Will My Bank Fail?

[EZEtoGRU]

In the wake of the 2007/2008 financial crisis & great recession, tighter regulations were imposed on banks via the Dodd-Frank bill that was signed into law in 2010.  One aspect of the new law was the implementation of annual "stress tests" on many banks.  In 2018, the prior administration (with congressional approval) rolled back some of these regulations.  Without getting into the politics of all this, I think it's fair to say this rollback will likely be the subject of some scrutiny as a result of the recent bank collapses.

[Luv2play]

13 hours ago, GTMike said:

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.

Again I respectfully disagree. Yellen instructed the FDIC over the weekend to extend funds beyond the $250k limit but from their own account. In the CNN article you cited above she expressly said the government was not going to bail out the bank with government money as they had done in 2008. The FDIC funds are raised by the banking industry itself.

The article used the words "extend a federal backstop" but those were CNN's words to characterize the actions of the government and as such were somewhat misleading as to who was doing what. The Treasury never uttered the words that they were backstopping the bank with goverment guarantees of money.

[Luv2play]

This banking crisis is not over yet. Today banking stocks around the world are in serious decline, even in staid old Switzerland, where Credit Suisse has halted trading after a 20 percent decline in its share value. US markets are expected to open lower, erasing the gains of yesterday.

What is apparent to me is that banks are now exhibiting the ill effects of the rapid increases in interest rates by central banks everywhere over the last 12 months. Inflation has eased somewhat but there are several factors at play underlying inflation that interest rates alone cannot control, such as the war in Ukraine and climate induced food shortages. 

Confidence is the only thing that sustains the banking sector. After all you are entrusting your money to someone else to safeguard it and return it to you on demand. If that assurance weakens by facts on the ground like SVB's failure, then all bets are off.

Edited March 15, 2023 by Luv2play

[pubic_assistance]

3 hours ago, Luv2play said:

Inflation has eased somewhat

To be clear: the RATE of inflation has eased.

Prices have not and will not go back to previously "normal" levels.

Lower-income and middle-income earners are suffering, so spending on anything but basics is cut off. Which affects the retail sector and that slow down affects multiple others.

[Guest]

I don't quite understand why anyone would have hundreds of thousands in any checking or savings account, let alone all in one bank. If one wants extreme safety, at least put that money into T-bills. If you have hundreds of thousands in one bank, you're taking a significant risk, so you might as well have the money in a fairly low-risk investment such as municipal bonds. 

[GTMike]

On 3/14/2023 at 2:43 AM, 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 agree

Here is the original Joint Statement from the US Treasury itself - https://home.treasury.gov/news/press-releases/jy1337

My point being that Treasury Department, President, Head of FDIC and Head of Federal Reserve had a coordinated response to the crisis in an attempt to help restore calm and confidence specifically by saying "all Depositors" in SVB and Signature Banks will be made whole.

Specifically the Treasury Department's joint statement on a Sunday (March 12th), notes, "...Secretary Yellen approved actions enabling the FDIC to complete its resolution of SVB in a manner that fully protects all depositors ..... No losses associated with the resolution of SVB will be borne by the taxpayer ...Shareholders and certain unsecured debtholders would not be specifically protected by these actions...)

So yes i agree that it was not an explicit statement of "backstopping" potential losses but it was not an accident the Fed took actions as you noted, the FDIC took actions as noted, and yet with unknown "tbd" potential losses the Treasury Department was apart of an official statement saying all Depositors will be made whole knowing that it takes time to sell off assets, assess and collect fees/premiums from member banks, all while depositors would be withdrawing.

 

 

[pubic_assistance]

1 hour ago, Unicorn said:

I don't quite understand why anyone would have hundreds of thousands in any checking or savings account, let alone all in one bank. If one wants extreme safety, at least put that money into T-bills. If you have hundreds of thousands in one bank, you're taking a significant risk, so you might as well have the money in a fairly low-risk investment such as municipal bonds. 

In my case it was an ill-timed transition from one investment strategy to another. 

I ended my relationship as an investor in a restaurant group and deposited the funds in two accounts until I decided my next move.

My clients are all meeting with risk-management advisors this week because some orders come in with payments of a million dollars or more. The check goes into one operating account and orders are made against these funds. Now they are thinking this is more risky than considered before.

So for some people and some businesses the timing of large sums being there at the wrong moment are the issue.

[handiacefailure]

23 hours ago, GTMike said:

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. 

It's my understanding you are SOL if it's flood unless you have flood insurance.   If someone is in a flood zone the lender is going to probably require it if someone has a mortgage and it can be pretty costly.  

[Luv2play]

So yeaterday saw all the gains in the markets on Tuesday wiped out by the increasingly grim news facing the international banking sector in Europe and elsewhere. I saw where shares of First Republic resumed their downward movement with a 21 percent decline on Wednesday.

As this thread started on the question of whether First Republic was in any danger of failing, what is the feeling now?  Is there any sense that a run on deposits could occur especially by those holding amounts above the FDIC guarantee limit of $250k?

If that were to occur what would the authorities do in Washington? Having made whole the depositors at SVB and Signature, could they refuse to lift a finger to help FR's depositors?

These questions must be causing some sleepless nights for the parties concerned.

[pubic_assistance]

13 hours ago, handiacefailure said:

It's my understanding you are SOL if it's flood unless you have flood insurance.   If someone is in a flood zone the lender is going to probably require it if someone has a mortgage and it can be pretty costly.  

True/ not true. Where I lived in PA many of the towns are along the Susquehanna. Since the river floods regularly, many of the towns have some sort of flood wall, or dike system.  Because of that, these areas are ( foolishly ) not considered to be in the flood zone. But dikes fail and when they do, the Government has covered the damages for those who were not insured. Many of these families have lived in these home for decades. Long before mortgage holders, expected flood insurance.

[+ augustus]

The FDIC has set tomorrow 3/17/23 as a deadline for any offers to buy SVB or Signature Bank.  If they don't find any buyers this situation does not look good.  The assessments the government is talking about is the annual assessments that banks pay to fund the FDIC, which has about $100 billion in reserves.  That could quickly evaporate.  Many loans at SVB are crap and Signature Bank has a lot of commercial real estate loans that are quickly deteriorating. 

 

[+ augustus]

2 hours ago, Luv2play said:

Is there any sense that a run on deposits could occur especially by those holding amounts above the FDIC guarantee limit of $250k?

Yes it's happening.  The wealthy and businesses are putting their many into the very large banks and money market funds that invest in Treasury paper.  People are nervous and reacting accordingly.  

[+ augustus]

The ultimate loss to the government will be how much is recoverable from these banks' assets (bonds, loans, etc.).  I doubt the FDIC's reserves will cover it.  

[+ tassojunior]

I think "Modern Monetary Theory" is coming for some tests (I think it will survive). I personally think government can afford unlimited spending and bailouts because it prints the money for it's debt but that only works so long as you're the world currency. With so many major economies going off/being kicked off the dollar now...IDK. MMT and unlimited government spending would be sweet to find out works. Not to get political but banks are expensive to bail out (although the counter argument is they're too disastrous to let fail).  I'm cheering for MMT to work. 

Edited March 16, 2023 by tassojunior

[Luv2play]

I don't yet know the details of the cash injection made by the 4 largest US banks into First Republic but they are being characterized as deposits formerly held by those banks. I wonder if the depositors have been consulted about transfers of their money to uninsured accounts at FR?

 

[GTMike]

42 minutes ago, Luv2play said:

I don't yet know the details of the cash injection made by the 4 largest US banks into First Republic but they are being characterized as deposits formerly held by those banks. I wonder if the depositors have been consulted about transfers of their money to uninsured accounts at FR?

 

Don't either but seems to be alot about investor confidence in the banking sector as a whole as well. Interesting take on it.

https://www.reuters.com/markets/us/first-republic-bank-tumbles-drags-down-shares-other-regional-lenders-2023-03-16/

[Luv2play]

44 minutes ago, GTMike said:

Don't either but seems to be alot about investor confidence in the banking sector as a whole as well. Interesting take on it.

https://www.reuters.com/markets/us/first-republic-bank-tumbles-drags-down-shares-other-regional-lenders-2023-03-16/

Interesting article. It clarifies that the large US banks participating are in effect making available $30B in cash deposits to FR. For 4 months. And FR has another $30B in cash reserves and othrr sources of liquidity from the Fed.

They have huge liabilities though totalling over $650B and 70 percent are in uninsured deposits. It is therefore questionable whether the cash injection will be adequate. The stock ended the day up 10 percent but will that stem the tide of withdrawals? 

The article says that on after market trading the stock declined by 20 percent. Not a good omen. 

Edited March 16, 2023 by Luv2play

[+ tassojunior]

Everyone of the last few days seems to be a pushed narrative spin of "everything fine here, nothing to see" until the markets close. The markets went up today after Republic failed . Unfortunately every day it's about another bank. I know spin is all that matters in 2023, especially in the markets, but it seems like a hope to get to the weekend without a major loss of confidence. That makes me less confident. 

Did no one expect this to happen with high interest rates? Surely there's planning for this. (besides spinning)

[+ nycman]

I was in my local bank today doing other business, and there were 3 couples there discussing how they "always thought Switzerland was a safe place" and they proceeded to share strategies on how to move large amounts of money out of Credit Suisse accounts. 

This was in a small local branch office of a local bank. I can’t imagine what’s happening on the much larger world stage. 

[Luv2play]

54 minutes ago, nycman said:

I was in my local bank today doing other business, and there were 3 couples there discussing how they "always thought Switzerland was a safe place" and they proceeded to share strategies on how to move large amounts of money out of Credit Suisse accounts. 

This was in a small local branch office of a local bank. I can’t imagine what’s happening on the much larger world stage. 

I lived in Switzerland for 4 years and had a Swiss lover who of course worked in a Swiss bank along with many of his friends, who also became my friends. They were so proud of their banks almost to the point of being arrogant whenever they talked about banks in other countries. 

Once I accompanied a young man to collect a suitcase of money at a Swiss bank in Geneva for his foreign lover from a Latin American country. He counted the money in front of the Swiss banker in his locked office while I watched. I was a friend of the lover who asked me to accompany the youngster to make sure he went from the bank directly to the airport. Lol.

[Guest]

From what I'm hearing and reading, these banks have enough assets to cover their deposits. Just not enough cash on hand if everyone goes into a panic and runs to the bank and wants all of their money out immediately. Or am I wrong about that? It seems the problem is the panic itself. 

[Kevin Slater]

3 hours ago, Unicorn said:

From what I'm hearing and reading, these banks have enough assets to cover their deposits. Just not enough cash on hand if everyone goes into a panic and runs to the bank and wants all of their money out immediately. Or am I wrong about that? It seems the problem is the panic itself. 

That is my understanding.

Kevin Slater

[+ BenjaminNicholas]

15 hours ago, nycman said:

I was in my local bank today doing other business, and there were 3 couples there discussing how they "always thought Switzerland was a safe place" and they proceeded to share strategies on how to move large amounts of money out of Credit Suisse accounts. 

This was in a small local branch office of a local bank. I can’t imagine what’s happening on the much larger world stage. 

Swiss banks haven't 'been safe' for awhile, at least not to those who are looking to move money unencumbered.

That said, any bank who ends the fiscal year $8 billion behind is a bank I might not want to do business with.

[+ BenjaminNicholas]

10 hours ago, Unicorn said:

From what I'm hearing and reading, these banks have enough assets to cover their deposits. Just not enough cash on hand if everyone goes into a panic and runs to the bank and wants all of their money out immediately. Or am I wrong about that? It seems the problem is the panic itself. 

Exactly.

It's quite like when yokels in Florida and Texas have a run on gasoline when they feel threatened.

[+ ThroatCummer]

11 hours ago, Unicorn said:

From what I'm hearing and reading, these banks have enough assets to cover their deposits. Just not enough cash on hand if everyone goes into a panic and runs to the bank and wants all of their money out immediately. Or am I wrong about that? It seems the problem is the panic itself. 

That's the crux of the problem.  They tied up assets in really long, illiquid bets (which were completely safe, by the way) and people came running for their money. There is a social media aspect here that could be listed as a contributing factor in all of this. Something banks never had to deal with in centuries and decades past.