Paxter

That may be true of SVB or Signature, but not all of these regional banks are being grossly mismanaged. We have just seen the sharpest interest rate hiking cycle in 40 years. Small, less diversified banks (like, PacWest or Western Alliance) are always going to find it hard to maintain profitability and retain deposits in these circumstances. That’s business model risk rather than a criminal act. Ideally, banks would be holding some extra capital for this interest rate risk (known as IRRBB in regulation speak). But in reality, the capital that banks are required to hold is based more on other types of risks. You can expect much hand-wringing and finger-pointing over IRRBB in the next few years. ETA: Oh and I wouldn’t be surprised if some criminal charges are eventually laid over some of these failures. I don’t think this is a repeat of 2008 in that sense.

This is the moral hazard argument. Of course, if you simply let them fail, a lot of uninsured depositors are going to get hurt. Plus it risks causing more contagion to solvent entities.

My view is that the systemic guarantee of deposits is already in place and making it explicit won't change much. No way would Yellen protect SVB depositors and not PacWest. It's unthinkable. The reason for the "pick offs" is that the business model of these banks is essentially fried now that the cost of deposits has skyrocketed. I think M&A is really the only way to go here, just as it was in the S&L crisis. The other option is something like TARP that could be used to effectively recapitalize the regional banks...which takes us back to full-scale bail-outs.

The market still seems to be hopeful that Australia will avoid recession. But certainly the banks got slammed yesterday after the NAB miss on Net Interest Margin. Basically, the cost of capital is increasing more for the banks (they are very reliant on offshore wholesale funding) than their ability to extract higher income from their lending books.

This line from NAB's earnings call made me raise an eyebrow: Makes me wonder whether the borrowers are OK or if they simply didn't want to talk to their bloody banker :P.

ETA: Wrong thread.

I would still compare this situation more to the S&L crisis than to 2008. That is, we probably won't see bailouts of systemic institutions in the vein of TARP. But we may see a lot of deposit payouts, which nowadays are funded by the banks themselves (although it's true that the costs are passed on to bank customers). The exception so far has been Credit Suisse, which was resolved by a mixture of bail out, bail in (AT1 creditors written off, much to Isk's disgust) and UBS' balance sheet. That failure is straight out of 2008. ETA: Of course, this is still Phase 1. I think we definitely could see bailouts if we get to a full-blown credit crisis.

I'm still slogging through TGAT Part 1. Sigh.

So to @ThinkerX's point above...PacWest is under some serious pressure with the stock price tanking in the after hours. The positive is that this is a much smaller bank than First Republic. The negative is the continued contagion across regional banks and the worry that the next phase of failures is already upon us.

Predictable silence in this thread as the IPL plods along...but it has actually been a pretty good tournament so far. Lots of close finishes and a very even competition. It's difficult to pick a winner at this stage.

Demographic and homeowner status. Home ownership rates have been consistently lower for successive birth cohorts than older groups, so even though younger homeowners are hurt more by the recent monetary policy changes, fewer young people are directly exposed to them. As an example, just over half of people born between '87 and '91 didn't own a home between the ages of 30 and 34 (according to the '21 census). But two thirds of boomers did own during the same age bracket. Renters will, of course, end up hurting from the recent increase in rates, but the relationship is not 1:1, since not all investment properties are mortgaged and renters are somewhat shielded by fixed-term leases. Renters also have more flexibility than homeowners to manage their cash flows by finding a more affordable lease (difficult though that may be right now). Plus rents were increasing well before the rate rises, due to a massive shortage of available rental properties across the capital cities. This isn't the fault of rate rises. From a personal perspective, I am in a rent-controlled apartment. So the only way the landlord can pass on higher financing costs (the policy interest rate is now 4.5%) is to find a way to kick me out :P.

According to the ABS, average household liabilities went up from $146,000 to $203,000 during the period 2009-2020. That's a significant increase in nominal terms, but isn't actually that massive after adjusting for inflation / rising incomes during the decade. Plus, Australian households in aggregate are still sitting on a significant pile of liquidity post COVID. As a random anecdote, my parents haven't taken a vacation since 2018. Pre-COVID, they were probably spending at least $5,000 on travel each year. Those savings add up. Happily, they are finally getting out of Perth soon to visit me in Winterfell...

They surprised the market, but it's not really surprising on a quick scan of the macro environment. Inflation has likely peaked but is still running hot, unemployment is at historic lows and a floor needs to be put under the Aussie Dollar. Obviously Lowe is worried about hurting home-owning households, but the reality is that the role of the central bank in this situation is to continue to slow the economy. Oh and let's not forget - a cash rate of 3.85% is still not high by recent historical standards. In late 2011, the cash rate was 4.75%.

To get a repeat of the first three failures, we'd need to see the double whammy of unrealized bond/loan portfolio losses and large deposit outflows. The first factor is still in play. The decision by the US Govt to implicitly guarantee all bank deposits has helped stem the tide on the second factor. Unfortunately for First Republic, their relatively uninsured deposit book was already running by the time the guarantee was introduced. However: Even the implicit guarantee may not prevent depositors from gradually redistributing funds away from regional banks (e.g., on the hunt for a better return). This could, over time, lead to more zombie banks like FR. There are plenty of other things that could go wrong in the current environment outside of the bounds of the above "double whammy" situation. For example (and this is the scenario most of us who work in regulation are preparing for), we could start to see credit losses across portfolios exposed to the worsening economy. Or we could see the failure of a non-bank financial institution cause contagion to a systemic bank. Or we could get a flare up of geopolitical risks (debt ceiling, war in Europe) that shakes confidence in parts of the financial system. Or...plenty of other things :P.

First Republic ends up being the second-largest bank failure in US history, with assets just slightly higher than SVB. With this receivership, it’s possible that Chapter 1 of this crisis (or Chapter 2 if you want to include the LDI affair in the UK last year) is over. What next? Probably a test of credit quality in various key portfolios (e.g., commercial real estate).

The FT is reporting that JP, Citizens and PNC (all in the top 20 banks in the country by assets) have submitted bids to purchase the book of (presumably) failed First Republic. Whoever wins it will be getting a decent deal since the assets will likely benefit from a loss-sharing agreement. I don't expect any systemic jitters or further deposit flight outside of First Republic when the market opens tomorrow.

First Republic on a knife’s edge as we enter a potential resolution weekend / point of non-viability call. Separately, the Fed’s report on the SVB failure is out. A combination of causes highlighted, including Trump-era deregulation.

First time coming across Jacinta Nampijinpa Price ey? She comes up with plenty of gems including:

Just in case you haven't read enough about my favourite hobby horses lately, here's another, relating to the $243bn tax cut (over ten years) that the Albanese government is about to let sail through: These tax cuts are set to reshape Australia's budget - ABC News

First Republic stock cut in half today. It’s possible we are heading for yet another resolution weekend, with either an orderly wind down or maybe a good bank/bad bank emerging on the other side. Contagion risk should still be relatively low with the implicit deposit guarantee in place.

First Republic down after hours today today after reporting a 40% deposit flight in the first quarter. Ouch. I’m not sure what the end game is. Orderly wind down/shrinking over a few years? Sweetened sale? Continued deposit outflows and shutdown?

So you're telling me that Exxon just needed to raise its dividend and return massive wads of excess cash to shareholders last year (at the expense of consumers), because without it there would have been a shortage of oil? I don't buy it. There is a fair amount of margin expansion going on because businesses are passing on more than the increased cost of production to consumers. And consumers are fucked because many of these goods and services are necessities. Now I agree that the underlying source of the problem is an imbalance between demand and supply. But the "symptom" is quite grotesque in that businesses' profits are preserved while the consumer loses out.

Vale Burry Humphries.

I am not at all disputing that easy money and supply chain constraints have been the primary sources of inflation. But profiteering from the oil and gas industry (for example) hasn't helped. As you said - in cases with highly inelastic demand, it is pretty easy to increase margins.

Dealing with inflation would simply be raising prices to preserve current margins. Margins have been going up. It’s exploiting inflation, not just reacting to it.