cite which specific regulations that were rolled back would have prevented either bank failure. I don’t think you can.
Interestingly enough, at $220B in assets they were just slightly below the $250B threshold that would have kicked in stress tests.

https://fortune.com/2023/03/11/silicon- ... tant-fdic/

No surprise to me their CEO actively lobbied to push that threshold even higher.
In 2015, SVB Chief Executive Officer Greg Becker urged the government to increase the threshold, arguing it would otherwise lead to higher costs for customers and “stifle our ability to provide credit to our clients.” With a core business of traditional banking — taking deposits and lending to growing companies — SVB doesn’t pose systemic risks, he said.
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typical.investor
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Re: Signature Bank failure - why?

Post by typical.investor »

curmudgeon wrote: Mon Mar 13, 2023 7:21 pm
------------

At one level, SBNY seems to have been "tainted" by association with cryptocurrency. But it didn't seem that they had holdings in crypto, or investments in crypto, just that some of their customers (depositors) were involved in the business. Guilt by association. Did they have lines of credit out to the crypto companies? Loans secured by crypto?
When FTX collapsed, they lost billions in deposits. So obviously there were concerns about them being susceptible to a bank run. They announced they were dialing back on exposure to digital-asset clients but questions remained.


curmudgeon wrote: Mon Mar 13, 2023 7:21 pm On another level, a large portion of deposits (I read it was about 90%) were above the nominal FDIC insurance limit. Was it just a matter of that fact causing a run on the bank because of the SVB news?
Of course, and don't forget Silvergate Capital Corp too shutting down Silvergate Bank over crypto related solvency concerns.
curmudgeon wrote: Mon Mar 13, 2023 7:21 pm Perhaps combined with the new awareness the SBNY also had significant unbooked bond losses, though not to the extent of SVB?

...
I have the perception that the Fed/FDIC stepped in as aggressively at they have to limit damage at this point precisely because they understand the need to keep raising rates to control inflation. That means that more banks may be feeling the pinch of underwater bonds and low rate loans before long. Which may mean both pain and opportunity in banking stocks/bonds.
I don't blame this as much on rising rates as on unregulated financial products.
Signature and Silvergate were the two main banks for crypto companies, and nearly half of all U.S. venture-backed startups kept cash with Silicon Valley Bank, including crypto-friendly venture capital funds and some digital asset firms.
After FTX's large disappearance of funds, you have to wonder about the liquidity needs of all those crypto companies, crypto-friendly venture capital funds and digital asset firms. And when you do that, you are going to have to question how those banks are going to meet their liquidity needs. Silvergate couldn't handle it. Silicon Valley Bank announced measures that scared depositors and couldn't handle it. Oh did we already talk about the billions in deposits flowing out of SBNY? Why would someone with large amounts in uninsured deposits assume SBNY was so different from Silvergate and Silicon Valley Bank?

I think the common denominator here is unregulated non-traditional finance and not rising rates (which too is stressful and compounds the difficulty but not the main cause I believe).

Obviously I think the actionable components here are to 1) keep your deposits under the insurance limit and 2) if that is not possible then stay away from banks with heavy exposure to highly, highly volatile and unregulated 'industries'. And I think many just took action on the second one there.
dsasdg
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Re: [Bank failure discussion mega-thread]

Post by dsasdg »

Beensabu wrote: Mon Mar 13, 2023 9:21 pm
dsasdg wrote: Mon Mar 13, 2023 8:48 pm You can say other reasons as "key", but others can see the key: their premiums are being used to fund people who are not paying premiums.
Are they, though? If you really think so, then convince me how I'm paying a premium here. I'm definitely a small taxpayer, and I don't see this coming out of my pocket to the tune of anything more than a few cents.
"They won't be able to afford their employees' wages, so they should receive insurance compensation for their uninsured loss of unsecured credits."
Well done with the paraphrasing in quotation marks. Are they, though? We don't even know if they will be receiving insurance compensation (or how much) yet.
This is not the purported "free market" in which businesses should bear the responsibility of their own decisions.
If this was a true "free market", most of us wouldn't have been born, because our parents or grandparents would have starved to death in the streets. Ideology has its practical limitations.
Do you think bankrupt companies should receive funding from BND ETF to ensure they can pay their employees?
No, I don't. Now you're just being silly.
This is just moral hazard
I could argue that the oft mentioned "Fed put" is the same thing. But people don't seem to mind that. Nobody minds when it's to their own direct benefit.
and a soft budget constraint
Sure. It is. In this particular instance. Just because a precedent can be perceived to have been set, that doesn't mean it has to be followed.

If you would like to watch it all burn, I will watch it with you from within the ring of fire. Just don't cry when it becomes clear we're not making it out.
I don't care if you deny it by saying "I can't see it", because what I'm saying is known by others.

Let me ask you again, would you be willing to have any of the funds or ETFs you invest in pay to rescue zombie companies, in order to help the employees who may lose their jobs as a result? Even if it's only a guarantee and not necessarily a payment every time.

If not, then why should small savers support big investors who have not paid these premiums with their own small money?

Unless a certain percentage of premiums are immediately levied on all large depositors to support this expense, it is simply another robbery against most people.
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Re: Signature Bank failure - why?

Post by EddyB »

aghusker wrote: Mon Mar 13, 2023 9:46 pm :|
BernardShakey wrote: Mon Mar 13, 2023 9:41 pm Three issues here.

1) Rollback of some of Dodd-Frank regulations back in 2018 that limited / minimized requirements and stress tests
2) Lack of attention / oversight from regulators
3) Inept and/or corrupt bank executives
Please cite which specific regulations that were rolled back would have prevented either bank failure. I don’t think you can.
It is impossible to say for sure what “would have prevented” any failure, but both banks had assets that would have subjected them to supervisory stress tests under the pre-2018 rules, but not under the rules as modified then ($50 billion became $250 billion).

See sec. 401: https://www.congress.gov/bill/115th-con ... /2155/text
dsasdg
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Re: [Bank failure discussion mega-thread]

Post by dsasdg »

CuriousTacos wrote: Mon Mar 13, 2023 10:23 pm
Beensabu wrote: Mon Mar 13, 2023 9:21 pm
dsasdg wrote: Mon Mar 13, 2023 8:48 pm You can say other reasons as "key", but others can see the key: their premiums are being used to fund people who are not paying premiums.
Are they, though? If you really think so, then convince me how I'm paying a premium here. I'm definitely a small taxpayer, and I don't see this coming out of my pocket to the tune of anything more than a few cents.
"They won't be able to afford their employees' wages, so they should receive insurance compensation for their uninsured loss of unsecured credits."
Well done with the paraphrasing in quotation marks. Are they, though? We don't even know if they will be receiving insurance compensation (or how much) yet.
This is not the purported "free market" in which businesses should bear the responsibility of their own decisions.
If this was a true "free market", most of us wouldn't have been born, because our parents or grandparents would have starved to death in the streets. Ideology has its practical limitations.
Do you think bankrupt companies should receive funding from BND ETF to ensure they can pay their employees?
No, I don't. Now you're just being silly.
This is just moral hazard
I could argue that the oft mentioned "Fed put" is the same thing. But people don't seem to mind that. Nobody minds when it's to their own direct benefit.
and a soft budget constraint
Sure. It is. In this particular instance. Just because a precedent can be perceived to have been set, that doesn't mean it has to be followed.

If you would like to watch it all burn, I will watch it with you from within the ring of fire. Just don't cry when it becomes clear we're not making it out.
I kind of disagree with both of you...

- it doesn't even look like this will be a bailout. Instead, it's more like the government taking over a bankrupt company and dispersing it's remaining assets according to the normal predefined order (since the bond market thinks there will be some left over for them). Perhaps the government advertised it as more of a bailout of depositors initially, and maybe they were prepared to do that, but maybe that was just an attempt to calm the system down before any ill-informed bank runs happened.
- it's quite extreme to suggest a true free market would have caused mass starvation, especially when, historically, most mass starvation events were caused by nefarious governments. There's a lot of room in between utopia and mass starvation, and things would likely be closer to the middle of those extremes with a "true" free market, although there is a wide variety of definitions of such a market
- as much as I'm in favor of free markets, once the government props up a huge banking bubble and it appears to be possibly on the brink of panic, it's a bit late to call for the free market to play out. A transition to a freer market should be done in as orderly a fashion as possible
https://www.wsj.com/amp/articles/the-si ... n-cc80761e

Even the most pro-free market WSJ admits that this is a bailout.

Free market doesn't mean that only the rich have free put options while the poor have to pay for it.

If there is to be a bailout, then there should be a commitment that it will be borne entirely by all big depositors, not by FDIC.
dsasdg
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Re: Signature Bank failure - why?

Post by dsasdg »

erp wrote: Mon Mar 13, 2023 8:44 pm Kinda ironic that Frank is a board member,
Signature board member Barney Frank, the former congressman who formed one half of the landmark Dodd-Frank financial law after the 2008 financial crisis, said Signature suffered a bank run of billions of dollars on Friday.
https://www.wsj.com/articles/signature- ... e-a5f9e0f7
He also pushed for regulatory relaxation, thus obtaining this reward.
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Re: [Bank failure discussion mega-thread]

Post by CuriousTacos »

dsasdg wrote: Tue Mar 14, 2023 1:57 am
Beensabu wrote: Mon Mar 13, 2023 9:21 pm
I don't care if you deny it by saying "I can't see it", because what I'm saying is known by others.

Let me ask you again, would you be willing to have any of the funds or ETFs you invest in pay to rescue zombie companies, in order to help the employees who may lose their jobs as a result? Even if it's only a guarantee and not necessarily a payment every time.

If not, then why should small savers support big investors who have not paid these premiums with their own small money?

Unless a certain percentage of premiums are immediately levied on all large depositors to support this expense, it is simply another robbery against most people.
You bring up a reasonable idea that perhaps any special assessments related to SVB should be levied in proportion to each bank's deposits above the FDIC limits. It would at least be a token way to acknowledge the issue of who should "pay" for this.

Regardless, I don't think there's a way to construct a one-time assessment that would have any influence on which individual depositors actually bear the cost, since it's not like a bank would turn around and charge their customers a one-time fee to offset this. Instead, the costs would still get spread around throughout their pricing (or it would just cut into profits since it wouldn't actually change the supply/demand of their services). If special assessments in proportion to large deposits became a regular thing, then perhaps banks would consider changing their rates/fees to better collect this specifically from their large depositors.

And if you personally don't want to be subject to these assessments in any way whatsoever, you should move your money now to a credit union before the assessments are levied, since presumably the NCUA is separate from this.

Regarding your general concern for the FDIC's actions, suppose the FDIC reasonably determined that it would be cheaper to act this way now rather than wait for more dominoes to fall, which could lead to much more losses on truly FDIC insured accounts? Which would you prefer? The lower cost with some initial uninsured depositors made whole, or the higher cost and the satisfaction of knowing uninsured depositors lost something? I'm not saying I know these are the choices, but if the FDIC reasonably thought they were, then they acted out of prudence rather than out of sympathy. So for your hypothetical BND example, if the fund managers thought they could avert much large losses by helping out one company, I would theoretically want them to do so. I'm guessing such action would be well outside their legal duties, but as long as we're discussing wild hypotheticals, sure. Another hypothetical would be whether you'd want firefighters to put out a fire at your neighbor's house even if they were a tax evader. If it would protect your house, I'm sure you'd want them to.
CuriousTacos
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Re: [Bank failure discussion mega-thread]

Post by CuriousTacos »

dsasdg wrote: Tue Mar 14, 2023 2:06 am
CuriousTacos wrote: Mon Mar 13, 2023 10:23 pm I kind of disagree with both of you...

- it doesn't even look like this will be a bailout. Instead, it's more like the government taking over a bankrupt company and dispersing it's remaining assets according to the normal predefined order (since the bond market thinks there will be some left over for them). Perhaps the government advertised it as more of a bailout of depositors initially, and maybe they were prepared to do that, but maybe that was just an attempt to calm the system down before any ill-informed bank runs happened.
- it's quite extreme to suggest a true free market would have caused mass starvation, especially when, historically, most mass starvation events were caused by nefarious governments. There's a lot of room in between utopia and mass starvation, and things would likely be closer to the middle of those extremes with a "true" free market, although there is a wide variety of definitions of such a market
- as much as I'm in favor of free markets, once the government props up a huge banking bubble and it appears to be possibly on the brink of panic, it's a bit late to call for the free market to play out. A transition to a freer market should be done in as orderly a fashion as possible
https://www.wsj.com/amp/articles/the-si ... n-cc80761e

Even the most pro-free market WSJ admits that this is a bailout.

Free market doesn't mean that only the rich have free put options while the poor have to pay for it.

If there is to be a bailout, then there should be a commitment that it will be borne entirely by all big depositors, not by FDIC.
You would probably be surprised at how much of a free-marketer I am. Much more so than the WSJ editorial board. But just because some particular issue really bothers you doesn't mean that's the issue where we should flip a switch and have freer markets. A transition would take time and should be done more orderly. The banking system has backed itself into a corner where systemic risks are really really bad for everyone, so you don't want to die on the free market hill just before a potential crisis. The system would have to be unwound in "peacetime".

That said, the loan window for other banks is getting more into "bailout" territory, since they're presumably below rates they could otherwise get, and it would value their bonds at par.

But regarding SVB's depositors, we (including the WSJ editorial board or I would think they'd include these details) simply do not know whether SVB's assets are sufficient to cover them. Whether it's a bailout hinges on that, and the information does not appear to be publicly available. I'm fairly certain the FDIC knows better than any media outlet or you or me.
lgb
Posts: 288
Joined: Fri Mar 01, 2019 8:46 am

Re: Signature Bank failure - why?

Post by lgb »

nisiprius wrote: Mon Mar 13, 2023 8:49 pm
curmudgeon wrote: Mon Mar 13, 2023 7:21 pm...At one level, SBNY seems to have been "tainted" by association with cryptocurrency. But it didn't seem that they had holdings in crypto, or investments in crypto, just that some of their customers (depositors) were involved in the business...
Cribbing from Matt Levine's columns...

The problem with the two crypto banks (Silvergate and Signature) and wasn't guilt by association with crypto. And the problem was structurally the same with Silicon Valley Bank.

The problems were that at each bank
  • too many depositors were all in the same business, which was catastrophically hit by interest rate rises, resulting in withdrawals all at the same time, and
  • their depositors were awash in money and did not need loans, which led to the bank putting too much in fixed-rate securities--which lost market value due to the interest rate rise just at the time they needed it to meet withdrawals.
In both cases, they catered to and had a huge portion of their depositors were all in the same business, and thus in danger of needing to withdraw cash all at the same time, and that their depositors were awash in cash and did not need loans. Banks normally make a lot of their money from loans, but these customers didn't need loans. So instead of investing the depositors' mone in loans, they invested them in Treasury bonds, and through misjudgment or greed they put too much of it in bonds that had too long a term. They had much more exposure to Treasury bonds than normal banks, and the reason was that their customers did not need loans.

So it wasn't crypto per se, it was a) customers with common risks, b) customers with no need for loans, and thus c) too much investment in fixed-rate Treasury issues. This was true for SVB as well; "fixed-rate securities were 56 per cent of SVB’s assets. At Fifth Third, the figure is 25 per cent; at Bank of America, it is 28 per cent," according to someone quoted in Matt Levine's column.

In other words, the crypto business (as well as the tech startup businesses) objectively has characteristics that mean it is not good for a bank to have them as their predominant depositors.
outsider - not in the financial world, but it is clear, simple ratios and rules (if followed) by the bank the decided to make decisions for 'their' business otherwise... that would either 1. penalize them in some way if what is explained above was starting to formulate/occur (a deterrent would result) or 2. incentivize them to ensure that the scenario they participated in/created due to their own actions would not be worthwhile.....that if in fact the scenario played out did not occur, there would be an incentive preventing them from considering to allow it to happen (the risk the decided to ignore is what I'm saying)...that would have prevented this.. this doesn't mean the government needs to step in and nationalize our banks, (which will be the desire for some)... just means some things were overlooked and need refinement going forward. And they are easy steps.
Lastrun
Posts: 1512
Joined: Wed May 03, 2017 6:46 pm

Re: Signature Bank failure - why?

Post by Lastrun »

From taxi loans to crypto, they deserved to die.

https://www.crainsnewyork.com/article/ ... taxi-loans

Interesting 2018 article also mentions SVB.
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