Paxter

Nailed it. No modern-day bank can survive extreme deposit outflows. See: fractional reserve banking.

Looks like UBS is going to pick up some or all of its former rival.

The good thing is that FR is nowhere near as systemic as Lehman. The big worry this weekend is Credit Suisse and whether a peaceful resolution can be effected. All eyes on Europe and any ripple effects to other systemic banks there.

I wouldn’t say worthless. This isn’t (yet!) an asset quality issue like in 2008 (a ton of subprime debt backed by depreciating residential property).

I used the word "perhaps" deliberately, as there are decent arguments for and against the decision to backstop uninsured deposits: Pros: Increased likelihood of avoiding a depositor run on (solvent) regional banks, spurred by a flight to safety Increased likelihood of avoiding bailouts or depositor losses at other solvent regional banks Ability to preserve the regional banking system, which some argue is a feature of the US economy (some might argue this is a bug) Cons: Moral hazard as depositors (including more sophisticated, large corporates) do not impose market discipline on their banks, resulting in more risk-taking and failures in the future FDIC financial losses, which are ultimately borne by customers (don't let them convince you otherwise!) Uninsured depositor protection is now implicit in the system, though without an explicit promise, bank runs may still not be avoided I'm sure there are many more we can add to both lists! I promise to rename to "Bank Clusterfuck: 2023 Edition" or similar, if/when merited.

A few other miscellaneous points I’d make: - The run on SVB was old-fashioned…and not-so-old-fashioned at the same time. The Twitter-fuelled speed of the deposit outflows was quite something to behold and caught the oversight bodies by surprise. - The backstopping of unsecured deposits is being marketed by the Government as avoiding a bailout. That’s only true as a technicality. Ultimately, FDIC is funded by bank customers and therefore taxpayers. So the backstops do come at a public cost, albeit one perhaps worth paying in this instance. - The liquidity provision to First Republic by its competitors is a bit of a financial circle jerk and feels weird to me. I’d much rather see a private sale, but I guess no one really wants FR at this point.

Even if we don’t see the failure of any systemic financial institutions (fingers crossed), the chances of a more severe recession have increased. Banks are going to be under pressure to focus on asset quality and won’t have access to cheap funds, which will constrain credit growth. The central banks are going to keep tightening interest rates. And businesses are likely to accelerate layoffs as consumption and investment fall. This unemployment will in turn trigger further falls in consumption and investment. Some might argue this is “the recession we have to have” to tame inflation. Even if that were true, the downturn won’t be pleasant.

If you’re right, and there is a ton of slack via underemployment, I highly doubt inflation and wages growth would be running so hot. From Trading Economics:

I will change the thread title as needed if you are correct!

Thought I would start a thread on all things related to the unfolding US regional banking crisis, which this week has spread across the Atlantic to raise questions around the viability of Credit Suisse. As things stand today, I would still describe this as a "mini-crisis". Unlike 2008, we aren't (yet) in a position where there are material questions surrounding multiple systemic financial institutions.

With unemployment at historic lows in NZ, it is a little early to call stagflation. Of course, it's possible that you will be proven correct, and that unemployment will surge during a period of high inflation. It's also possible that inflation will begin to moderate with a return to average (rather than high) unemployment.

Credit Suisse under serious pressure again, with some of its major shareholders ruling out further increases in funding. This one is a G-SIB (although at the lower end) and will be a fairly serious failure if it occurs. Swiss authorities may well do some sort of local bailout. I would say that losing Credit Suisse wouldn't be a mortal wound for the wider global financial system, though no doubt it is a much more significant event globally than the failure of SVB.

Hats off to the King, who finally broke his post-COVID century drought. Axhar again was brilliant and continues to be India’s most consistent batter. This one is probably meandering to a draw now as I don’t think Australia will want to risk a 3-1 scoreline.

Congress can barely fund the government, let alone a private bank! The regulators will be trying hard to find a marriage partner over the weekend but these types of takeovers aren’t easy to pull off. SVB is such a unique bank that it probably wouldn’t be a logical acquisition for a lot of the big players.

A few points: I'd expect the other regionals not to be hit anywhere near as badly as SVB. As you mention, their deposits will be stickier, smaller and below the insured limit. But next week will undoubtedly be tense for the regionals, given how fast the run was on SVB. I'd be shocked if the other regionals are anywhere near as exposed to higher interest rate as SVB. Diversification is the name of the game on the asset side - SVB unfortunately missed this memo. And even if they were exposed, they won't have to book any losses on these portfolios unless the drawdowns from depositors are significant. I wouldn't assume government support is on the table. I think we are looking here at a (hopefully) orderly wind-down or a private recapitalization/sale of parts of the business. This bank is not TBTF and the government shouldn't be using taxpayer funds to bail out SVB, its creditors or customers.

As Dimon said: there’s a storm coming. The SVB collapse is likely to cause a large flight to safety next week as material questions are raised about the tech sector and regional banks. And we are still nowhere near a full-blown recession…

Haha fair. @Raja: Usman was out of the test set-up for most of the Langer coaching period. He was dropped in 2019 after a fairly short run of poor scores despite a test average well over 40. Other struggling top-order Australian batters (e.g. Marcus Harris, Dave Warner) were given many more chances during that same period. It’s all quite baffling and part of me wonders if some sort of negative bias was at work.

By whom? Most pundits I listen to believe that he’s one of the greatest modern test spinners. And that’s before accounting for his batting prowess.

I feel similarly about our PM being out there with him.

ETA: Switched my Silicon Valley Bank post to US Politics to avoid duplication.

Australia potentially on their way to batting India out of this test. Of course, a draw would suit the hosts quite nicely (but not my betting payout!)

Great stuff from Usman. The most underutilized talent of his generation.

Had a bit of a flutter on Australia to win this final test at $3.75. Not that I expect them to win...but just thought that on (probably) another spinning track Australia could cause another upset. Minor aside: this test series is on track to be the shortest ever for a four-match series. Is it time for India to go back to preparing the occasional road (as per Pakistan)?

True, it’s kind of a back-door inheritance tax (which I thoroughly support).

This reform is so minor as to be almost beneath our notice. Long way for Chalmers to go yet. And I can be very confident in saying I won’t get to $3m!