Ugh banks

[Iron1]

Both banks had a ton of cash deposits they were sitting on, and they bought bonds, in many instances, long term (10 year) gov't bonds at 1.5%. Nice and safe, right? Well.... yes, when interest rates are at 0.5%. But this is where the risk management people at these banks dropped the ball.

After Dodd-Frank was implemented after the 2008 banking crisis, banks with greater than 50b in assets were required to pass Federal OCC stress tests to prove their investment strategy could weather scenarios such as sudden interest rate spikes, amongst others. These stress tests are required to be done between February 5 and April 5 on even numbered years, most recently would have been completed by April 5 2022. Through Franklin Square Investments, SVB successfully lobbied Congress and the FDIC to up that threshold to 250b. When that partial repeal of Dodd-Frank was passed in 2018 (implemented Oct 2019), SVB and many banking institutions became exempt from having to prove their investment strategy could weather exactly what's happening in the economy. SVB controlled just over 209b in assets at the time of their demise.

Someone at SVB knew what they were doing was a ticking time bomb and instead of fixing that problem, lobbied to change the laws.

Out of the 2,124 banks in this country controlling $300m or more in assets, only 12 of them are required to pass economic stress testing.

"Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world"
Nobody is going to walk away from this with anything more than a slap on the wrist while billions of dollars quietly disappear into the void.

Stats for bank data:

FRB: Large Commercial Banks-- December 31, 2023

Data for FSI lobby spending:

Franklin Square Group Lobbying Profile

Lobbying profile for Franklin Square Group, a lobbying firm that has been hired by 28 clients in 2023 so far, for a total amount of $3,750,000.

www.opensecrets.org

Dodd-Frank stress test info:

Dodd-Frank Act Stress Test (Company Run) | OCC

These report templates collect quantitative projections of balance sheet, capital, losses, and income across three or more macroeconomic scenarios, along with qualitative information on methodologies used.

www.occ.treas.gov

 

[tommyguns2]

^^^ Very interesting. Thanks for the info!

 

[ceo]

What happened to Silver Gate is completely different than what happened to SVB and Signature. So I'd separate the two problems. The first one was crypto, so I put Silver Gate into the same camp as FTX. You live by the sword, you die by the sword.

SVB and Signature were relatively well-run, well-capitalized banks that both made the same, significant mistake. So I don't want to minimize that, but it's not like 2007, where you had issues where banks had no idea what they were sitting on. In this case, you can readily see this problem on a balance sheet.

Both banks had a ton of cash deposits they were sitting on, and they bought bonds, in many instances, long term (10 year) gov't bonds at 1.5%. Nice and safe, right? Well.... yes, when interest rates are at 0.5%. But this is where the risk management people at these banks dropped the ball. In 2021, interest rates were still low, but with inflation rearing its ugly head, the Fed started raising interest rates, and relatively quickly. I don't blame the Fed too much (although they waited too long to start, but that's Monday morning QBing), but with inflation approaching 10%, they couldn't be too slow on the rate increases. If Fed interest rate is now at 4.5%, holding onto a 10 year treasury with a 1.5% coupon rate isn't all that great. So SVB's ability to sell those bonds to generate the cash for their depositors daily cash flow needs (payroll, etc) got expensive, because they could only sell 10 year treasuries on the market for about 91 cents on the dollar. So , a 20 billioni dollar sell of bonds was going to cause a loss of $2 billion.

This isn't good, but it does happen, and a bank will typically sell additional stock to raise the capital needed. But their messaging was poor, several big VCs got their panties in a bunch, and you had a good old-fashioned, "It's a Wonderful Life" run on the bank.

Why SVB couldn't find a buyer with cash is what's causing me to scratch my head. If I'm Buffet (Berkshire Hathaway), siting on top of $85 billion in cash, I stroll in, buy a significant piece of SVB for pennies on the dollar, and make an extremely tidy profit. Why he or someone else hasn't done that is what's making me concerned. What do they know that I don't know? (likely a lot)

You didn't even factor in inflation! Right now the 10 yr Treasury yield is about 3.5%. The government says the current rate of inflation is 6.5%. It's a guaranteed 3% per year loss.

In theory: every dollar invested in 10 yr Treasuries would be worth $1.35 in 10 years. However, if inflation remains at 6.5%, that same dollar would be worth only 70 cents.

Commodities will boom. Oil, gas, copper, uranium, gold, lithium, aluminum, silver, etc.

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[Lil Ed]

what do you Stanley Druckenmiller mofo's think will happen to bitcoins.

 

[testboner]

Meanwhile, billions continue being tossed to the Ukranazis.

 

[jipped genes]

All 3 of those banks were heavily invested into the crypto market. I wish I could say I am surprised that banks heavily invested into an unregulated market were hit by the very same problems banking regulations sought to prevent.

Their business practices ran them into the ground and that's for them to figure out, leave my taxes out of it. I do not support privatized profits and socialized losses.

I'll never have enough money in any institution to worry about what happens to money in excess of the FDIC limit but I do worry about the future. The financial systems we rely on are showing signs of cracking and I'm not hearing enough about what's going to be done to fix it.

I'm sure another tax cut for the American Oligarchs will fix it all up...

Yep, crypto and tech startups. Crypto went bust and most tech startups fail so....

Also we got Yellen. (At least she will not bail them out, I was surprised)

 

[Yano]

Yea, his assurance definitely makes me feel better about the situation. I was getting pretty down and about to have a nervous breakdown over it all, but after he mentioned this, I feel better and like a million dollars again.

LOL

 

[Ogre717]

what do you Stanley Druckenmiller mofo's think will happen to bitcoins.

I'd be very surprised if crypto doesn't fall significantly because of all of this. This is what the government wants. They want it to fall so they can step in to "save it" and then be able to regulate it

 

[ceo]

I'd be very surprised if crypto doesn't fall significantly because of all of this. This is what the government wants. They want it to fall so they can step in to "save it" and then be able to regulate it

BTC and ETH are both up over 20% in the last 2 days.

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[tommyguns2]

BTC and ETH are both up over 20% in the last 2 days.

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Trying to "explain" why crypto rises/falls is almost impossible. However, I can't help but wonder if the gov't action to bail out SVB, while concurrently telling us that taxpayers aren't paying for it, is simply reinforcing many's belief that modern monetary theory (that believes you can print money without consequence) is beginning to take hold among gov't policymakers. Lord help us....

While the Fed can print money, you can't print BTC. There's only 21 million of them. In that respect it's a known amount of scarcity, while gold and other commodities, while scarce technically, have an unknown ammount of scarcity.

 

[Lil Ed]

will the Banks needing to be bailed out get the FED to lower rates?

 

[Ms.Wetback]

will the Banks needing to be bailed out get the FED to lower rates?

Probably not, but would induce them to slow (lower) the increase.