(03-29-2023 04:48 PM)RiceLad15 Wrote: I would be shocked if there were no depositors above the FDIC limit at any of the 73 banks in the past decade. Seriously, it seems very unlikely that there were no uninsured depositors in 10 years, especially since the threshold increased rather recently.
2008 is not rather recently IMO... especially when speaking of a 10 year record.
I think you are WAY over-estimating the number of people who don't know that keeping more than 250k per individual in a bank is a risk, and that such a risk doesn't exist (generally anyway) in a brokerage account. It is unbelieveble that an individual would have 250k in a bank account... and not have been warned of this risk by a broker or another banker.
Again, it seems obvious that armed with this knowledge, someone with $1mm to put in a bank would be less likely to keep it in a smaller or 'less unique' bank... Regardless of what they've done before, EVERY investor would tell you that 'past experience is not a guarantee of future results'. If you're suggesting that such experience should be relied upon by depositors, that's fine. I'm suggesting that in order to do that, the FDIC should eliminate the threshold.... Otherwise, it discourages large depositors from diversifying (collectively) their deposits and encourages them to concentrate them either in even LARGER 'too big to fail' banks (which creates a MAJOR risk in the event of a significant collapse) and risks putting all sorts of smaller banks at risk even WITHOUT a 'major' event.
Quote:Your comment about the methods is for more important, and something I too brought up - I figured that would make it obvious I was not trying to argue that these 73 examples were exact replicas of SVB. I made the comment to add context to the discussion - there have been 73 bank failures in the past decade where depositors have been covered. It seems like a relevant bit of information when discussing :checks notes: whether depositors at a failed bank should be covered.
Except (checks notes) nobody has questioned the coverage of INSURED depositors at a failed bank. The question is (checks notes) UN-INSURED (under-insured) depositors... and your comments (checks comments) doesn't make any such distinction, but is specifically the question (checks comments) I asked. How many of them were under/un insured?
Quote:From what I can glean from a cursory search, the 73 banks were eventually "bought" by other banks. In similar, or the exact same, way that SVB is being "purchased." There may be some technical details that are different, but from what I can tell, they're effectively being managed the same way.
From what I can tell in reading about this, the FDIC insurance would play a more significant role if the FDIC could not find a bank to take over all of the deposits.
Sure... but taking over deposits is the EASY part. Those are very easily valued... as are most all investments.... and everyone would want those. It is the loans that might take time to evaluate.
Note that you say 'eventually'. Not within days or even hours... Which could easily be ANOTHER reason for even INSURED depositors to move their money. Why would you keep money in a bank that might tie you up for even a few days if other banks wouldn't have that risk? I'm not saying that happened. I'm convinced that those banks mostly operated as normal while a purchaser was found... which demonstrates my point that this was/is an option. That's what I said, and it seems others disagreed that any delay in the sale would have put the system at risk.
I'm not arguing with you... I'm pointing out that what you're saying fits directly with what I've said... despite the fact that you may not (at that time) see it that way.
(03-29-2023 05:28 PM)tanqtonic Wrote: Quote:so I'm just going to once again make my position as clear as I can. I would encourage you to disregard what you THINK I've said previous to this... because I won't agree that I've remotely said what you seem to believe that I have.... and there is no benefit to rehashing it
The only item above that I have ascribed to you without a direct quote in the most recent post of mine is the one that tells you *why* *I* view your position as not even addressing the secondary outcome of job loss. Even now you dont address that as a concern worth mentioning.
Well, since you seem to want to rehash it anyway...
I have not addressed it because it is not accurate. The only way your event happens is if the bank cannot operate under FDIC receivership and people lose access to their money. That is demonmstrably untrue. Why do I need to address something that doesn't have to happen? As I've repeatedly said, PLENTY of business has been conducted 'as usual' under these circumstances.
If your position is that they needed MONEY to do it, that TOO has not been questioned. I have not once suggested, despite you CONTINUING to suggest that I have... that such a situation shouldn't have been addressed. I have merely suggested that a more clear and targeted means of doing so would have been better for the system.
As I said above, if ALL depositors are covered as they were here... that's fine... but let's CODIFY that so that all banks are equal. This isn't an egalitarian stance,... it is one that spreads the risk to the FDIC and the system rather than concentrates it.
Quote:Quote:I don't think banks like Frost and WoodForest and thousands of others who do not engage in the high risk, high reward business that SVB did should bear ANY cost for the failure of SVB.
They get no benefit from them winning, so they should bear no cost if they lose.
And you should be similarly against *any* form of insurance or supplemental insurance on anything for the same rationale. Are you?
Another example of you questioning something I've answered.
Only when that insurance can cover things for 'them' that they wouldn't cover for 'me'. I'm paying for insurance that I might not receive.... and they're receiving insurance that I paid for. We are paying the same rates, but he is getting more coverage.
Yes, I'm against that. I can't believe you aren't.
Quote:Your opposition quoted above is noted. But then, what is the concept of 'insurance' of any sort like is available under the standard FDIC program? Or the idea that supplemental coverage up to and including those accounts over the standard limit is available?
The concept of insurance is that we all share the risks and the benefits equally... and that the terms of the contract are honered. I don't mean under some nebulous 'unless we decide otherwise' clause, but under the idea that if EITHER of us fail, our depositors are treated equally. You've noted numerous times that this bank was 'unique'... so you obviously understand or at least can imagine that a less unique bank would not necessarily be covered in the same manner.
Is that how you see insurance working? We both have the same 80/20 health policies but you don't have to pay your 20 because you're 'unique'?? That would be supplemental insurance which you alone would pay for... If I also paid for it, I'd get it too.
Quote:Let me use *your* phrase above and retranslate with a simple substitution:
"I don't think banks like Frost and WoodForest careful drivers like me or you and thousands of others who do not engage in the high risk, high reward business that SVB did speeding that most drivers do should bear ANY cost for the failure of SVB. any wreck when a driver is speeding"
That is, at the root, the concept of "insurance". The style of insurance offered and used here.
ONLY true as far as you take it.... and we've already discussed this so I don't understand why you ignore it.
That's true
up to the limits of the policy. In THIS situation, the limits were exceeded. They weren't exceeded under the insurance policy, but under a claim of 'risk to the system'.
Using your example... this would be like an insurance company selling someone a 'liability only' policy and then paying to repair their car. No, that's NOT how insurance works. FDIC insurance has clearly stated limits. There is a difference between FDIC insurance funds and the FDIC. YES as a 'charter' they have a broader responsibility, but the INSURANCE fund (your insurance policy) specifically EXCLUDES paying for the other guys car repairs.
Quote:Turning to the bolded, SVB got caught in a standard 'owning low T-Bills during rates going up' trap. Like any of the other banks folding in the last short while. And, they got caught in a plain jane 'run on the bank' where deposits flowed out the door on that news/rumor.
How is that 'high/risk, high/reward'. At its base, its commercial operations were fairly vanilla -- no junk offerings, no exposure to Nigerian power barges -- and their loan customers seemed solid. The one thing that set it apart was an comically high ratio of uninsured deposits and a massively high 'average deposit size.'
Please explain how SVB was the poster child for the 'high risk/ high reward' activity that you toss out there?
You previosuly spoke about their customers being start-ups.... Now they're apparently Walmart and GE. Start-ups generally have higher risk profiles than companies that have been around for a while. I suspect they charged higher rates as a result.... or made loans/took deposits that other banks would not... BECAUSE of the risks. Also, 'comically high ratios of uninsured deposits and a massively high 'average deposit size' puts them (obviously) at higher risk.
You ask a question and then answer it yourself.
I suppose you can debate with me what 'high' means in terms of risks and rewards... but 'comically and massively high' to a banker is 'risky', as are start-ups. Many start-ups fail... and while yes they might get 40mm day one, you can't really do much with it because it can all be gone tomorrow. That is a risk.
Quote:Doing this in the way it has been done.... [lot edited]
Please expand on 'this' and 'the way it has been done'. Considering your chastisement and ire directed at me, then please tell me what you are referring to above. That is so I dont receive your directed ire for my apparent rampant and ignorant mischaracterization.
[/quote]
Again??
'this' as I have said repeatedly.... to the point where I can't help but think that you're waiting for me to be careless in my next description so as to attack that..... is providing 'discretionary' insurance to one bank that might or might not be provided to another... likely resulting in an INCREASE in concentration of risks....
WHICH IS PRECISELY WHAT TOOK THIS BANK DOWN.....
And then funding it through a blanket assessment as opposed to one that targets (at least on the surface) those risks
Quote:Quote:I believe and have stated that banks pass their fees on to their customers... and I simply don't buy the idea that companies don't pass on their costs. I am especially concious of this when it comes to banks and this specific situation, as it takes far less manpower and expense to manage $1mm in a wealthy persons or a companies account than it does to manage 100,000 'free checking accounts' totaling that same $1mm in average deposits... yet the opportunity for revenue to the bank is the same. I am convinced that small depositors would bear an undue percentage of the RESULT of this assessment.
Everyone of course passes stuff onto the their consumers as much as possible. And, some comes of the bank top line, of course. I dont think your comments that are directed solely at (paraphrase) 'squashing the little guy' are absolutely 100% on point as they are written by you given the above.
I never said anything like 'squash the little guy'.... and I certainly never said SOLELY.
I don't know what you expect me to do when the biggest issues you seem to have with my comments are not comments that I made.
I've already said that I don't think small banks and depositors should pay ANYTHING for this situation, but I certainly have also made mention that this decision was made in consultation with Democrats, who scoff at the idea of 'vat' or other similar flat taxes as being hand-outs to the rich funded by the poor. I'm sorry you don't like the irony I see there.
Quote:Please do tell how much of the assessment is 'paid for' by the depositors through deltas in fees, and how that is split amongst sizes of deposits.
It's actually a relatively complex, but highly calculable percentage based on the risk profile of the bank and their deposits. Like many government means tests, 'risk profile' is not exactly what you and I might think... but they try. The variance isn't that large though... between the best and worst, as measured by the formula.
Quote:Let me rephrase -- I have malpractice insurance. My delta between my practice and and expenses is some number X. My insurance rate is actually based on the size of my practice. Are you trying to tell me that my 'smaller client' (a quick edit of a simple house lease) is unfairly paying a portion of my malpractice premium versus the 'big client' (who I have spent literally about 200x more time in their dealings)?
Note the subject is apportionment of insurance cost based on a size of practice. Compare directly to apportionment of deposit insurance based on size of deposits in bank.
So once again you have me addressing your hypothetical... I hope you won't accuse me again of engaging in speculation as a result.
A) If the terms of your malpractice insurance had no limits, this would be fine. That isn't the case we're discussing,
B) Part 1 - If they pay essentially the same ratio of your insurance fee, but the larger client's claim would be insured to an unlimited amount while the smaller account would be limited to say 100,000... that doesn't make sense, does it??
Part 2 - now consider the reality of this situation... The larger client sues and 'somehow' gets MORE than the limits on your policy... and then the reaction to that is to increase the charge on your FUTURE clients (which WOULD include your smaller guy as his case isn't settled, and may or may NOT include the bigger client, who isn't your customer anymore... who may now be part of a LARGER firm who has MANY such clients or he may move his business to a lawyer that uses a different insurer, who didn't increase their fees.
The guy who gets his social security check to live off of can't open an SIPC insured account and 'be his own bank' by investing in repo or rolling t-bills etc etc, so he's stuck at the bank.
I never said only... I never said the big guys don't pay. I DID specifically prefer a funding mechanism by which little guys were almost assuredly exempt.... That's not the same thing.
Quote:Quote:Of course you'd like to sell these as quickly as possible, but the clear point I was trying to make is that by deciding that the bank had to be SOLD in very short order, there would not be sufficient time to actually value the assets... as a result, this was (no doubt and supported by previous experience) a 'bargain' purchase... and didn't need to be. This is mentioned NOT as a 'they shouldn't have done that', but as a counter to the idea that they had no other options. They DID have options.
The issue was a run -- a raw cash crunch. Occurred literally out of the blue and metastasized almost overnight. No doubt the bond portfolio issue was terrible -- but name me one single bank that doesnt have that at the present?
But the only weakness that SVB had that was not shared systemically was deposits held by startups -- when the current Fed rates started ratcheting, equity funding has fallen off a cliff. This forces drawdowns to fund operations.
This exacerbated the unrealized losses in bonds that are held systemically by every bank in the United States -- but SVB sat on these with tech community removing more and more deposits. At a breaking point SVB sold a substantial amount of the bonds (that they could park silently on the books per banking regs) and thus hit a mountain of items that had to be moved from the 'not for sale pile and thus not accounted for their real market value) into a very real, very realized loss.
To shore up the balance sheet it announced a new equity raise of 2.25 billion in new shares.
Finally, the real end result on the 'quick roll around' is the underlying fact that it had banking relationships with at least *half* of *all* US venture-backed technology and health care companies. A staggering number.... half.
So we are faced with a *very* fast moving financial issue - the specific events that led to downing of the bank occurred in the last 48 hours of its life -- that is the decision to sell bonds, realize losses, and do a new equity offering. 48 hours to downa bank.
On top of this, this particular institution literally put *half* of venture tech and health companies at *best* into a 'what will happen mode' --- this is not the time, nor place, to do a 'lets put this off for 10 days or two weeks'. The back end results of a long drawn out transition are pretty bad. Think of the issues that I detailed with just the inability to do payroll because of this --- the mode to address this very unique situation most likely had to be 'yesterday' in this case.
I dont subscribe to the 'drawn out valuation and sale' that you propose for *this* instance.
Thank you for the detailed explanation of things I know very well. I'll give you the simple answer.
This absolutely means that fairly significant amounts of cash needed to be raised. I have not questioned that.
Let me say it simply.
The cash to do this, with or without the sale... comes from the FDIC/Treasury. The funds of every bank in the country weren't 'raided' (paraphrasing you), but instead were paid out of some fund... and then that fund will be reimbursed by the special assessment.
All I have asked or suggested was:
1) that we have some verification and disclosure that we are ONLY bailing out businesses because of the issues you note, and that we are not bailing out (or at least that we ADMIT that we are bailing out) simple wealthy depositors.
If you found out that one of their depositors was Elon Musk and that he had $5mm in there because SVB offered a special rate for 'super-jumbo' CDs... would you be okay with the FDIC bailing HIM out?? What 'unique' risk to the system would 'paying him the poilicy limits' create? If you believe that it WOULD create a unique risk, why would it be moreso at this bank than at any other?
2) That the REPAYMENT (meaning the monehy is already spent/committed to accomplish your concerns above... and we are just replenishing it) be apportioned more to those more likely to BE BENEFACTORS of this 'excess insurance'.
Nothing I've suggested, including a delayed sale keeps the FDIC from ensuring that the operations are addressed immediately..... In no small part but because you NOTE that the buyer didn't actually PAY for anything.
Quote:I keep reiterating that SVB was a highly unique situation. I dont doubt that your actions are fitted very well to a WoodForest, or to a bank that may have a normal mix of financial customers.
But the situation all the way around the SVB issue is replete with unique issues. Which, from my perspective, and that perspective may be incorrect, the answer seems to be from your quarter solutions that dont consider the *highly* unique situation that a failure of SVB presented with respect to your example of WoodForest (whom I dont even know who they are, to be honest).
My experience in banking includes the 2008 debacle as well as the late 80's Texas S&L scandals. There were issues very differrnt, but just as 'unique' back then. My solution (presented as about a 15 word summary) would work just fine in any of them. There ABSOLUTELY is a need for quick action and some quick decisions... but the SALE (especially of an otherwise well performing bank... paraphrasing you) is not one of those NECESSARY quick decisions.
I didn't criticize the quick sale... I simply added it as a question. A well run bank facing a simple cashflow operation is worth a multiple of earnings. Why is it suddenly a liability rather than an asset?? I understand that the cash needs were huge and in excess of what they had including shareholder equity, but even based on your own descripotion, once the fear based 'run' was over, value would have returned.
Quote:You state 'use the funds of the receiver sale' (paraphrase) to fund the covering of the uninsured portions -- problematic for several reasons. 1) the purchase was not cash, nor equity, nor liquid, nor fungible. The purchase to the FDIC was a return legal 'option-style' instrument that boiled down to future rights in equity upside. Hard to monetize that to affect the covering.
I am suggesting that a PROPER sale LIKELY would have involved cash, or equity, or something fungible, You're actually articulating my complaint. I'm not saying it would have covered all of it or even a large portion of it... I'm just saying that based on what little I know (and confirmed by all you've added) the bank was quite likely worth much more than the FDIC got for it. So if I wanted to use Democrat-style populist speech (to show the hypocrisy) that could easily be described as 'the little guy' (but not exclusively him) subsidizing a purchase for 'a bigger guy'.
Quote:You also state that a way to affect it was to increase the close time on the takeover and simply sell at a higher price. What works against that is the timing issues and the sheer potential secondary effects above. The bank went from 'normal stance' to supercritical failure in about 48 hours --- leaving the affected companies almost no manuever room to react. There was simply no time to do an audit, even at the highest, most granular level, nor to dicker much on the 'price'. To forestall the secondary effects (i.e. potential failures of or deep layoffs in a good amount of the 50% of venture backed tech sector and medical technology sector, there had to be a transition time of as near zero as possible.
Oh no doubt, quick action was required. They could have just as easily though contracted with the same company to 'manage' the bank for a fee and accomplished the same thing.
As I said, I don't know enough to know if this would have been worth it... and MAYBE it was necessary... but I've seen NUMEROUS times in my 25 years of doing that were some VERY large 'bail-out' took place and the assets were managed for a while before selling them.
It may or may not have been the best decision (the sale, not the funding backstop), but I know from experience that it isn't as NECESSARY as you imply. I was asked what else could be done... and that is one of the other things that COULD have been done.
/
Texas university defends DEI, affirmative action as a ‘matter of national security’
