Banks on the Brink: 2023 Mini-Crisis

[ThinkerX]

59 minutes ago, Paxter said:

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.

The claim goes the reason for outsized CEO compensation is for their alleged expertise. However, when that 'expertise' leads directly to the institution in severe financial trouble, it looks like they walk away with no penalties whatsoever. To me, that is wrong. Criminally wrong. They mismanaged the business, inflicted havoc, and suffer no consequences for that.

[Paxter]

1 hour ago, ThinkerX said:

The claim goes the reason for outsized CEO compensation is for their alleged expertise. However, when that 'expertise' leads directly to the institution in severe financial trouble, it looks like they walk away with no penalties whatsoever. To me, that is wrong. Criminally wrong. They mismanaged the business, inflicted havoc, and suffer no consequences for that.

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.

Edited May 4, 2023 by Paxter

[Paxter]

Regionals rallying hard today. Plenty of industry insiders are blaming the volatility on short-sellers’ vulture like behaviour (especially shorting ETFs). I am less scathing of the shorting - at the end of the day it’s fair game to make a bet on the future viability of banks with questionable business models.

Ultimately we are likely to see significant consolidation as more of these regionals reach attractive valuations. In the meantime, margins and profits are going to be squeezed for the foreseeable future. 

At least no resolutions this weekend!

Edited May 5, 2023 by Paxter

[ThinkerX]

2 minutes ago, Paxter said:

Regionals rallying hard today. Plenty of industry insiders are blaming the volatility on short-sellers’ vulture like behaviour (especially shorting ETFs). I am less scathing of the shorting - at the end of the day it’s fair game to make a bet on the future viability of banks with questionable business models.

Ultimately we are likely to see significant consolidation as more of these regionals reach attractive valuations. In the meantime, margins and profits are going to be squeezed for the foreseeable future. 

At least no resolutions this weekend!

CEO: For my brilliant leadership in this time of crisis, I hereby award myself a 20% increase in compensation. I am also trimming the staff by 5%.

[Iskaral Pust]

As I mentioned before, the real challenge for banks is that their cost of liabilities is going up above the yield on their assets: either they need to offer higher yield on deposits to compete with money market funds or else they need to pay market rates to the Fed window.  This is happening just as their assets — mostly Treasury bond or MBS holdings and existing loans made mostly to commercial real estate — have dropped in value.  An inverted yield curve means their assets yield less than the market rate for liabilities.

If enough oblivious depositors leave their money in the bank at zero interest (well below market yields, now at 5%) then the regional banks will muddle through.  But if enough depositors get skittish about the health of the bank (so the bank loses deposits and has to replace them with Fed borrowing at market rates) or just expect to get some interest on their deposits, then it will get tougher for the banks.

The Fed can backstop runs on specific banks to protect depositors but they won’t be making whole these operating losses incurred by the banks.  Bank investors are really hoping the Fed will switch to cutting interest rates very soon.  A prolonged monetary tightening will mean a longer period of losses.

[ThinkerX]

Another wobbly Domino? Not sure I buy the 'protecting against scams' explanation.

 

Major Bank Demands Customers Prove Withdrawals Are Valid, Warns Cash Can Be Refused At Will (msn.com)

 

[Wilbur]

3 hours ago, ThinkerX said:

Another wobbly Domino? Not sure I buy the 'protecting against scams' explanation.

 

Major Bank Demands Customers Prove Withdrawals Are Valid, Warns Cash Can Be Refused At Will (msn.com)

 

That is some horse$hit right there.

Who gives a good goddam what I plan to do with the money?  It is my money, hand it over now.

This happened to me a couple decades ago with Wells Fargo, and I closed all my accounts with them.