I kept my money in FR even when they were at risk because they have been BY FAR the best financial institution I've ever worked with. They gave me a mortgage rate much better than any other bank was offering. When my appraisal came in a bit lower than was required for my desired loan size, they got an exception. When I need something, I email or text one of the two people there who I know by name and they immediately take care of it. I needed a new ATM card, so I pinged my guy at FR and had a new card the next morning. The web portal is fine - basic but does everything you need and does not bombard you with internal quasi-ads like Bank of America does. When I wanted to set up a particular kind of new account I talked to one of my people there, and they explained how they would do it but basically advised I'd be better off doing it at another bank. They never tried to upsell me or push junk onto me. It's really a nice place to do business.
And in the end, though I have a meaningful amount there, it is within the FDIC limits, so a crash should turn into an inconvenience rather than a financial disaster.
Not really, no. Like SVB, FRCs problem was just having too high a percent of uninsured deposits (rich customers, basically). When rumors started that they were next, unlike SVB they were actually a healthy, well run bank. But no bank can handle losing more than half their deposits. It killed them.
Yikes regarding the low appraisal waiver... This is the entire point of appraisals - to protect the bank from over-lending and the taxpayer from the moral hazard of having to bail out poorly run banks.
In Canada where we have a couple large banks and no real choices or competition, that sounds like a dream. Unfortunately it looks like the U.S. is moving rapidly in that direction too. That’s a shame. I can tell you, it’s much worse when a small number of giant companies control the market and lock out competitors.
This is interesting. Competition aside, I would think that having fewer big banks is worse than many smaller banks because big banks become “too big to fail” such that tax payers end up needing to bail out the bank itself (rather than stopping with the depositors). I’m surprised to hear this is how the Canadian system is set up?
The credit union system is still fairly strong in this country (at least in my area), but we do seem to be hollowing out the middle between the small credit unions and the massive banks.
Used to bank with First Republic when I lived in CA and always had very good experiences. Unfortunately, in banking, a high degree of customer satisfaction can be a side effect of practices which ultimately land the bank in trouble.
Unfortunately, the party of freedom and business decided to roll back financial regulations that allowed a corrupt and incompetent bank (SVB) to run itself out of business and trigger a bank run.
Even a coauthor of the Dodd-Frank act said that the repeal didn't contribute.
> "I don't think that had any effect," said Frank, who retired from Congress in 2012. "I don't think there was any laxity on the part of regulators in regulating the banks in that category, from $50 billion to $250 billion."
Should we bring up 2008-2012 again? Shall we discuss what’s about you happen with subprime mortgages (again) or the current financial issues the country is facing?
This seems like a silly thing to say when it’s the left focusing on getting people into houses or otherwise spending money they can’t afford.
The feds are stuck trying to tame inflation, and the skyrocketing interest rates are crumbling regional banks. Big banks are a lot more hesitant to lend to small businesses, and many otherwise viable businesses will fail if credit freezes.
Big banks are getting even bigger as depositors flee, and concentrating risk (even more) imo.
I guess the higher interest rates are doing their job in slowing the economy down, but it's wild that we're stuck with whatever the feds do with their blunt toolset because congress is seemingly dysfunctional.
Tax the rich. That is the fastest way to get excess money from inflation out of the system. All of the rhetoric about $1400 checks being the problem is just smoke and mirrors. The trillions of dollars of PPP loans, money printing for corporations, etc. was the real problem. That excess money needs to be taken back and wealth taxes would do it.
Inflation is excess demand for goods and services. We raise interest rates in an inflationary environment because we want people to accumulate wealth in the form of financial assets instead of spending on real things.
Raising taxes on high-income people could help if it goes far enough that we actually reduce our consumption. High income people have low marginal propensity to consume - that’s why it’s better to give regular people money when you want stimulus. Tax hikes targeted at the very high income would have to be very steep, or they’d just be absorbed by lower savings rates.
As long as we’re entertaining weird taxes, progressive consumption tax is probably what you want here. Special sales taxes on big ticket luxury items (cars, boats, watches, etc) could also do the same thing a little less elegantly but in a more familiar way.
Wealth taxes are a not the best idea. Being taxed on something illiquid that can’t generate cash flow is the pinnacle of dumb taxation. For example, you have a piece of art. You’d have to sell something just to hold onto the art, and if you don’t have anything to sell, you’d have to sell the art itself just to pay for ownership of the art. It would make some sense to increase capital gains taxes instead of slapping people with a wealth tax. I say this as someone that would not be hit by a wealth tax.
Also, the rich can simply move assets out of the country, and then you erode the very thing you want to tax.
Every year there are new "tax the rich" plans and some become law. Over the long haul, the government just blows the money and asks for more. Theses schemes are easy to sell to the voters but all they really do is let the government spend and waste more.
> All of the rhetoric about $1400 checks being the problem is just smoke and mirrors.
It was far more than $1400 checks. Student loans are STILL paused for goodness sakes. $3000/yr per child given to families. The enhanced unemployment checks were larger than regular checks for some people - even my wife who makes Ok money broke even without having to work for several months. For a couple years there was 2.5% 30yr mortgage financing and refinancing for everyone. That's just off the top if my head. It wasn't all for corporations, an insane amount of cash was thrown at regular people.
The $300,000,000 of stimulus checks was to ensure the population would pass the
$6,100,000,000,000 of funding.
It worked great, every tax payer got a few thousand and an indirect +$40,000 tax bill (the government has to get money from tax payers for it) they will be paying out PLUS inflation and other side-effects for years to come.
Props to the rich for figuring out how to bait the people.
The rich are not driving inflation from consumption, the middle class is. The top 1% has 40% of the wealth, but they aren't buying 40% of groceries, gas, and consumer goods.
Money sitting in a bank accounts doesn't drive inflation, consumers spending money does.
> The feds are stuck trying to tame inflation […] and many otherwise viable businesses will fail if credit freezes.
That’s what “taming inflation” means. It means cooling off the economy, which means that businesses which would otherwise be viable fail, reducing demand, reducing upward pressure on prices.
To the extent that unexpected banking issues accelerate this, within a fairly wide band, from a monetary policy perspective that just means the Fed can back off the brake pedal a little sooner.
I think more to the point was that much of this pain from the feds blunt toolset wouldn’t be necessary if congress could cooperate on a fiscal & monetary policy.
Honestly? They've got to let the damage happen. Were in this mess because every time we got close to a recession the central banks would cut interest rates to keep the economy going, more money would get pumped into the economy and asset prices would keep on rising. We need a recession to kill inflation, destroy unproductive assets and give us room to grow again. The aversion to recession is destroying us.
The aversion to recession comes from people disliking the idea of losing their job, house, way of life, hell maybe even their family. This is like saying some people need to suffer and lose everything for the greater good.
> Resume student loan payments and inflation goes down in a couple of months.
But... inflation already has gone down. Oh, yeah, everyone cites the headline 12-month trailing inflation, but if you look at the monthly data, the high inflation period was sometime in 2021 (where depends on if you look at CPI, as is most often cited, or PCE, which the Fed uses) through the first half of 2022.
While I don’t think it would fix the problem, the fact that I’ve yet to hear a single source in the media take the Biden administration to task for this is absolutely ludicrous. Feeding gas the the fire for votes is absolutely appalling.
if they increase spending, you get more inflation, and then they have to eventually pay higher rates on their own debt
if they cut spending, they can deflate the economy, and they can't attract the tax revenues to pay their own debt
no good options in a society that has OD'd on debt since the mid 90s
if we were honest, the President would go on TV and tell us we are just going to be poorer for a while, which is something most people already know anyway
core pce just printed at 4.6 and ur worried about deflation?
services inflation printed at 7.3% and ur worried about deflation?
that's not a valid opinion atp. we're so far from overcorrecting its scary. spending is still up over pre corona levels. ppl still drawing down excess savings. bank crisis is a real concern and prob reads through to equivalent of a few rate hikes (slok @ apollo says 150bps, most say lower)
> if they increase spending, you get more inflation, and then they have to eventually pay higher rates on their own debt
You can spend in a dis-inflationary manner: increasing production capacity, facilitating resource extraction, and generally anything that helps on the supply side of things.
But absolutely, given the current Administration and the Democrat agenda, this is anathema. If anything they would rather spend to destroy supply as much as possible, since this is generally what the SDG, DIE, and Green agendas consider "success".
A great example is the Inflation Reduction Act. The "green" portions were estimated to cost $390 BB initially, but are now estimated to cost $1045 BB (yes, over a trillion dollars), and this number will almost certain go up[1].
Not a penny of it goes to anything that would increase supply of what you'll need for the "green" infrastructure, it's all pure demand, the bulk of it EV incentives. You would have trouble coming up with a more inflationary plan if you tried.
This is so easy. Increase corporate taxation. Increase the minimum corporate tax rate from 15% to 50% until taxation comes down. Prohibit share buybacks.
If necessary put in a temporary price and wage freeze. This was done under Nixon.
for starters adopt a Canadian style banking model. The country largely runs on 5 very tightly regulated banks that haven't gone bankrupt in a hundred years. These regional banks fall over in every little crisis and they always end up being bailed out anyway (see SV bank), so you might as well consolidate the sector for good.
Lots of credit unions in Canadian traditional finance (taking deposits, making loans), and they haven't been failing left and right.
I think a bigger diff is that Canada doesn't do 15/20/25 year fixed rates. Usually at most 5 years fixed and then you renegotiate and see what you can do. And a lot of variable rates.
My fear is not these "small" banks failing. It's that everyone runs to the top 3 large ones and they will get so huge that their failure will be unthinkably bad. Even if they do not fail their power to for example debank people would be a huge problem. Sadly I don't see congress breaking them into small units or adding stronger regulations.
When SVB was failing, I told anyone who would listen we need 100% FDIC insurance for all normal bank accounts. The usual response was we need to punish startups for being reckless, and we need market forces to encourage banks to be well-managed. It turns out having the time or know-how to identify poorly managed banks is rare (and if you did, you should be in the business of short selling, not making widgets), but we all know which banks are too big to fail, so just move your money there.
There is a reason we don't want billionaires to feel safe with their assets sitting places. We want them actively using said assets to make the world better. Not just living off of leveraged value forever.
To that end, I'm not sure I see good argument for 100% protection. Money sitting in a bank deposit only creates wealth if we have the banks actively lending. And, annoyingly to me, the largest form of this for the "too big to fail" banks seems to be credit card schemes. Which I actively despise, at the moment. It also incentivizes banks to hunt out places to loan money. Which is why we have ridiculously complicated securities to back mortgages. The amount of those that have been made is only "safe" for the banks with a ton of the extra machinery they have put on top. Which has costs.
Edit: I should add that I'm not 100% on my stance here. Would love to be challenged on any of the above. Can only help my understanding.
It isn't like these banks are really that badly run. They've just inherently got interest rate exposure. It isn't like the 80s S&L crisis or the 2009 financial crisis where the paper was backing bad investments or mortgages which had defaulted. The problem is just interest rate risk and that the current value of the paper has gone down. That only creates a problem if the bank is forced to sell those assets, and if there wasn't a classical bank run then the bank wouldn't be forced to sell those assets. This is exactly the kind of borrow-short-lend-long risk that all banks inherently run and is why we supposedly have the FDIC to stop these kinds of bank runs. SVG had worse issues where their deposits were inherently draining due to the startups using them for their corporate accounts, and then they went out and sold some of their paper, booking their losses, instead of looking for financing.
For those looking for the punish-the-rich morality play, the real winner here is likely to be JP Morgan or PNC which may bid to buy up the assets, which is just the rich-getting-richer and a large bank swallowing up a smaller community bank and more consolidation and monopolization of the financial sector.
In reality, there is no such thing as a "bank" in the sense that it's a big vault of money so you don't lose it in a house fire.
Every bank today is really a Highly-Levered Bond Fund. If we increase FDIC insurance to 100%, without commensurate changes in what banks are allowed to do with customer deposits, this seems like it would create a moral hazard where banks would be allowed to do all kinds of crazy shenanigans because they know they'll be bailed out.
To be clear, I'm for 100% FDIC insurance, but if we get this without getting much more stringent duration risk transformation standards (e.g. don't load up on long-dated treasuries in a low-rate environment), I think it could actually make the banking stability issue worse :(
> It turns out having the time or know-how to identify poorly managed banks is rare
The intended solution isn’t for you to vet your banks, it’s to not exceed the insurance cap. People appear to be willfully ignorant of this.
No, it’s not hard to stay under (cash sweeps and money markets exist). Yes, these products are actually beneficial and not just accounting tricks (cash sweep diversifies bank’s depositors as well, reducing systemic risk).
Bank depositors should have a choice depending on their risk tolerance. There should be fully insured accounts which charge a fee to safely hold your money. And there should be uninsured accounts which pay interest. But the notion of earning interest on insured accounts is essentially financial alchemy: it appears to create something from nothing and ends to causing serious moral hazards.
The FDIC Fund has to know how much cash to keep on hand to cover total insured deposits. The minimum is something like 1.35% of all insured deposits if I'm not mistaken, which they have actually been under for a while now. If all deposits are covered 100% the find would have to be dramatically larger, do they just take AL of that from the banks immediately?
>I told anyone who would listen we need 100% FDIC insurance for all normal bank accounts.
I'm not an accountant, but the fine print does say "Up to at least $250,000.00.", so FDIC insuring the entirety of savings like they did this time around isn't exactly unexpected. They kind of need to if the goal is to shore up the commons' trust in banking, anyway.
This all being said, it doesn't take a rocket scientist to understand it's a bad idea to keep all your eggs (savings) in one basket (savings account). If you're fortunate enough to have enough liquid funds that all of this is a significant concern, definitely consult an accountant about spreading those funds around to mitigate damage and not lose out if the FDIC decides covering the entirety of savings is not something they want to do on that particular day.
"Normal" bank accounts do not have more than 250k. The only thing that should change is that the limit should apply to one's total assets in all FDIC banks, not per bank.
> that everyone runs to the top 3 large ones and they will get so huge that their failure will be unthinkably bad
Outside BofA, their balance sheets are healthy. There isn’t serious speculation of contagion out of the regional banks. We put in place regulations to prevent this after 2008. Numpties rolled it back for “community banks” in 2017 [1], and that’s why we have this problem.
Woah, let's not over-exaggerate in times like these. Bank of America has about $110bn of unrealized losses on HTM securities, but that is against $200bn of Tier-1 capital. Comp that to SVB who had $16bn of unrealized losses against about that much Tier-1 capital.
BoA has a worse balance sheet that peers, but not an unhealthy one.
Neither regulations or good capital and liquidity ratios helped Credit Suisse. Banking is about trust, if people are getting worried about you, it doesn't matter what your financial statements say, you are done.
That's a long term issue, but the contraction of credit is my shorter term concern. When deposits flow out of regional banks into big banks, it limits the capacity of those regional banks to fund themselves and forces them to cut lending (not the least to not consume their liquidity).
On the other hand the big banks might receive more deposits but they can't lend it either because they are constrained by capital requirements, not funding.
So logically you should have a contraction of credit, which combined with higher rates, is going to be ugly. Clearly the markets aren't pricing that right now.
SVB had some idiosyncrasies with its customer base that most banks don't, so I understand why it failed.
I didn't think First Republic was big in the startup space, so I'm curious what got them. I know they hold a lot of mortgages on their own books, but other than that, was it just another bank run? Was it exasperated by their customer base becoming very aware of FDIC limits and the potential of failures because SVB was in the same region? The median Fifth Third customer doesn't have $250k, and sees all of this as "rich silicon valley problems."
It was mainly just the mortgages. The quirk is that they marketed to extremely high-net worth homeowners—I think this is the penthouse condo crowd. In order to attract them, they offered 3% interest-only loans. Without principal pay down, these mortgages are more sensitive to interest rate rises, leaving the bank with roughly $35bn in losses as interest rates have been rising. They have been insolvent for several months, but a typical bank didn’t have losses on their mortgages which were nearly so steep.
As compared to SVB, this is the same basic situation: interest rate losses led to insolvency, which could be temporarily ignored because they were “small” banks. However, once deposits started fleeing, the losses could not be ignored when they needed to sell the impaired assets for actual cash.
They have been in limbo for a few weeks thanks only to the injection of $30bn from other banks.
Another similarity in the two banks’ situations is that the same catalyst of rising interest rates cause asset losses and drive deposit flight.
It’s a weird quirk of accounting that they are allowed to ignore these losses for the life of the assets. But the other extreme is weird too, because sometimes the market value of assets can undergo a “V” shaped dip before recovering, and it would be bad to make a bank insolvent because some flash crash. The accounting rules try to split the difference by letting the bank partition its assets into buckets that take losses immediately, or at the end of life of the asset. This is an easily abused system.
It seems, hopefully, that the three failures were exceptionally badly run banks, and that this doesn’t indicate a wider wave of bank failures. Not yet.
> They have been in limbo for a few weeks thanks only to the injection of $30bn from other banks.
This will be weird/interesting. JP Morgan know what it's doing. It looked at First Republic's books before doing this. So either JP Morgan was wrong or there was a deal that they'll be made whole if First Republic goes under. It almost has to be the latter because JP Morgan's only incentive to make the deposit is promoting the appearance of financial stability.
Genuinely curious: How are these mortgages more sensitive to interest rate rises than average? I’m sure I’m missing something but it seems like a mortgage on the books is a done deal, so long as the homeowner pays up.
Wild. I wrote a "junior equity analyst" autonomous agent and this was the reply a couple of days ago "First Republic Bank's growth prospects may be limited by its narrow focus on high net worth clients, which may not provide sufficient diversification in the event of an economic downturn. Additionally, the bank's high cost structure and low efficiency ratio may make it vulnerable to margin compression and increased competition. Finally, the bank's exposure to the California real estate market may pose significant risks in the event of a housing market downturn. "
First republic had a lot of high net worth individuals. Similar to SVB their high bank balance made a percentage of them moving away very damaging and it looks like it accelerated.
With a regular bank, you would have much smaller accounts so a proportional number of accounts leaving Wells Fargo would have less of an effect.
It seems the trillion dollar coin idea is being spoken about more seriously than both raising taxes and cutting spending at the same time.
I do wish we'd do that though. Seems like the adult thing to do, and it's the sort of compromise that would get me emotionally on board with my taxes going up. We could start the cutting with the Defense budget, but I won't hold my breath.
You call passing a bill through Congress "immediate", and you think it can be "undone quickly"? I think the long-term budget deficit is too high, but the budget process is not responsive enough to be used to control inflation. (It's also too slow and clumsy when used the other way, as fiscal stimulus.)
One way of using the deficit deliberately as an economic control dial would be for Congress to grant the Federal Reserve the authority to adjust payroll tax rates within a given range. I doubt this could ever happen politically, though.
People can dodge taxes, and the blame for spending cuts falls directly on the government which is politically dangerous to them. Raising interest rates is crude but very very effective, it's what crushed the high inflation of the 70s
They've been cutting spending for 40 years now. Unless they are going after the military budget, the spending isn't a problem (at least, the amount isn't). It's the lack of taxation and enforcement to fund it.
The last thing we need is to raise taxes, which would further hamper our economy when we need growth in the face of rapidly growing China and the East.
What we do need is to cut government spending, especially social welfare, of which first and foremost should be Social Security and Medicare.
Oh, didn't know it is that simple, but incompetents everywhere :)
So that's certain? How does the tax development over the last 5 centuries look? Won't this just make the rich richer and the poor, who already struggle a lot, poorer? There are a lot of different ways to distribute tax load...
Likelihood that uninsured deposits will be made whole? What happened to the billions that larger banks "deposited" into FRB just a few short weeks ago?
Ultimately it will be the big banks paying more to the FDIC to cover the shortfall anyways. So that will be pretty much a wash either way. It's the non-bank uninsured depositors that matter.
That's the interesting question, isn't it. Does the FDIC hose a bunch of depositors by taking over a zombie bank that could have ambled along for a while, or do they make everyone whole and kill the (dumb) industry of sweeping deposits into <=$250k accounts at many banks?
> kill the (dumb) industry of sweeping deposits into <=$250k accounts at many banks
I like that system: it props up several banks instead of just one "winner-take-all" that does the most risk and externalizes the costs to uninsured depositors (and sometimes FDIC) when it blows up.
What i do not understand is that this happens while the bank still has enough liquidity to cover 50% of deposits. At least from what I understood. Seems like there will be quite a few banks with less than this.
interestingly, most of FRCs loans seemed to be residential real estate to wealthy people
at crappy rates now (like most mortgages written in the last few years), but these borrowers seem extremely unlikely to default (and they can't refinance advantageously now so they are kinda stuck paying FRC)
Levine needs to stop taking vacations. His vacations seem to have caused Crytpocoins to crash, Twitter buyout problems, SIVB failure and now First Republic Bank.
Readit News
Isn't this why they got in trouble on the first place?
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> "I don't think that had any effect," said Frank, who retired from Congress in 2012. "I don't think there was any laxity on the part of regulators in regulating the banks in that category, from $50 billion to $250 billion."
https://markets.businessinsider.com/news/stocks/signature-ba...
This seems like a silly thing to say when it’s the left focusing on getting people into houses or otherwise spending money they can’t afford.
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The feds are stuck trying to tame inflation, and the skyrocketing interest rates are crumbling regional banks. Big banks are a lot more hesitant to lend to small businesses, and many otherwise viable businesses will fail if credit freezes.
Big banks are getting even bigger as depositors flee, and concentrating risk (even more) imo.
I guess the higher interest rates are doing their job in slowing the economy down, but it's wild that we're stuck with whatever the feds do with their blunt toolset because congress is seemingly dysfunctional.
Raising taxes on high-income people could help if it goes far enough that we actually reduce our consumption. High income people have low marginal propensity to consume - that’s why it’s better to give regular people money when you want stimulus. Tax hikes targeted at the very high income would have to be very steep, or they’d just be absorbed by lower savings rates.
As long as we’re entertaining weird taxes, progressive consumption tax is probably what you want here. Special sales taxes on big ticket luxury items (cars, boats, watches, etc) could also do the same thing a little less elegantly but in a more familiar way.
Wealth taxes are a not the best idea. Being taxed on something illiquid that can’t generate cash flow is the pinnacle of dumb taxation. For example, you have a piece of art. You’d have to sell something just to hold onto the art, and if you don’t have anything to sell, you’d have to sell the art itself just to pay for ownership of the art. It would make some sense to increase capital gains taxes instead of slapping people with a wealth tax. I say this as someone that would not be hit by a wealth tax.
Also, the rich can simply move assets out of the country, and then you erode the very thing you want to tax.
It was far more than $1400 checks. Student loans are STILL paused for goodness sakes. $3000/yr per child given to families. The enhanced unemployment checks were larger than regular checks for some people - even my wife who makes Ok money broke even without having to work for several months. For a couple years there was 2.5% 30yr mortgage financing and refinancing for everyone. That's just off the top if my head. It wasn't all for corporations, an insane amount of cash was thrown at regular people.
It worked great, every tax payer got a few thousand and an indirect +$40,000 tax bill (the government has to get money from tax payers for it) they will be paying out PLUS inflation and other side-effects for years to come.
Props to the rich for figuring out how to bait the people.
The rich are not driving inflation from consumption, the middle class is. The top 1% has 40% of the wealth, but they aren't buying 40% of groceries, gas, and consumer goods.
Money sitting in a bank accounts doesn't drive inflation, consumers spending money does.
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How do you define rich?
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That’s what “taming inflation” means. It means cooling off the economy, which means that businesses which would otherwise be viable fail, reducing demand, reducing upward pressure on prices.
To the extent that unexpected banking issues accelerate this, within a fairly wide band, from a monetary policy perspective that just means the Fed can back off the brake pedal a little sooner.
The aversion to recession comes from people disliking the idea of losing their job, house, way of life, hell maybe even their family. This is like saying some people need to suffer and lose everything for the greater good.
But... inflation already has gone down. Oh, yeah, everyone cites the headline 12-month trailing inflation, but if you look at the monthly data, the high inflation period was sometime in 2021 (where depends on if you look at CPI, as is most often cited, or PCE, which the Fed uses) through the first half of 2022.
if they increase spending, you get more inflation, and then they have to eventually pay higher rates on their own debt
if they cut spending, they can deflate the economy, and they can't attract the tax revenues to pay their own debt
no good options in a society that has OD'd on debt since the mid 90s
if we were honest, the President would go on TV and tell us we are just going to be poorer for a while, which is something most people already know anyway
Disincentivize property investments in family homes.
Return R&D tax credits.
Return so a semblance of the glass & steagall act.
Up the amount of coverage the FDIC is authorized to cover even before regulators need to take over.
Allow an upfront loan privately for banks to lend against temporarily with stock put as collateral.
Up the corporate tax rate.
Remove the cap on SALT taxes for those under 400k.
Change marginal tax rates for individuals.
There insane amount of things congress can do if they just… do it.
This is not a serious constraint on deficit reduction.
services inflation printed at 7.3% and ur worried about deflation?
that's not a valid opinion atp. we're so far from overcorrecting its scary. spending is still up over pre corona levels. ppl still drawing down excess savings. bank crisis is a real concern and prob reads through to equivalent of a few rate hikes (slok @ apollo says 150bps, most say lower)
You can spend in a dis-inflationary manner: increasing production capacity, facilitating resource extraction, and generally anything that helps on the supply side of things.
But absolutely, given the current Administration and the Democrat agenda, this is anathema. If anything they would rather spend to destroy supply as much as possible, since this is generally what the SDG, DIE, and Green agendas consider "success".
A great example is the Inflation Reduction Act. The "green" portions were estimated to cost $390 BB initially, but are now estimated to cost $1045 BB (yes, over a trillion dollars), and this number will almost certain go up[1].
Not a penny of it goes to anything that would increase supply of what you'll need for the "green" infrastructure, it's all pure demand, the bulk of it EV incentives. You would have trouble coming up with a more inflationary plan if you tried.
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[1] https://budgetmodel.wharton.upenn.edu/estimates/2023/4/27/up...
If necessary put in a temporary price and wage freeze. This was done under Nixon.
for starters adopt a Canadian style banking model. The country largely runs on 5 very tightly regulated banks that haven't gone bankrupt in a hundred years. These regional banks fall over in every little crisis and they always end up being bailed out anyway (see SV bank), so you might as well consolidate the sector for good.
I think a bigger diff is that Canada doesn't do 15/20/25 year fixed rates. Usually at most 5 years fixed and then you renegotiate and see what you can do. And a lot of variable rates.
Maybe start holding at least some of your assets in gold or other currencies.
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To that end, I'm not sure I see good argument for 100% protection. Money sitting in a bank deposit only creates wealth if we have the banks actively lending. And, annoyingly to me, the largest form of this for the "too big to fail" banks seems to be credit card schemes. Which I actively despise, at the moment. It also incentivizes banks to hunt out places to loan money. Which is why we have ridiculously complicated securities to back mortgages. The amount of those that have been made is only "safe" for the banks with a ton of the extra machinery they have put on top. Which has costs.
Edit: I should add that I'm not 100% on my stance here. Would love to be challenged on any of the above. Can only help my understanding.
For those looking for the punish-the-rich morality play, the real winner here is likely to be JP Morgan or PNC which may bid to buy up the assets, which is just the rich-getting-richer and a large bank swallowing up a smaller community bank and more consolidation and monopolization of the financial sector.
Every bank today is really a Highly-Levered Bond Fund. If we increase FDIC insurance to 100%, without commensurate changes in what banks are allowed to do with customer deposits, this seems like it would create a moral hazard where banks would be allowed to do all kinds of crazy shenanigans because they know they'll be bailed out.
To be clear, I'm for 100% FDIC insurance, but if we get this without getting much more stringent duration risk transformation standards (e.g. don't load up on long-dated treasuries in a low-rate environment), I think it could actually make the banking stability issue worse :(
The intended solution isn’t for you to vet your banks, it’s to not exceed the insurance cap. People appear to be willfully ignorant of this.
No, it’s not hard to stay under (cash sweeps and money markets exist). Yes, these products are actually beneficial and not just accounting tricks (cash sweep diversifies bank’s depositors as well, reducing systemic risk).
The FDIC Fund has to know how much cash to keep on hand to cover total insured deposits. The minimum is something like 1.35% of all insured deposits if I'm not mistaken, which they have actually been under for a while now. If all deposits are covered 100% the find would have to be dramatically larger, do they just take AL of that from the banks immediately?
I'm not an accountant, but the fine print does say "Up to at least $250,000.00.", so FDIC insuring the entirety of savings like they did this time around isn't exactly unexpected. They kind of need to if the goal is to shore up the commons' trust in banking, anyway.
This all being said, it doesn't take a rocket scientist to understand it's a bad idea to keep all your eggs (savings) in one basket (savings account). If you're fortunate enough to have enough liquid funds that all of this is a significant concern, definitely consult an accountant about spreading those funds around to mitigate damage and not lose out if the FDIC decides covering the entirety of savings is not something they want to do on that particular day.
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Outside BofA, their balance sheets are healthy. There isn’t serious speculation of contagion out of the regional banks. We put in place regulations to prevent this after 2008. Numpties rolled it back for “community banks” in 2017 [1], and that’s why we have this problem.
[1] https://apnews.com/article/banking-crisis-congress-lobbying-...
Woah, let's not over-exaggerate in times like these. Bank of America has about $110bn of unrealized losses on HTM securities, but that is against $200bn of Tier-1 capital. Comp that to SVB who had $16bn of unrealized losses against about that much Tier-1 capital.
BoA has a worse balance sheet that peers, but not an unhealthy one.
That's already the state of the world. That's why they're considered systemically important banks.
https://en.wikipedia.org/wiki/Systemically_important_financi...
all of the banks have DOA car loans (bigger than student loans now?)
all of the banks have mortgages they underwrote for thirty years at 3%...these may be a relative loss to Treasuries for a generation
all of the banks financed now-empty commercial real estate
when I last checked, First Republic was #10 in % of holdings not covered by FDIC, and plenty of big banks were ahead of them
First Republic may have sucked, but your bank does too
That's actually a good thing: it means a small (relative) haircut the uninsured have to pay for everyone to get their first $250k guaranteed.
When a bank fails and there's a small handful with over $250k in their account, they're going to lose everything over $250k to cover everyone else.
On the other hand the big banks might receive more deposits but they can't lend it either because they are constrained by capital requirements, not funding.
So logically you should have a contraction of credit, which combined with higher rates, is going to be ugly. Clearly the markets aren't pricing that right now.
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I didn't think First Republic was big in the startup space, so I'm curious what got them. I know they hold a lot of mortgages on their own books, but other than that, was it just another bank run? Was it exasperated by their customer base becoming very aware of FDIC limits and the potential of failures because SVB was in the same region? The median Fifth Third customer doesn't have $250k, and sees all of this as "rich silicon valley problems."
As compared to SVB, this is the same basic situation: interest rate losses led to insolvency, which could be temporarily ignored because they were “small” banks. However, once deposits started fleeing, the losses could not be ignored when they needed to sell the impaired assets for actual cash.
They have been in limbo for a few weeks thanks only to the injection of $30bn from other banks.
Another similarity in the two banks’ situations is that the same catalyst of rising interest rates cause asset losses and drive deposit flight.
It’s a weird quirk of accounting that they are allowed to ignore these losses for the life of the assets. But the other extreme is weird too, because sometimes the market value of assets can undergo a “V” shaped dip before recovering, and it would be bad to make a bank insolvent because some flash crash. The accounting rules try to split the difference by letting the bank partition its assets into buckets that take losses immediately, or at the end of life of the asset. This is an easily abused system.
It seems, hopefully, that the three failures were exceptionally badly run banks, and that this doesn’t indicate a wider wave of bank failures. Not yet.
This will be weird/interesting. JP Morgan know what it's doing. It looked at First Republic's books before doing this. So either JP Morgan was wrong or there was a deal that they'll be made whole if First Republic goes under. It almost has to be the latter because JP Morgan's only incentive to make the deposit is promoting the appearance of financial stability.
With a regular bank, you would have much smaller accounts so a proportional number of accounts leaving Wells Fargo would have less of an effect.
A less discussed way is to raise taxes and cut deficit government spending.
Unlike interest rates, the effect is immediate, and can be undone quickly too.
It’s hard to do during high unemployment or during a recession, neither of which is currently the case.
I do wish we'd do that though. Seems like the adult thing to do, and it's the sort of compromise that would get me emotionally on board with my taxes going up. We could start the cutting with the Defense budget, but I won't hold my breath.
Given events over the last ~15 months in Ukraine, I think this is a bad time for defense cuts.
One way of using the deficit deliberately as an economic control dial would be for Congress to grant the Federal Reserve the authority to adjust payroll tax rates within a given range. I doubt this could ever happen politically, though.
https://www.mercatus.org/sites/default/files/d7/Chart1-Spend...
https://i.pinimg.com/originals/cd/15/ad/cd15adf1636f18595439...
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What we do need is to cut government spending, especially social welfare, of which first and foremost should be Social Security and Medicare.
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I like that system: it props up several banks instead of just one "winner-take-all" that does the most risk and externalizes the costs to uninsured depositors (and sometimes FDIC) when it blows up.
This article discusses this and highlights how disruptive it can be for the entire Economic system. https://jacobin.com/2023/04/svb-bank-runs-private-federal-re...
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American banking receivership is actually an effective system. The point is to reorganise when things look, but aren’t, fucked.
at crappy rates now (like most mortgages written in the last few years), but these borrowers seem extremely unlikely to default (and they can't refinance advantageously now so they are kinda stuck paying FRC)
> Programming note: Money Stuff will be off tomorrow, back on Monday.
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