Paxter

It's a tricky one. I have read many analyst notes over the years stating that CoCo bonds are impossible to value (or to risk rate) because it's not clear their position in the hierarchy will be respected. The triggers for writing off these instruments are very discretionary on the part of the authorities. As an aside, most bondholders of CS will have their position in the liquidation hierarchy respected. It's only the holders of these CoCos (largely big hedge funds, not your Mum and Dad) that will be losing out.

First Citizens all set to buy a decent chunk ($72bn) of SVB, with FDIC sharing in some of the loan losses. This is a decent outcome for FDIC, since they would have otherwise been on the hook to pay out all of the uninsured deposits being transferred under the sale. But this is still the world of "bail-out", not "bail-in".

Looks like I called “peak Labor” too early. We now have coast-to-coast Labor Premiers and Chief Ministers on the Australian mainland.

Seeing my partner's postal ballot just made me laugh for the zillionth time. It is folded over 6 times and must about 1 metre in length. How have we, as a relatively advanced and modern democracy, not figured out a better way to vote for upper house members? Anyway, enjoy your sausage sizzle today NSW folks.

Go Leafs go! (P.S. I have no clue about ice hockey).

The big difference with DB is that it’s decently profitable and even now is trading considerably above its market lows of a few years ago. CS was not, even before this tightening cycle. But who knows…could be the kiss of death as you say.

@Chataya de Fleury: Hope your stress levels fall soon. I'm still hopeful of avoiding a 2008-like situation. There are probably a few more roaches under the mattress, but at least as far as I can see, it's not an infestation :P. On a different note, this is pretty interesting (Source: FT):

I imagine FR will just replace those deposits with Fed funding, assuming they don't roll over. Deutsche's CDS spreads have blown out in the past day. No sign that the bank is experiencing the kind of customer outflows we saw with CS. Based on the share price action, I would guess no. What we are seeing is probably more of a repricing of the bank's fortunes based on the ECB tightening and future earnings projections.

This isn't really guaranteed influence. The Parliament and Executive can ignore The Voice as much as they want. As for unprecedented, many countries (particularly in Latin America) recognize indigenous people's rights in their constitutions. But I'm not sure if those protections include something like The Voice. And yes, this requires an amendment to the Aussie Constitution.

Trying to figure out what the playbook would be from now for First Republic and its regulators. At the moment, the bank is avoiding default thanks to a $30bn deposit from its larger competitors and access to central bank liquidity facilities (SVB never enjoyed these luxuries). The size of the bank's deposit outflows since the start of the crisis is not known precisely but is probably in excess of 40%. In theory, the bank could survive from here if deposit outflows stabilize further. The problem is that the bank's net interest margin going forward is completely shot, which turns the bank into a zombie. It will have to pay a market rate on the new funding that has come in (compared to the cheap funding that ran) while the asset side of the business is made up of underwater bonds and mortgages. Earnings in the future are likely to be terrible, meaning that this bank lacks a profitable future, unless it can somehow re-attract the cheap funding that just walked out the door. Unless a white knight sees some sort of franchise value in the bank and is willing to recapitalize the bank and absorb losses, I don't really see a happy ending here. Things could drag out for quite a long time thanks to the liquidity on offer, but eventually the bank will book losses and breach its capital requirements. I guess the only other saviour could be a return of cheap funding / massive cut in interest rates.

As Yellen said, an explicit backstop of the uninsured would require Congress to take action through legislative change. What we have now is an implicit backstop, in which the next bank to fail will (almost without question) be backstopped by FDIC using its systemic risk override.

Doing a bit of digging, my hopes of this referendum passing continue to wane. I am fairly confident the amendment will get majority support across the country, but of course we also need to consider the States (Guardian polling): I assume we have no idea about Tasmania, though I would hope for a better result there than in QLD. The lineball polling in QLD and WA is extremely concerning. Sadly, those are two states with proportionally large indigenous populations. I wonder whether they should have left the Executive out of the wording. Might scare off a few doubters (though personally I am in favour of the more expansive Voice).

Yeah I don't think this is a slam dunk for Labor. The Libs have done a good job of clinging to power and maintaining respectability in the polls despite a very long time in office and many retiring Cabinet members (Hazzard, Elliott, Dominello, Stokes). The rotating Premiers has probably been a good thing and kept things fresh for voters. Plus the economy and various infrastructure projects have hummed along in the last decade. I'll stick with predicting a very narrow Labor win. Kiss of death - sorry Minns.

And we have a referendum question (wording of the Constitution pending): What will our beautiful, perfect, fucked-up, weird-arse country decide? And what will our dear opposition leader decide for his magnificent party? I'm hoping overseas electors will be eligible to participate.

Differences in the the flow-through effect for mortgage rates are interesting. On the one hand, around 80% of mortgages in Aus are variable (compared to around 30% in Canada, 15% in the US). On the other hand, only around 30% of Australians have an owner-occ mortgage (everyone else either owns outright or is renting). In Canada and the US, this is more like 40%. In addition, while countries like Germany and the US tend to have very long-term fixed rate mortgages, other countries like Canada or NZ have much shorter fixed periods (similar to Australia). Probably the worst case is Sweden, with 43% of households being mortgagors and around 70% of those being on variable rates. Tough one for the Riksbank. ETA: I was reflecting on the low-ish Australian number of 30%. As an anecdote, none of me/my siblings nor the two generations above have ever had a mortgage. We all rent or (in my parents' and grandparents' case) bought property outright.

I wish I had opened a US-denominated bank account during the parity years…

You could argue the global financial stability issues are a weird sort of a win for the Reserve. The Fed will probably have a lower terminal rate now, which could give the RBA some breathing room. They were looking at significantly more tightening until the events of the last two weeks.

I disagree with the definition bolded above - the standard definition involves high rather than increasing unemployment. Of course, you may be right, and we may eventually get to high unemployment. But it's not baked in at this point.

Wikipedia disagrees!!

I always thought GFC was Global Financial Crisis? At least at work that’s what I am referring to. Great Recession is sometimes used to refer to what came after; a term that was used as a callback to the Depression. It’s nowhere near as widely used as GFC.

Kind of weird that it was faster to resolve a G-SIB (Credit Suisse) than a smaller regional bank (First Republic). It seems that US regulators are looking to the larger banks to orchestrate a solution, whereas the Europeans went down the forced marriage route very quickly. FR stock has fallen by 75% in the last 5 days, 90% year to date.

Yeah it's a good point @Chataya de Fleury. Some of the causes of this (and previous) crises are inherent in the way we structure modern financial services and are within our risk tolerance provided they are managed appropriately e.g.: Fractional reserve banking (and the risk of bank runs) Securitization of mortgages Banks (and other market participants) being susceptible to swings in market prices (including the interest rate) Other causes of this mess are bugs and things we shouldn't tolerate e.g.: Allowing banks like SVB and FR to run business models funded by a ton of uninsured deposits with inadequate liquidity coverage Large losses to crypto exposures (Silvergate; Signature) Inadequate controls; high management turnover; financial reporting irregularities (Credit Suisse)

Whoops. Memory fade.

If banks allocated a lot of funding into cash or cash equivalents, they wouldn’t be doing a great job of fulfilling their financial intermediation purpose. Obviously there is a trade off with liquidity if you aren’t sufficiently in cash or have access to funding lines, and regulators didn’t get it right for SVB. But the above study is hardly surprising.

A few points about the UBS takeover: The Swiss taxpayer is backing the sale. The government is guaranteeing losses incurred by UBS up to 9bn SF. Plus the central bank is providing a 100bn liquidity line (hopefully this is not needed). Apparently 16bn SF worth of bonds will be "bailed in" as part of the sale. This is a post-2008 innovation that allows creditors to bear some losses without going into liquidation. So at least some elements of the post-crisis framework seem to be working, though some will be howling that a portion of debtholders are losing out more than shareholders. UBS will probably be the fifth-largest bank in Europe by the end of this (by asset size). It's currently around 12th.