Will My Bank Fail?

[Luv2play]

22 minutes ago, GTMike said:

If Biden's most recent comments today were that all the uninsured depsitors would be able to get their funds back in full that's because once the regulators took over and was able to assess the situation there were/would be enough assets in a disposition in order to satisfy the full amounts of Deposits.

If there wasn't then the uninsured may not have been able to recover the full amounts. My point was that after a seizure there is a process and in this case that is a different process from the comment I was responding to which stated he did not like "bail-outs". (The inference being that the Company was being rescued at taxpayer expense and would continue operating further with additional goverment supplied taxpayer funds). Which in this case is a different process.

That's not what happened over the weekend. The FDIC and Fed tried to have an auction of the failed bank but it didn't work because they were not able to make an assessment in the short time before Monday opening of how much the assets of SVP were worth. Faced with no buyers and the $250,000 limit on insured deposits, many companies were not able to make payroll on Friday. If this had persisted there was a real danger of the problem spreading rapidly throughout the banking sector. 

So the government stepped in and covered every depositor for all their money held by SVP. They used a provision in law rarely resorted to so that taxpayers were not on the hook. Rather the banking sector overall would be liable for any losses and the fees levied on banks for deposit insurance  would cover such losses.

This was not restricted to the US, as here in Canada 16 high tech companies who had their money in SVB Cda, a subsidiary, could not make payroll on Friday as well.

The good news is that there is no evidence that the banking system was in danger of seizing up as it did in 2008, when banks stopped lending to each other. The bad news is that tech companies are going to find it harder to borrow for expanding their businesses. And that will negatively impact the economy.

 

[Luv2play]

I read this morning that here in Canada government and banking officials were working throughout the weekend to asses the situation and take measures to ensure the contagion south of the border was headed off from affecting Canadian businesses. Reminded me of my days in international finance when I had to work overtime on weekends to the same ends. Every decade brings its crises in financial markets and for the people involved at the government level the work is thankless.

Edited March 13, 2023 by Luv2play

[pubic_assistance]

4 hours ago, Luv2play said:

And I don't think coffee and donuts is going to cut it. 

They had chocolate chip cookies at First Republic today.
I don't think ANYONE had an appetite.

Edited March 14, 2023 by pubic_assistance
spelling

[pubic_assistance]

2 hours ago, Luv2play said:

That's not what Biden said today.

My friends in Finance are saying the Government and Media are working overtime to stop the bleeding by putting a positive spin on things.

They told me not to Google anything. News reports are all being heavily redacted.

Insiders are all sourcing their information from DuckDuckGo.

[GTMike]

2 hours ago, Luv2play said:

That's not what happened over the weekend. The FDIC and Fed tried to have an auction of the failed bank but it didn't work because they were not able to make an assessment in the short time before Monday opening of how much the assets of SVP were worth. Faced with no buyers and the $250,000 limit on insured deposits, many companies were not able to make payroll on Friday. If this had persisted there was a real danger of the problem spreading rapidly throughout the banking sector. 

So the government stepped in and covered every depositor for all their money held by SVP. They used a provision in law rarely resorted to so that taxpayers were not on the hook. Rather the banking sector overall would be liable for any losses and the fees levied on banks for deposit insurance  would cover such losses.

This was not restricted to the US, as here in Canada 16 high tech companies who had their money in SVB Cda, a subsidiary, could not make payroll on Friday as well.

The good news is that there is no evidence that the banking system was in danger of seizing up as it did in 2008, when banks stopped lending to each other. The bad news is that tech companies are going to find it harder to borrow for expanding their businesses. And that will negatively impact the economy.

 

Based on comments it seems that you are in Canada and I therefore assume Canadian (Smiley face), but please know most American's aren't aware of how things work here.

Just FYI the "FDIC" which does stand for the Federal Deposit Insurance Corporation actually is an independent agency of the US Federal Government.

It was created in the early 1930's when thousands of banks failed after our stock market crash and US Depression.

In the ordinary course the Company doesn't receive money from the US Congress budget appropriations and is not money from taxpayers.

It generates income from premiums and fees that banks and savings associations pay into the system for deposit insurance converage for the banking system.

So outside commentary now saying that fees, premiums etc. are going to be levied is sorta trying to create a false impression that it's out of the ordinary in order to satsify depositor liabilities.

Now the US Treasury Department and The Federal Reserve can step in but i believe what they announced yesterday was that the Treasury department would backstop/guarantee the Depositors account values at these banks and the Federal Reserve would relax some lending requirements and provide favorable loans to banks to ensure liquidity throughout the system.  This is all intended to help restore/maintain calm to the overal banking system.

And these are backstops to allow time for the FDIC insurance corporation to do it's thing but not a full step of actually using taxpayer dollars to fund the banks liabilities and be a "bail-out". (Some will argue that even by the government using it's power to back-stop or guarantee risk that it still creates a moral hazard for banks to be less risk adverse. Reasonable people can disagree when something does or doesn't cross a line.)

So you might ask why is it set up this way?

The FDIC is one example whereby "the free market" versus centralized goverment does a regulation dance and ebbs and flows over the years between more or less government regulation and intervention.

Our system is set up as the free market banking industry trades off government regulation with a negotiated self-regulation. 

So as a compromise it's a quasi-free market concept and the banks collectively pay fees and premiums to provide insurance to depositors as a trade off for other regulations and controls etc.. they'd prefer not to abide by.

The Banking system wants to generate profits by making investments and increase it's shareholder value while the government has a responsibility to help protect consumers in a fundamental way by insuring theres a safe reliable place to store cash for the overall benefit of a healthy functioning capital market system.

 

 

Edited March 14, 2023 by GTMike
Just adding to original comment

[pubic_assistance]

43 minutes ago, GTMike said:

The Banking system wants to generate profits by making investments and increase it's shareholder value while the government has a responsibility to help protect consumers in a fundamental way by insuring theres a safe reliable place to store cash for the overall benefit of a healthy functioning capital market system.

Very concise and informative. Thank you for taking the time to share your knowledge with us.

[handiacefailure]

6 hours ago, Luv2play said:

That's not what Biden said today. Depositers at SVP are being covered for all of their deposits including those above the insured limit of $250,000.

 

8 hours ago, augustus said:

Yellen claims that assessments on banks will cover the cost of this unlimited guarantee.  That simply passes the costs on to taxpayers through higher borrowing costs and lower interest on deposits.

That is BS the taxpayers are covering this.   If my house is worth $500K and I only have insurance for $250K the government isn't going to cover the difference if the house burns down.  This is the same thing.

I think with the S&L bailout in the 90's though the government covered all the customers funds that were over the FDIC limit.

If someone has over $250K in a bank then they should be smart enough to know the FDIC rules.   Even if you want to keep over $250K in a single bank, it's easy to get around the limits by opening up different account types, like TOD accounts.

[handiacefailure]

On 3/12/2023 at 12:24 PM, Kevin Slater said:

The NY Times reports today that 87% (I think it was) of all assets held at the bank were above the 250k insurance limit.

Kevin Slater

Fortune said 95 percent.   Crazy people with that kind of money don't know the FDIC rules and work arounds

[handiacefailure]

On 3/12/2023 at 12:17 PM, BuffaloKyle said:

The FDIC said everyone should have access to their money by Monday. So we'll see. But yeah I didn't know the FDIC only insures up to $250,000 per account. Might be a good idea then for people to break up their money into multiple banks if they have well over $250,000 in an account. Roblox I believe it was as well had a good amount of their money at that bank in mutual funds which are not insured at all.

There's ways of keeping your funds insured if you have over $250,000 and want to keep it at the same bank.

If it's a couple each one can have an individual account with $250K and also a joint account with $250K and all three accounts will be insured.     I could have $250K at a bank as an individual account and my trust could have $250K in it and both would be insured.   You can do TOD accounts if there are people you know you want to leave money to if something happens and I think you can open up to five TOD accounts with a bank that will be insured for $250K each.

[RadioRob]

1 hour ago, handiacefailure said:

That is BS the taxpayers are covering this.  

My understanding is the TAXPAYERS are not covering this.  FDIC insurance paid by the banks will ultimately "pay" for this.  

See @GTMike's great writeup above for more detail on this:

3 hours ago, GTMike said:

It was created in the early 1930's when thousands of banks failed after our stock market crash and US Depression.

In the ordinary course the Company doesn't receive money from the US Congress budget appropriations and is not money from taxpayers.

It generates income from premiums and fees that banks and savings associations pay into the system for deposit insurance converage for the banking system.

So outside commentary now saying that fees, premiums etc. are going to be levied is sorta trying to create a false impression that it's out of the ordinary in order to satsify depositor liabilities.

[rvwnsd]

4 hours ago, GTMike said:

Based on comments it seems that you are in Canada and I therefore assume Canadian (Smiley face), but please know most American's aren't aware of how things work here.

Just FYI the "FDIC" which does stand for the Federal Deposit Insurance Corporation actually is an independent agency of the US Federal Government.

It was created in the early 1930's when thousands of banks failed after our stock market crash and US Depression.

In the ordinary course the Company doesn't receive money from the US Congress budget appropriations and is not money from taxpayers.

It generates income from premiums and fees that banks and savings associations pay into the system for deposit insurance converage for the banking system.

So outside commentary now saying that fees, premiums etc. are going to be levied is sorta trying to create a false impression that it's out of the ordinary in order to satsify depositor liabilities.

Now the US Treasury Department and The Federal Reserve can step in but i believe what they announced yesterday was that the Treasury department would backstop/guarantee the Depositors account values at these banks and the Federal Reserve would relax some lending requirements and provide favorable loans to banks to ensure liquidity throughout the system.  This is all intended to help restore/maintain calm to the overal banking system.

And these are backstops to allow time for the FDIC insurance corporation to do it's thing but not a full step of actually using taxpayer dollars to fund the banks liabilities and be a "bail-out". (Some will argue that even by the government using it's power to back-stop or guarantee risk that it still creates a moral hazard for banks to be less risk adverse. Reasonable people can disagree when something does or doesn't cross a line.)

So you might ask why is it set up this way?

The FDIC is one example whereby "the free market" versus centralized goverment does a regulation dance and ebbs and flows over the years between more or less government regulation and intervention.

Our system is set up as the free market banking industry trades off government regulation with a negotiated self-regulation. 

So as a compromise it's a quasi-free market concept and the banks collectively pay fees and premiums to provide insurance to depositors as a trade off for other regulations and controls etc.. they'd prefer not to abide by.

The Banking system wants to generate profits by making investments and increase it's shareholder value while the government has a responsibility to help protect consumers in a fundamental way by insuring theres a safe reliable place to store cash for the overall benefit of a healthy functioning capital market system.

 

 

Great summary of how deposit insurance works in the US. 

Taxpayers are not paying to bail out Silicon Valley Bank. Because no buyer was found for the bank over the weekend, a new entity "Silicon Valley Bridge Bank, N.A." was chartered to assume the deposits and loans formerly under Silicon Valley Bank. The deposit insurance fund is essentially loaning money to the bridge bank so the depositors will be made whole. This ensured that payrolls could be met, expenses could be paid, and incoming payments would be credited to depositors' accounts. When a buyer cannot be found, it is the most orderly way to resolve a failed institution. Essentially, the FDIC "bought" the bank.

The next step is for the FDIC to value and sell SVB's assets. This includes financial assets, such as cash on hand, loans, and investments, and tangible assets, such as furniture, computer equipment, office supplies, and buildings/property. It also includes non-bank businesses that did not fail. The difference between the amount collected from asset sales and the amount of deposits paid out will be funded by an increased insurance premium levied against all FDIC-insured financial institutions. The FDIC will likely sue the ex-CEO who sold millions of dollars in stock and claw back bonuses. 

SVB is a case study in the dangers of insularity. The founders of startups who received venture capital banked at SVB because the venture capitalists banked there. SVB's leadership came from within (and from an investment bank that ultimately failed). 

[Luv2play]

8 hours ago, GTMike said:

Based on comments it seems that you are in Canada and I therefore assume Canadian (Smiley face), but please know most American's aren't aware of how things work here.

Just FYI the "FDIC" which does stand for the Federal Deposit Insurance Corporation actually is an independent agency of the US Federal Government.

It was created in the early 1930's when thousands of banks failed after our stock market crash and US Depression.

In the ordinary course the Company doesn't receive money from the US Congress budget appropriations and is not money from taxpayers.

It generates income from premiums and fees that banks and savings associations pay into the system for deposit insurance converage for the banking system.

So outside commentary now saying that fees, premiums etc. are going to be levied is sorta trying to create a false impression that it's out of the ordinary in order to satsify depositor liabilities.

Now the US Treasury Department and The Federal Reserve can step in but i believe what they announced yesterday was that the Treasury department would backstop/guarantee the Depositors account values at these banks and the Federal Reserve would relax some lending requirements and provide favorable loans to banks to ensure liquidity throughout the system.  This is all intended to help restore/maintain calm to the overal banking system.

And these are backstops to allow time for the FDIC insurance corporation to do it's thing but not a full step of actually using taxpayer dollars to fund the banks liabilities and be a "bail-out". (Some will argue that even by the government using it's power to back-stop or guarantee risk that it still creates a moral hazard for banks to be less risk adverse. Reasonable people can disagree when something does or doesn't cross a line.)

So you might ask why is it set up this way?

The FDIC is one example whereby "the free market" versus centralized goverment does a regulation dance and ebbs and flows over the years between more or less government regulation and intervention.

Our system is set up as the free market banking industry trades off government regulation with a negotiated self-regulation. 

So as a compromise it's a quasi-free market concept and the banks collectively pay fees and premiums to provide insurance to depositors as a trade off for other regulations and controls etc.. they'd prefer not to abide by.

The Banking system wants to generate profits by making investments and increase it's shareholder value while the government has a responsibility to help protect consumers in a fundamental way by insuring theres a safe reliable place to store cash for the overall benefit of a healthy functioning capital market system.

 

 

One thing you said I don't believe to be true is about the Treasury stepping in to backstop the value of deposits at SVB. For that Janet Yellen would have had to confirm that. Which she did not since that would have been tantamount to a taxpayer bailout.

What the Fed did do is to make their discount window more accomodating to other banks if they faced liquidity problems in the coming days. That window has a current limit of $25 billion and the Fed loosened this to accomodate potential withdrawals.

It is not yet known how much of a shortfall, if any, the assets at SVB will experience compared to liabilities, but if there is one then the FDIC will cover it and levy an extra fee against all banks, thus averting a taxpayer bailout which Biden vetoed.

My understanding is that the government made recourse to a provision in the law that allowed FDIC to make whole deposits above the $250,000 limit in cases where the integrity of the overall banking system was at risk. This as I noted above has rarely been resorted to but gave Biden the means to avoid a taxpayer bailout.

[Luv2play]

6 hours ago, handiacefailure said:

 

That is BS the taxpayers are covering this.   If my house is worth $500K and I only have insurance for $250K the government isn't going to cover the difference if the house burns down.  This is the same thing.

I think with the S&L bailout in the 90's though the government covered all the customers funds that were over the FDIC limit.

If someone has over $250K in a bank then they should be smart enough to know the FDIC rules.   Even if you want to keep over $250K in a single bank, it's easy to get around the limits by opening up different account types, like TOD accounts.

Your analogy of insurance on a house not covering the whole amount of a loss of $500,000 isn't really apt here because in a case like that the insurance company will not even fully cover your insured  loss of $250,000. They will say you underinsured your house and therefore must assume a part of the loss within the $250,000 limit. 

This is because by understating the value of your house you avoided paying the full premiums that would have applied had the full value been insured. That is also why when house values increase insurance coverage is adjusted annually to reflect the amount the insurance company is on the hook for if there is a loss. 

 

Edited March 14, 2023 by Luv2play

[pubic_assistance]

4 hours ago, Luv2play said:

Your analogy of insurance on a house not covering the whole amount of a loss of $500,000 isn't really apt here because in a case like that the insurance company will not even fully cover your insured  loss of $250,000. They will say you underinsured your house and therefore must assume a part of the loss within the $250,000 limit. 

This is because by understating the value of your house you avoided paying the full premiums that would have applied had the full value been insured. That is also why when house values increase insurance coverage is adjusted annually to reflect the amount the insurance company is on the hook for if there is a loss. 

 

I think what he was referring to was an example of a natural disaster.

If your house is under-insured and it burns down you're screwed.

If it's destroyed in a flood, FEMA will often (not always) cover the additional loss.

[Luv2play]

I wasn't thinking of natural disasters when a house burns down. I was just thinking of the garden variety isolated incident of a house fire, which is all I personally have ever seen in my area of Canada in the east. 

When whole towns are consumed by fire as in British Columbia and Alberta in the last several years, different approaches are taken by governments to help the victims. Compensation over and above private insurance are often resorted to by governments  

[+ augustus]

16 hours ago, RadioRob said:

My understanding is the TAXPAYERS are not covering this.  FDIC insurance paid by the banks will ultimately "pay" for this.

Assuming losses don't exceed the FDIC's reserves of about $100 billion.

[+ augustus]

20 hours ago, GTMike said:

So outside commentary now saying that fees, premiums etc. are going to be levied is sorta trying to create a false impression that it's out of the ordinary in order to satsify depositor liabilities.

Well actually it is out of the ordinary because the FDIC limit is 250k.

[+ augustus]

On 3/13/2023 at 3:31 PM, ThroatCummer said:

I argue that they're all mostly aware, but it is simply not feasible to spread funds out across 50, 100, or 500 bank accounts. It's an operational nightmare and simply not possible for anyone except the smallest coffee shops or local restaurants. $250k might sound like a good amount of money to most people, but in the normal course of business, it is peanuts when you're running SG&A (payroll, payables, receivables, etc.) on a regular basis for any company that has over say 10-15 employees.

That is true but there is a way around this that the Brokerage Houses and some banks use for their large depositors. It is to create a Cash Management Account and sweep those funds (from the large business accounts) every night into a money market account invested in Treasuries, highly rated commercial paper, etc.  

[RadioRob]

21 minutes ago, augustus said:

Assuming losses don't exceed the FDIC's reserves of about $100 billion.

In the end, it should not exceed the FDIC's reserve.  Their problem was people tried to pull 85B out of the bank at once but SVB had invested most of those deposits into illiquid “hold to maturity” securities (bonds and mortgage backed securities).  They could not come up with or raise the funds in time.  The assets are still there.  The FDIC will temporarily gain a bunch of securities while they front the cash or get other buyers.  But in the end, I don't think we won't see anything nearly that big in an actual loss once everything is settled.  

(Edited to add "not" as I missed it)

 

Edited March 14, 2023 by RadioRob

[+ augustus]

The vast majority of these depositors at Silicon Valley Bank are sophisticated business people who knew their deposits were only insured for $250k. The ones that maintained higher balances did so for business reasons - they got credit from SVB on terms that they, as risky startups and growing tech companies, couldn't get at other banks. They took a business risk, and while I don't wish them any harm, this was always a possibility.  Furthermore many of the loans on the books at SVB wouldn't even qualify for loans from the Fed's Discount Window, they are so weird. 

[+ augustus]

3 minutes ago, RadioRob said:

In the end, it should exceed the FDIC's reserve.  Their problem was people tried to pull 85B out of the bank at once but SVB had invested most of those deposits into illiquid “hold to maturity” securities (bonds and mortgage backed securities).  They could not come up with or raise the funds in time.  The assets are still there.  The FDIC will temporarily gain a bunch of securities while they front the cash or get other buyers.  But in the end, I don't think we won't see anything nearly that big in an actual loss once everything is settled.  

 

Agreed but this is just ONE bank.  Many others may get into trouble.  And they can value their loan book at $74 billion but these loans are to startups, solar energy companies, etc. and it is highly suspect that they are worth $74 billion face value.  The government tried to get a buyer for SVB and no one wanted it.  

[+ augustus]

39 minutes ago, RadioRob said:

Their problem was people tried to pull 85B out of the bank at once but SVB had invested most of those deposits into illiquid “hold to maturity” securities (bonds and mortgage backed securities).  

This 85 billion was actually not illiquid and could be sold (and many were in an attempt to satisfy withdrawals).  The problem was that these older bonds had fallen below par value on the bond market because of the higher interest rates we have seen this past year.  They could still be sold but NOT at face value.  The $15 billion in lost face value of the bonds is about equal to the entire net worth, or total equity, of SVB.  Which means they became insolvent.  The banking system as a whole is sitting on $600 billion in "unrealized bond losses" because of the higher interest rates we have now.  The FDIC would be swamped in no time.  One reason Moodys said the US Banking Center is under greater stress than people realize.

Moderator's note: politics redacted.

[+ augustus]

FOOTNOTE:  When interest rates rise, older bonds lose face value.  If you hold them to maturity you will get face value assuming the issuer hasn't defaulted.  If you sell older bonds in a market with rising interest rates because you need the cash, you take a haircut. 

[GTMike]

14 hours ago, Luv2play said:

One thing you said I don't believe to be true is about the Treasury stepping in to backstop the value of deposits at SVB. For that Janet Yellen would have had to confirm that. Which she did not since that would have been tantamount to a taxpayer bailout.

What the Fed did do is to make their discount window more accomodating to other banks if they faced liquidity problems in the coming days. That window has a current limit of $25 billion and the Fed loosened this to accomodate potential withdrawals.

It is not yet known how much of a shortfall, if any, the assets at SVB will experience compared to liabilities, but if there is one then the FDIC will cover it and levy an extra fee against all banks, thus averting a taxpayer bailout which Biden vetoed.

My understanding is that the government made recourse to a provision in the law that allowed FDIC to make whole deposits above the $250,000 limit in cases where the integrity of the overall banking system was at risk. This as I noted above has rarely been resorted to but gave Biden the means to avoid a taxpayer bailout.

I don't think you have that correct in that there was indeed an affirmation of extending a federal backstop to SVB's depositors above the insured limit. 

The actions this past Sunday was actually a coordinated response between Biden, US Treasury Secretary Janet Yellen, the Head of the FDIC, and J. Powell of the Federal Reserve. 

For reference check out this article for example - https://amp.cnn.com/cnn/2023/03/12/politics/janet-yellen-bailout-silicon-valley-bank-cnntv/index.html

Also it is a fluid situation and despite SVB and Signature Bank being under FDIC control the private banking market is still evaluating deals to purchase parts of the bank or different parts of the loan portfolio's etc.. potentially generating liquidity in order to satsify liabilities.

This Government response was more akin to a quick stopgap measure to stop a domino spill over effect into the industry and to instill calm in the markets and avoid greater panic withdrawals in the system but (at least thus far) is not a taxpayer government bail-out despite guaranteeing the bank's liquidity problem with depositors.

[GTMike]

14 hours ago, Luv2play said:

Your analogy of insurance on a house not covering the whole amount of a loss of $500,000 isn't really apt here because in a case like that the insurance company will not even fully cover your insured  loss of $250,000. They will say you underinsured your house and therefore must assume a part of the loss within the $250,000 limit. 

This is because by understating the value of your house you avoided paying the full premiums that would have applied had the full value been insured. That is also why when house values increase insurance coverage is adjusted annually to reflect the amount the insurance company is on the hook for if there is a loss. 

 

All very interesting and potentially different based on where one lives and what typical policies are for insurance.

For example I don't know if this applies to all of California but i live in Los Angeles. A typical Home Insurance Policy your home destroyed by a common variety fire.

The $ amount of the insurance proceeds (at least in my case) has little to do with the current "projected market value" but based and priced on the current projected "replacement value" of what it would cost to rebuild a similar sized and construction quality of a house.

Again (just speaking from experiences), the major insurance carriers have projected costs of construction that they use to estimate by zip code or some metric what it costs to rebuild and the brokers literally advise me against paying more in premiums as customer's reflexively tend to "overinsure" thinking they need an amount equal to it's market value.

But also being in LA we also are advised to get supplemental insurance for Earthquakes. As if there is an earthquake and gas pipes blow and that causes a fire that's falls under a different policy.

I can't remember specifically but i think if home is destroyed by flood then SOL.