Silicon Valley Bank shutttered, moved to FDIC receivership

[Winehole23]

16th largest bank in the US. Wouldn't be all surprised to see the Fed halt rate hikes on this news.


Silicon Valley Bank collapsed Friday morning after a stunning 48 hours in which its capital crisis set off fears of a meltdown across the banking industry.


California regulators closed down the tech lender and put SVB in control of the US Federal Deposit Insurance Corporation. The FDIC is acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors. The FDIC is an independent government agency that insures bank deposits and oversees the financial institutions.


The FDIC said all insured depositors will have “full access” to their insured deposits by no later than Monday morning, and it will pay pay uninsured depositors an “advance dividend within the next week.”



Several other bank stocks were temporarily halted Friday, including First Republic, PacWest Bancorp, and Signature Bank.


“SVB’s institutional challenges reflect a larger and more widespread systemic issue: The banking industry is sitting on a ton of low-yielding assets that, thanks to the last year of rate increases, are now far underwater — and sinking,” wrote Konrad Alt, co-founder of Klaros Group.
Alt estimated that rate increases have “effectively wiped out approximately 28% of all the capital in the banking industry as of the end of 2022.”
https://www.cnn.com/2023/03/10/investing/svb-bank/index.html

[SpursforSix]

16th largest bank in the US. Wouldn't be all surprised to see the Fed halt rate hikes on this news.

The FDIC said all insured depositors will have “full access” to their insured deposits by no later than Monday morning, and it will pay pay uninsured depositors an “advance dividend within the next week.”

https://www.cnn.com/2023/03/10/investing/svb-bank/index.html

Insured deposits are capped at $250,000 I think. Plus I think you can have a joint account that insures for that much as well. But if someone has more than that, I don't think all of that is generally insured by the FDIC. Imagine having your life savings in there and still having to pay them for your mortgage/loan when they've lost a significant portion of your money. Maybe I'm reading it wrong.

[Winehole23]

Insured deposits are capped at $250,000 I think. Plus I think you can have a joint account that insures for that much as well. But if someone has more than that, I don't think all of that is generally insured by the FDIC. Imagine having your life savings in there and still having to pay them for your mortgage/loan when they've lost a significant portion of your money. Maybe I'm reading it wrong. yep.


The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.


The FDIC provides separate coverage for deposits held in different account ownership categories. Depositors may qualify for coverage over $250,000 if they have funds in different ownership categories and all FDIC requirements are met.


All deposits that an accountholder has in the same ownership category at the same bank are added together and insured up to the standard insurance amount.
https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/

[Winehole23]

Silvergate failed two days ago


Silvergate (SI (https://www.thestreet.com/quote/SI)) - Get Free Report (https://secure2.thestreet.com/cap/prm.do?OID=033365&ticker=SI), which used to be known as the crypto bank, is the first U.S. bank to collapse since 2020, according to the Federal Deposit Insurance Corporation (FDIC), a guarantor for bank depositors.https://www.thestreet.com/investing/cryptocurrency/silvergate-bank-collapses

[Winehole23]

funny meme

https://pbs.twimg.com/media/Fq0Pv3WXgAIatwU?format=png&name=small

[Winehole23]

1634237151406637066

1634238344358969367

[Winehole23]

Hmm...


Many Wells Fargo (https://www.wellsfargo.com/) customers are voicing frustration after money appeared to be missing from their online banking accounts on Friday morning.

The bank said in a statement that it's aware "some customers’ direct deposit transactions are not showing on their accounts, however funds in accounts are accurate and available."


"We are working quickly on a resolution and apologize for the inconvenience. Customers’ accounts continue to be secure,” Wells Fargo said in response.

Downdetector, which tracks online outage reports submitted by users, indicated a spike in issues with Wells Fargo (https://downdetector.com/status/wells-fargo/) around 8 a.m. Eastern.

The notice to customers came as many posted on Twitter that their direct deposits (https://twitter.com/Jabari_Live/status/1634185327156813824) and scheduled paychecks were suddenly missing on Friday (https://twitter.com/Renee_Y0/status/1634171803374329858). Some said their accounts were now at risk of overdrafting.




The bank initially posted a notice in its mobile app Friday morning that said a "technical issue" may be to blame if customers were seeing missing transactions or incorrect balances.https://www.wfaa.com/article/news/nation-world/wells-fargo-customers-report-money-missing/507-c695e016-edda-4d32-af3b-83e35f815c6e

[boutons_deux]

This is really big shit

Even the stocks of big European banks are down several percent , so far

[InRareForm]

I bought some sqqq calls yesterday when I heard the news . I need to own some silver and gold

[Winehole23]

that was fast.

1634263857555177472

[Winehole23]

sounds bad

1634245897981665299

[Winehole23]

Real world impact

1634265162000617482

[Winehole23]

https://pbs.twimg.com/media/Fq4Y2BnX0AE_g6N?format=jpg&name=medium

[Winehole23]

The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. https://www.fdic.gov/news/press-releases/2023/pr23016.html

[Winehole23]

"bad bets on MBSs" are widely mentioned today

1634281066692313090

[Winehole23]

(wonder if Twitter/Tesla are exposed)

[Winehole23]

“Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959.”

[Winehole23]

four days ago

https://pbs.twimg.com/media/Fq4XRUHXsAA0iNP?format=jpg&name=medium

[Winehole23]

The Cramer curse

1634284873069350931

[Winehole23]

1634280287776407552

[Winehole23]

A crucial lender for early-stage businesses, SVB is the banking partner for nearly half of US venture-backed technology and healthcare companies that listed on stock markets last year.https://www.bbc.com/news/business-64911066

[TDMVPDPOY]

lol uninsured...thats fck up with someone with excess over 250k...shouldve spread ur risks into other banks, instead of having everything in 1 basket

[DarrinS]

(wonder if Twitter/Tesla are exposed)


Got your fingers crossed?

[SnakeBoy]

(wonder if Twitter/Tesla are exposed)

Why would they be?

[SnakeBoy]

16th largest bank in the US. Wouldn't be all surprised to see the Fed halt rate hikes on this news.


It would surprise me if the Fed immediately came out and said there's a financial crisis and we caused it. I mentioned to you some theories I've heard of how things might play out here
https://www.spurstalk.com/forums/showthread.php?t=300884&page=8&p=10821678&viewfull=1#post10821678

[ChumpDumper]

1634282396546727936

[Winehole23]

Got your fingers crossed?no, just curious. SVB serves the tech sector.

[Winehole23]

Why would they be?As mentioned above, SVB is tech sector focused.

[Hank Scorpio]

1634300928621793283

[HemisfairArena]

Doesnt suprise me a major bank collapses in shithole california. Just like it doesnt suprise they are the state with the most debt in the US. but hey,,,,as long as they can hand out 5 million dollar reparation payments and add more to their collasal debt while screwing over the white liberals that vote for it like Nono,,,,more power to 'em,,,,

US States With The Most Debt



Rank
State
Debt Total (Billions)


1
California
$152.80


2
New York
$139.20


3
Massachusetts
$77.00


4
New Jersey
$65.90


5
Illinois
$61.80


6
Texas
$51.00


7
Pennsylvania
$47.50


8
Connecticut
$38.80


9
Michigan
$33.50


10
Ohio
$33.50


11
Washington
$33.40


12
Florida
$28.80


13
Maryland
$28.00


14
Virginia
$27.80


15
Wisconsin
$23.30


16
Indiana
$21.80


17
Missouri
$18.40


18
Louisiana
$18.10


19
Colorado
$17.00


20
Minnesota
$16.40


21
North Carolina
$16.30


22
South Carolina
$15.70


23
Kentucky
$14.40


24
Arizona
$14.30


25
Georgia
$13.10


26
Oregon
$12.70


27
Hawaii
$9.70


28
Rhode Island
$8.90


29
Alabama
$8.80


30
Oklahoma
$8.50


31
New Hampshire
$7.70


32
Kansas
$7.50


33
Mississippi
$7.50


34
Utah
$7.50


35
West Virginia
$7.50


36
New Mexico
$7.10


37
Iowa
$6.10


38
Tennessee
$6.10


39
Alaska
$5.90


40
Arkansas
$4.80


41
Maine
$4.80


42
Delaware
$4.60


43
South Dakota
$3.50


44
Vermont
$3.50


45
Idaho
$3.40


46
Nevada
$3.20


47
North Dakota
$2.90


48
Montana
$2.80


49
Nebraska
$2.00


50
Wyoming
$0.80

[Winehole23]

It would surprise me if the Fed immediately came out and said there's a financial crisis and we caused it. I mentioned to you some theories I've heard of how things might play out here
https://www.spurstalk.com/forums/showthread.php?t=300884&page=8&p=10821678&viewfull=1#post10821678Not very different from what seems likely to me.

Fed pivot > melt up > recession > more QE

Stagflation seems a real possibility, hope the doomers are wrong about that.

[ElNono]

Just another bank making bad bets with depositor's money, who end up footing the bill for their fuckups.

Should've never repealed Glass–Steagall, tbh

[Monostradamus]

1634300928621793283
Libertarians when their wallet takes a hit:
https://pbs.twimg.com/media/Fq5Dy6QX0AEglJ5?format=jpg&name=medium

[Winehole23]

1634282396546727936Thiel et al started the bank run, tbh

https://pbs.twimg.com/media/Fq70DacaAAApuyC?format=jpg&name=medium

[Winehole23]

In 2015, SVB President Greg Becker appeared before a Senate panel (https://www.govinfo.gov/content/pkg/CHRG-114shrg94375/pdf/CHRG-114shrg94375.pdf?ref=the-lever) to push legislators to exempt more banks — including his own — from new regulations passed in the wake of the 2008 financial crisis. Despite warnings (https://www.jec.senate.gov/public/_cache/files/1f3f2e7c-ca31-4976-976e-cd48b0a788c9/dodd-frank-roll-back-bill--a-windfall-for-big-banks.pdf?ref=the-lever) from some senators, Becker’s lobbying effort was ultimately successful.


Touting “SVB’s deep understanding of the markets it serves, our strong risk management practices,” Becker argued that his bank would soon reach $50 billion in assets, which under the law would trigger “enhanced prudential standards,” including more stringent regulations, stress tests, and capital requirements for his and other similarly sized banks.


In his testimony, Becker insisted that $250 billion was a more appropriate threshold.


“Without such changes, SVB likely will need to divert significant resources from providing financing to job-creating companies in the innovation economy to complying with enhanced prudential standards and other requirements,” said Becker, who reportedly (https://www.barrons.com/articles/svb-financial-stock-sale-ceo-greg-becker-f5089a4d?ref=the-lever) sold $3.6 million of his own stock two weeks ago, in the lead-up to the bank’s collapse. “Given the low risk profile of our activities and business model, such a result would stifle our ability to provide credit to our clients without any meaningful corresponding reduction in risk.”
https://www.levernews.com/svb-chief-pressed-lawmakers-to-weaken-bank-risk-regs/

[Winehole23]

The bank reportedly (https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/?ref=the-lever) did not have a chief risk officer in the months leading up to the collapse, while more than 90 percent of its deposits (https://twitter.com/business/status/1634211584657571843?s=20&ref=the-lever) were not insured.

[Winehole23]

Then starting the bank run. Then expecting the government to bail out them out after screwing their clients twice.

1634401915139424257

[Winehole23]

1634394974031867904

[ChumpDumper]

:lmao

1634374859043270678

[Winehole23]

sure, why not?

1634571182111440896

[steak n eggs]

So the government bails SVB bank out but who bails the government out when the time comes? I realize it's a lot more complicated than that but it seems like the financial system is a house of cards built on false promises just waiting to fall. These financial institutions seem to be failing with greater regularity. Meanwhile, our investments suffer. I'll admit I don't understand the complexity of it but I'm not sure any of the people in charge really understand what they've created either. Meanwhile, the government just prints some more monopoly money because that's what will fix it and everyone carries on like nothing happened.

Then you have the ponzi scheme of social security where we get to fund the current retirees but when the time comes for younger generations to retire, it will be reduced or they'll just keep pushing the age to collect further out. People have way too much faith in our leadership/government. If everyone was to go to the bank and withdrawal their funds, a major shitshow would ensue. That tells me my and your money doesn't really exist. Pretty comforting.

[ChumpDumper]

Seems pretty simple -- don't bail them out over $250k -- but I guess all the other rugged individuals will get scurred without a socialism to protect them.

[Blake]

:lmao

1634374859043270678

Lol Twitter can't afford custodians

[Blake]

Seems pretty simple -- don't bail them out over $250k -- but I guess all the other rugged individuals will get scurred without a socialism to protect them.

Yeah and they'll get their bailout because someone somewhere will say the economy will collapse if they don't

[koriwhat]

Let it burn! NO FUCKING BAILOUTS for the smug, condescending, assholes in silicon valley. Fuck them all!

[Millennial_Messiah]

Not very different from what seems likely to me.

Fed pivot > melt up > recession > more QE

Stagflation seems a real possibility, hope the doomers are wrong about that.
we need to keep the rate hikes going. Can't have stagflation. Take the hit one way or the other but not both, preferably more unemployment and less government spending. Quantitative easing is inflationary and expansionary economic policy is the last thing we need.

Biden is Jimmy Carter 2.0

Let it burn! NO FUCKING BAILOUTS for the smug, condescending, assholes in silicon valley. Fuck them all!
:toast :tu

[Winehole23]

Hedge funds are offering to buy startups’ deposits stranded at Silicon Valley Bank for as little as 60 cents on the dollar, pitching expensive but crucial lifelines to founders unable to access their cash after the lender collapsed yesterday, people familiar with the matter said.

Firms better known for investing in distressed debt, including Oaktree, one of the people said, are fanning out to startups in the wake of the bank’s failure and seizure by the Federal Insurance Deposit Corp. on Friday. Its collapse left hundreds of startups — as well as the venture funds that backed them — unable to access their cash to meet payroll and other expenses.

Bids range from 60 to 80 cents on the dollar, the people said, reflecting a range of expectations for how much of the uninsured deposits — those that exceed the FDIC’s $250,000-per-customer cap — will ultimately be recovered once the bank’s assets are sold or wound down.
https://www.semafor.com/article/03/11/2023/hedge-funds-offer-to-buy-deposits-stuck-at-silicon-valley-bank

[TDMVPDPOY]

govt doesnt need to nationalize this bank, theres plenty and enough banks already...

those nerds having all their money in one nest...not diversifying..

[Hank Scorpio]

1634336844673433603

[boutons_deux]

Someone suggested that Elmo should buy SVB and he said he's thinking about it

[boutons_deux]

[SVB had an investment grade rating, had been operating for 40 years

https://wolfstreet.com/2023/03/11/svb-financial-had-investment-grade-credit-ratings-from-moodys-and-sp-up-to-collapse-then-ratings-got-slashed-in-one-fell-swoop-to-default/

[Winehole23]

we need to keep the rate hikes going. Can't have stagflation. Take the hit one way or the other but not both, preferably more unemployment and less government spending. Quantitative easing is inflationary and expansionary economic policy is the last thing we need.

Biden is Jimmy Carter 2.0

:toast :tucrush the plebs, even though there's no detectable wage/price spiral.

[Winehole23]

[SVB had an investment grade rating, had been operating for 40 years

https://wolfstreet.com/2023/03/11/svb-financial-had-investment-grade-credit-ratings-from-moodys-and-sp-up-to-collapse-then-ratings-got-slashed-in-one-fell-swoop-to-default/SVB fell apart in 3-4 days. Let's not reward the VCs who already got rich on both sides of the failure.

[Winehole23]

Tech founders and banks get to sit like dragons on huge piles of money because "they take all the risk", but when they crap out, they whine for protection.

[Winehole23]

They got the regulators out of the way, enjoy the risk, dudes.

[Winehole23]

lol

1634933065079492610

[Hank Scorpio]

1634766439402856450

[Winehole23]

Reportedly, 70% of VCs and 50% of UK tech startups bank with SVB

The pink paper reports that BOE wants Barclay's to take over SVB UK.

1634957976665755648

[ChumpDumper]

As sure as the sun rises....

1634986466274312192

[spurraider21]

Just lol

[ChumpDumper]

Expect possible blue check chaos bro bullshit this week.

1634804744161226752

1634783756656492544

[Ef-man]

Ain't that a bitch.

The Biden administration announced Sunday night that all depositors at the failed Silicon Valley Bank would have access to all their money on Monday morning, approving an extraordinary intervention aimed at averting a crisis in the financial markets.

Authorities said they were also extending protection to depositors of a second bank, Signature Bank of New York, which state regulators closed on Sunday as unease in the financial sector appeared to spread. Separately, the Federal Reserve announced that it was creating a new lending facility for the nation’s banks, designed to buttress them against financial risks caused by Friday’s collapse of SVB.

https://www.washingtonpost.com/silicon-valley-bank-deposits

[ChumpDumper]

too terrified to fail

[Ef-man]

too terrified to fail

Worse, no one arrested for the fuckery.

[InRareForm]

1634981307775348737

[Blake]

Worse, no one arrested for the fuckery.

And further they're all protected from civil suits I'm sure

[boutons_deux]

Signature Bank closed for systemic risk

[GAustex]

Money printer goes brrrrr

[TDMVPDPOY]

better not bail out the share holders

[ChumpDumper]

Worse, no one arrested for the fuckery.

I don't know if any actual laws were violated. This bank and many of it's depositors were pretty stupid and it looks like they're being rewarded.

[Ef-man]

I don't know if any actual laws were violated. This bank and many of it's depositors were pretty stupid and it looks like they're being rewarded.

They announced Wed. that they sold a bunch of securities at a loss (risky bet that is not chump change ~$2B) and it was not like they did not see it coming.

My personal opinion is that someone is to blame civilly/criminally for that big ass, bad management decision which triggered Joe to intervene.

[ElNono]

I don't know if any actual laws were violated. This bank and many of it's depositors were pretty stupid and it looks like they're being rewarded.

Maybe that's the problem right there... but Congress is sleep at the wheel per par...

[Winehole23]

too terrified to failsame jokers who imposed the risk (and possibly shorted it after the big mass VC chat, then started the bank run) are spreading the fear of contagion, and the USG is gratifying it.

[Winehole23]

I guess they had to try at least as hard as the failing UK.

[Winehole23]

Implication here seems to be that banks will have funded the rescue of uninsured deposits and will again.

1635059857522061313

[Winehole23]

Fed response: sneaky QE, through the discount window. More easy money for a presently uneasy sector.

1635079018100981760

1635079025365483520

1635079032671969281

1635079039756156930

[Winehole23]

https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm

[InRareForm]

Buying some stocks today

[Winehole23]

25% of assets in crypto, Signature has been listing for awhile. I wonder how depositors get made whole when the deposit insurance fund gets all tapped out.

1635063605245931522

[Winehole23]

on Friday, with customers panicking about their money, Signature saw a torrent of deposits leaving its coffers, according to a person with knowledge of the matter. Its stock, along with the stocks of some of its peers, also continued to tank.

Still, the bank’s leaders expected to be able to weather the storm because the outflows had slowed by Sunday morning, the person said. When regulators told bank executives that they were effectively seizing the bank, which had 40 branches across the country, some of them were shocked. In shuttering the bank, New York bank regulators, acting in concert with the F.D.I.C., also removed its executive team.

The demise of Signature, with assets of under $100 billion, is a blow to many of the professional services firms that have come to rely on it. The bank long specialized in providing banking services to law firms, providing escrow accounts for holding client money and other services.

...

One of Signature’s specialties was financing the purchase of taxi medallions, which authorize holders to operate cabs. It was known in New York for providing banking services to law firms and real estate companies, and for catering to wealthy families in the area.

...

Regulatory filings show that more than $79 billion, or close to nine-tenths, of Signature Bank’s roughly $88 billion in deposits were uninsured at the end of last year. As of last week, Signature said more than 80 percent of it deposits were from law firms, accounting firms, health care companies, manufacturers and real estate management companies.

The bank also said its digital asset-related client deposits stood at $16.52 billion. Signature was one of the few financial institutions that had opened its doors to taking deposits of crypto assets, a business it entered into in 2018.

That ended up being a fateful decision because the bottom fell out of crypto assets after the collapse of FTX and an ensuing criminal investigation. Another cryptocurrency-focused bank, Silvergate Bank, was forced to voluntarily close last week.

“This story has more to do with crypto, huge error in judgment by veteran bankers,” said Christopher Whalen of Whalen Global Advisors, which specializes in analyzing and consulting on financial institutions. “Result was the same in a deposit run.”

https://www.nytimes.com/2023/03/12/business/signature-bank-collapse.html

[Winehole23]

small businesses my ass, they're protecting stupid rich people with uninsured deposits.


Trading was halted in multiple bank stocks Monday, renewing fears that the fallout from the collapse of Silicon Valley Bank has yet to be fully contained.

Shares in the San Francisco-based First Republic Bank, whose wealthy clientele has included Facebook founder Mark Zuckerberg, plunged more than 60% before being suspended.

Also halted were other financial firms based in the West Coast, including Western Alliance Bancorp., which fell more than 70%; and PacWest Bancorp, which fell more than 40%.

Traders fear these banks' stocks could be wiped out if regulators are forced to take control of their uninsured bank deposits, or those larger than the $250,000 Federal Deposit Insurance Corp. limit.
https://www.nbcnews.com/news/us-news/live-blog/-silicon-valley-bank-collapse-live-updates-rcna74642

[Winehole23]

Extraordinary public and institutional help for foolish private financial decisions, we all should be so lucky. So much for the genius of creative destruction.

[Winehole23]

When rich folks get scared, it's all hands on deck, same dynamic as spring 2020.

[Winehole23]

prime example

1635007266805137408

[Winehole23]

1635019914917609472

[Ef-man]

When rich folks get scared, it's all hands on deck, same dynamic as spring 2020.

Per CNN

SVB employees received bonuses hours before bank shutdown, reports say

https://www.cnn.com/business/svb-fdic-employees

[Winehole23]

this is the bailout, tbh

1635168864404393985

1635170869889863681

[Winehole23]

The Fed broadly foreshadowed rate hikes last year, but this is quibble

1634671469044326402

[Winehole23]

Sounds reasonable, but it's doubtful anything but the first thing will happen.

One tier 2 bank failure just changed our whole banking system. Somehow, that does not inspire me with fresh confidence.

1635086909444866048

[Winehole23]

https://pbs.twimg.com/media/FrG_wjLaIAwJ-8u?format=jpg&name=large

[Winehole23]

"Nice economy you've got there, it would be a shame if anything happened to it"

1634925874553430016

1634929352524853254

[Winehole23]

1635078134088470529

[ducks]

This is really big shit

Even the stocks of big European banks are down several percent , so far

Trump was right
Biden would crash the market

[Blake]

When rich folks get scared, it's all hands on deck, same dynamic as spring 2020.

And those hands have hats in them, at government's front door.

[ducks]

And those hands have hats in them, at government's front door.

They are sucking dick

[ducks]

And those hands have hats in them, at government's front door.

Biden president not trump

[ChumpDumper]

Trump was right
Biden would crash the market

:lol Trump crashed the economy way before this

[Monostradamus]

Biden president not trump
So COVID is Trump’s fault :tu

[Winehole23]

tl;dr

it's a bailout



US regulators have been carefully to rule out a bailout aware of public distaste for such actions. However, authorities are moving to implement measures indistinguishable from the dreaded ‘B’ word:



US President Joseph Biden and Treasury Secretary Janet Yellen have not ruled out safeguarding all uninsured deposits at SVB and presumably any other bank to prevent a run on US financial system. If this is implemented then it would mean that the state would be assuming a contingent liability in the order of $20 trillion being the total of US bank deposits.
The Federal Reserve eased the terms of banks’ access to its discount window, allowing firms to use assets that have lost value to raise cash to avoid the outcome at SVB.
The Fed has also unveiled a new $25 billion facility – the Bank Term Funding Program (“BTFP”)- to provide loans of up to 1-year to banks, savings associations, credit unions, and other eligible depository institutions against security of U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. Unusually, these assets will be valued at par, not as usual at market value, ignoring the unrealised net losses. In effect, the Fed will be lending $100 against securities worth say $80 at current market prices – an interesting loan-to-value ratio.



The UK government considered instituting measures designed to keep cash flowing to tech groups. One option was to provide guarantees for banks to offer new loans to companies with money locked in SVB accounts. Ultimately, this proved unnecessary as HSBC took over the operation of SVB’s UK operations which were solvent.


Policymakers argue that taxpayers are not exposed to any losses with shareholders and certain unsecured debtholders forced to absorb losses. Nevertheless, why the blanket guarantee of deposits does not entail exposure is not clear? In the US, officials floated the idea that any shortfall would be covered by a levy on the rest of the banking industry. If this were to be the case, then in practical terms banks would treat this is an operating cost, all or part of which would be passed on to customers.

The measures are inconsistent with the contained nature of the SVB problem and the adequacy of existing regulations. There are suggestions Janet Yellen, US Treasury secretary, had invoked a “systemic risk exception” to justify the measures.

Like Humpty Dumpty, regulators take the view that words mean “just what they choose it to mean—neither more nor less”.

Amusingly, Silicon Valley’s famed libertarians who resist any form of government regulation are pleading for action to prevent an “extinction event”. Some 3,500 CEOs and founders representing some 220,000 workers signed a petition started by Y Combinator appealing directly to the US Treasury Secretary to backstop depositors, warning that more than 100,000 jobs could be at risk.

The moral hazards around bailouts are well known. It seems now that tech start-ups like banks, auto businesses and anybody with an effective lobbyists are too big to fail even if they are too difficult to understand or to properly manage. As Herbert Spencer put it: “The ultimate result of shielding men from the effects of folly, is to fill the world with fools.”

Over the last decade and a half, the economic system and financial practices have become geared around low rates, abundant liquidity and the authorities underwriting risk taking. Moving away from this state of affairs was never going to easy, that is, if it is possible at all.
https://www.nakedcapitalism.com/2023/03/satyajit-das-svb-collapse-and-bank-turmoil-latest-chapter-in-the-unwinding.html

[ChumpDumper]

This is getting stupid. At least try reinstating a semblance of Dodd-Frank since we decided smaller banks can destroy the economy.

[spurraider21]

small businesses my ass, they're protecting stupid rich people with uninsured deposits.

https://www.nbcnews.com/news/us-news/live-blog/-silicon-valley-bank-collapse-live-updates-rcna74642
or preventing a runaway panic that could creep to other banks. bank runs arent good for any bank. its the nature of how they work. borrow money short, lend it long.

granted, SBV was particularly susceptible to a run because a huge amount of their $ came from a (relatively) small amount of account holders, so it didnt take much for an essentially coordinated bank run to topple it. other big banks have a vast vast majority of account holders having small amounts of money in their account, and its pretty tough for a comparable bank run to happen there

its not like SBV is being bailed out. that bank is still being torn apart. their shareholders are out. employees are out. 2008 bailed out banks in a manner where the morons in charge of those banks kept their jobs, positions, bonuses, etc. bailing out depositors =/= bailing out the bank

[spurraider21]

not to say safeguards shouldnt be added to mitigate the risk of this happening going forward. i dont think a de facto unlimited FDIC coverage is the solution going forward. but i also dont think its creating a moral hazard. usually you dont blame the account holders for a bank collapse, you blame the bank.

now in this case there was some shit going on with Thiel first advising that people start pulling funds from SBV, then apparently a lot of the big wigs had a group message ongoing where they all talked about getting out of SVB basically all at once

[boutons_deux]

1635078134088470529

The feds don't make those decisions.


Profit center managers and now AI algorithms make those denial of care decisions in Medicare advantage insurers.

[Winehole23]

or preventing a runaway panic that could creep to other banks. bank runs arent good for any bank. its the nature of how they work. borrow money short, lend it long.

granted, SBV was particularly susceptible to a run because a huge amount of their $ came from a (relatively) small amount of account holders, so it didnt take much for an essentially coordinated bank run to topple it. other big banks have a vast vast majority of account holders having small amounts of money in their account, and its pretty tough for a comparable bank run to happen there

its not like SBV is being bailed out. that bank is still being torn apart. their shareholders are out. employees are out. 2008 bailed out banks in a manner where the morons in charge of those banks kept their jobs, positions, bonuses, etc. bailing out depositors =/= bailing out the bankModerately agree and disagree.

"It would have been Armageddon if we didn't backstop banks" was a more plausible excuse in 2008, tbh. In effect FDIC has protected unwary depositors and tech startups bound contractually to keep their money at SVB. Implicitly it now backstops all bank deposits, and who knows where that ends. If the total bail in exceeds $100 billion, you can be sure whatever costs imposed by the FDIC on the banks will be passed on to customers. IMHO the rumor of contagion was overhyped, but we'll see what shakes out.

Letting banks borrow against illiquid assets at par value at near zero rates may not cost the taxpayer anything, but it's a bailout. Ridiculous arbitrage and horrible risk management.

[FrostKing]

Silicon Valley Bank, which collapsed on Friday after a classic bank run, donated more than $73 million to groups related to the Black Lives Matter movement, online records show.

A report from August 2020 highlighted the fact that around two-thirds of the bank’s workforce met the "diversity" criteria.


:wakeup

[boutons_deux]

This is getting stupid. At least try reinstating a semblance of Dodd-Frank since we decided smaller banks can destroy the economy.

Pass Glass-Steagal

re-implement Dodd-Frank for all banks

regulate private banks like public banks

[Winehole23]

Moderately agree and disagree.

"It would have been Armageddon if we didn't backstop banks" was a more plausible excuse in 2008, tbh. In effect FDIC has protected unwary depositors and tech startups bound contractually to keep their money at SVB. Implicitly it now backstops all bank deposits, and who knows where that ends. If the total bail in exceeds $100 billion, you can be sure whatever costs imposed by the FDIC on the banks will be passed on to customers. IMHO the rumor of contagion was overhyped, but we'll see what shakes out.

Letting banks borrow against illiquid assets at par value at near zero rates may not cost the taxpayer anything, but it's a bailout. Ridiculous arbitrage and horrible risk management.perverse incentive for banks to load up on risky assets. the counterparty is the Fed this time, true, so there's much less risk of catastrophic debt unwinding -- so long as rates don't keep rising and money supply doesn't keep contracting. if rates do keep rising and M2 keeps contracting, liquidity and credit crises are live possibilities despite the credit window gimmick. you can't extend and pretend forever. debts that can't be paid won't be paid.

the ethic of protecting banks and mega depositors no matter what while crushing employment isn't technically a bailout either, but the equities are all screwed up. the costs will be borne disproportionately by regular folks and there will be political and social downsides.

[Winehole23]

:wakeupyes, women, two gays and one black dude on the SVB board caused mismanagement and the run on deposits. banks with all white, all male boards have never failed.

great take

[Winehole23]

And those hands have hats in them, at government's front door.

https://www.nicepng.com/png/detail/776-7760167_monopoly-banker-clipart-bank-error-in-your-favor.png

[Winehole23]

Moderately agree and disagree.

"It would have been Armageddon if we didn't backstop banks" was a more plausible excuse in 2008, tbh. In effect FDIC has protected unwary depositors and tech startups bound contractually to keep their money at SVB. Implicitly it now backstops all bank deposits, and who knows where that ends. If the total bail in exceeds $100 billion, you can be sure whatever costs imposed by the FDIC on the banks will be passed on to customers. IMHO the rumor of contagion was overhyped, but we'll see what shakes out.

Letting banks borrow against illiquid assets at par value at near zero rates may not cost the taxpayer anything, but it's a bailout. Ridiculous arbitrage and horrible risk management.the perverse incentive to rely on financial chicanery has already had a real economic cost over the last 15 years: lost opportunities for productive investment and stagnant/declining quality of life. and it probably will again.

[ChumpDumper]

:wakeup

:lmao you get your news from Fox.

[spurraider21]

Moderately agree and disagree.

"It would have been Armageddon if we didn't backstop banks" was a more plausible excuse in 2008, tbh. In effect FDIC has protected unwary depositors and tech startups bound contractually to keep their money at SVB. Implicitly it now backstops all bank deposits, and who knows where that ends. If the total bail in exceeds $100 billion, you can be sure whatever costs imposed by the FDIC on the banks will be passed on to customers. IMHO the rumor of contagion was overhyped, but we'll see what shakes out.

Letting banks borrow against illiquid assets at par value at near zero rates may not cost the taxpayer anything, but it's a bailout. Ridiculous arbitrage and horrible risk management.
SVB is not being bailed out though

if you are at chase bank, chase bank goes under, but the FDIC makes you whole, that’s not chase getting bailed out. They still went under

[Winehole23]

SVB is not being bailed out though

if you are at chase bank, chase bank goes under, but the FDIC makes you whole, that’s not chase getting bailed out. They still went underyou're tilting at the wind, I didn't say SVB was bailed out.

"shuttered, moved to FDIC receivership" is in the thread title. it's a bank failure.

[spurraider21]

you're tilting at the wind, I didn't say SVB was bailed out.

"shuttered, moved to FDIC receivership" is in the thread title. it's a bank failure.
Was responding to the bolded

Moderately agree and disagree.

"It would have been Armageddon if we didn't backstop banks" was a more plausible excuse in 2008, tbh. In effect FDIC has protected unwary depositors and tech startups bound contractually to keep their money at SVB. Implicitly it now backstops all bank deposits, and who knows where that ends. If the total bail in exceeds $100 billion, you can be sure whatever costs imposed by the FDIC on the banks will be passed on to customers. IMHO the rumor of contagion was overhyped, but we'll see what shakes out.

Letting banks borrow against illiquid assets at par value at near zero rates may not cost the taxpayer anything, but it's a bailout. Ridiculous arbitrage and horrible risk management.

[Winehole23]

Was responding to the boldedok.

looks like the Fed throwing money at banks preemptively to spare them the pain of rising interest rates. I guess that's not technically a bailout, but it is very preferential and will be very lucrative for banks with the right assets. the Fed will be lending good money at near zero interest against relative crap..

[Winehole23]

(God forbid the banks should ever be forced to mark their bad investments to market and write down losses. IT WOULD BE THE END OF THE WORLD!)

[spurraider21]

ok.

looks like the Fed throwing money at banks preemptively to spare them the pain of rising interest rates. I guess that's not technically a bailout, but it is very preferential and will be very lucrative for banks with the right assets. the Fed will be lending good money at near zero interest against relative crap..
They’re not throwing money at the banks here though. It’s depositors getting reimbursed. SVB is still going under. Their stockholders are out, etc

[ElNono]

SVB is not being bailed out though

if you are at chase bank, chase bank goes under, but the FDIC makes you whole, that’s not chase getting bailed out. They still went under

JPMorgan is too big to fail tho

[spurraider21]

JPMorgan is too big to fail tho
2008 bailouts =/= SVB situation

[baseline bum]

2008 bailouts =/= SVB situation

Still need to bring Glass-Steagall back if we're now guaranteeing all deposits of rich people.

[spurraider21]

Still need to bring Glass-Steagall back if we're now guaranteeing all deposits of rich people.
dont disagree there

[Winehole23]

They’re not throwing money at the banks here though. It’s depositors getting reimbursed. SVB is still going under. Their stockholders are out, etcyou're looking at this through a soda straw. do you think the costs of operating the Fed's bespoke lending facility will be zero? seems naive to presume banks won't use it and that it doesn't involve shoveling cash out the window to banks at near zero interest so they don't have to realize losses.

"your not a bailout" scenario looks very much like one to me, though it's prospective. it involves turning bad investments into good loans at nearly zero cost to banks.

[spurraider21]

you're looking at this through a soda straw. do you think the costs of operating the Fed's bespoke lending facility will be zero? seems naive to presume BBC banks won't use it and that it doesn't involve shoveling cash out the window to banks at near zero interest so they don't have to realize losses.

"your not a bailout" scenario looks very much like one to me, though it's prospective. it involves turning bad investments into good loans at nearly zero cost to banks.
so SVB going under, all their shareholders wiped out, etc, amounts to SVB getting bailed out because their customers arent losing their money?

[Winehole23]

so SVB going under, all their shareholders wiped out, etc, amounts to SVB getting bailed out because their customers arent losing their money?Nope, haven't been talking about SVB, but the aftermath. The whole thread started with saying SVB failed and went into receivership.

The "not a bailout" involves throwing money out the discount window so banks don't have to realize losses to raise liquidity, and implicitly backstopping 100% of deposits so depositors don't lose confidence and banks stocks don't crater. The Silverlake and SVB failures have already depleted over half of the deposit insurance fund, I think. If that gets tapped out this year, Treasury backstops it.

[Winehole23]

I'm cool with calling the drastic change to deposit insurance and the bespoke discount window alchemy "not a bailout." Might stick with that.

[TSA]

https://twitter.com/GregRubini/status/1636067591004233729

https://twitter.com/GregRubini/status/1636070192517087232

https://twitter.com/GregRubini/status/1636071734389481474

[Winehole23]

https://pbs.twimg.com/media/FrQsNexXwAA8VkS?format=png&name=900x900

[spurraider21]

I'm cool with calling the drastic change to deposit insurance and the bespoke discount window alchemy "not a bailout." Might stick with that.
the deposit insurance is bailing out depositors, not the bank. im starting to think you just arent grasping the difference between the business and the customer

[Winehole23]

the deposit insurance is bailing out depositors, not the bank. im starting to think you just arent grasping the difference between the business and the customer
No, I get the difference. FDIC receivership isn't a bailout. Never said it was, don't think it is.

[SnakeBoy]

https://pbs.twimg.com/media/FrQsNexXwAA8VkS?format=png&name=900x900

lol Talk about moral hazard

[spurraider21]

lol Talk about moral hazard
the only moral hazard here is that customers dont need to freak out over where they park their money, even if the bank itself eats dust

[ElNono]

Still need to bring Glass-Steagall back if we're now guaranteeing all deposits of rich people.

:cry but how are we going to gamble with people's money???!?11? :cry

[ElNono]

https://twitter.com/GregRubini/status/1636067591004233729

https://twitter.com/GregRubini/status/1636070192517087232

https://twitter.com/GregRubini/status/1636071734389481474

Credit Suisse to Get Liquidity Backstop if Needed, SNB Says

Switzerland’s central bank and financial regulator said Credit Suisse Group AG will receive a liquidity backstop if needed, seeking to restore confidence in the troubled lender after a record slump in its shares.

“Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks,” the Swiss National Bank and Finma said in a joint statement late Wednesday. “If necessary, the SNB will provide Credit Suisse with liquidity.”

Shares in Credit Suisse slumped by as much as 31% on Wednesday in Zurich trading, and its bonds fell to levels that signal deep financial distress, as persistent doubts over the scandal-ridden lender combined with a global selloff in banking stocks. The government, central bank and Finma have been discussing ways to stabilize the bank after a tumultuous day sparked by the firm’s largest investor ruling out increasing its stake, Bloomberg reported earlier.

https://www.bloomberg.com/news/articles/2023-03-15/credit-suisse-to-get-liquidity-backstop-if-needed-snb-says

---

tbh, Credit Suisse has been mismanaged for over a year now. Good time to clean up their act.

[Ef-man]

Credit Suisse to Get Liquidity Backstop if Needed, SNB Says

Switzerland’s central bank and financial regulator said Credit Suisse Group AG will receive a liquidity backstop if needed, seeking to restore confidence in the troubled lender after a record slump in its shares.

“Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks,” the Swiss National Bank and Finma said in a joint statement late Wednesday. “If necessary, the SNB will provide Credit Suisse with liquidity.”

Shares in Credit Suisse slumped by as much as 31% on Wednesday in Zurich trading, and its bonds fell to levels that signal deep financial distress, as persistent doubts over the scandal-ridden lender combined with a global selloff in banking stocks. The government, central bank and Finma have been discussing ways to stabilize the bank after a tumultuous day sparked by the firm’s largest investor ruling out increasing its stake, Bloomberg reported earlier.

https://www.bloomberg.com/news/articles/2023-03-15/credit-suisse-to-get-liquidity-backstop-if-needed-snb-says

---

tbh, Credit Suisse has been mismanaged for over a year now. Good time to clean up their act.

So much for TSA's "Switzerland CANNOT bail out Credit Suisse" retweet.

TSA will go back into the witness protection program..
:lmao

[Winehole23]

TSA's copypasta expires on the starting line...again.

[Winehole23]

"Now, with the help of uncapped limits on insured deposits, the days of managing multiple banking relationships to achieve full FDIC protection are over"


As you can imagine, the more cash you need protected, the more banking relationships you will need to maintain. In the past, this created a great deal of additional work to monitor, manage and reconcile these accounts. Now, with the help of advanced fintech, the days of managing multiple banking relationships to achieve full FDIC protection are over.https://americandeposits.com/history-and-timeline-of-changes-to-fdic-coverage-limits/

[Winehole23]

the only moral hazard here is that customers dont need to freak out over where they park their money, even if the bank itself eats dusttrue, mega-depositors no longer need to exercise due diligence about the safety of their deposits or their bank's risk profile. no need to worry about where to park their money. there's no need for depositors to hold bank management's feet to the fire, that's what regulators are for.

[Winehole23]

It's a balancing act. Bank confidence and moral hazard need to be balanced. Even the FDIC doesn't think deposit insurance is free of moral hazard. Suggesting that it is is either political cant or mistaken.


https://pbs.twimg.com/media/FrFcNNLX0AEkXDf?format=jpg&name=mediumhttps://www.fdic.gov/deposit/deposits/international/guidance/moralhazard.pdf

[Winehole23]

Perhaps spurraider21 thinks the FDIC has come up with a perfect system of insurance, completely free of moral hazard.

[Winehole23]

On the one hand, depositors don't need to worry about their money anymore; on the other, banks don't have to worry about their depositors.

Clearly, zero moral hazard in this scenario.

[spurraider21]

true, mega-depositors no longer need to exercise due diligence about the safety of their deposits or their bank's risk profile. no need to worry about where to park their money. there's no need for depositors to hold bank management's feet to the fire, that's what regulators are for.
If the bank acts poorly and dies it dies. They don’t need special protections and aren’t getting them. Depositors shouldn’t have to act as regulators. They’re customers.

believing that the customers of a bank should suffer because of bad actions of the bank is something i can’t wrap my head around

[Winehole23]

If the bank acts poorly and dies it dies. They don’t need special protections and aren’t getting them. Depositors shouldn’t have to act as regulators. They’re customers.

believing that the customers of a bank should suffer because of bad actions of the bank is something i can’t wrap my head aroundso then, mega depositors must be protected, no matter what, even if one foreseeable effect is that banks will be more careless about managing risk? do you still think this scenario is free of moral hazard, you see none?

it's one thing to say confidence in banking is more important than moral hazard in this case, quite another to say that the moral hazard doesn't exist.

[ElNono]

Technically speaking, the FDIC hasn't officially upped their insured limit, AFAIK. This would be an exception, not the rule.

But, again, I think everyone knows what the problem is here: banks gambling with people's money. When the gamble fails, it's just another LLC that shuts down, and depositors end up holding the bag.
This is why regulations like Glass-Steagall and Dodd-Frank were important. This shit has happened before, and will keep on happening because self-regulation in this sector never worked.

[Winehole23]

so then, mega depositors must be protected, no matter what, even if one foreseeable effect is that banks will be more careless about managing risk? do you still think this scenario is free of moral hazard, you see none?

it's one thing to say confidence in banking is more important than moral hazard in this case, quite another to say that the moral hazard doesn't exist.This is recalled by heart, so the figure might be off a little, but at the time of its failure, SVB had enough assets to cover 90-95% of its deposits. Would it really have been so unfair fo unwary depositors to take a haircut on their uninsured deposits?

[Winehole23]

Technically speaking, the FDIC hasn't officially upped their insured limit, AFAIK. This would be an exception, not the rule.

But, again, I think everyone knows what the problem is here: banks gambling with people's money. When the gamble fails, it's just another LLC that shuts down, and depositors end up holding the bag.
This is why regulations like Glass-Steagall and Dodd-Frank were important. This shit has happened before, and will keep on happening because self-regulation in this sector never worked.it's implicit, sure. we'll see if the FDIC has the stomach to enforce its cap. ignoring it in this case does make one wonder.

[spurraider21]

so then, mega depositors must be protected, no matter what, even if one foreseeable effect is that banks will be more careless about managing risk? do you still think this scenario is free of moral hazard, you see none?

it's one thing to say confidence in banking is more important than moral hazard in this case, quite another to say that the moral hazard doesn't exist.
The closest thing we have to a moral hazard here is that customers don’t have to do their homework when deciding which bank to park their money in. That’s one I’m fine with. There’s not really moral hazard concerning the banks themselves though. They’ll still go under if they get caught with their pants down

[boutons_deux]

SVB was handing out loans using borrowers' crypto coin for collateral! :lol

[TSA]

So much for TSA's "Switzerland CANNOT bail out Credit Suisse" retweet.

TSA will go back into the witness protection program..
:lmao

SNB ponied up $54 million. The guy I quoted was wrong.

This isn't the gotcha you think it is.

[Ef-man]

SNB ponied up $54 million. The guy I quoted was wrong.

This isn't the gotcha you think it is.

So your source was wrong but not you?

What is your conspiracy theory this time and how is it different?

Chop, chop.

[Winehole23]

Up to $200M in deposits.

Looks like FDIC saved SV Angel.


https://pbs.twimg.com/media/FrWntEMWIAISeHG?format=png&name=900x900

[TSA]

So your source was wrong but not you?

What is your conspiracy theory this time and how is it different?

Chop, chop.

I was wrong. Typed out 54 million instead of 54 billion.

Your desperation for a gotcha reeks of insecurity but it's at least understandable considering how often your posts are ignored by everyone here.

[ChumpDumper]

SNB ponied up $54 million. The guy I quoted was wrong.

This isn't the gotcha you think it is.

Can you get anything right?

[Ef-man]

I was wrong. Typed out 54 million instead of 54 billion.

Your desperation for a gotcha reeks of insecurity but it's at least understandable considering how often your posts are ignored by everyone here.

Desperation, sure, keep trying. :lol

No one gave a shit about your million/billion typo.

So back to my question, what is your conspiracy theory this time?

[Winehole23]

1636202730933944322

[TSA]

Desperation, sure, keep trying. :lol

No one gave a shit about your million/billion typo.

So back to my question, what is your conspiracy theory this time?

Yes desperation. You hump my leg all the time begging for attention and for the most part it's ignored.

I don't have a conspiracy and nothing about what I quoted even sniffed at any conspiracy.

Like I said earlier, there is no gotcha here no matter how desperate you are for one.

[Ef-man]

Yes desperation. You hump my leg all the time begging for attention and for the most part it's ignored.

I don't have a conspiracy and nothing about what I quoted even sniffed at any conspiracy.

Like I said earlier, there is no gotcha here no matter how desperate you are for one.

Your copy/paste Credit Suisse tweets were wrong, not your fault but you are just lashing out in shame for posting something you hoped was true.

No gotcha, just pointing out your posting MO.

Hope you learn something from this but I doubt it. :tu

[TSA]

Your copy/paste Credit Suisse tweets were wrong, not your fault but you are just lashing out in shame for posting something you hoped was true.

No gotcha, just pointing out your posting MO.

Hope you learn something from this but I doubt it. :tu

This is exactly what I'm talking about when saying you are desperate for a gotcha. I didn't post that about Credit Suisse hoping it was true. I posted it to contribute to the thread and it ended up not happening because of a 54 billion dollar bailout.

You are desperately trying to turn this into something it never was in hopes of a gotcha.

Hope you learn something from this but I doubt it :bobo

[Winehole23]

Peter Theil reported had $50 million of his own money in SVB when he (allegedly) started the bank run. No haircut, though.

https://www.businessinsider.com/peter-thiel-had-money-in-silicon-valley-bank-collapse-report-2023-3

[ChumpDumper]

Peter Theil reported had $50 million of his own money in SVB when he (allegedly) started the bank run. No haircut, though.

https://www.businessinsider.com/peter-thiel-had-money-in-silicon-valley-bank-collapse-report-2023-3

He was going to make a lot more from shorting the bank stock than any haircut might take.

[Winehole23]

Possible moral hazard with uncapped deposits: rich folks plowing their money into risky/badly run banks offering high interest rates.

[ElNono]

I was wrong. Typed out 54 million instead of 54 billion.

Your desperation for a gotcha reeks of insecurity but it's at least understandable considering how often your posts are ignored by everyone here.

It wasn't just you that was wrong, the thing you posted was wrong as well. Deposits in Switzerland are made in Swiss Francs, not US dollars. The Swiss Franc has roughly 1:1 exchange parity with the US dollar.

Because they are in Swiss Francs, there's no scenario where the SNB or Switzerland proper couldn't bail the bank out if they choose to do so.

[TSA]

It wasn't just you that was wrong, the thing you posted was wrong as well. Deposits in Switzerland are made in Swiss Francs, not US dollars. The Swiss Franc has roughly 1:1 exchange parity with the US dollar.

Because they are in Swiss Francs, there's no scenario where the SNB or Switzerland proper couldn't bail the bank out if they choose to do so.

Already said the guy I posted was wrong as well. :bobo

[ElNono]

The relatively comic thing about this is that the SNB has seen a massive influx of deposits from people moving their money from Credit Suisse to SNB.

Credit Suisse has been mismanaged for over a year now, and whoever the regulators are there need to put the clamps on it.

[spurraider21]

Possible moral hazard with uncapped deposits: rich folks plowing their money into risky/badly run banks offering high interest rates.
thats where you need regulators to step in tbh. i dont think putting consumers in the position of being regulators is really a solution. and the capped deposit insurance is in large part what led to the run in the first place. 90+% of SVB's deposits werent insured, so everybody freaked out for that reason realizing how vulnerable they were, and the run was a self fulfilling prophecy. much like the covid toilet paper shortage

[SnakeBoy]

Credit Suisse has been mismanaged for over a year now, and whoever the regulators are there need to put the clamps on it.

16 years

[ElNono]

16 years

They've been reducing their net debt from $77b in 2019 to $20b at the end of 2021. By the end of 2022 that debt ballooned to $100b while their assets shrunk in value.

[Winehole23]

Bank Term Funding Program go brrr.

1636485515221278721

[Winehole23]

Fortunately for us all, there's zero moral hazard associated with propping up banks and the stock market.

1636460139200012288

[Winehole23]

Huh, there was already a way for mega-depositors to protect up to $150M. Wonder why they didn't use it.

https://americandeposits.com/what-is-ics-insured-cash-sweep/

[Winehole23]

Regional banks coddled by a complacent Fed


According to three sources with knowledge of the situation, Federal Reserve chair Jerome Powell was reluctant to sign off on anything that weekend that included references to the Fed’s role in supervision, regulation, or accountability, and fought efforts to do so.

The debate held up the final announcement for an indeterminate period of time, according to the sources. While the Fed did not allow any reference to regulation or supervision in the joint statement, that the central bank also tried to influence the presidential statement is novel, considering that they were not party to it.

The New York Times earlier on Thursday reported (https://www.nytimes.com/2023/03/16/business/fed-regulation-svb.html) about the joint statement but not the presidential statement.


A Federal Reserve spokesperson declined to comment.

Powell’s hesitancy suggests that he wanted to keep a lid on the central bank having to field questions about accountability. “It should have been the opposite,” said Sheila Bair, former FDIC chair, when informed of Powell’s reticence. “They should have been emphasizing that there were unusual gaps in oversight risk management.”

The Federal Reserve was the primary bank examiner for Silicon Valley Bank and Signature Bank, which also failed over the weekend. It did not raise flags regarding the shaky condition of either institution.

In addition, the Fed went above even the congressionally mandated deregulatory actions by establishing rules in 2019 that weakened oversight of large regional banks, like the two that failed. Former Fed attorney Jeremy Kress called the central bank’s actions “discretionary deregulation (https://twitter.com/Jeremy_Kress/status/1636085110591352832).” At the time, Fed governor Lael Brainard, now Biden’s National Economic Council director, warned (https://www.federalreserve.gov/newsevents/pressreleases/brainard-statement-20181031.htm) that the changes would “increase risk to financial stability and the taxpayer.”
https://prospect.org/economy/2023-03-17-powell-fed-supervisory-failures-banks/

[Winehole23]

Consequences

1636578779882749954

[Winehole23]

thats where you need regulators to step in tbh. i dont think putting consumers in the position of being regulators is really a solution. and the capped deposit insurance is in large part what led to the run in the first place. 90+% of SVB's deposits werent insured, so everybody freaked out for that reason realizing how vulnerable they were, and the run was a self fulfilling prophecy. much like the covid toilet paper shortagethe FDIC clearly thinks it's part of the solution; never mind that though, I'm sure you know better.

[Winehole23]

https://pbs.twimg.com/media/FrFcNNLX0AEkXDf?format=jpg&name=mediumhttps://www.fdic.gov/deposit/deposit...oralhazard.pdf (https://www.fdic.gov/deposit/deposits/international/guidance/moralhazard.pdf)

[Winehole23]

Pucker factor


https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iqCsjwMsd6Pk/v2/pidjEfPlU1QWZop3vfGKsrX.ke8XuWirGYh1PKgEw44kE/1003x-1.png

[Winehole23]

The SVB failure and the FDIC decision to make uninsured mega-depositors whole may have downsides for international cooperation between central banks. Tearing up rules we forced on others isn't a good look.


Before you say, “Well, even if there was time to figure out how to backstop payrolls, which there wasn’t, we had to go whole hag because contagion,” that is not a satisfactory answer. Because nearly all banks have sizable Treasury and/or agency holdings (First Republic was unusual), the new Fed interventions come very close to being a full backstop of uninsured deposits. That means vastly more subsidized gambling. There should be a great increase in supervision and regulation to try to prevent more sudden meltdowns, which one would expect to become more frequent otherwise due to even greater government backstopping:

As Georgetown law professor Adam Levitin put it (https://www.creditslips.org/creditslips/2023/03/whats-going-on-with-first-republic-bank.html):


….. the Bank Term Funding Program bears some consideration. No one in the private market would lend against securities at face, rather than at market. But that’s what the Fed’s doing in order to enable banks that have held-to-maturity securities avoid loss realization. The Bank Term Funding Program is a lifeline for banks that failed at banking 101—managing interest rate risk. The whole nature of banking is that it involves balancing long-term assets and short-term liabilities. Firms that can’t do that well probably shouldn’t be in the banking business.



Moreover, European banking regulators, regularly been criticized for last minute, kick-the-can interventions, are finding out how the US rules-based order of “we get to rewrite the rules when we feel like it” works in their arena. From the Financial Times (https://www.ft.com/content/5e4a8dde-c053-4510-8cd9-8aecb9082a6e):


Europe’s financial regulators are furious at the handling of the Silicon Valley Bank collapse, privately accusing US authorities of tearing up a rule book for failed banks that they had helped to write.

While the disapproval has yet to be conveyed in a formal setting, some of the region’s top policymakers are seething over the decision to cover all depositors at SVB, fearing it will undermine a globally agreed regime.

One senior eurozone official described their shock at the “total and utter incompetence” of US authorities, particularly after a decade and a half of “long and boring meetings” with Americans advocating an end to bailouts.

Europe’s supervisors are particularly irate at the US decision to break with its own standard of guaranteeing only the first $250,000 of deposits by invoking a “systemic risk exception” — despite claiming the California-based lender was too small to face rules aimed at preventing a rerun of the 2008 global financial crisis.



Mind you, the Europeans are not being hypocrites. They forced the unsecured depositors at Cyprus bank to take 47.5% haircuts in its banking crisis.

Admittedly those were banks in a country seen as a money laundering haven, but it had a lot of British retirees banking there too. The EU also tried to get banks to use bail-in structures like co/cos bonds. The US was skeptical of them and as we predicted, they had perverse effects. But the point is the EU has made a much more serious attempt at renouncing bailouts than we have, even if they have yet to find the secret sauce.

And they are not shy about calling out who bears the cost. Again from the Financial Times:


The US has claimed SVB’s failure will not hit taxpayers because other banks will cover the cost of bailing out uninsured depositors — over and above what can be recouped from the lender’s assets.

However, a European regulator said that claim was a “joke”, as US banks were likely to pass the cost on to their customers. “At the end of the day, this is a bailout paid for by the ordinary people and it’s a bailout of the rich venture capitalists which is really wrong,” he said.


https://www.nakedcapitalism.com/2023/03/were-the-bank-bailouts-the-result-of-rising-wealth-concentration.html

[Winehole23]

The VCs who started the bank run were made whole by the FDIC.

No moral hazard.




The biggest supposed geniuses of Silicon Valley could have chosen to remain calm and used their influence to work with the bank and help maintain stability in the market. When S.V.B. disclosed its losses last week, it was in the process of restructuring its portfolio to include treasuries with shorter-term maturities, which would have helped. It had a commitment from General Atlantic — a top tier firm itself — to help shore up its balance sheet. The bank was doing exactly what it should have done under the circumstances, and had the depositors kept their money there, it could have stabilized as the restructured portfolio became more profitable.

Instead, people panicked. The venture capitalists chose a path that would be disastrous for their industry, freezing up capital, spooking investors and reducing the favored financial institution to rubble.
https://www.nytimes.com/2023/03/16/opinion/silicon-valley-bank-venture-capital.html

[TSA]

https://twitter.com/SeidlerCorp/status/1636518949872451584

[Winehole23]

Events are overdetermined in many directions, but possible political motives deserve to be mentioned..

1636539483381194753

[Winehole23]

https://twitter.com/SeidlerCorp/status/1636518949872451584are you not familiar with our tiered banking system?

preferential treatment for SIBs is 15 years old; an exception was made in this case because some rich people wet their pants.

[Winehole23]

Janet Yellen asked First Republic's competitors to deposit $30B in First Republic and they obliged.

First Republic is a private bank catering to high net worth individuals.

https://media.tenor.com/tXatmEdL3JwAAAAC/kim-cella-bodyguards.gif

[spurraider21]

https://twitter.com/SeidlerCorp/status/1636518949872451584
dont care for the sinophobia at the end, but raises a good point that you could see an exodus of large account holders pulling the plug from smaller banks that they do not believe will receive special FDIC treatment

[spurraider21]

Events are overdetermined in many directions, but possible political motives deserve to be mentioned..

1636539483381194753
stimulus is when you put money in a bank and you are able to withdraw that money

[Winehole23]

stimulus is when you put money in a bank and you are able to withdraw that moneya weak gloss, I agree. terrible optics, though.

a lot of real and political capital flowing to unwary rich folks directly affected. InfraFi could have spared them the jitters, wonder why they didn't use it.

[spurraider21]

Janet Yellen asked First Republic's competitors to deposit $30B in First Republic and they obliged.

First Republic is a private bank catering to high net worth individuals.

https://media.tenor.com/tXatmEdL3JwAAAAC/kim-cella-bodyguards.gif
theyre placing deposits, not gifting them bailout money. no taxpayer expense. no government funds. really dont get the concern

[spurraider21]

im all for tax and redistribute, and have never indicated that the wealthy dont have it easy or pay enough taxes.

but im just getting a lot of "eat the rich" sentiment here, and im not about that

[Winehole23]

theyre placing deposits, not gifting them bailout money. no taxpayer expense. no government funds. really dont get the concernBecause you're more or less blind to the moral hazard of treating certain banks preferentially, no surprise there. I agree it's not a bank bailout.

[Winehole23]

im all for tax and redistribute, and have never indicated that the wealthy dont have it easy or pay enough taxes.

but im just getting a lot of "eat the rich" sentiment here, and im not about thatthe rich have been eating our lunch for the past 40-50 years, by political choice. that trend has accelerated during the last 15 years. the sentiment makes perfect sense to me.

[spurraider21]

the rich have been eating our lunch for the past 40-50 years, by political choice. that trend has accelerated during the last 15 years. the sentiment makes perfect sense to me.
yeah then thats probably where we're not seeing eye to eye. you just want to watch them burn even if it doesnt benefit others... as would be the case if deposits were just lost because there was a bank run. i have no interest in that. systemic change would involve taxation/legislation, thats what im after

[TDMVPDPOY]

if its nationalize by the govt, they need to split the banks operations into 2 seperate entities...1 for deposits, 1 for investments...now how they going to find money for investments is upto them, leave the deposits alone

[boutons_deux]

16 Dems who voted with Repugs to remove D-F from small/medium banks express no regret for the shitstorm their vote produced

[Winehole23]

yeah then thats probably where we're not seeing eye to eye. you just want to watch them burn even if it doesnt benefit others... as would be the case if deposits were just lost because there was a bank run. i have no interest in that. systemic change would involve taxation/legislation, thats what im afterno, I'd like them to play by the same rules everyone else plays by, instead of being supercitizens who buy the pols to write the rules and change them midstream when they shit the bed. that creates systemic problems that get socialized when financial institutions break down due to greed and mismanagement. just because there's no immediate cost to taxpayers doesn't mean there's no moral hazard and it certainly doesn't mean society doesn't eventually pay for the fraud, greed and incompetence.

it took the Great Depression for Glass-Stegall to happen the first time, it might take something similar for it to happen again, sadly.

[Winehole23]

Banks unable to manage their long term vs short term obligations probably shouldn't exist. Propping up insolvent banks like Wells Fargo and Citibank in 2008-9 normalized the financial chicanery that caused the bust and continues to deprive the economy of productive investment. huge lost opportunity costs borne collectively, as declining quality of life. what's happening now is more of the same.

[Winehole23]

To take one example, consider the cost of housing. It's now completely unaffordable for the most educated cohort in US history. In large part due to financial speculation incentivized by the gov't solutions of 2008-9. Propping up certain asset classes has real costs for people who can't afford them and hence, for society at large. US life expectancy started declining a few years before COVID.

[Winehole23]

To take another example, as recently as the year 2000, the system rewarded plain vanilla savers who put their money in a bank. Now they're pushed to take loans or make risky investments to create a nest egg. Financialization plus financial repression has put a hurting on people without dry powder.

[Winehole23]

By, of and for the 1%.

No moral hazard there.

[spurraider21]

Banks unable to manage their long term vs short term obligations probably shouldn't exist. Propping up insolvent banks like Wells Fargo and Citibank in 2008-9 normalized the financial chicanery that caused the bust and continues to deprive the economy of productive investment. huge lost opportunity costs borne collectively, as declining quality of life. what's happening now is more of the same.
08 was followed by dodd Frank. Wasn’t business as usual. Not to mention the government got repaid on the bank bailouts with interest. Iirc made more than 10 billion profit off the chase bailout alone

[Winehole23]

08 was followed by dodd Frank. Wasn’t business as usual. Not to mention the government got repaid on the bank bailouts with interest. Iirc made more than 10 billion profit off the chase bailout alonenot sure what your point is, are you suggesting preferential treatment of banks is a robust moneymaker, a net plus for society?

[Winehole23]

Germane to sr21's recent emphasis. I'm not a lawyer, so perhaps sr21 or vy65 can speak to Adam Levitin's gloss of bankruptcy law.

https://www.creditslips.org/creditslips/2023/03/oops-how-the-fdic-guaranteed-the-deposits-of-svb-financial-group.html

1637119665880145921

1637119667696283648

1637119669445312515

1637119671433326592

[Winehole23]

https://pbs.twimg.com/media/FreP9r-aYAE3vR2?format=jpg&name=medium

[Winehole23]

And just lol at the idea that Dodd Frank was a paradigm shift that dominated the banks (never mind newly dubbed nonbanks, i.e., the shadow banking system, hedge funds, erstwhile broker-dealers and so forth) and solved the problems exposed in 2008. Not only was it business as usual, it was business as usual on steroids, with the Fed shoving trillions at the banks and nonbanks through the various forms of QE and exotic bespoke lending facilities. And arbitrage opportunities presented by 15 years of zero bound interest rates.

And while it's true none of that money had to be appropriated by Congress and represents a nominal zero cost to taxpayers, the inflation of various asset classes and economic sectors was real, and imposed real costs, for example in housing. Not having to write down bad debt to market value in 2008 kept prices high, financial speculation subsequently put it out of reach for the middle class.

[Winehole23]

And just lol at the idea that Dodd Frank was a paradigm shift that dominated the banks (never mind newly dubbed nonbanks, i.e., the shadow banking system, hedge funds, esrwhile broker-dealers and so forth) and solved the problems exposed in 2008. Not only was it business as usual, it was business as usual on steroids, with the Fed shoving trillions at the banks and nonbanks through the various forms of QE and exotic bespoke lending facilities. And arbitrage opportunities presented by 15 years of zero bound interest rates.

And while it's true none of that money had to be appropriated by Congress and represents a nominal zero cost to taxpayers, the inflation of various asset classes and economic sectors was real, and imposed real costs, for example in housing. Not having to write down bad debt to market value in 2008 kept prices high, financial speculation subsequently put it out of reach for the middle class.

It happened twice within this generation: In 2008-9 and 2020-1, as the whole world recalls. Less mentioned is 2019.


https://www.spurstalk.com/forums/showthread.php?t=281206&p=10875226&viewfull=1#post10875226

[Winehole23]

Why?

To make insolvent banks whole in 2008-9 rather than saving millions of homeowners, to save business and the system of payment in the global COVID demand shock in 2020-1, and who knows why in 2019.

[Winehole23]

One way to read this is capitalism broke three times in 15 years. Once was due to epochal fraud and greed, twice was an epochal pandemic.

Who knows what the 2019- trend means.




https://wallstreetonparade.com/wp-content/uploads/2021/12/The-Feds-Repo-Loan-Operations-2005-through-2019.jpg

[Winehole23]

https://libertystreeteconomics.newyorkfed.org/wp-content/uploads/sites/2/2022/01/LSE_2022_series-mpi-2_overnight-reverse-repurchase_martin_ch2-1.jpg?w=460

[Winehole23]

https://pbs.twimg.com/media/Fq70DacaAAApuyC?format=jpg&name=medium

[daboom1]

https://twitter.com/gatewaypundit/status/1637477629539303424?t

yup

[ChumpDumper]

https://twitter.com/gatewaypundit/status/1637477629539303424?t

yup

:lmao

[Ef-man]

:lmao

Damn, qchrisy woke up extra thirsty and gullible today. :lol

[spurraider21]

And just lol at the idea that Dodd Frank was a paradigm shift that dominated the banks (never mind newly dubbed nonbanks, i.e., the shadow banking system, hedge funds, erstwhile broker-dealers and so forth) and solved the problems exposed in 2008. Not only was it business as usual, it was business as usual on steroids, with the Fed shoving trillions at the banks and nonbanks through the various forms of QE and exotic bespoke lending facilities. And arbitrage opportunities presented by 15 years of zero bound interest rates.

And while it's true none of that money had to be appropriated by Congress and represents a nominal zero cost to taxpayers, the inflation of various asset classes and economic sectors was real, and imposed real costs, for example in housing. Not having to write down bad debt to market value in 2008 kept prices high, financial speculation subsequently put it out of reach for the middle class.
Dodd frank didn’t solve everything but was a step in the right direction. And complaining about housing inflation post 2008 is odd considering what it looked like pre 2008

[ChumpDumper]

Another problem "solved":

1637536241406078976

[ChumpDumper]

Galaxy brain wants a safe space.

1637264560720691206

[Winehole23]

Dodd frank didn’t solve everything but was a step in the right direction. And complaining about housing inflation post 2008 is odd considering what it looked like pre 2008how so?

[spurraider21]

how so?
Oh. There was a big housing bubble before. It was all over the news

[Winehole23]

Oh. There was a big housing bubble before. It was all over the newsnot sure how that speaks to affordability now, still don't see your point.

[Winehole23]

"Standard procedure"

If we consider 2008 and 2020 standard.

1637565418465374212

[Winehole23]

Is it standard for the system of payment to get stressed like this now?

[Winehole23]

Or for the US to lean on foreign central banks to maintain USD deposits?

[boutons_deux]

Before Collapse of Silicon Valley Bank, the Fed Spotted Big Problems

https://www.nytimes.com/2023/03/19/business/economy/fed-silicon-valley-bank.html

[RandomGuy]

lol uninsured...thats fck up with someone with excess over 250k...shouldve spread ur risks into other banks, instead of having everything in 1 basket

pretty much. Fed may not have to tap the brakes much if this damps VC enough.

[RandomGuy]

https://twitter.com/gatewaypundit/status/1637477629539303424?t

yup

translation:
biden biden something something Hunter's cock, something China something

you really will believe anything.

[Winehole23]

Amused to see the "not a bailout" usage elsewhere

1637600098015412224

[Winehole23]

https://www.nakedcapitalism.com/wp-content/uploads/2023/03/Screen-Shot-2023-03-20-at-1.27.31-AM-893x1024.pnghttps://www.cnn.com/2023/03/15/business/bailout-silicon-valley-bank-signature/index.html

[Winehole23]

Fingers crossed, grandiose efforts to make people feel more secure can backfire. The bigger the effort, the bigger the implied problem is. If the market subsequently takes a shit on confidence building measures, insecurity and mistrust are amplified.


On the heels of Silicon Valley Bank’s collapse earlier this month, 186 more banks are at risk of failure even if only half of their depositors decide to withdraw their funds, a new study (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4387676) has found.

That is because the Federal Reserve’s aggressive interest rate hikes to tamp down inflation have eroded the value of bank assets such as government bonds and mortgage-backed securities.

“The recent declines in bank asset values very significantly increased the fragility of the U.S. banking system to uninsured depositor runs,” economists wrote in a recent paper published on the Social Science Research Network.
https://www.usatoday.com/story/money/personalfinance/real-estate/2023/03/19/svb-collapse-new-banks-could-fail/11504269002/

[Winehole23]

Shady accounting, exposure to derivatives


Keeping in mind that both of Switzerland’s behemoths, UBS and Credit Suisse, got in a heap of trouble in the crisis, with UBS being one of the most enthusiastically self-destructive users of CDOs. Not only did they eat a lot of their own bad cooking, but they were a leader in the so-called negative basis trade, which was a spectacular form of looting. The short version is traders bought other people’s CDOs, supposedly insured them with credit default swaps, and then got to book all the expected future profit in the current P&L and get paid bonuses on those fictive profits.https://www.nakedcapitalism.com/2023/03/fed-central-banks-created-the-current-crisis-and-are-on-course-to-making-matters-worse.html

[Winehole23]

Finally, back to a main point, that yet more subsidies of banks will simply enable more incompetence and looting absent getting bloody-minded regulators, a prospect that seems vanishingly unlikely.

Elizabeth Warren is again taking up her bully pulpit of calling for more bank reform, but technocratic fixes are inadequate with a culture of timid enforcement. The only remedy in all the years I have read about that might have a real impact quickly creates real skin in the game. It proposed by of all people former Goldmanite, later head of the New York Fed William Dudley.

Dudley recommended putting most of executive and board bonuses in a deferred account, IIRC on a rolling five-year basis. If a bank failed, was merged as part of a regulatory intervention, or wound up getting government support, the deferred bonus pool would be liquidated first, even before shareholder equity. Skin in the game would do a lot more to curb reckless behavior than complex new rules.

[Winehole23]

Adam Tooze hitting similar themes


"Standard procedure"

If we consider 2008 and 2020 standard.

1637565418465374212


Is it standard for the system of payment to get stressed like this now?


the rich have been eating our lunch for the past 40-50 years, by political choice. that trend has accelerated during the last 15 years. the sentiment makes perfect sense to me.


yeah then thats probably where we're not seeing eye to eye. you just want to watch them burn even if it doesnt benefit others... as would be the case if deposits were just lost because there was a bank run. i have no interest in that. systemic change would involve taxation/legislation, thats what im after


no, I'd like them to play by the same rules everyone else plays by, instead of being supercitizens who buy the pols to write the rules and change them midstream when they shit the bed. that creates systemic problems that get socialized when financial institutions break down due to greed and mismanagement. just because there's no immediate cost to taxpayers doesn't mean there's no moral hazard and it certainly doesn't mean society doesn't eventually pay for the fraud, greed and incompetence.

it took the Great Depression for Glass-Stegall to happen the first time, it might take something similar for it to happen again, sadly.


The deal-making over Credit Suisse is, in short, a classic case of sovereignty exercised through declaring an exception. This is the logic of Carl Schmitt that Cameron and I touch on in the podcast this week, which you can listen to here.



As I argued in Crashed, this can appear as a dramatic assertion of power, but it arises under conditions which, in fact, change its meaning. Who exercises sovereignty at the moment of a bank bailout like this? Is it the authorities who choose to suspend the rules, or some other force, “the markets”, that force the hands of regulators? Who is “the markets”? And can that force of market pressure really be described as sovereign? Is that not to impute too much subjectivity to it, too much by way of “decision-making”? The harassed bond traders who are canceling their tennis games this weekend, no doubt feel that they are the hunted rather than the hunters. That too may be a matter of journalistic emplotment. Apparently some banks, including Deutsche Bank, are hoping to act the role of the sharks, snapping up attractive portions of the Credit Suisse carcass. And, gruesome and suspenseful as it is, can one really say that this scene is exceptional? Is it not an (irregularly) recurring feature of financial capitalism - SNAFU?
https://adamtooze.substack.com/p/chartbook-203-banking-crises-states

[Winehole23]

As Katie Martin reports in the FT (https://www.ft.com/content/fa7055ed-c325-481a-ac0b-470d40539396) what dominated the scene was the sheer violence of the market reaction:


On Monday this week (March 13), the most important market in the world went, to use the technical term, completely bananas. Government bonds have a habit of rallying when the going gets tough, which it indisputably did when Silicon Valley Bank imploded. So a jump in US Treasury debt prices off the back of this makes sense. The turmoil prompted nervous investors to look for a safer hidey hole. … But there are bond rallies and there are bond rallies. This time, the market reaction in Treasuries was nothing short of apocalyptic. Two-year Treasury notes, the most sensitive instrument in the debt market to the outlook for interest rates, rocketed higher in price. Yields dropped by an eye-popping 0.56 percentage points, having already dropped by 0.31 percentage points the previous Friday. To put Monday’s move in context, it represents a bigger shock than in March 2020 — not a vintage period for global markets. It was bigger than on any day in the financial crisis in 2008 (ditto). You have to go back to Black Monday of 1987 to find anything more severe.



This points both to the scale of the shock and to the uncertainty that rules in the US Treasury markets. Price movements were as extreme as they were in part because the market was thin, with big gaps between bid and ask prices.



https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:s teep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F1be37f7 a-a00a-4c6e-95c6-4c4ba9ebd47e_1606x1018.png
(https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F1be37f7 a-a00a-4c6e-95c6-4c4ba9ebd47e_1606x1018.png)




(https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F1be37f7 a-a00a-4c6e-95c6-4c4ba9ebd47e_1606x1018.png)
As JP Morgan remarks in a research note (https://markets.jpmorgan.com/research/email/-tbqfr96/VB0oV4nBiRCw6FWL4ecVGA/GPS-4363927-0):


… liquidity conditions (in the Treasury market) remain relatively impaired, indicating that any fundamental or technically-driven flow is likely to exaggerate moves in yields. Indeed, Treasury market depth remains depressed, at levels last seen in the middle of March 2020, during the worst of the COVID-19 crisis (Exhibit 6). Importantly, this decline in liquidity is broad-based in nature, though it is notable that front-end depth has fallen to new lows (Exhibit 7). While this indicates liquidity is impaired, we do not see Treasury market functioning as being compromised to the extent we observed this time three years ago. Indeed, as we’ve highlighted multiple times in recent months, this illiquidity has been rooted in uncertainty over the path for monetary policy.

[Winehole23]

It would be worth exploring how and why this radicalism on law, money and finance flourishes in the US, alongside the brutal resilience of bailout capitalism. It is tempting to suggest that the spectacular Minskyian-logic of America’s boom-bust-bailout political economy, which Yakov Feygin (https://building-a-ruin.ghost.io/svb-regulation-bailouts-capitalism/) identified so precisely, incites against itself a radical imagination. Given the emergency steps being taken, it can hardly be denied that things could obviously be fundamentally different. The “system” such as it is, clearly relies for its continuation on ad hoc interventions. And yet, the moment of radical sovereignty proves disappointing. The incumbent power and wealth exhibit not just resilience, but extremely powerful dynamism, far more than the lame duck contenders in Europe. The Schmittian moment of sovereignty is false. It never arrives for the radical reformists either. So the dialectic continues, without resolution.

[boutons_deux]

150+ banks Carriy same risk as SVB, meaning if only half of their depositors withdrew their funds, the banks would fold

Don't we all just love deregulation of BigFinance?

The financial deregulation was of course bribed, including a bunch of Dems

There is no power stronger than the power of the dollar

[Winehole23]

Preferential treatment of SIBs hitting regional banks already?

The moral hazard free "not a bailout" continues apace.


“Federal Home Loan Bank System issued $304 billion in debt last week, according to a person familiar with the matter, who asked not to be identified discussing non-public data. That’s almost double the $165 billion that liquidity-hungry lenders tapped from the Federal Reserve.

The FHLBs are a Depression-era backstop originally created to boost mortgage lending. The system, now a key source of cash for regional banks, is known as the “lender of next-to-last resort” — a play on the nickname for the Federal Reserve’s discount window.”https://www.bloomberg.com/news/articles/2023-03-20/fhlb-issues-304-billion-in-one-week-as-banks-bolster-liquidity

[Winehole23]

The “system” such as it is, clearly relies for its continuation on ad hoc interventions.

[Winehole23]

Then starting the bank run. Then expecting the government to bail out them out after screwing their clients twice.

1634401915139424257

[Winehole23]

Sunk the bank by withdrawing deposits, but not before shorting it.

[Winehole23]

(It'd be a weird option to rule out, considering the edgy libertarian players.)

[Winehole23]

https://cepr.org/sites/default/files/styles/flexible_wysiwyg/public/2023-03/bofinger20marchtable1.png?itok=OdLTXvF4


A recent study by Grimm et al. (2023: 34) “provides the first evidence that the stance of monetary policy has implications for the stability of the financial system. A loose stance over an extended period of time leads to increased financial fragility several years down the line“. However, the paper says relatively little about the theoretical transmission mechanisms from low policy rates to financial instability: “Why, though, do money and credit expand in the first place? By analyzing this question, we contribute to the strand of the literature that focuses on potential causes of credit booms. To the best of our knowledge, this strand is relatively thin.”

An interesting new explanation of the link between the central bank’s policy and credit growth is provided in recent paper by Kashyap and Stein (2023). The authors argue: “(…) it now appears clear that both conventional and unconventional monetary policy actions gain much of their traction over the real economy by influencing a range of risk premiums in financial markets, where the risk premium on an asset is the expected return that an investor can expect to earn above and beyond the safe rate on a government bond of comparable maturity” (p.55). However, this transmission channel focuses mainly on non-banks and on money market funds. As far as banks are concerned, it neglects the effects of the central bank policy rate on the liability side of bank balance sheets which can compensate the negative effects of lower interest rates on the accounting income of banks.

In a recent paper (Bofinger et al. 2023), we provide an alternative and more direct theoretical explanation for the effect of central bank policy rates on credit growth. Our model differs from standard models in that it is not based on the ‘financial intermediation theory of banking’, but on the ‘credit creation theory of banking’ (Werner 2014). 1 (https://cepr.org/voxeu/columns/how-monetary-policy-affects-bank-lending-and-financial-stability-credit-creation#footnote1_ltn2et2) The main differences between the two approaches can be illustrated by comparing the standard loanable funds model with a model of the market for bank loans.

In the loanable funds model, ‘funds’ are an all-purpose commodity that can be used interchangeably as a consumption good, as an investment good, and as ‘capital’ or ‘saving(s)’ that banks intermediate from savers to investors. 2 (https://cepr.org/voxeu/columns/how-monetary-policy-affects-bank-lending-and-financial-stability-credit-creation#footnote2_5eqge8b) Households supply the good on the ‘capital market’, where there is demand from investors who use it to increase the capital stock. Thus, deposits drive loans. In this setup, the role of banks is limited to the intermediation funds, as they cannot produce or consume the all-purpose commodity. The same applies to the central bank, which therefore has no role to play in this model.

With the loanable funds model still the dominant paradigm in monetary macroeconomics, it is not surprising that Mian and Sufi (2018: 50), for example, are puzzled by the dynamics of private credit growth:

“Much of the work on the credit-driven household demand channel takes the expansion of credit supply as a given. But what kind of shock leads to credit supply expansion? We should admit that we have now entered a more speculative part of this essay”.

Indeed, with household saving as the sole source of funds, the strong credit growth preceding financial crises is difficult to explain. This reflects the fundamental flaw in the model, namely that the monetary sphere is identical to the real sphere. In fact, only two decisions can be made: (1) the saving decision, which is identical with the consumption decision; and (2) the investment decision. How can one expect to explain the mechanics of the financial system with consumption and investment?

This is different in our model of bank lending: the monetary sphere is not constrained by the real sphere, since ‘funds’ are liquid bank deposits. They are created by the banking system ex nihilo, i.e. completely independently of private saving(s). The mechanics of this approach have been explained in detail by the Bank of England (McLeay et al. 2014) and the Deutsche Bundesbank (2017). The logic is quite simple: by lending to a customer, the bank credits his/her deposit account. Thus, the very act of lending creates deposits (i.e. money).

In this model, the central bank can directly influence the supply of credit by banks. This is because of the secondary effects of bank credit creation. In most cases, borrowers use their new deposits to make payments to another bank. For the bank that made the loan, this means a reduction in its reserves at the central bank. Assuming that it had an optimal level of reserves before the loan, the bank needs to replenish its deposits with the central bank. This can be done by borrowing from other banks on the money market or directly from the central bank. In the case of an interbank loan the interest rate on this borrowing is close to the central bank’s policy rate. In the case of central bank refinancing it is equal to the policy rate.
https://cepr.org/voxeu/columns/how-monetary-policy-affects-bank-lending-and-financial-stability-credit-creation

[Winehole23]

DP17896 Loose monetary policy and financial instability



Maximilian Grimm (https://cepr.org/about/people/maximilian-grimm) Òscar Jordà (https://cepr.org/about/people/oscar-jorda) Moritz Schularick (https://cepr.org/about/people/moritz-schularick) Alan M. Taylor (https://cepr.org/about/people/alan-m-taylor) 9 Feb 2023


Do periods of persistently loose monetary policy increase financial fragility and the likelihood of a financial crisis? This is a central question for policymakers, yet the literature does not provide systematic empirical evidence about this link at the aggregate level. In this paper we fill this gap by analyzing long-run historical data. We find that when the stance of monetary policy is accommodative over an extended period, the likelihood of financial turmoil down the road increases considerably. We investigate the causal pathways that lead to this result and argue that credit creation and asset price overheating are important intermediating channels.https://cepr.org/publications/dp17896

[Winehole23]

08 was followed by dodd Frank. Wasn’t business as usual. Not to mention the government got repaid on the bank bailouts with interest. Iirc made more than 10 billion profit off the chase bailout aloneObama's spinning bailouts as profitable to the government was misleading, tbh.


The direct cost of bailouts arising from the 2008 U.S. financial crisis wasaround $500 billionhttps://gcfp.mit.edu/wp-content/uploads/2019/02/BailoutsARFEConferencePresentation.pdf

[Winehole23]

Official efforts to dispel concern provide an anchor for it. Deutsche Bank credit default swaps are spiking.

https://pbs.twimg.com/media/Fr7SFKBagAAvD5_?format=jpg&name=medium

1639253999487533056

[Winehole23]

Moral risk-free "not bailouts" seem to have amplified fragility.


The global economy may now be trapped in an easy money-forever cycle. A weak economy or financial crisis forces policymakers to implement fiscal measures and more monetary expansion. If the economy responds and the financial sector stabilises, then there are attempts to withdrawal the stimulus. Higher interest rates slow the economy and trigger financial crises, setting off a new round of the cycle.

If the economy does not respond or external shocks occur, then there is pressure for additional stimuli, as policymakers seek to maintain control. All the while, debt levels continue to increase, making the position ever more intractable.
https://www.nakedcapitalism.com/2023/03/crash-landing-part-2-the-usual-suspects.html

[Winehole23]

"TINA"


Faced with the stark choice between curbing inflation and saving the banks, venerable commentators appeal to central banks to do both (https://www.project-syndicate.org/commentary/can-central-banks-fight-inflation-without-crushing-banks-by-willem-h-buiter-2023-03): to continue hiking interest rates while continuing with the post-2008 socialism-for-bankers policy, which, other things being equal, is the only way to stop the banks from falling like dominoes. Only this strategy – tightening the monetary noose around society’s neck while lavishing bailouts on the banking system – can simultaneously serve the interests of creditors and banks. It is also a surefire way to condemn most people to unnecessary suffering (from avoidably high prices and preventable unemployment) while sowing the seeds of the next banking conflagration.


https://www.spurstalk.com/forums/image/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAE AAAICTAEAOw==
Lest we forget, we have always known that banks were designed not to be safe (https://www.ft.com/content/09bfbb8d-22f5-4c70-9d85-2df7ed5c516e), and that, together, they comprise a system constitutionally incapable of abiding by the rules of a well-functioning market. The problem is that, so far, we had no alternative: Banks were the only means of channeling money to the people (through tellers, branches, ATMs, and so forth). This turned society into a hostage of a network of private banks that monopolized payments, savings, and credit. Today, however, technology has furnished us with a splendid alternative.

Imagine that the central bank provided everyone with a free digital wallet – effectively a free bank account bearing interest equivalent to the central bank’s overnight rate. Given that the current banking system functions like an antisocial cartel, the central bank might as well use cloud-based technology to provide free digital transactions and savings storage to all, with its net revenues paying for essential public goods. Freed from the compulsion to keep their money in a private bank, and to pay through the nose in order to transact using its system, people will be free to choose if and when to use private financial institutions offering risk intermediation between savers and borrowers. Even in such cases, their money will continue to reside in perfect safety on the central bank’s ledger.

The crypto brotherhood will accuse me of pushing for a Big Brother central bank that sees and controls every transaction we make. Setting aside their hypocrisy – this is the same crew that demanded an immediate central-bank bailout of their Silicon Valley bankers – it bears mentioning that the Treasury and other state authorities already have access to each transaction of ours. Privacy could be better safeguarded if transactions were to be concentrated on the central bank ledger under the supervision of something like a “Monetary Supervision Jury” comprising randomly selected citizens and experts drawn from a wide range of professions.

The banking system we take for granted is unfixable. That’s the bad news. But we no longer need to rely on any private, rent-seeking, socially destabilizing network of banks, at least not the way we have so far. The time has come to blow up an irredeemable banking system which delivers for property owners and shareholders at the expense of the majority.
Coal miners have found out the hard way that society does not owe them a permanent subsidy to damage the planet. It is time for bankers to learn a similar lesson.https://www.project-syndicate.org/commentary/dysfunctional-private-banking-system-can-be-replaced-by-yanis-varoufakis-2023-03

[Winehole23]

Walker Todd was assistant counsel of the New York Federal Reserve, assistant general counsel, and research officer at the Cleveland Fed, and has been actively involved in financial regulation for decades. When he looks at the U.S. banking sector, he sees several problems driving these recurrent crises, chief among them a profound transformation in capitalism known as the “financialization of everything” in which corporate executives chase short-term profits through risky activities. Businesses and their bankers securitize accounts receivable, thus separating ordinary consumer transactions from their primary funding sources. Then the bankers end up demanding bailouts when things go wrong and the consumers stop paying, all the while lobbying against regulation and oversight.


Ronnie Phillips’ “100% Reserve Plan,” also known as the “Chicago Plan,” persuaded me that it’s the next best thing to the gold standard because it requires the parts of banks linked to the payment system to maintain, at all times, assets at market value equal to the amount on deposit. The investments would be Treasury bills, Treasury notes, and Treasury bonds. They could hold those things and you could do away with deposit insurance because if the only assets are Full Faith and Credit government paper, then there’s no point in having it.

And what about the lending side of banking? Like investment banks before the ‘90s, they would have to raise their own funds in the wholesale funding market, knowing that their own notes, bonds, and stock issues raise operating funds. They would use the funds to make loans or they could buy investments or even government securities. The point is to take away the Fed’s argument that we have to rescue these poor babies because otherwise, they will crash the payment system. If they’re cut off from the payment system, what is the risk if they go down?

Drexel Burnham Lambert, a fairly large investment bank, was allowed to fail in 1990 with no consequences for the payment system. We know that some senior Fed officials wanted to make bailout loans to Drexel to save the world, to save the payment system. But senior staff worked hard to persuade the higher-ups that there was no risk to the payment system then, before the repeal of Glass-Steagall. Drexel could not have access to the payment system so there was no reason to intervene. When Drexel failed, it turned out that the accounts had been properly maintained and most people came out okay. The only people really hurt were the shareholders.

That’s the way things are supposed to work out. It’s a political matter that we refuse to go back to this model of handling failures of large banks that look like investment banks or mutual funds.
https://www.ineteconomics.org/perspectives/blog/whats-actually-behind-the-banking-crisis-why-you-pay-when-they-play

[Winehole23]

Costs of doing business are passed on to customers


LP: What is the cost of banking crises to the ordinary person?

WT: The federal rescue costs are spread around so thinly that you don’t notice that $200 of your annual income is going, for example, to a $30 billion rescue package. And even if you didn’t, the government does not fund the rescue through tax but rather a special assessment on the banks. The banking system has to figure out how to swallow the $30 billion and spread it around among depositors and shareholders through fees and the like.

[Winehole23]

LP: What current assumptions about banking need to be rethought?


WT: I think the 1999 repeal of Glass Steagall (the Gramm-Leach-Bliley Act) was the major mistake for the long haul. It set in motion trends that culminate, ultimately, in each successive crisis being more difficult to resolve than the one that preceded it. That’s where we are today. It’s not on the scale of 2008, but if we keep mishandling the problem, we can get there.

[Winehole23]

Preferential, "not a bailout" loan terms to protect banks and banks only from rising interest rates is moral hazard free, because no money was appropriated in Congress, and the Federal Reserve takes (below market rate) interest.

Money will be made and any profits will presumably be deposited to the US Treasury, in all likelihood it will be a net plus to taxpayers!


The central bank’s aggressive rate hikes are a key factor (https://bettermarkets.org/newsroom/growing-banking-crisis-caused-by-contagion-from-silicon-valley-bank-failure-going-to-get-worse-inevitable-due-to-federal-reserve-policies/) behind the latest round of shocks to banks, whose investment securities collectively lost $600 billion worth of market value (https://www.fdic.gov/news/speeches/2023/spfeb2823.html) due to rising rates. Yet the assembled bankers and economists appeared unbothered about whether the Fed’s actions might make the crisis worse, and focused instead on the imperative of suppressing wages and worker bargaining power.


There's a good reason for that. After Fed Chairman Jerome Powell, a former private equity executive, declared war on workers (https://www.levernews.com/the-fed-declares-war-on-workers/) in order to drive down wages and fight inflation last year, it looked briefly like the banks might become collateral damage. But the Fed moved quickly to shield the banks (https://www.reuters.com/markets/us/us-bank-loan-plan-provides-fed-rate-hike-path-amid-svb-fallout-2023-03-14/) — and only the banks — from the impact of its actions before announcing (https://www.theguardian.com/business/2023/mar/22/interest-rate-rise-us-federal-reserve-banking-turmoil#:~:text=The%20US%20central%20bank%20announ ced,rates%20were%20close%20to%20zero.)Wednesday that it would raise rates by another quarter-point.


That means that while ordinary consumer borrowers (https://www.cnbc.com/2022/10/27/how-federal-reserve-interest-rate-hikes-impact-your-borrowing-costs.html) struggle, banks will have access to what one financial analyst recently called (https://www.marketplace.org/2023/03/16/could-the-feds-new-emergency-bank-lending-program-encourage-risky-behavior/) “the biggest bailout to the banking sector since the great financial crises.” A new Fed lending facility, launched the same day (https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm) the central bank voted to bail out Silicon Valley Bank, has already injected more than $53 billion (https://www.cnbc.com/2023/03/23/banks-ramp-up-use-of-new-fed-facility-created-in-crisis.html) into financial institutions at highly favorable terms.


The double-standard was on full display at the ABA summit, where former Fed Vice Chair and Brookings Institution senior fellow Donald Kohn bemoaned that wages are “still too high” and predicted that rate hikes will continue — while telling the bankers in the audience that the Fed’s latest actions should provide “foam on the runway” to banks, in order to “make the landing as safe as possible.”


The Fed will even avoid releasing (https://www.reuters.com/world/us/fed-details-which-banks-use-new-facility-released-year-after-it-ends-2023-03-13/)the names of banks that use the facility until a year after its end, to protect their reputations and avoid tipping off the public to any signs of trouble with their balance sheets.


That means banks shouldn’t be too proud to ask the government for help, Peter Cook, the ABA’s chief communications officer, told the audience. “There’s still the stigma concern — that if you do this, it’s a sign of weakness,” he said of using the Fed’s emergency lending facility. “That’s not how folks should look at this.”
https://www.levernews.com/lever-weekly-banks-say-let-them-eat-interest-rate-hikes/

[Winehole23]

"The system, such as it is, depends for its continuation on ad hoc interventions"

Odd those sophisticated whales didn't diversify their deposits, but in the end, there was no need to.

1640426072578859008

[Winehole23]

On the day Silicon Valley Bank collapsed, there were still $119 billion in total deposits at the bank, according to the FDIC. The total shortage to cover all deposits would have been $20 billion, and if the FDIC had stuck to its insurance limits, that loss would have represented the maximum haircut for all uninsured depositors. It wouldn’t have been the end of the world.https://wolfstreet.com/2023/03/27/fdic-sells-much-of-silicon-valley-bank-to-first-citizens-bank-cost-to-deposit-insurance-fund-20-billion/

[Winehole23]

More "not a bailout" FDIC deal terms


First Citizens got a hell of a bargain: it paid zero dollars for SVB's assets, its deposits and its loans. Any losses it incurs from its commercial loans over the next five years will be paid by the FDIC, no questions asked.https://pluralistic.net/2023/04/15/socialism-for-the-rich/#rugged-individualism-for-the-poor

[Winehole23]

the Cramer curse

1650916529935097856

[CosmicCowboy]

Looks like First Republic is the next bank to fail. Dropped 50% yesterday and another 14% overnight.

[pgardn]

Looks like First Republic is the next bank to fail. Dropped 50% yesterday and another 14% overnight.

Bad investment company...
Individualized Private Wealth Management... not good.

Maybe People just need to keep the fluid $ in local credit unions?