Banks on the Brink: 2023 Mini-Crisis

[Secretary of Eumenes]

39 minutes ago, ThinkerX said:

Nah. Bipartisan vote done behind closed doors late at night with no press whatsoever.

I would like to draw attention to the disparity in response to the -preventable- derailment of a train spewing toxins (actually threatening lives/livelihoods/homes) and some Accounting Pirates tasting nature for the first time in their cushy fucking lives 

And I'm so over hearing about how "this isn't a bailout" already 

Last time I looked the FDIC insured up to a quarter-million... but I guess that's only for the non-millionaires right? 

Great to know

[Paxter]

Looks like Swiss authorities will force through the UBS takeover of CS. Probably a good outcome for financial stability. Will need to look at the details to see what this means for banking competition, and the size and prospects of the new UBS.

[Zorral]

17 hours ago, Secretary of Eumenes said:

I would like to draw attention to the disparity in response to the -preventable- derailment of a train spewing toxins (actually threatening lives/livelihoods/homes) and some Accounting Pirates tasting nature for the first time in their cushy fucking lives

Why is it the professional money people in all the sectors who are tell us financially stupid people what is what with money, investment, futures, etc., why are They the first people who lose their shirts when the financial sector blow out its shyte?  Why do we listen to them at all? (I don't, but then what does a humanist know, ya know?)

[Paxter]

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. 

Edited March 20 by Paxter

[Tywin et al.]

This doesn't sound good:

Quote

On the heels of Silicon Valley Bank’s collapse earlier this month, 186 more banks are at risk of failure even if only half of their depositors decide to withdraw their funds, a new study has found.

That is because the Federal Reserve’s aggressive interest rate hikes to tamp down inflation have eroded the value of bank assets such as government bonds and mortgage-backed securities.

“The recent declines in bank asset values very significantly increased the fragility of the U.S. banking system to uninsured depositor runs,” economists wrote in a recent paper published on the Social Science Research Network.

https://www.usatoday.com/story/money/personalfinance/real-estate/2023/03/19/svb-collapse-new-banks-could-fail/11504269002/

[Paxter]

1 hour ago, Tywin et al. said:

This doesn't sound good:

https://www.usatoday.com/story/money/personalfinance/real-estate/2023/03/19/svb-collapse-new-banks-could-fail/11504269002/

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.

[DireWolfSpirit]

50 minutes ago, Paxter said:

But the above study is hardly surprising.

Its literally the same study we posted and commented on Saturday.

[Paxter]

6 minutes ago, DireWolfSpirit said:

Its literally the same study we posted and commented on Saturday.

Whoops. Memory fade.

[Chataya de Fleury]

20 hours ago, Zorral said:

Why is it the professional money people in all the sectors who are tell us financially stupid people what is what with money, investment, futures, etc., why are They the first people who lose their shirts when the financial sector blow out its shyte?  Why do we listen to them at all? (I don't, but then what does a humanist know, ya know?)

What you and other people who like to bemoan “accounting pirates” and such do not realize is that if we did not have things like modern financial instruments, such as securitizations, it would be the 1970s all over again when buying something like a house.

In my musings, below, I’m going to give you an example based on “you” applying for a plain vanilla Agency-eligible Mortgage.

If there were no RMBS market, rather than doing a literal two-minute application for pre-approval on Rocket Mortgage, you would have to schlep loads of financial documents down to your local bank for a financial colonoscopy performed by a loan officer. This would take weeks. Just to get a pre-approval. You might even get questioned on some of your income and expenditures in excruciating detail.

Your mortgage rate would also be much higher than it is now, because that mortgage would not be sold by the bank to generate liquidity.

 

 

[Paxter]

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)

Edited Monday at 05:09 PM by Paxter

[Rippounet]

26 minutes ago, Chataya de Fleury said:

What you and other people who like to bemoan “accounting pirates” and such do not realize is that if we did not have things like modern financial instruments, such as securitizations, it would be the 1970s all over again when buying something like a house.

In my musings, below, I’m going to give you an example based on “you” applying for a plain vanilla Agency-eligible Mortgage.

If there were no RMBS market, rather than doing a literal two-minute application for pre-approval on Rocket Mortgage, you would have to schlep loads of financial documents down to your local bank for a financial colonoscopy performed by a loan officer. This would take weeks. Just to get a pre-approval. You might even get questioned on some of your income and expenditures in excruciating detail.

Your mortgage rate would also be much higher than it is now, because that mortgage would not be sold by the bank to generate liquidity.

With all due respect, that's a lot of bullshit.

"Loads of financial documents" ? Generally it's three salary slips and tax returns. All of which can be sent to a banker electronically. Sure, it takes a few weeks for the bank to process the data and offer a loan proposal (about 6 here, on average), but saying it's a "financial colonoscopy" or that you can be "questioned on your income and expenditures in excruciating detail" is a big load of crap. In my experience it's two fifteen-minute interviews with the guy, and one of those interviews isn't even mandatory.
There's actually more paperwork involved to deal with the fucking insurance, because they do want a lot of information on your health history.
As for the mortgage rate being "much higher"? Ha, I call bullcrap on that one too. I got a 100,000€ at 1% fixed interest rate some years ago. Because regulations on fancial fuckery, that's why.

Fact is, finance is a solution to problems that shouldn't exist in the first place, and that are generally solved efficiently in countries that don't overly rely on "modern financial instruments" or are just healthily mistrustful of finance.
But that's a political choice, i.e. whether your country believes it's desirable and/or moral to have some people making money with money.
And of course it's actually not (desirable or moral), because the "market" is really just some twats playing monopoly with everyone's money and then wanting government bailouts whenever they screw up.
That's why France is paralysed right now btw. We don't want complementary pension plans through financial assets, fuck that shit. The good ol' socialistic plans work fine, thank you very much. Get your financial instruments out of our country for fuck's sake.
I wouldn't hate finance so much if it wasn't trying to screw my life up on a regular basis.

 

[Chataya de Fleury]

1 hour ago, Rippounet said:

With all due respect, that's a lot of bullshit.

"Loads of financial documents" ? Generally it's three salary slips and tax returns. All of which can be sent to a banker electronically. Sure, it takes a few weeks for the bank to process the data and offer a loan proposal (about 6 here, on average), but saying it's a "financial colonoscopy" or that you can be "questioned on your income and expenditures in excruciating detail" is a big load of crap. In my experience it's two fifteen-minute interviews with the guy, and one of those interviews isn't even mandatory.
There's actually more paperwork involved to deal with the fucking insurance, because they do want a lot of information on your health history.
As for the mortgage rate being "much higher"? Ha, I call bullcrap on that one too. I got a 100,000€ at 1% fixed interest rate some years ago. Because regulations on fancial fuckery, that's why.

Fact is, finance is a solution to problems that shouldn't exist in the first place, and that are generally solved efficiently in countries that don't overly rely on "modern financial instruments" or are just healthily mistrustful of finance.
But that's a political choice, i.e. whether your country believes it's desirable and/or moral to have some people making money with money.
And of course it's actually not (desirable or moral), because the "market" is really just some twats playing monopoly with everyone's money and then wanting government bailouts whenever they screw up.
That's why France is paralysed right now btw. We don't want complementary pension plans through financial assets, fuck that shit. The good ol' socialistic plans work fine, thank you very much. Get your financial instruments out of our country for fuck's sake.
I wouldn't hate finance so much if it wasn't trying to screw my life up on a regular basis.

 

How old are you? 

I’m near 50, and when I was 21 and working at a bar in the early 90s, I had colleagues who were applying for old-fashioned mortgages where the bank literally wanted to see copies of cancelled checks. 

You speak of “uploading documents” and, sure, technology helps - no one is schlepping around banker boxes anymore. But, it is true that the securitization of mortgage loans has created less hassle - the three paystubs of which you speak.

Much like how credit bureaus - as much as we hate them - have expanded access to credit. Back in the days before credit cards were widely issued, people would literally have credit accounts at various local merchants, who would send a bill on a monthly basis. I grew up that way, with my parents paying the bills on a monthly basis from the gas station or the shoe store. 

Sorry that you don’t like all this, but it’s not bullshit. Just like how I don’t like standard social media and choose not to participate in Twitter or Facebook - those things are no less real, as is their impact on society.

[Ser Scot A Ellison]

Is this an ad for SVB… before it’s time?

 

[Paxter]

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. 

[Clueless Northman]

3 hours ago, Paxter said:

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. 

It was quicker because there just was just another single big bank around in Switzerland. Other options were government taking over, or splitting it up in several parts - speculative investment arm would go bankrupt in a heartbeat, local depots and wealth management would become a successful smaller bank -, or sell it to a foreign big gun, like Blackrock, Barclay's or Deutsche Bank (that one was a joke). Selling abroad would be another political suicide for the government. So they just had to nudge UBS by making an offer they couldn't refuse. In the US, there's half a dozen (or most probably a dozen) banks that could buy First Republic.

[Chataya de Fleury]

3 hours ago, Paxter said:

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. 

I actually am literally not allowed to trade most regional bank stocks - and certain other stocks. 

So, I am not commenting on stock prices, especially individual stocks, so, please take this as a macro comment:

The volatility on a lot of stocks during this particular time is going to be HUGE. 

[ThinkerX]

4 minutes ago, Chataya de Fleury said:

I actually am literally not allowed to trade most regional bank stocks - and certain other stocks. 

So, I am not commenting on stock prices, especially individual stocks, so, please take this as a macro comment:

The volatility on a lot of stocks during this particular time is going to be HUGE. 

TARP II time huge?

[Chataya de Fleury]

18 minutes ago, ThinkerX said:

TARP II time huge?

Definitely going to say that the current environment is what it is, and volatility can be 100% expected.

My personal hope is that we are not living through even more interesting times. As many of us who lived through it well remember, 2008-2009 was terrifying. Fucking terrifying.

I hold out the hope that this current seeming / potential crisis is an isolated response to the INSANE FED RATE INCREASES. All caps on that in case your name is J-Pow.

[Tywin et al.]

14 minutes ago, Chataya de Fleury said:

My personal hope is that we are not living through even more interesting times. As many of us who lived through it well remember, 2008-2009 was terrifying. Fucking terrifying.

You're cute. This is just the beginning. Times will get real interesting when literally hundreds of millions of people are displaced because of the climate crisis while at the same time wars over mineral resources break out all over the world. 

[Chataya de Fleury]

35 minutes ago, Tywin et al. said:

You're cute. This is just the beginning. Times will get real interesting when literally hundreds of millions of people are displaced because of the climate crisis while at the same time wars over mineral resources break out all over the world. 

I will be dead by then.