Treasury/Fed/FDIC issue joint statement with Tough Love for investors in failed banks.
By Wolf Richter for WOLF STREET.
We started hearing this yesterday from “sources” cited by Bloomberg. And this morning, Secretary of the Treasury Janet Yellen got on TV and repeated the general principle, without details. Now we got it officially, in a joint announcement by Yellen, Fed Chair Jerome Powell, and FDIC Chairman Martin Gruenberg. The bailout of uninsured depositors has arrived, so now all depositors of Silicon Valley Bank and Signature Bank, which was shut down today, will be made whole, not just insured depositors. The banks that are still standing can borrow from the Fed under a new facility. But investors in failed banks are on their own.
“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13,” the statement said.
The Fed will pay for it at first. The Fed will print the needed funds to cover the deposits and give it to the FDIC (and the proceeds from asset sales will chip in to cover the losses). “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
Later, the FDIC will charge other banks for those losses it incurred from bailing out uninsured depositors. And maybe the Fed will eventually get is money back from the FDIC? The statement said: “Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
The way it seems to work, with lots of tough love in the statement:
1. The Fed gives the money to the FDIC as needed.
2. The FDIC makes all deposits available on Monday.
3. The FDIC then sells the assets of the banks, which takes some time.
4. The difference between the cost of bailouts of the depositors and the proceeds from the asset sales is the actual amount the FDIC lost.
5. The FDIC charges other banks a “special assessment” to cover those losses, “as required by law.”
6. And it may then pay the Fed back with those funds it collected from other banks?
Signature Bank was shut down on Sunday by New York Department of Financial Services, which announced that it took possession of the bank and that it appointed the FDIC as receiver of the bank.
Depositors of Signature bank are included in the bailout, as the joint statement by Yellen, Powell, and FDIC spelled out:
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.”
In other words, the Fed will pay the FDIC for those losses initially, and then the FDIC will collect the funds to cover those losses via special assessment from other banks, and pay the Fed its money back? Sounds like it.
The FDIC, in its statement on Signature Bank, said that it transferred all deposits and will transfer all assets to “Signature Bridge Bank, N.A., a full-service bank that will be operated by the FDIC as it markets the institution to potential bidders.”
“Depositors and borrowers will automatically become customers of Signature Bridge Bank, N.A. and will continue to have uninterrupted customer service and access to their funds by ATM, debit cards, and writing checks in the same manner as before. Signature Bank’s official checks will continue to clear. Loan customers should continue making loan payments as usual,” the FDIC said.
Shareholders and some unsecured bondholders of both banks get bailed in. Should have done your homework, darn. The joint statement said for both banks: “Shareholders and certain unsecured debtholders will not be protected,” with Tough Love from Powell, Yellen, and Gruenberg.
Senior management gets axed. No word about claw-backs or indictments or anything, but nevertheless at least they weren’t promoted and put in charge of the bailouts. “Senior management has also been removed,” the statement said.
Other banks with a run-on-the-bank can get funding from the Fed. The Fed “will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors,” the joint statement said.
In a separate statement, the Fed said that this funding for other banks “will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions.”
They have to pledge collateral in form of “Treasuries, agency debt, MBS, and other qualifying assets.” And the collateral “will be valued at par” (instead of market value).
“The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”
In other words, now banks no longer have to sell those assets to cover a deposit outflow, and book a loss, but can borrow from the Fed against those assets as collateral, at par value.
“With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP,” the Fed said, adding that it “does not anticipate that it will be necessary to draw on these backstop funds.”
Discount window still open. Banks may also borrow “against a wide range of collateral through the discount window, which remains open and available. In addition, the discount window will apply the same margins used for the securities eligible for the BTFP, further increasing lendable value at the window,” the Fed’s statement said.
And the expected conclusions in both the joint statement and the Fed’s statement come with the term “resilient” – meaning that individual banks can collapse, but the banking system overall will get back on its feet and brush off the dust and lick off the blood and go on.
Good to see that there’s no bailout of investors in failed banks. As far as bailouts is concerned – as revolting as bailouts are – it’s good to see that at least it’s not a bailout of investors in failed banks. They’re given some tough love instead, with stockholders and “certain debtholders,” such as preferred stock holders, likely experiencing a total loss.
In a broader sense, three banks that became symbols of the worst excesses of Free Money – two crypto-eager banks, Silvergate Bank and Signature Bank; and the startup-centered bank, Silicon Valley Bank – collapsed within a few days. All three of them are stars in my pantheon of Imploded Stocks. Sign of our times.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
Oh yes they will. Just not directly.
I hope the Fed steps up its QT to offset the printed money for this b.s.
Nah, Congress will never ever get their act together to tax up all this extra cash being dumped into the economy, won’t ever tax these goons running a racket on the state, and won’t ever decrease the deficit.
It’s cheaper to pay a legislator to vote against a tax increase than it is to just pay the taxes.
The way it seems to work, with lots of tough love in the statement:
1. The Fed gives the money to the FDIC as needed.
2. The FDIC makes all deposits available on Monday.
3. The FDIC then sells the assets of the banks, which takes some time.
4. The difference between the cost of bailouts of the depositors and the proceeds from the asset sales is the actual amount the FDIC lost.
5. The FDIC charges other banks a “special assessment” to cover those losses, “as required by law.”
6. And it may then pay the Fed back with those funds it collected from other banks?
(I didn’t make this very clear in the early version of the article).
The core problem is that we are STILL not making people responsible for their own losses. Everyone who was a depositor in those banks was told that they were insured up to a certain limit, so why do they now get bailed out?
Moral hazard is run amok.
This is about rich people ALWAYS protecting rich people. End of story.
We have achieved a level of recklessness that is absurd. It is no wonder that people actually felt that buying a tract home for 1.5 million or even more in California was normal. The meaning of money has been destroyed.
5. The FDIC charges other banks a “special assessment” to cover those losses, “as required by law,” And I assume, it may then pay the Fed back with those funds it collected from other banks.
6. The solvent banks are assessed sufficient fees to recompense the depositors of the failed banks to such a degree that they too fail.
Yes, that’s the problem with all insurance. With your auto insurance, you’re paying for the accidents other drivers get involved in. You may be accident free your entire life, and you’re paying entire your life for all of THEM.
GameTV, I am an ardent opponent of bailouts in general, and have always opposed QE and ZIRP.
That said, I don’t think it’s fair to say that people and companies that deposited their money in the bank were “taking risks.” Everybody deposits their money in the bank, and expects it to be there. That’s what separates developed nations from the third world; people trust the banking system.
Yes, while an individual can open multiple accounts to stay within the $250k limit, a medium sized or even small business cannot. These are not “risky investments,” they’re putting their cash in the bank to use for payroll and other operating expenses.
The last thing we want people pulling all of their money out of banks and putting them in the three or four largest banks, or worse, putting cash in mattresses.
The $250,000 limit has outlived its usefulness, and should be unlimited.
So, the Fed will print the money and give it to the FDIC to cover the deposits.
But then they say the burden won’t fall on the taxpayer.
What a load of crap. Of course the burden falls on us through the dishonest tax of higher inflation. They’re printing the money.
Will the Fed ever stop lying?
Read the whole sequence. In the end, the FDIC will collect the costs of the bailout from other banks via a “special assessment as required by law” and it may then pay back the Fed. It’s the other banks that are paying for this:
1. The Fed gives the money to the FDIC as needed.
2. The FDIC makes all deposits available on Monday.
3. The FDIC then sells the assets of the banks, which takes some time.
4. The difference between the cost of bailouts of the depositors and the proceeds from the asset sales is the actual amount the FDIC lost.
5. The FDIC charges other banks a “special assessment” to cover those losses, “as required by law.”
6. And it may then pay the Fed back with those funds it collected from other banks?
Who is actually losing money and how much? Are there hedge funds, insurance companies, or mutual funds involved as stock or bond holders?
Does anyone know what the rationale is behind the guaranteed depositor limit in the first place?
@eg, because in the event of a “Great Depression” event, the country could never pull itself out of the aftermath if everyone is made whole.
Einhal – You sound like someone who is intelligent and thoughtful, so I though I would respond.
My posts all express a bit of hostility toward government interventions in our economy. It is not because I think government should not regulate or control our economy. It is because nearly ever single bit of government intervention seems bent on creating a larger gulf between the rich and poor in this country.
I have sustained large losses multiple times in assets and never expected a bailout. I learned from the losses and make changes to my behavior.
I have some balances in accounts greater than the FDIC or SPIC limits and realize that if I fail to diversify them or put them into financial institutions that are not well managed, it is my own fault.
The insurance on deposits is meant to give assurance to regular retail customers, not to entities like companies, which hold very large balances. Why? Because companies that hold large balances need to be performing their own risk analysis. This risk analysis is what will force them to ask the questions about the business practices of the banks, to make sure they are properly managing their assets.
If the FDIC or SPIC bail out all depositors, it simply allows everyone to stop asking the question about whether these financial institutions are actually being managed properly from a risk aversion standpoint.
SVB was not a diversified financial institution, it had concentrated deposits from Silicon Valley sham companies. It didnt follow even basic risk management regarding interest rates. It didnt look at short term versus long term maturities and determine if there was a mismatch. I am not a banker, but this company was being managed horribly. And the depositors that were careless
and didnt care to perform basic risk managment should NOT be bailed out.
The financial excesses that we see all around us are the fault of the central bankers and government regulators and all the past government bailouts. We need to stop this stuff and just let the chips fall. Let rich people either survive or fail based on real economic value, not ponzi schemes that are backed by government money.
A collapse of the system would allow prices to fall dramatically, so the cost of living for the poor and middle class would be affordable and we would have alot less rich jerks. My problem with the rich these days is that very few of them have made their money through invention, creation and value creation. More of them make their money as bankers, lawyers, corporate yes-men and Wall street manipulators.
@ Einhall –
Being aware of the $250,000 FDIC limit is common knowledge.
The reason we have the 3 or 4 largest banks is because of the previous bailouts, FED and Government ineptitude and Dodd Frank – so I am told (never read Dodd- Frank).
Can we afford unlimited guarantees? What are we going to do about all the homeless? They might like refuge from a few bad decisions or lapses of attention.
Well, I don’t want to rain on compassion.
You are correct. And the one other “source” of “wealthy” are the “inherited class”. This goes back to the saying that a business only lasts for about 3 generations; the founder/risk taker, the “manager generation and the spoiled brat generation that doesn’t have a clue as to what it took to generate the wealth in the first place.
GameTV, thank you for the kind words, and likewise.
I hear your point. I really do. I hate all of the government interventions in the economy, and wish there was a way to unwind it without causing catastrophic failures everywhere. But it’s like the stupid system where people get their health insurance from their employers because of a WW2 era labor law quirk. It sucks, but it’s hard to undo.
The issue is that, when assessing risk, no one even knows how to assess risk of banks. I’ve worked for many companies, from small five person shops to huge multinationals, and in none of them were the executives ever worried about the solvency of the banks they used for their operating accounts. It’s just not something anyone worries about. Perhaps they SHOULD, but the reforms over the years have made bank failures so rare that it’s just something people think about.
So, the question becomes, why should individual people have their bank deposits protected while companies don’t? What’s the philosophical basis for that? I can see an argument for no FDIC at all, but I’m not seeing the point of the $250,000 limit. I never have.
There are many small businesses that use these banks, and would fail if they lost all of their money. If a business makes a bad decision, like signing an expensive office lease, or opening a new factory, or overhiring, or using company money to invest in bitcoin, they SHOULD fail.
But I’m just not seeing why a company should go down because they made the mistake of banking at the wrong bank. The regulators are supposed to be monitoring banks and insurance companies to make sure this doesn’t happen. Do individual people or companies even have the ability to do their own research?
What would you think if your life insurance carrier went belly up and you couldn’t get a new policy because you now had health issues. Would you want to be told “Too bad, too sad?”
Bank deposits are supposed to be sacrosanct. That’s what separates the developed world from the third world, as I said above. In some places, if a bank is robbed, the bank decides “whose” money was stolen. Is that what we want here?
To your question, I don’t think the onus should be on small or medium-sized businesses to determine the health of their bank. That’s what the FDIC, Fed, and state regulators are for. Their behavior should be dictated by their regulators, who have full access to their books and can see what they’re doing. If a bank is doing risky things, like SVB was evidently doing, charge them higher FDIC premiums (FDIC insurance is NOT free, contrary to popular belief) to account for the risk, much the same way that a bad driver will pay more for car insurance. This should, over time, cause the problems to correct.
While individual people like you and me can separate our cash into multiple accounts to get around the $250,000 limit, that isn’t realistic for businesses that use that operating account to run their business. They’re not parking money there as an “investment,” and generally weren’t even receiving much interest, if any, at all. They were using it for a service.
I don’t have all the answers, but I do know that incentivizing all businesses and individuals with too much cash above the limit to go with the biggest banks that are considered globally systemic important banks is not a good solution.
Either we should get rid of all government intervention, including FDIC, or we shouldn’t. But protecting some depositors and not others doesn’t sit right with me, especially when it was the regulators that failed, not them.
Wolf: one step omitted. The FDIC will file a legal action in Federal Court against every director and officer involved in the demise of the banks. The FDIC does not like losing in court and the FDIC will pursue bank officials involved until their only remaining assets are statute exempt assets.
Why did they include the uninsured In the bailout?
5a. The banks then pass on the cost from the assessments on to their retail clients in fees and charges. So technically it’s not taxpayers but every retail boy and girl has a bank account
Or a profit margin squeeze — more likely. Lots of competition among banks out there. All my accounts have zero fees on anything. If a bank wants to charge me a fee, I go to another bank. I buy CDs from the competitive market place at my broker (brokered CDs), and I don’t care which bank they’re from. So good luck trying to pass that special assessment onto me.
@ Einhal –
Not trying to badger you, but wanted to share a take from George Gammon:
“Did we learn nothing from 2008/2020 bailouts?
If we didn’t get in the way of the free market, where LOSS is just as important as profit, SVB wouldn’t be an issue bc the $ losing tech companies they lent to wouldn’t exist.
Then it’s straight to gov for bailouts.
If you were a depositor of #SVB WTF were you thinking? #tbills
And if your biz relied on them YOU’RE part of the malinvestment!”
(The following focuses on the G – because they have the most control. But the private actors involved acted worse, with less good reason. But G policies have (and had) held all our economic fates in their irresponsible hands…so I’m focusing on them).
You made the dynamics clear…the basic problem is,
1) In order to avert panic/runs (which its own behaviour over decades created the environment for), the G wants to lie/mislead the public (again) by saying things like “taxpayer not on hook” – which is nothing more than the MMT deception (translation: We aren’t taking your money via taxation (Treasury)…er, we are taking your savings via dilution (Fed money printing…during inflationary spiral).
2) Even if by some miracle (and dragged out time) the Fed/FDIC can break even on *underwater assets it is buying at par*, 20 years of rug sweeping ZIRP has overvalued essentially every asset…is the Fed going to print to buy everything? People, having seen Horror Film 2008, understand this in some detail now.
3) The G finds it harder and harder to lie/manipulate the public, because the internet makes it possible to cut through the habitual/perpetual lies.
4) Unless and until DC finds the spine to address a) America’s fundamental lack of productive competitiveness and b) its own impossible to deliver entitlement promises, we will just see crises identical to this happen over and over in different financial mkts.
ZIRP isn’t a fix, it is a euthanasia drug.
“You can’t run the most reckless monetary and fiscal experiment in history without the bill eventually coming due. The first invoice arrived as inflation. The second has come as a financial panic, with economic damage that may not end with Silicon Valley Bank.” – WSJ
Sounds exactly like something our man, Wolf, would say.
IMHO – it’s further evidence that the system is functioning in on Modern Monetary Theory basis.
They’re a venture capital bank which implies increased risk & reward. Like the WSJ said, there should have been a 15-20% haircut. I would have voted for whatever SVB’s ROI return was in the 12-months prior to March of 2022. That would have been a buzzed haircut.
The keyword is ‘may’
Also, you think banks that have to feed a growing FDIC will not somehow end up to be paid by the public, but generously by the banks themselves? You can charge the tax payer now openly or discreetly later by increasing fees or simply inflation. It helps if you are aware of your bias.
I read the two statements and neither says that the Fed will lend money to the FDIC.
The FDIC does the bailouts with funds from the Fed initially; then the FDIC will charge other banks for its losses. That much we know from the statements. The statements didn’t say “lend.” And I didn’t say “lend.” I said “gives.”
I understand that companies must hold payroll and profits somewhere. Payroll often exceeds 250K even for middle sized companies (ie 2K/paycheck * 125 employees). These companies cannot store payroll in a corporate vault and hand out a wad of cash on payday. They issue a paycheck/Direct Deposit from a bank on payday.
For this reason, I agree with the Treasury/FDIC/Fed decision.
However, if the CEO of SVB sold 3.6M in stocks and deposited the funds in SVB just before the stock failed, he should not be protected. This is a different issue.
If the deposits are being held at SVB and the depositor has outstanding loans with SVB, will the loans have to be repaid? Or this is free money again?
SVB is gone. zeroed out.
Everything has been transferred to bank run by the FDIC. Borrowers have to make loan payments, depositors have new bank accounts with their cash in it that they can access. Same as before, but a different name on the building.
Where do all these crazy theories come from?
First, can’t find the words to express my gratitude for your analysis.
But, jumping off from your concise breakdown, one would imagine the other banks can just trade in to the Fed the below market securities at par to pay off any growing “special assessment” levied by the FDIC which delays and obfuscates that the tax payer will ultimately bear the cost of the FDIC’s special assessment. No?
They CANNOT TRADE SECURITIES to the Fed. They can only BORROW from the Fed and if they borrow, they have to put up collateral. What is so hard to understand about this?
And then all the FDIC member banks pass on te cost of the special assessment and higher premiums to their customers – taxpayers
Just because we don’t pay directly doesnt mean we dont pay
I’m going to disagree w/ Wolf on this.
Changing a “tax” into a “fee” is meaningless.
They bailed out above FDIC limit.
They will then pass the cost of these to taxpayers… Err sorry bank customers.
Totally different right? Right?
Every Tom, Dick and Harry with a bank account is bailing out Diapers.com tech companies and their venture capital overlords.
It feels great to support the poor billionaires!
No, you don’t disagree with me. You agree with me. It was a bailout of depositors and a bail-in of investors. Read the article, and if that’s too much, at least read the title.
Sorry Wolf, but I did read.
In the comments:
You characterize it as a “special assessment” and say it’s not a tax. You also liken it to insurance premiums.
Insurance premiums are set by actuaries and gobs of finance wonks. An insurance company won’t randomly pay above policy limits.
Calling it insurance premium is somewhat true. Except it’s mandatory government insurance and they’re funding above policy limits for “the greater good.”
I looked up the definition of taxes and it fits a majority of the criteria:
-compulsory financial charge
-some functions of taxes…public insurance
-various economic functions (I believe a well functioning banking system would qualify)
For example the ACA is involved in insurance yet is funded by taxes.
Honestly, there’s a lot of debate about taxes.
Really the only difference I could find is banks would lose FDIC protection instead of facing civil charges.
So, yes, technically it is insurance premium.
Yet it’s one that all taxpayers will pay (to their banks indirectly).
Saying taxpayers won’t pay is true and also BS. We’re all paying increased “premiums.”
True Washington politician language.
My point was: if you stay at a hotel and are charged a “resort fee” so they can advertise lower room rates… Nobody is fooled.
Call it what you will. The general (banked) public is paying for techies and venture capitalist to get their <$250k CASH balance :(
I dont think so. FED announced that they are expanding “discount windows”, which means they are starting buying junk bonds again. Here comes QE and inflationagain.
It never left: more years of inflation will be essential to “recapitalize” the many, many banks whose investments in low interest rate treasuries, bonds, long term loans, etc., went to the South Pole — while their liabilities remain, except for the over a trillion US dollars that such high inflation rates reduce in real dollar terms the value of the banks’ liabilities. Expect inflation to remain or increase for years for the benefit of the bankers.
Do not get me started on the many, over leveraged, zombie companies that cannot roll over their debts anymore. Look, there is a big light speeding toward us!
In some ways, the new BTFP facility is QE, per Bloomberg:
“Their new BTFP facility is QE in another name – assets will grow on the Fed balance sheet which will increase reserves,” Citi strategists Jabaz Mathai, Jason Williams and Alejandra Vazquez Plata wrote in a note to clients on Monday. “Although technically they are not buying securities, reserves will grow.”
I will let you know with my regular QT update in early April how much in dollars it is.
But it’s not QE because the Fed lends against collateral. QE = buying securities. Bloomberg was citing Wall Street (Citi) analysts who have been full of pivot shit for over a year.
a few more bank collapses and the QQQ will be back to all time highs.
Remember when we were told the FED will crash the market and we’ll see a potential stagflation. The FED – similar to the Covid emergency program – just stepped in a big way. And if more money needs to be printed to keep the banking sector afloat they won’t hesitate. They might even hold off raising rates. Don’t fight the FED!
The whole $250K limit is a sham, if depositors with funds over $250K are made whole by FDIC. In essence, the limit means nothing, the Fed will bail all depositors, in all banks. This would be OK if wrong-doing at failed banks get punished. At SVB, the execs sold shares in the last month, and paid out bonuses a few days before.
Yeah they might call a turd a vegan log but it’s still a turd. This gwaddamn thing is a bailout. If you had more than $250k at the failed turds, it’s you who took that risk. Now the frigging govt bails them out. Meantime they keep raising retirement age and other shenanigans to milk the masses of their pennies, giving them to these asswipes. Nothing short of a mass unrest can fix this country now.
How is the average restaurant owner supposed to evaluate the financial soundness of a bank?
i don’t run a business or meet a payroll so i have to stay humble, but why can’t a business have multiple bank accounts? if an svb depositor had their money spread across 4 banks then they only lose 25% and with a fdic special bailout of say 80% they only lose 5%, and it is a lot less costly to everyone else. maybe the svb depositors were already doing this.
In terms of QE and QT, the Fed will be engaging in QE by creating money for the benefit of depositors. Then, when the bank assets are sold and the Fed repaid, the result will be QT as the repaid money is destroyed…
Ever been to an asset auction? It’s sad. No one buys most of the assets as no one really wants them. We’re talking office furniture here. Pennies on the dollar. If you think the FDIC is gonna get their pound of flesh from the sale of assets, you’re delusional.
Been to many such auctions in the construction industry over the last 50 years of so JG:
Bottom line, most such assets sold for their ”marked to market” value,,, but some sold for more than their current ”retail price.”
Some others of the absolutely HD ”industrial” type sold for more than their new price, both current and when originally purchased.
Gotta admit that last group was some of the very best industrial quality tools and machines.
The assets I am thinking about are the bonds and perhaps commercial loans that are depreciated because of rising interest rates, but are otherwise performing and thus have value…
“CEO Greg Becker should have known better too. Until Friday he was a board member of the San Francisco Fed. He was also savvy enough to sell $3.6 million in stock days before his bank collapsed.”
“The bank uniquely specialized in providing non-dilutive venture debt to
risky early-stage companies. This allowed startup founders to preserve
greater equity ownership in their companies. Taxpayers were never
going to participate in that equity upside, so they shouldn’t be asked to
foot the bill when downside risks materialize.”
quotes from Ramaswamy in WSJ 3/13/2023
Too much Echo Chamber Magical Thinking!
These kinds of people and how they see the world is how we got into this mess in the first place. We have an entire system run by Marie Antoinettes!
Thanks for the belly laugh… best of the day so far!!
Not only that, he was one of the major bank executives lobbying for gutting Dodd-Frank back in 2018 because he didn’t want his bank to have to comply with the stress testing that would probably have ruled them too risky to go as a viable concern.
“The Fed will pay for it at first. ” Surely you jest , right ?
The Fed is paying for it with more counterfeit digital dollars created out of thin air.
This isn’t a pivot ? Oh really ?
Wait till the Fed goes to 3-4% inflation target . No pivot there, right?
A 50-100% increase in allowable inflation ….. That wouldn’t be a pivot ? Jeez
The issuance of fiat credit of any sort including fractional reserve lending ALWAYS occurs at the expense of ALL those who hold the currency … For fiat credit is a tax on the currency not on specific persons.
I am disappointed to see anyone give the tyrant’s a pass on this …. This is a bailout of special interests at the expense of others anyway you care to look at it … IF you are rational.
To call it tough love only shows how little we know about tough and about love.
Saw a local TV news short about a group of ex-cons who patrol the homeless areas and solve their beefs with each other, or acting out by individuals with “tough love”. Sure beats the cops doing it.
That’s the REAL thing, not the crap these “businessmen and entrepreneurs” get showered with. It HAS to stop or they will just keep taking. They are WORSE human trash than the filthiest feces covered drug addict.
How do people not understand that SV startups ‘deposited’ their money taken from the VCs at the bank where the same investors were shareholders. ie the ‘deposits’ were kickbacks and VC leverage. Depositors are not innocent but complicit!
The criminals at the UST and FRB are making up the rules as they go – just like before. 250k limit for me, but the rich speculants and billionaires are made whole. Traitors!
The wealth effect is a Ponzi scheme
So are banks now able to sell their long term bonds bought at the lowest rates at face value to the Fed and buy newer shorter term treasuries? Serious question, from what I’m reading it seems like any bank who had crap bonds that lost value now can redeem them at face value and quickly exit the stage.
I don’t think so. If you are accessing that window then your bank must be under stress and close to liquidation. The 25 billion cost also did not come out of nowhere. svib losses would have been about 10 to 20 cents on the dollar. Hence the approximate figure. If they were to let any xyz bank go to the window to borrow just because of a better rate then the damages would be in 100s of billions of dollars. Furthermore it would destroy what the feds are trying to do.
Nope, on the contrary. They will continue to get hammered. There is no protection for investors. If banks fail, all depositors well get bailed out, investors are on their own, good luck. Stockholders and certain unsecured debt holders, such as preferred stock holders, will be bailed in. The new regime.
Thank God. About time.
You mean stock investors, right? It sounds like the bond investors got plenty out of this bailout.
Stock investors and “certain unsecured debtholders” — so that would be the preferred stock holders ($3.6 billion), and maybe some other debts.
I discussed the plight of the bondholders and preferred stockholders here on Saturday:
Interesting to compare this to 2008 when the big banks were coerced into buying failing companies. As I recall JPM bought Washington Mutual and Bear Sterns, Bank of America bought Merrill Lynch etc. These banks were later eviscerated in congressional hearings for the misdeeds of the firms they took over at the governments “request”.
The issue now seems to be whether the $250,000 FDIC insurance is now an unlimited amount for depositors of ALL banks OR is it an unlimited amount for all large banks and the depositors of small banks are capped at a maximum of $250,000. Apparently the government today effectively repealed the “bail in” statute whereby depositors lose amounts in excess of the $250,000 FDIC insurance.
Yes, this is from the fed statement:
“The financing will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”
Notice this includes mortgage-backed securities, so they have the housing correction covered as well. We all need to remember the lessons from 2008 — don’t mail in your keys if you get in trouble. You will be allowed to live in your house for years without making payments. At some point they’ll pay you to leave and not trash the place.
Without vigorous forclosures, the housing correction won’t likely fall nearly as far as doomsters predict.
Can they pledge mortgage-backed securities that are in default?
This is only for a year, can non depository firms sell their mbs garbage to depository firm? Are their limits on fungibility? Can other firms petition to become depository inst. To then qualify?
Wtf, in 2 days they create a new lending facility?
Dodge, duck, dip, dive and DODGE!
Yep, new lending facility, and boom here’s another 25 billion for you, and you and you. . .
Some banks got in trouble by under estimating a run on the bank as their hold to maturity assets became more of a problem. No bank run, then no problem.
By suggesting, hinting or promising that the FDIC will backstop all deposits then the run on banks will not occur and banks will not have to sell long dated assets at a loss. Banking system protected from first arrow with many more to come. We probably are in the first half of the tight money ball game.
Now I wonder if the banking system is much stronger than before the GFC is more wishful thinking. Lets see what happens when bad loans start.
“Lets see what happens when bad loans start.”
Right on. Wonder what proportion of SVBs “assets” are loans. And what amount of these my turn out to be bad loans.
I guess member banks will be picking up the tab
No they can borrow against them up to one year.
Are those banks willing to be wiped out with operations taken over by the FDIC as part of the deal? Then… sure. They can sell some bonds.
Will FDIC keep all of SVBs MBSs? This is a very important detail that isn’t clear from the various articles I read so far. If so, it’s a bailout, but FDIC will eventually get their $$ back if they keep the MBSs until maturity.
The fact that “share holders and some bond holders were bailed in” (the bank went out of business after all), I’m guessing that the FDIC put up the $$ to make account holders whole and then took the asset (akin to a DIP loan top tier creditor)
If I’m coming to the right assumptions, this is actually a good outcome. Depositors were protected and unsecured / lower tier bondholders were “bailed in” (i.e no more assets left once higher tier holders were made whole)
The FDIC will sell all assets. That’s what it always does. It will sell them as soon as possible. At whatever price it can get. The FDIC is a liquidation machine.
Who will the FDIC sell the MBS to? After all the Federal Reserve hasn’t even tried to sell their MBS with their MBS QT about half of what they promised so the market must be bad; perhaps the QT lied by omission as “up to” is a maximum that would still include 0 (zero).
Huge demand for MBS when the price/yield is right — market yield. ALL these MBS are guaranteed by the government, meaning if mortgages default, it’s the taxpayer that pays for it, not the MBS holders. These “agency MBS” trade similarly to Treasury securities.
The problem with the banks is that they bought the MBS when yields were low, and now yields have jumped, and prices of MBS (along with ALL other bonds) have dropped, so banks took big losses, which toppled the banks. That’s the problem.
There is ALWAYS demand for bonds when the yield is high right. Yield solves all demand problems. The FDIC won’t have any trouble selling the MBS at market yields. Zero problems.
Not unless they fail. (unless there’s something I’m missing)
If the Fed is going to bailout the depositors, why doesn’t it just let individuals park money in the Fed directly and pay us the Federal Fund Rate of 4.5% or whatever it is at currently? If the banks want to compete for our deposits, let them give us higher interest or a more compelling product. I am sick of the financial system forcing us to give our hard earned money to banks (wether it is deposits or 401k) and have them gamble with it. I’m sure the executives that all got fired still came out well ahead given the soaring SVB share price of the last couple of years.
“I’m sure the executives that all got fired still came out well ahead given the soaring SVB share price of the last couple of years.”
I think that’s an important point about the perverse incentives inherent in the system. The system encourages risk taking and punishes prudence. The executives at SVB knew well in advance the Fed intended to hike rates. Heck, the CEO was on the board of the SF Fed. SVB could have incurred smaller losses by selling or hedging its treasury and MBS portfolios earlier when interest rates were much lower, but chose not to. I don’t know of course, but did the executives make a conscious decision to avoid much smaller losses earlier in order to report better profits and maintain the inflated stock price? Did they risk long-term survival for short-term gains in the stock and bonus pools?
”Did the executives make a conscious decision to avoid much smaller losses earlier in order to report better profits and maintain the inflated stock price?” Yes, and they did it by borrowing $15 Billion from the Federal Home Loan Bank of San Francisco December 2022 to supplement deposit withdrawals. The question is why did the FHLB SF loan so much to an institution with a severe asset liability mismatch and large deposit outflows? Many are calling for investigation of the FHLB system (owned by the banks) self dealing.
Multiple “monitors” (ratings agencies, gvt affil lenders, regulators) all seem to have missed/ignored easily available (and deductible) info about the most basic functions of their wards.
I don’t believe they are *all* that stupid…that leaves crippling fear/corruption.
This was all implicit from the moment ZIRP started 20 yrs ago.
Geez man, settle down and do some research. You can open a treasury direct account and do just that. You can also shop for CD rates that pay much more than the typical bank.
For most of the past year the Fed has paid more interest on reserves than the 4 week T bill rate.
Incorrect Harold a Treasury Direct account is NOT the same thing as parking money with the Federal Reserve. Do some research.
Except you can’t take your money out at any moment if you buy CD’s or bills
“individuals park money in the Fed directly”
That seems to be the CBDC plan and this seems to be the crisis to institute it. Just a little tiny bit of baggage goes along with the CBDC. Be careful what you wish for.
You can get 4.5% in a Treasury money market fund that is chockfull with the Fed’s overnight reverse repos. So indirectly, you’re getting close to the Fed rates. Other stuff is higher.
That’s what I’m doing with part of my cash reserves. A bit more tax efficient, checkwriting privileges for over $250, and I trust Vanguard, the closest thing to communists in the financial world, over any bank to maintain liquidity.
Not all my cash reserves, certainly. But then again, I never banked with a single bank because duh.
It’s fun that they are quick to say it’s not a bailout when haircuts over 250k were always the norm and now magically are not. Of course it’s a bailout. I might as well bank with idiots taking on undue risk for extra interest paid to me. After all, I will be made whole.
wait, did the executives drive to washington, dc in a Tesla yet? ROFL
More moral hazard out the wazoo.
If the banking system were really so “resilient”, none of this would be necessary and never would creating a category of TBTF banks.
I find it really ironic hearing that because of TBTF banks, regionals are all at risk of bank runs.
With the accumulated distortions now in place, it’s impossible to end it without having the entire edifice collapsing, which is exactly what’s in store in a future catastrophic systemic failure “fat tail” event.
It’s just a question of what it will look like.
We make be seeing what the end looks like *now*.
1) Who would have guessed that the 15th largest bank in the US was *so* horrible at *the* core banking function (asset-liability mgmt) that it could not recognize/adapt to/pull capital to an event (unZIRP) that everybody and their literal dog knew had to come. The most naive newbie on this board (!) understands the horrible asset valuation distortions of ZIRP, that have been operating 15-22 years.
2) Okay…SVB mgt (and 7000+ employees) dead-not-asleep at the switch. WTF happened to multiple regulators whose *own publicly available* bank tracking reports captured the problem (which was conceptually predictable – easily – a year ago? Or at any time during the decades of ZIRP? The public may not have conceived that bankers could be so utterly, utterly stupid…but the regulators had *quarterly updates* as to the depth of the stupidity…and did *nothing* (block riskier ALM, push for new capital, force mergers).
3) The fact that it took outside analysts *one day* (once they were tweaked) to generate pretty decent, detailed lists of 20-100 regional banks with similar problems shows what the future will look like – weekly/monthly proof of what a hollow shell the US economy/institutions have become. What was inconceivable is now commonplace. The default assumption now is that almost all US institutions are rotted out shells.
4) The last 50 years of US political/economic “leadership” has destroyed the nation’s economy.
Re #3: I’d change one word: replace “generate…lists” by “make public…lists”. My take on those analysts is that they generated those reports some time back for their captive or paying audience. It’s the general public that’s not privy to a lot of these analyses. And it’s hard to see it ever changing.
That’s exactly it. Just more calvinball. Oh, it was rich people who lost their money? Better change the rules quick snap over the weekend and bail them out. Is the Fed printing up any money (at no cost to the taxpayer – lol) to fix the mess in East Palestine? Ha ha, surely you jest.
East Palestine and the rest of fly-over country is the periphery from which the metropole extracts value.
I just pulled a bunch of my money out of Ally because I read that they hold 60% of their assets in auto loans. I mean, I knew Ally was just the new name for GMAC but for Christ’s sake SIXTY percent?? Then i read that their average auto loan is something like $86,000 and can go as high as 300k. Unreal! Maybe I’m overreacting but I will be fully closing my account out next week…
Ally is def at risk of collapse. That’s smart
I once looked into banking with them online and it was just such a hassle. Noped outta that one.
Thanks Wolf for this Sunday report. Have been following this wide eyed. And jumped over to see if you would comment. Love that remark about “licking the blood off”, like the banking system is some kind of animal. LOL
watching the 401k nervously this month…
My motto is, “Tape it up, and get back in the game!”
Good motto. Instead of whining and playing victim. Wish I heard that earlier, in my parenting days. But “pick yourself up, dust yourself off, and start marching forward”, still works. But it’s nice to have a pithy alternative.
And don’t forget to double down on crypto and other high risk assets. We all know what will happen to stocks.
In my rugby playing days, the motto when you got hurt was to “rub some dirt on it.” Sound advice still!
FaL – do they still eat their dead?
may we all find a better day.
Wow, Yellen changed her tune on this in one weekend. Does anyone wonder why the Fed has so little credibility? Yes I know she is not the Fed anymore.
Yellen and the Fed just proved that the best insurance is to buy politicians.
Yellen is just a joke. This is the problem when you put an academic from Cal Berkeley in charge of a major financial institution.
I have an idea that the reason they put these academics in charge of major financial institutions is because they are so clueless that they will do exactly what Wall Street tells them to.
How many “powerful, rich” people all applied pressure to move Yellen to declare this bailout? Rich people are afraid of contagion because they are the ones that have something to lose.
The poor people to too stupid to realize that bailouts for the rich are exactly what is causing inflation, which damages the poor.
Yes, it’s much better when the Secretary of Treasury is a Wall Street Bankster.
Yeah. Paulsen was worth $300M and had a lot of “old friends”, especially at GS. They came out just fine and went on to bigger and bettor things. Non-Friends? Not so good. GTV has some weird “basic principles” stuck in his head. That “something to lose” BS is one of them.
‘powerful rich people’ we are not. Anybody that’s busted their asses in life and have say $300K – $1M in a bank is at risk.
Making claim that everyone needs to analyze the banks books to understand the risk their depositing their funds into is ludicrous.
Truth of the matter is the Fed has forced banks, hedge funds, pensions, credit unions, etc. to park their deposits into 0 rate treasuries/bonds a year ago.
Then the Fed has the audacity to raise rates at unparalleled speed to 4.5%-%5 possibly going to 6% all with 12 months time.
Now many depositors are enticed to withdraw their deposits and purchase todays rates for yield instead of being enslaved to the stock market roulette tables.
Granted, many banks haven’t mitigated this risk and borrowed funds in case of such a run, hence our current position.
To close a bank and say ALL DEPOSITORS over $250K are shit out of luck is INSANE and would cause a run on the banking system, only to have it implode on itself.
Charles Schwab was looking to be possibly the next institution, 8.5Million share block was sold last week. They’ve been borrowing BILLIONS and had the Fed not created this new facility, who knows if Schwab would’ve cracked or not.
At the end of the day, we need a stable, functioning, trusting, financial system, and I believe we should increase the FDIC insurance limits to unlimited, but the banks that are should also meet stringent Fed stress test requirements as well.
The truth of the matter is SVB went without a risk officer for 8 moths, after more than doubling their holdings quickly. This should be criminal, but is in no way, grounds for waiving the $250K FDIC limit. The US has a system for bank failures. The bank is seized. Insured deposits are immediately available. Bank assets are sold. The proceeds are used to pay uninsured deposits, to whatever extent possible. That is how SVB should have been wound down. Not this “cute” bailout that will not (wink, wink) cost taxpayers anything. Vision Bank in Norman, Oklahoma isn’t getting this treatment, if it goes under. If the government is going to screw every American without SVB deposits north of $250K, they should at least be honest and admit when big Dem donors call, owned politicians pick up the phone.
Rhonda, “The truth of the matter is…” you are very naive. I’m in banking country and know, indirectly, some high-ranking banking moguls. These are the farthest examples of Democrats you can possibly find. They rail against anything regulatory and, God forbid, detest paying any taxes. The GOP is the “never give a sucker and even break” collective.
If you’d think past your political delusions, you’d see that Peter Theil, a guy who made and continues to make fortunes as a result of government magnanimity (the Internet – Arpanet for defense, and currently the main customer of Palantir) and the key driver of the SVB bank run, he wants nothing more than to bury that party. The party, incidentally, that doesn’t cater to the hatred of LGBT and similar bigots.
The problem with the government accommodating the wealthy isn’t a right- or left-wing phenom. as much as it is the result of massive campaign contributions from the wealthy class, getting what they want at the expense of those who really have no access to lawmakers. It’s why Congress is corrupt, not because of one political party or the other.
“To close a bank and say ALL DEPOSITORS over $250K are shit out of luck is INSANE and would cause a run on the banking system, only to have it implode on itself.”
You’re making that up. Deposits over $250K in SVB, by most estimates, were set to recoup between 80% and 100% of their funds. I’m tired of couching this bailout as an effort to “protect the little guy.” Anyone who has amassed cash savings of $300K to one million knows to split his or her money between several banks. If they choose to take a risk by not doing so, it’s on them. The insurance limits weren’t a secret. I’m a bit more sympathetic to companies making payroll because of the logistical issues of using different banks, but even there they can and should take steps to protect themselves.
Go ahead and make your point, but using all caps while distorting the facts is not a winning argument.
Good one Rhonda IMHO:
As an old guy mentored by many of all colors and ”Faiths” back in the late ’40s and since,,, IMO you have nailed it.
SVB, and if various reports are correct, at least 20 and perhaps as many as 100+ banks have been used and abused, but so has this situation, with various ”gazillionaires” leading their puppets to make a ”bank run” on SVB, SO likely to have been done to influence FRB…
”Burn it all down” might gain traction, as it is very clear that GUV MINT will absolutely NOT allow WE the PEONs to actually starve these days as always since the VERY Saintly FDR, AKA ”the traitor of his class” did all he could to keep USA fols from starvation,,,
Those efforts of GUV MINT, forced though by FDR to be clear, were the basis of otherwise very very conservative voters in SE to remain constant voters for democrats for many years in spite of LBJ.
Tbh some of these startups prob just have their accounts receivable at the bank. One guy had 62 employees according to NYT. They are just billing companies, receiving checks for their employees work and then paying those employees with the checks. So situations like that should be let off. )2 employees would def be millions in deposits I would think.
Did anyone see the run on Charles Schwab today? The normal average trading volume is 9.7M shares; the stock got halted today and ended up trading 147 M shares.
Are people to blind to see that the issue here?
What did Charles Schwab (the largest US brokerage) do so illegally to warrant imploding upon itself……. ?
Doesn’t the fact the Federal Reserve opening a new credit facility allowing banks/brokerages to borrow/capitalize for withdrawals, using bonds as collateral; and getting FACE value vs. MARKET value freaking spell it out to everyone?
The fact remains the same, the Federal Reserve is the culprit.
Schwab jumped 3.4% after hours. I expect a solid jump tomorrow.
I don’t know any poor people who don’t think that bailouts for the rich are exactly what is causing inflation. And always has. I know a lot of poor people.
I doubt if they are fooling anyone, really, just pissing people off more and more.
I know a lot of poor people, too. And I can assure you that they’re more pissed-off about people who are poorer than they are getting any welfare. They care less about the wealthy than they do about people one notch below themselves.
How – a time-tested/proven and sage observation of human nature…
may we all find a better day.
Punching down is always easiest and safest.
But not everyone is that way…too damn many, though, especially in THIS country of planetary pigs.
We need Occupy back, only stronger. We know where the biggest pigs are. Maybe the other BSd poor will catch on?
Yellen should be replaced with Denis Rodman.
How exactly will this be paid for?
FDIC will probably keep SVBs assets and hold the MBSs until maturity and be made whole. As much as the gold bugs/anti USA dollar folks hope, the system has lots of policy and procedures in place to deal with it.
Well, except for inflation. Say 2.5% for 10 years or a 25% haircut.
The policy was the FDIC only insured losses up to $250K. Until SV billionaires and VCs, otherwise known as Dem donors, were looking at small haircuts. Now the policy, for those with the right titles and geographic location, is the FDIC will cover any amount of loss for anyone stupid enough to park their money with a bank, that didn’t bother to hire a risk officer for 8 months.
Ronda, if you’ve got some impartial numbers to back up your dubious claims about who’s benefiting from the depositor bailout, let’s see ’em. Otherwise you come off sounding like something Matt Gaetz or his Georgia compadre would be tweeting, probably not your intention.
I would think they’d hold MBS too but Wolf has repeatedly said the FDIC is a liquidation machine which means this would force price discovery for MBS in the market just like it did for SVB who then experienced severe losses.
So, if what Wolfe is saying is accurate then MBS prices will be known and any firm holding them who’s not FDIC insured and needs cash, would, in theory experience heavy losses which would expedite the repricing of the housing market.
Same way they pay for the military or medicare or interest rate hikes, they just print the money and put it on their tab.
Inflation. Who needs taxes? Inflation is the defacto tax.
Bank regulators better get cracking on reviewing the risk management strategies of all small and regional banks with a fine tooth comb over the coming weeks.
Luckily, the larger banks are not at risk from the scenario which brought down SVB given the very stringent regulations they have been operating under since the GFC.
Basically one way to look at this: The Fed gave out poison pills (loans) during QE. And the bad thing about the loans is now they want to be paid back for QT. If they get paid back they can destroy that money and decrease inflation. If a bank took too many poison pills and did not hand them back, then deadzies.
One would think IVY League bankers could have seen this coming and not become so leveraged.
Greed makes “smart”people do stupid things
veggie and AD:
It is NOT just greed., but the now clearly entrenched knowledge of the oligarchs and their paid puppet banksters and politicians KNOWING that they will
BE MADE WHOLE at the expense of WE the PEONs.
THIS ”fact” is at least part of the reason WE, in this call ALL of WE PEONs in each and every nation can expect to become poor and poorer as the rich folks continue to steal the benefits of our labour at every level…
Far damn shore the tide will change, as it always has, at least for the last few thousand years.
Vintage, I am not sure what you think the random capitalization adds to your argument; I assure you, it is nothing but distracting and makes me think that you’re off your meds.
This is the test for the FED. Will it continue hiking to combat inflation? Or will it buckle under the pressures associated with protecting its constituency—the banks?
Does it stay the course, or lose its nerve?
You can’t fight inflation by printing money. this bailout is just another printing fest. And the taxpayer will pay for this with higher interest rates and inflation.
Perhaps this paves the way for a 50 basis point hike at the next Fed meeting.
I think we all know the Fed just surrendered to inflation in a humiliating defeat.
Watch out for the coming rate hikes, now that the panic settled down.
We’ll see. From what I understand is that quite a few banks have this issue of being too long into treasuries so this may back Fed down. I could see Fed backing off of .50 to .25 for the next one until they get they’re sure there won’t be a run to treasuries.
Which there already should have been. It makes no sense letting banks hold your cash unless you don’t even have sufficient reserves to cover two months of expected COL. Rate is higher and tax impacts are better.
But I always thought it was .25-.50 depending on inflation and that Wall Street continues to have learn the wrong lesson from the big “V”. Insta-equity recoveries require stimmies for all.
Is that what you think Wolf?
I would assume this is more like the Continental Illinois example some 40 years ago. When that bank failed, also dependent on fast-moving non-individual deposits , that ended Volcker’s tightening campaign.
You’re off by 3 years. How does this BS spread like this?
Continental Illinois collapsed in 1984. Volcker backed off in July 1981 when the federal funds rate was 19%. By May 1984, when the bank failed, the federal funds rate was down to 10%.
Volcker backed off in 1981 because inflation was backing off in 1981 as the US entered the second dip of the nasty double dip recession.
Continental Illinois went down because it had bought a bunch of bad and fraudulent oil-and-gas loans from an Oklahoma bank that then toppled. Back then, some people went to prison over this. During the oil bust, lots of banks in OK and TX toppled, including M Bank, the largest bank in TX where I had an account. So don’t start telling my any stories about this.
Wouldn’t rate hikes just push these MBS further down in value causing more losses at Mid-Size Bank’s you’ve posited are over represented holders of MBS. Spurring more need for this FDIC bailout, special assessment, banks hitting discount window to pay assessment, more money creation hedging away from intended effect of rate increases??
Apparently it paves the way for a zero bps rate hike according to Goldman Sachs.
I agree with you tho. Especially if inflation on Tuesday is hot.
This could be a nasty whipsaw week if the Fed leaks intent for higher rates. This week and the Fed meeting will be very telling on how aggressive the Fed will actually be when things get tough.
Hard to argue with the pivot crowd if the Fed backs off on hikes because of this nonsense. The fact that the Fed wasn’t already expecting this to happen seems nuts to me. Wolf is obviously a genius but he wasn’t the only one who foresaw the trouble brewing.
Explain to me how inflation is suddenly not important just because a bunch of snobby tech “disruptors” lose a bunch of money. They should be letting them fail and sorry to the rich assholes who had too much money there!
What perfect timing at well with inflation picking up again to throw some Tito’s on there with a bailout.
Meanwhile those people in Ohio aren’t getting bailed out from that railway corp destroying there town!
Well said, morally reprehensible but the precedent is sets for Mid size banks, how can the fed let them fail w their mbs holdings
I’m perplexed with this mentality of ‘too bad too sad’ if an account holder had more than $250K in an account.
Baby boomers make up one of 2 largest demographics in todays society. How many of them do you think have their life savings over $250K in one account?
Charles Schwab was about to be sunk today, due to this nonsense, and if it wasn’t for the Fed stepping in on Sunday, I think it’s a fair assumption it could’ve been #3 to go down, and they’re the largest US brokerage.
Losing peoples trust in our financial institution would be catastrophic, and you thought you had issues with 6% inflation?
I stand by, you deposit a $1, you’re guaranteed a $1.
The FDIC insuring $250K is a joke in todays dollars; it should be raised, raised to what is the question? Personally, I support unlimited, but with stipulations that these brokerages, banks, credit unions are audited, regulated by some government entity (as much as that pains me to say).
So is the Fed printing the money to make depositors whole, or are banks paying for it via an assessment? Or is it both–Fed prints, pays off depositors, then bills banks?
This is moving fast and I admit to being confused, but yes I did RTGDFA. Just not sure I understand it.
Fed prints now so that depositors are whole Monday. Fed gives to FDIC & FDIC pays depositors. FDIC liquidates SVB assets. FDIC pays full amount back to Fed to burn. Difference between deposits and assets is recouped via special assessment to all banks paying FDIC insurance premiums.
Thanks, that’ s kind of what I figured but I wasn’t sure.
I’ll bet those bankers that are going to be paying the money to cover this fiasco are just happy as clams.
I’ll bet the finance people who are making up the story that bankers are going to be paying are FOS and they all weasel out of it once *that* distraction has served it’s purpose.
Good summary, but you missed one step. Banks raise fees, loan rates, and lower deposit rates to recoup special assessment.
Well, Rick, just don’t play along: don’t borrow, don’t deposit money in the bank – use your mattress – don’t worry, be happy.
At least one of them could have: SVB’s CAO, Joseph Gentile, was CFO of Lehman’s Global Investment bank in 2007 when it collapsed. So yes, this was predictable.
Another surprising result of deregulation.
SillyCon Valley Tech Billionaire Libertarians All Get The Government Teat!
How nice! Must taste good!
“… and consulting with the President, Secretary Yellen proved actions enabling the FDIC …”
“The Government” pulling the lever on this is the Democrat Party Executive Branch. No Libertarians are involved here.
As I recently commented with Elvis Costello’s ‘Waiting For The End Of The World’:
“You may see them drowning as you stroll along the beach
But don’t throw out the lifeline till they’re clean out of reach”
Ah, very good, I expect to hear them announce loudly they will not take the money.
Or see the Republicans in government BLOCK this.
Hey, always fun to find such comedy gold in the finance news. You made my day!
Libertarians ask for abolishment of the Fed. Not bailouts out of it.
These bailout actions are from executive branch, not something republicans can block.
There are republican congresspeople saying no bailouts.
But arch-libertarian Thiel & his operation was at least a trigger for this event.
Not a Texan, you’re not supposed to pull the curtain aside!
Prairie your MAGA hat is showing…it’s the “Democratic” party, not Democrat.
F & L,
Oops on Democrat. In Minnesota, we call it the DFL. Democratic-Farmer-Labor Party.
Never missed a vote. Don’t vote for either of the Red or Blue parties. So, no; no MAGA hat.
Prairie, fair enough. There are certain “tics” to our current political discourse that drive me nuts, such as calling everything “woke” and the aforementioned shortening of the Democratic party name. They’re lazy and annoying.
Have yourself a safe and blessed day.
*****GLEN top comment award***** BRAVO!!!!
You two, should go get a room. And look up which party these bay area VCs, startups and celebrities donate to and fundraise for.
Answer this. How many of the uninsured depositors have declared their names publicly? Adding up the balances of Circle, Roku, etc only gets us quarter of the way. The Pelosis (of Pelosi index fame), the Oprahs, the royal Sussex could pull the ropes for a bailout.
I really didn’t mention a political party – you did. Not that I would argue with what you wish to believe.
The funny thing is that as Wolf has stated, it would not have been a large haircut, and surely there was enough money in SillyCon Valley to pull a 1904 JP Morgan Money Trust style fix, but instead it was a massive insider bank run followed by cries for mommy. That’s what I was commenting about.
And strangely, this bailout has not calmed the markets. Not sure what’s happening, maybe the Fed just made the dollar weaker world wide.
Nope. Most of the Silicon Valley execs wanting bailouts are liberals. Btw, I thought explicitly attacking by ideology was discouraged in the comments here? But I’m certainly not going to refrain if other people are allowed to lie on here.
*No libertarian has ever supported bailouts*
Alan Greenspan is a Libertarian. He invited Ayn Rand to stand beside him when George W. Bush awarded him the Medal of Freedom. Rather than watch the banking system implode, he did rescue the economy from serious consequences, even from his start with the ’87 crash (he was appointed by Reagan, incidentally) through 18 years of relative prosperity. But don’t lay the blame at the feet of either party. Greenspan was an “Austrian School” advocate until he discovered, to his chagrin, that the banksters have little concern about their shareholders or other constituents.
The right wingers don’t let actual facts get in their way. They’re mesmerized (hypnotised) by the song and dance on right-wing media.
So, CSH, your declaration about the benevolent Libertarians is hog wash.
Bailouts are against the Libertarian philosophy, but that doesn’t mean people calling themselves libertarian in good times won’t ask for a bail out when it’s their a$$ on the line. People are hypocrites. Left, right, center, it doesn’t matter.
That is why we call people heroes when they stick to their principles in the face of personal lose, its such a rare feature.
They are changing the rules for the wealthy as they go. They’re just making them up on the fly so that the wealthy don’t have to lose. What percentage of Americans have MORE than $250,000 cash in a bank account? Why do these people get special treatment? What is the point of having limits on FDIC insurance if they wealthy get to ignore that?
I have anger over this too, DC. Over our lives, each time we waited at the teller window we saw the little FDIC plaque. Insured up to $100,000, now $250,000. We all knew this if we paid a minimum of attention. It is a trivia question, for pity’s sake.
But if it makes news that Oprah might lose a fortune, or Cringe and Ginge might lose their grievance graft, well let’s just change those rules. “You’re the wealthy, so little things like observance of FDIC insurance limits shouldn’t apply to you. We’ll waive all of that so you can close that sale on that extra thousand acres on Maui and keep having woodland hikes without the bother of little people smelling up the flowered paths. You’re much too busy to pay attention to rules! Those are for little people who use Venmo and try to make an extra buck on EBay.”
And there will be chattering classes wondering why the trust in government institutions has eroded to a nub.
And yes, I get there is a case to be made for preventing a domino effect, and there are small sellers who deal with businesses that failed in their due diligence on this (Etsy), but the bad taste lingers nonetheless.
Actually, I believe that a domino effect would be a GOOD thing. It is like a brushfire that clears out the excesses of the past decades. We need to start properly taxing the accumulated wealth of the rich and also not socializing losses again and again.
The supposed benefit of a capitalist system is that millions of people responsible for their own finances will make better decisions that government officials. But when it comes to finance, the government has decided to erode EVERY single economic relationship. They have caused the price of higher education to soar by financing education with government backed loans, they have driven the price of housing much higher with government financing and bailouts. They have caused bubbles in investment by driving interest rates so low.
Of all the wealthy, fat cats, you had to call out Oprah… Pretty pitiful.
Reportedly Oprah had about $600 million at SVB, and she did just buy a new Maui plantation or something. She’s one of the most famous people in the world, so . . . .
Why even have the 250k rule at this point. I understand the risks to the economy, but I’m having a hard time with this.
I am spitting mad, no different than the last bailouts. This is not what the American people want. There was a Twitter post with over 20,000 votes which asked people if they were in favor of bailing out depositors who had more than $250,000 in an account. More than 65% said “NO.” We’re not getting what we want as taxpayers. We’re being abused, and taken for a ride. Meanwhile, they want to know what that $600 Venmo transaction was, to steal money from you when your family member just repaid you for something.
“There was a twitter vote”
Yeah, thats not a real vote there pal. Smugsk is part of the problem.
I don’t like Musk myself, but the narrative now is that Twitter is some bastion of far right extremists, with Elon at the helm. So, that would mean that those rich, far right extremists who love the wealthy and corporate welfare (which Musk is perhaps the largest recipient of) are somehow voting against their own financial well-beings and interests? Something’s not adding up, PAL.
And I bet the people who only have $10,000 in the bank don’t support insurance for anyone who has $30,000. Everybody thinks THEIR money should be protected, just not everyone else’s.
The paper gets buried in PVC pipes, the coins in cast iron pipes.
“Everybody thinks THEIR money should be protected, just not everyone else’s.”
I certainly don’t think that and doubt many other people do either. The FDIC insurance limit was known by everybody in advance and should have been respected. My issue is with the government once again changing the rules after the fact.
FDIC insurance isn’t free. You pay for it. Always remember “buyer pays for everything, seller gets what’s left.” All costs are passed on.
Of course, but how is your comment responsive to my comment? I said the $250K insurance limit (that is paid for from deposits) should have been respected.
Earth to Einhal –
I makes no difference what the $10,000 depositor thinks of the $30,000 depositor. There are clear limits in place.
Yes, and there were clear limits in place that unemployment insurance only lasted 12-20 weeks or whatever, and the people who were laid off during 2020 and 2021 and demanded (and got) more than a year. Everyone is a free marketer until his own ox is gored, and then he wants the government to “do something.”
Also, sounds like you have over $250k in one account, or money at svb. Wow, I dont have $250k in a bank but even I am not that stupid when the rules are right in front of me everytime I go to the bank. It shows rules are only made for poor people and I am curious when institutions are going to be bailed out because of crypto.
No, I don’t. I meticulously keep each of mine at $240k and then transfer money out if and when interest makes it hit the limit. But I also recognize this isn’t feasible for medium-sized or even small businesses.
Einhal thinks everyone is as nasty and greedy as he is…a common right wing trait.
I have some 10Y treasuries of 2019 vintage I would like to sell to the Fed for what I paid for them.
The Fed doesn’t BUY them. The banks borrow from the Fed for up to one year at something like 4.75% and post those Treasuries as collateral at par value.
Are you going to be a guest on Stocks & Jocks again?
I’m tuning into the podcast tomorrow morning.
If The Chief talks about the banks before he talks about the Chicago St. Patrick’s Day festivities then I’ll know something is up.
I am not talking about the banks, Wolf- I am talking about the depositors who just bailed out. I am in the same hole, but directly holding the bonds, but no bailout for me. Their deposits were backed by the same kinds of bonds I own, underwater ones, and they get their money out at par and I don’t.
Yep. Just an analogy of unfairness, not actual fact. You should have given Wolf a /sarc tag, he was just explaining things as usual….and is VERY DAMNED BUSY right now….his head is probably swimming.
He needs a cold swim, all this crap can wait till things settle down a bit.
Just my guess, but not my show.
That kicks the can down the road. And then the banks just default later with more losses. And what good are par value assets that have declined even more.
It settles down a depositor panic. So banks won’t even need to borrow or sell those bonds. And when these bonds get closer to maturity, their market value will approach face value, and at maturity, market value = face value, and there are no losses. That’s how bonds work. If you hold them to maturity, you get paid face value at the end, and you collect interest along the way. And all this market hoopla was for nothing.
‘settles down a depositor panic’.
Many if not most of the residents of the USofA would like a ‘depositor panic’ in this instance. That place was not being run with good risk mgt. and in the know tech bros knew that as they put money in. Such behavior should not be encouraged, which it now has. Socialism for the rich.
Companies could have been in short treasuries and make payrolls etc. to avoid exceeding the (once was) legal limit of $250K.
I guess I should have been an SVB depositor instead of buying the treasuries directly.
It is quite the hair care plan.
pulling it all out watching the sunday shows.
The Fed is back at it distorting the cost of risk amd firing the asset bubble as a result. Depositors get paid interest and it is – or at least should be – higher the riskier the bank. Here we have a bunch of PE funds delisting their equity contributions from asset bubble investors in their overvalued companies depositing their investors capital call money at comparatively high interest rates funding a ponzi scheme bank and if the Pnzi scheme gies wrong, the Federal Government suddenly guarantees the NetBeans and pays the PE depositor back all in full, FDIC rules suspended. management of the bank got rich, PE managers and their portfolio companies get rich and no matter which way you turn this (beyond the scope here to explain) the tax payer winds up paying for this madness. And the tax payer is the vast middle and lower income majority whose purchasing power is the decisive in making
an economy go round but is being fleeced and stunted by the Fed’s inane never ending money printing programs.
Very insightful post, but I don’t understand parts of it.
1. How does a PE firm delist their equity contributions from asset bubbles?
2. It would be good to flesh out more about the ponzi scheme aspect of this, though I think I perceive some outlines through the fog. That would kill some of the compassion for depoditor bailouts that the depositor bailout crowd has fomented.
didn’t take long until the money printer went brrrr again
“ The Fed will print the needed funds to cover the deposits and give it to the FDIC”
Not even in a recession and money is printed again. Lol.
I encourage you to read the entire section, not just a few words.
Would the market take this as risk-on trigger?
– given that the eoy terminal rate expectations have dropped
Also, do you think the 50bps hikes are gone and Fed has signaled the end of QT cycle with this?
Really good insight in your articles except for people who only read the headlines
I for one am relieved, they are promoting strong and sustainable economic growth.
This involves a small amount of money-printing compared to the overall amount of money-shredding that makes up QT, right? Seems like a small price to pay to make people shut up and buckle up for even higher rates.
This is the captain handing out peanuts to help us deal with the turbulence.
You assume higher rates are coming.
Federal funds futures have sharply lowered the rate increase forecast. The predicted peak is now in May/June at 5.00-5.25%.
The Federal Reserve will be happy to use any possible excuse to loosen or delay tightening policy, and this qualifies as one.
And those predictions are many times wrong and change constantly.
Changed 3 times in the last 6 days so why not flip it around some more next week
If higher rates aren’t coming, then given this strategy of printing money to bail out depositors while letting everyone else go to the meat grinder, it will be because higher rates are no longer necessary to tame inflation, not because of some fear of bank runs.
Not a shocker, when we were shopping banks to deposit f way more than the 250k, bank after bank vp and higher ups always would dismiss that was at risk.
Nice to see it play out in the real world.
Think I’ll hold onto those March 31 KRE $50 puts.
Seems like regional banks stock will continue to fall now that they see the safety net doesn’t include equity or bond holders?
Just what I was thinking. It won’t be long before they all run for the exit!
This should set a precedence, that there should be no FDIC in principal now, and that all depositors who cared to save the money and put them into the banks should be made whole now and into the future, and that there should be no need for different banks, only one bank. We all live togather until we all fall togather.
Total deposits are now $20 trillions, and FDIC only have $100 billion or so , so if most banks fail then even those who have less than $250,000 will not be protected.
It’s not quite that dire… Most of that $20 trillion is housed at the giant banks (JPM, Citi, BofA, etc.) which post-GFC are not allowed to play the same games with accounting disclosures, capital structure and hedging strategies that smaller banks like SVB are allowed to get away with.
Okay, that is good to know, thank you.
Yeah, to great fanfare Congress passed a law back in 2018 raising the cap above which banks are subject to tighter regulation instituted after the GFC from $50 billion in deposits to $250 billion. It was done to ‘reduce the regulatory burden on smaller banks’. However, this move was obviously a major mistake. Under the rules which apply to larger banks, SVB would have never gotten into the situation they got themselves into.
Moreover, in recent years SVB in particular was lobbying the govt. very hard to raise the light regulatory cap even higher than $250 billion.
the people who say we all live together until we all fall together are like the people who go to dinner with friends and order twice as much food and drink and then say, ‘”let’s just split the check”. they want a free ride on other people’s money.
sick and tired of these people who always think that someone else should pay for them.
So now we have an example of FDIC deposit insurance to $250k along with FED deposit insurance above $250k to infinity and beyond.
Only about 3% of this bank’s deposits were insured. In other words, 97% belonged to the uber wealthy and politically connected corporations.
Let’s see what gov’t does when a more *normal* bank fails. Will there be an effective infinite FDIC insurance policy, or will lesser people be told “too bad”?
Personally, I think depositors should be fully protected. Few people understand that money deposited legally is just a general claim (ie no collateral). Either you fully insure them, or you prevent banks from investing deposits. The money just gets warehoused. But banks won’t stand for that, so here we are…
What are you talking about? You don’t need to be and Uber wealthy politically connected corporation to have a deposit over $250k, that’s Barely working capital for the smallest of businesses.
Let’s say, that instead of playing out as it did, depositors filed a tort claim against California and the federal government (and somehow fit it into one of the existing statutes) for negligence, saying that they relied on the regulators doing their jobs before depositing their company’s payroll there. And then suppose that the governments settled the claims.
Would that make you feel better? Whose job is it supposed to be to manage banks?
Again, taxpayers will pay the debts of stupid people. Maybe risk management is no longer required for business degrees.
> at least it’s not a bailout of investors.
Now that the FED announced ‘BTFP’ it’s very much looking like more than just a depositor bailout. It’s a bank bailout with a new euphemistic acronym.
> The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.
So the FED is providing loans taking underwater assets as collateral AT PAR! At the very least this buys time for any bank which previously were on the edge. And that time will bailout a bunch of shorter duration bondholders who will be able to get at 100%, while the FED provides the neccessary funding holding marked to fantasy assets in return.
This is what Yellen said this morning:
“During the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we’re certainly not looking [at that]. And the reforms that have been put in place means that we’re not going to do that again”
“Bailout” has become such a politically toxic term that no official will openly admit to it.
Bailing out the SVB/Signature shareholders & managers was never politically feasible. The wealthy individuals (think billionaire VCs & IPO’ed founders) with uninsured deposits were the real political VIPs who had the clout to influence policymakers & get themselves made whole.
Heck, Yellen was in Ukraine until this “emergency” took place. She spent her years between the Federal Reserve & Treasury speaking to hedge funds for $500,000+/hour. None of these officials give a hoot about ordinary Americans.
What if they weren’t wealthy individuals? What if the business was a small marketing firm or chain of casual restaurants with a few million in operating capital deposited at the bank? Do they “deserve it?”
Where do you draw the line? Isn’t this what the individual responsibility crowd is all about?
Secondary insurance is available. If they didn’t shoulder the cost, tough on them. If my manager mismanages the business, I lose my job. I don’t have a say. If someone hits me and I don’t have health insurance, I’m paying out of pocket.
I’m not saying this is good or ideal, I’d rather that forces came together as quickly as they did for SVB in these other situations, that I could find a new job with support, that I could benefit by Universal Single-Payer Health Insurance.
But if I have to live in their system and suffer under these risk conditions for when the unusual or tragic happens due to things out of my control — the whole POINT of insurance — well, so should they, especially for those engaged in high-risk activity. But that’s never going to happen.
All these events do is lay bare the system we’re actually living under, one where everyday people have no protection or leverage when shit happens. That’s a privilege for those who have made themselves instrumental to the smooth functioning of the larger economy, the ones my taxes bail out. I am disgusted with how quickly ranks were closed and fingers pointed at anyone but those who won’t take responsibility for the risks they took on.
LK – way. over. the. center. field. fence…
may we all find a better day.
It’s true they didn’t bail out investors in these 2 banks. Instead, the new Fed program ensures that investors in every other bank no longer have to worry about their bank succumbing to poor decisions and high risk behavior. Moral hazard in sheep’s clothing.
I’m not upset that the depositors were bailed out. They parked cash, that’s it. They’re just clueless not evil. A bunch of SBFs.
The real villains here are the bank’s management teams who led their banks down the drain with high risk, low intelligence leadership. Especially galling is the CEO who allegedly sold stock just before it came down. Will we see insider trading charges and handcuffs for him?
I believe there was a fundamental shift in political thinking today that will have deep implications going forward. I believe government made the decision in the course of this 48 hour “crisis”, culminating in today’s decision, to embrace MMT going forward and the Fed gave up some of its independence. We’ll see if I’m right or not over the next few years. At any rate, all clear for a 50bps hike now. In fact, they will likely need it as the stock market and crypto rockets higher from this action. No chance of a Moody’s downgrade for US credit rating, although that is exactly what Moody’s should do.
Moodys’ – What a joke. They SVB solid right to the end.
Every single financial institution and asset should be forced to be “mark-to-market” at all times. That would prevent any risk taking that could cause losses and stem losses to the smallest possible amount.
Bankers ALWAYS bail out other bankers.
It was around this time in 2009 that m-to-m went by the waysides.
Yup, almost to the day 14 years ago. Not coincidentally the day the stock market bottomed and the all clear rang out. Hardly any scorn gets directed to the Financial Accounting Standards weasels who rammed that through.
On the flip side, the Fed created this problem with ZIRP and QE int eh first place. Banks are only allowed to invest in safe securities. How safe is it if you have to buy it at ridiculous ZIRP prices that are now severely impaired because of an end of ZIRP? What did you expect these banks to do?
Invest in shorter duration? They bought long duration bonds at a time of historical outliers in yields. SVB had no risk management. They traded a 1% yield difference from longer duration as some hyper penny pinching greedy compensation for an enormous mountain of risk.
And BTFP legitimizes all of that. Not only should depositors not care what shitshow is happening at their house bank. Bond holders also should not care. This is setting very bad incentives.
I expect banks to be well managed. The Fed announced it was raising rates well in advance. Banks had ample time to adjust their portfolio for that reality. I’m sure many banks are well managed, did adjust, and won’t collapse. Those banks probably had lower profits and less inflated stock prices as a result of their prudence. It seems like you want to give incompetent bank management a free pass.
No, I don’t want to give management a free pass, which is why I supported wiping our shareholders and clawing back ill-gotten stock gains and bonuses. But I don’t see how making depositors whole is giving management a free pass.
I was responding to your previous comment which questioned what we expect banks to do. That comment appeared to be giving bank management a free pass. Making uninsured depositors whole is a separate issue.
In this case, making uninsured depositors whole shouldn’t be done by changing the rules after the fact. Everyone knew the rules before SVB collapsed. If we are going to make a policy change of this magnitude, it should not be done on the fly in a manner which appears to be playing favorites due to the high profile nature of the businesses SVB served.
Bank failures happen all the time, though usually at much smaller banks. Why cover all uninsured deposits now? It’s the blatant unfairness to other uninsured depositors at other institutions with less political clout that bothers me so much. I’m not opposed to insuring all deposits as a policy matter, but that needs to be done on a prospective basis so everyone is subject to the same rules. We’re in banana republic territory when rules are arbitrarily changed at the whim of government officials to satisfy politically connected constituencies. Oh well, this country has been heading in that direction for a long time now.
For a moment, I thought BTFP means BUY THE F****** PAPER.
Correction: SILLYCON versus SILICONE
I suppose market psychology protection from uncertainty was a main driver behind announcing this plan on Sunday night, huh?
Wtf, I haven’t stopped crying my crocodile tears for SVB and while I’m napping, another welk managed bank, gets bailed out, what?
I guess the fallout of banks collapsing from absolutely stupid strategies isn’t the right tone for this fragile market with super thin skin, a market that’s strong with strong consumers and unlimited money and liquidity — but too fragile to face the reality of stupid managers that were way fing over leveraged and disregarding all common sense with basic ten year old risk management policies.
This is embarrassing as hell to be an American with a completely stupid body of regulators who are equally inept and corrupt and stupid.
Bring on Maxine waters and the stupid democrats and the corrupt republican clown show!
Did I mention stupidity — I’m illiterate and have dementia and I still wonder if this is some super weird alien invasion that’s using a new hostile takeover technique… Jesus!
Actually it is Beijing, follow the money.
Any idea how one gets their money back if its in a brokered CD w/ Signature Bank?
Its an amount well below the FDIC limit if it makes a difference.
The FDIC will return your principal to your brokerage account soon, but you may get less interest than you expected.
“You should thank God for bank bailouts— absolutely required to save your civilization. So I think when you have troubles like that you shouldn’t be bitching about a little bailout. You should have been thinking it should have been bigger. You should thank God the government saved the big banks and their investors. Now, if you talk about bailouts for everybody else, there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies. Suck it in and cope.”
Charlie Munger, Christian Science Monitor, September 30, 2010
Privatize the profits, and socialize the losses.
Will the FED get back its money from the sale of those assets, or will the executives get million-dollar retirement and severance packages?
So will Powell choose to defend the dollar or the poorly managed, but well connected banks when the next rate hike decision takes place ? I know in theory the banks will fund this program but in practice the consumer and public at large will be on the hook.
Just sickening, the Fed and Government should be completely ashamed.
So, the question becomes is the end regionals going under or just the beginning.
When it is all said and done, this is a direct result of the Fed’s multi-decade policy of rate suppression and injecting excess liquidity into the economy.
Median bank account balance in US: $5,300.
The wealthy have hijacked the country and are just changing the rules as they go to benefit themselves. The game they created is called “heads I win, tails you lose.” We need to burn it all down at this point. It’s too far gone. We need to get rid of these people.
I’ll lite the match.
Psst. Yo, Buddy. Wanna buy a Bridge in New York?
Yeah, it’s good. Hell, you can take this deal to the Bank. And as a one-time bonus, I’ll throw in a Signature to go along with the deal!
Wolf, what does this mean for the hiking cycle, is it over? If banks are starting to fail does that mean the FED has reached the limits of its ability to fight inflation?
Hiking cycle continues, now that the storm has settled down.
Do you foresee the Fed coming up with plans to take toxic assets off of banks hands? That is, buying up bonds and MbS at full face value?
Similar to what happened post 2008.
Those assets are NOT “toxic,” LOL. They’re pristine Treasury securities and government-guaranteed MBS that have fallen in price because interest rates have risen, but if you bought at auction and hold them to maturity, you will get all your money back, plus collect interest along the way.
There is HUGE DEMAND for these securities right now during this panic, as you can tell from the 10-year yield that has plunged, and prices of the securities have jumped. Check out the chart!
SVB had those pristine holdings which it thought could hold to maturity, until it couldn’t (forced sale at a loss to cover withdrawals). Those portfolios are what I am referring to.
Demand for them has certainly risen, but the price is way lower than what these banks had purchased them at.
Looks like a game of chicken between the markets and the Fed this morning.
I am confused by this too, there is a thought that as rate hikes increase more hoopla companies will start to fail. Why in the world does wallstreet think rates will stop going up? Inflation still needs to be tamed. How are overleveraged companies still able to receive funding without an analysis of their books? Oh, wait I know like many other companies incompetence rules all. I think that its all a house of cards. As long as interest rates are held at current levels, stocks will stable or rise and companies will continue issuing bonds for stock buybacks gutting companies to become zombie. And leaving stable funds holding the bag.
Yes, I’m glad investors aren’t bailed out, but I have a hard time with uninsured depositors being made whole in this process. I understand the risks to the entire economy, but it’s still hard to reconcile it.
“rsiks to the entire economy” is just the same old propaganda they use to justify any rule change, bail out or special treatment they want to impose.
You are ruled. They are rulers.
With the SVB customers I can understand the logic, job creators and all…but with the Signature depositors being made whole, a lot of them are just crypto millionaires…I’m not sure people fully realize how dangerous this is getting.
Kernburn, with all due respect that is not so. Ninety plus percent of Signature depositors were law firms (escrow accounts and payroll) real estate management firms large and small, small and medium sized businesses such as mine. I wasn’t a shareholder, just a satisfied client since the bank opened. Their lending was extremely well vetted and conservative, primarily commercial real estate in New York City. No such thing as a five percent deal. Fair is fair…they did not use crypto nonsense as loan collateral, did not invest in it. They held deposits in the bank. As loathsome and ridiculous crypto is, every business needs a bank. SBNY was nothing like SVB either in concept or operations. Check their balance sheet. They weren’t cowboys.
“The Fed will print the needed funds to cover the deposits and give it to the FDIC (and the proceeds from asset sales will chip in to cover the losses). “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.””
More money printing = more QE = more inflation. Of course the taxpayer is paying – through sheer misery via a grossly deteriorating standard of living, all to carry the burden of the wealthy.
I will post another one of my monthly updates in early April on QT in March. I’m pretty sure QT will continue.
Look, this was a panic. By removing the cause of the panic, the Fed removed the urge of depositors to withdraw their funds, thereby eliminating the need for banks to sell securities or borrow at the Fed. So this announcement will end up settling down the nerves, and the Fed may not have to actually lend money to the banks under this new program. And it will likely recuperate the funds it advances to the FDIC. So this is really a pretty good solution that allows for further rate hikes and further QT.
I agree it should settle things down, but Joe Lunchbucket probably would like to see “some heads roll” by measures like clawing back bonuses, stock options, recent stock sales etc. by management, and re-assuring the great unwashed that someone will have paid for the excessive risks undertaken by bank management. That includes not just the failed banks, but any other banks needing similar help. To do anything less will not instill confidence going forward. I do agree that the Fed policies like ZIRP hand-cuffed a lot of bankers( through high bond prices) when trying to park the helicopter money. So, I guess it all comes back to government policy, as always.
yup that’s exactly what i want … heads on stakes. enough of this billionaire socialism.
Yes- to those who’s entire life course can be demolished by a single financial misstep, accountability and consequences for those who are free to trample about near indescriminately, matter.
Especially when it makes the marjority of the actual population more vulnerable every single time they recover from the last entitled trampling.
Shackle those responsible, they knew what they were doing and simply did not care.
Wolf, what you say is good, I hope you are right
And looks like they just did it again with NY’s Signature Bank.
Oops, sorry, I didn’t RTGDFA.. Saw it on the news and just reacted..
SVB was not a mom & pop bank. In order to open an account, not only did you need to have millions, you had to be backed by top-tier VC firms like Accel, Greylock, Sequoia, etc. Or be one of those billionaire VC partners utilizing SVB’s wealth management services.
Every single time the billionaire VIP class is at risk of losing money, policymakers work nights & weekends to save them. Main Street Americans have been suffocating under high inflation for two years now, and the Federal Reserve didn’t even call 1 emergency meeting to address the issue, and dragged their feet on policy action until last March. Now suddenly a small regional bank serving the most speculative segment of one industry is considered a “systemic” risk to the global financial system, and warrants starting another “Section 13” special facility (the BTFP.)
I don’t like bailouts either, but here, there WAS a systemic risk. Many companies (including the one I used to work for) started pulling their money out of its small bank and opened an account with Goldman Sachs. Enough small businesses pull their money out of regional banks because they’re worried it will fail, and it becomes a self-fulfilling prophecy.
That’s exactly what we DON’T want, more consolidation in their industry.
Spoken like a true SVB uninsured depositor.
How you gonna get your deflation when you try to make everyone/everything whole?
People losing money & jobs…I thought that’s how we gonna get back to lower inflation….No?
@ Einhall – “systemic risk”
meaning elite people in the system might be discomforted
No, meaning that small businesses that made the mistake of banking at the wrong bank could lose all of their operating capital and go bankrupt. Meaning that bank runs occur at all but the largest banks.
Your endurance is admirable.
For Einhall –
For Einhall –
Vivek Ramaswamy said:
“Silicon Valley is hilariously renaming businesses flooded with hundreds of millions in venture capital as “small businesses. And they’re pawn-ifying “workers” to argue for bailouts for the venture capitalist class. That explains their sudden newfound concern for “American workers.”
@ Einhall – one more for you, from David Stockman.
Raiding The Taxpayer Piggy-Bank, Part 2
Janet Yellen is one continuous anti-prosperity horror show and the reason is obvious enough. She got her indoctrination at Yale from the granddaddy of Professor Keynes’ US disciples, James Tobin, in the late 1960s and has spent most of her years since then pontificating in academia or dictating from the Fed.
So now with the arrival of screaming evidence that the banking system desperately needs the disciplining effect of depositor flight, she comes out four-square for euthanizing the $9 trillion of still uninsured deposits in the US banking system.
But let’s cut to the chase. Banks not disciplined by their depositors and not at risk for deposit flight are dangerous institutions. They leave bank executives free to swing for the fences on the asset-side of their balance sheets without fear that attentive depositors will move their money to safer pastures.
For crying out loud. It was bad enough during the last several years when deposits were dirt cheap and knuckleheads like those who ran SVB decided to load up their balance sheets with 10-30 year duration assets against overnight demand deposits, most of which were uninsured.
For the moment that allowed them to book outsized profits and reap the consequent benefit of soaring stock options, but these “profits” were phony as a two-dollar bill. That’s because they were being generated off long-term fixed income assets, the prices of which had nowhere to go except down.
Jackson Y, that about sums it up. Total bullsh*t. Too bad the average American is too dumb to comprehend what just happened. LOL.
Like Henry Ford once said, “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” WORD.
Wolf, so if I understand this:
per Yuan, “So the FED is providing loans taking underwater assets as collateral AT PAR!”
per DC “They are changing the rules for the wealthy as they go..”
per my understanding, regional banks/credit unions that may be healthy will get to also “share” the brunt of those risk takers?
just asking as I too read and re-read your article.
“Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
With this announcement, the Fed settled the panic, and depositors will not withdraw their funds, and so banks will not need to borrow money or sell securities because the outflow of deposits has stopped. So this facility for lending to the banks may be a nothing-burger. That’s the idea.
@ Wolf –
Think of the wealthy depositors who have been deprived of the opportunity to experience class mobility.
surely, there is some loss there ……..
yes, and I would love to see some of the bankers spend some quality time in the hoosegow.
Found this on a somewhat ‘zanie’ website, but they are also quite ‘leading edge’ with things as well, so worth paying attention to !
Here we go, kids!
Another Bank specializing in Tech loans and services for “High Net Worth Individuals”, but more of a Public bank than SVB was.
The Silicon Valley Bank failure contagion is SPREADING.
The FDIC is already on site at First Republic Bank trying to determine the best path forward to protect depositors. Things are moving way faster than expected given the accelerating bank run that has already reached a tipping point.
Confirmed just now that First Republic started throttling outbound wires today.
Today (Sat. 3/11/23) First Republic Bank of Calif FROZE ALL DEPOSITORS ACCOUNTS. Depositors have NO ACCESS to their Accounts and will not until Noon Monday (PST). This action being orchestrated by the The California Department of Financial Protection and the FDIC.
Be aware that FRB of CA is an Affiliate Bank (financial partner) of SVB. There are twelve more (!) Affiliate Banking and Financial Institutions in CA who are in Partnership with Silicon Valley Bank. — ALL of these Affiliate Financial Institutions are NOW AT RISK of INSOLVENCY via the Contagion. Keep this potential aspect in mind.
The MELTDOWN is only getting started. Monday on Wall St will be VERY CURIOUS indeed.
All this ended with today’s announcement.
So, does this mean that the Pivot guys won. Will Powell now hike or reduce interest rate.
Hike rates, now that the storm has settled down.
Agree, this is simply mismanagement of interest rate risk by very large institutions. While nasty for banks, the culling will continue as interest rates continue to rise.
The Fed fully expected this, given the lack of experience with a real rate tightening cycle in the entire financial space.
Inflation numbers will be the important signifier of change, not the collateral and intended damage.
I would note we have nearly returned to the 1950s level of interest rates (the 3-6-3 world of take money in at 3%, lend long at 6%, hit the golf course at 3pm).
Wolf continues to smack the silly, and I applaud his determination to keep this reality based. Now, when speculative financing runs 15%, and cds pay 9%, that will be a world where capital will be rewarded for taking some risk instead of the low rate bonanza of the last decade- which won’t return for decades….
Someday this war’s gonna end….
Just curious Wolf, do believe the actions in saving SVB will increase inflation at this time. I get over time the FDIC and FED will be “whole” but that down the road. also trying to figure out why the FED would even hike 25bps as would this make more things break then need BTFP? I feel like it’s a battle of taming inflation vs breaking things with higher rates with JPOW in a tough spot.
It will stop a bank panic and will allow the Fed to get back to work addressing inflation as a separate issue.
Wolf, what do you think about this report…Per Goldman Sachs’ Chief economist Jan Hatzius…”The Treasury, Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) made two major policy announcements intended to stabilize the banking system in response to recent bank failures and the risk of continued deposit outflows. We expect these measures to provide substantial liquidity to banks facing deposit outflows and to improve confidence among depositors….
….In light of recent stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March”
GS rate expectations have been horribly wrong EVERY STEP ALONG THE WAY.
February 10, 2022, a year ago, Mericle and Hatzius at Goldman Sachs said: “We continue to expect the FOMC to hike three more times at a gradual once-per-quarter pace in 2023Q1-Q3 and to reach the same terminal rate of 2.5-2.75%, but earlier.
A year ago, these morons predicted a “terminal rate” (= maximum rate) for the federal funds rate target of 2.5%-2.75%. Now, in reality we’re at 4.5%-4.75%.
Why do I need to comment on their idiotic BS???
Wolf, I absolutely agree w/ you re:Goldman’s past predictions on the rates and even on most economic report estimates. I just found it strange that they would very publicly make such a bold and (probably) wrong prediction at this moment in time…It seems to be an unforced error on their part here, unless they’re just looking to suck more money into the markets right now.
I remember GS making the same kind of statements (propping up their desired end state) during the “peak oil” days. Crazy times back then, crazy times now.
If they don’t hike rates it will be a sign that they are scared, and that will rattle the markets. I think they will go 25 basis points.
Smoke and mirrors game(S) between FED and FDIC. Ultimately Taxpayers will get the bill in the end, as usual. They should crawl back what SVB gave to their bonuses just before FDIC took over.
Will there be a perp walk for executives involved. Bail-in or bailout,taxpayers are ALWAYS on the hook in the end for final tally. Fed prints, but Taxpayer pay ‘taxes’ (for inflation) for all the sins of Govt, Fed and Congress – like annual deficit and increasing national debt. Debt ceiling is a joke.
Too many shell games to monitor. Fed gives to FDIC which in turn give to those ‘uninsured'( moral hazard again committed) , then charge and collect from other member banks. give back to Fed. Of course selling assets will take time. Too good to be true but time will tell.
In future ‘insured’ vs uninsured makes no difference, right? Will the guilty get punished? Imprudent investing and mismanaging the risk, behavior again gets rewarded. Guess, everything OK in the name of financial stability just like 2008. Call me a skeptic.
The bonuses were not paid by the bank. They were paid BY the FDIC during the takeover.
Can they indict the VCs who forced their startups to park their money in SVB and then got sweetheart deals on loans from the banks? That sure sounds like something that should be illegal (I’m not sure that it is)
What about the SVB executives who managed to sell their stocks a few weeks ago? That seems like insider trading to me.
I could be wrong but I don’t think they are “forced to park their money” it’s most likely similar to a construction loan. You might borrow $500k to build a house but they don’t give it to you all at once.
Will the insider traders who sold out in past few weeks go to prison?
No they get keep their proceed with this bailout.
That’ their punishment.
Seems like we never learn. Every period of easy loans gives way to a bust. 1990s: S&L crisis. 2008: GFC. 2023: Post-pandemic crisis.
If I understand it right this time:
1. During shutdown, Fed buys bonds and lowers interest rate to stimulate the economy
2. Companies borrow more money than they need because it’s cheap, then stash it in banks
3. Banks use those funds to buy what they think is the safest investment, bonds*, even though interest is negligible on those investments
4. An overheated economy spawns inflation, so the Fed raises interest rates, dropping the value of bank bond holdings
5. Depositors need the money they stashed since they’re still not making income to cover expenses
6. Bank has no money to pay them
* But I wonder why bonds are considered ultra-safe. At times of low interest rates, especially if due to QE, they should be considered risky or at least potentially illiquid.
Question is whether SVB is unique because their depositors overall make negative income
Sounds like a very intelligent plan to me, it protects very precisely the interests that should be protected, it does not bail out investors or management. The acceptance of US treasuries as collateral at par is also a good move. I think but for this the markets would have been roiled much harder tomorrow.
“SILLY CON VALLEY.”
How did these banks ever go up so much to begin with?
From March 2020 to Oct 2021 SIVB went from $139 to $753.
From Nov 2020 to Jan 2022 SBNY went from $76 to $365. HUH??!!
Since when do bank stocks move like speculative tech stocks?
Read my lips, pumpndump. That is why.
The US Treasury and the FED just dropped an inferno of fuel on the speculative orgy of their own making. They’re just going to print us into absolute and total destruction.
Look at the futures market, crypto, everything. They have taken off like a rocket after this news. These money-printing maniacs led by the deranged Jerome Powell need to be stopped at any cost if the country is to survive.
We need to remove them from office immediately, by any means.
Inflation is the most fair tax we could have. If you are a low wage earner you pay a small inflation tax but if you want a new jet the inflation tax on that is huge. Back around 2008 the politicians dipped their toes in the printing game as apposed to taxing game. Before that government needed to sell the country on higher taxes to pay for their spending. After about 2008 they quickly realized that the American public is so decoupled from DC that they just don’t pay attention unless their tax return is smaller. So fast forward to today, the federal government ” Politicians ” just print and spend. So when will the American public wake up and realize their standard of living is declining and the new inflation tax is here to stay?
Startups, which would not exist without free money, deposit large amounts in SVB, whose assets balloon, enriching executives as they go. Said bank makes no provisions to offset the potential risks of exponential growth and fails. Startups and other rich crybabies call foul and get the US Gov’t, including the Fed to upend all of its laws and programs by creating a new program out of thin air in one weekend to save money and jobs that should have never existed in the first place. I know, I know, these companies have payroll they wouldn’t have met – isn’t that what unemployment insurance is for? Isn’t the economy still overheated, employment-wise? Won’t there be a soft-landing for these people. Oh but the big banks, what if there are bank runs and everyone moves their money to the bigger banks? Isn’t that what antitrust laws were for?
This is why getting inflation under control is farcical at the moment. Depositors, mainly businesses, were looking at what, a 10% hit on their funds? Hardly a panic moment. Small companies are not panicking about their local institutions failing. This is the mania economy – people that bid up real estate and all assets through the roof not being allowed to take their fair share of the hit when things go wrong. Why not let them sweat a little? Why not force them to do the slow walk in getting a percentage of their funds back. Why not let these useless zombie companies just die or finally have to tighten their belts or worse, have to borrow money at market rates to make payroll? Isn’t this a requirement for getting inflation under control?
If they’re going to conjure up new rules, they could have just as easily put some rules in place to prevent the big banks from growing larger, forcing people to park money where it is.
At least investors will eat it. Now what about clawbacks and jailtime?
Well written. I think you should send that verbatim to the fed. They have a contact email posted on their website. I think they need to hear directly from people more often.
I agree 100%, but think about it this way. Alot of the people hate this adminstration, then you have the apex of woke in one bank.
Now imagine if you have a lot of broke woke, that when companies have to fire people to fix the issue than its a shitshow. Imagine if you are the current adminstration, you want to keep kicking the can down the road until your political opposite gets into office, they are forced to fix the problem. They get blamed and back to business as usual. Except this time during the boom, no one wants to be part of the bust.
BACK DOOR subsidy to Banks’ investors and management
The central bank said it would make additional funding available to banks through a new “Bank Term Funding Program,” which will offer loans of up to one year to banks that pledge U.S. Treasury securities, mortgage-backed securities and other collateral. Up to $25 billion from the Treasury’s exchange-stabilization fund will backstop the Fed lending program.
Critics said the move would essentially offer a backdoor subsidy to bank investors and management for failing to properly manage interest-rate risks.
Nothing has changed since 2008. Business as usual. Same management. Everything hunky-dory.
So much for Dodd Frank.
To add insult to the injury, I am sure the loans will be forgiven at some point.
Truly a criminal enterprise is ruling us.
Those loans won’t even happen because they won’t be needed because depositors will stop yanking their money out after this announcement, and banks won’t need to borrow. This is EXPENSIVE money for banks, around 4.75%, and they won’t borrow if they don’t need to.
“This is EXPENSIVE money for banks, around 4.75%”
Sure, while they’re ripping people off at 29% on credit cards and 15% on 84 month loans on 15 year old cars. Bankers are the scourge of the earth.
Instead of RRP, we will add a new action, and will call it Diverse Repo. A backdoor pivot.
This announcement settled the panic, depositors will stop yanking their money out, and banks won’t need to borrow or sell securities to fund the deposit outflow, and so the facility may not be used much. Nothing-burger in the end? That’s the idea. During the Covid bailouts, there were a bunch of these kinds of facilities which I diligently reported on, and most of them did very little because the mere announcement removed the need.
I think you’re right Wolf. This is the same as the law of the ECB on the fragmentation of the debt burden which was supposed to protect Italy in particular. Since its creation, interest rates have been rising and this instrument has not come into effect until now. It’s also a psychological game
I wonder how the junk bond market is doing. No one talking about that.
Wolf – I hope you’re right about the panic settling, but I lack confidence in the crowd that exhibits the collective hallucination/cognitive dissonance that always seems to lead to scenarios like this. Just as the crazy crowd lost its mind with the free money, so can it lose its mind and continue to panic regardless of whatever sound strategy the Fed/treasury tries to implement.
Wolf – I hope you’re right about things settling down, but I lack confidence in the crowd’s ability to think critically and not follow some other ”free money hallucination in reverse” and continue the downward panicky spiral. Failing banks may be the new fad.
I’m sure you’re just giddy to have a new facility to report on and all the site traffic these events are generating.
You might be right that this was a statement intended to stop a panic without actually going through with what was implied by it, but I’m wondering about what intangible was traded away in the gambit or other consequences that are too soon to tell.
This all happened in less than a week. Who the hell knows how quickly the next crisis will play out. I know the crypto space is seeing a flight from bank-run-vulnerable stablecoins.
One thing we know for sure: SVB was a colossal failure in bank regulation that happened after regulation on it and other mid-size banks was loosened in 2018, and they were removed from the stress test requirement, etc. That should have never happened. SVB should have never been allowed to be exposed in such a concentrated manner to these massive deposits from a relatively small number of huge but unstable and risky depositors. That was nuts to allow that. And regulators should have cracked down.
“Stablecoin issuer Circle to transfer $3.3 billion in cash held at Silicon Valley Bank to BNY Mellon”
THIS is who got bailed out – the EXACT people who should have had to pay the piper for their own stupidity. The FED and the US Treasury are bailing out crypto gamblers. The USA is a failed country. The entire system is disgustingly rigged and corrupt. The FED is bailing crypto.
Moral hazard committed again & again!
No one learned from 2008.
Yes! All I get out of this is now the Fed and DC no longer factor in Moral Hazzard in their decision making.
Would you be equally angry if they kept their money in BNY from the beginning?
I don’t care where did/do keep their money in any bank.
Any bailout b/c of mismanaging risk or imprudent behavior is nothing but CRONY capitalism, justifying that behavior.
Whether it TARP2, QE ultra lite or BTFP it is a BAILOUT on the backs of Taxpayers, ultimately. If and when FDIC charges other banks to make up this ‘bailout’ it will be passed on to it’s customers.
Might I suggest Portugal ?
They offer plentiful opportunities to hammer.
Why is this miserably weak clown allowed to show up and cast insults yet you delete mine when I fire right back at him?
What’s insult here?
But you were calling commenters ugly names. Several times. Depth Charge, you need to calm down a little.
“What’s insult here?”
Wolf, “plenty opportunities to hammer” is the same insult he’s been using for over 2 years straight as he follows me around. It’s an insult to all skilled tradesmen. He has repeatedly insulted all people who build and construct things. Which is fine, but when I point out his trollness, suddenly I’m out of line.
I do apologize for the comment I made to Einhal. It wasn’t personal at all. “F*** your bailouts” was in response to his support of bailing depositors. I like a lot of Einhal’s comments. I try to stay within your commenting guidelines. I think I’ve done a lot better the past year. I think I used to really run afoul.
OK, I will keep my eyes for for “hammering in Portugal” and if I see it, and if it’s in reply to you, I’m going to take out my old double-barrel 10-gauge goose gun and shoot it down.
Keep up the good work!
Hey DC, speaking from experience, sometimes it’s helpful to step away for a bit and recenter yourself before engaging again. I know what my anger is telling me and how it is clouding my thinking.
Calm down. They were a depositor. They were morons too. I mean why put $3.3 billion into a bank instead of Treasury bills? But crypto is full of morons, so that’s nothing new. But those were deposits. Nearly all of the deposits were from companies, including Circle.
They are now doing the same at NY’s Signature Bank which has been shut down and taken over. “The FDIC-insured Signature is a major lender to the cryptocurrency sector, with total assets of about US$110 billion and total deposits of over US$88 billion”
oops, didn’t RTGDFA
@ Depth Charge @ Wolf
How big is the entire crypto market?
The global cryptocurrency market cap today is $1.11 Trillion, a -3.06% change in the last 24 hours and -40.36% change one year ago. As of today, the market cap of Bitcoin (BTC) is at $446 Billion, representing a Bitcoin dominance of 40.2%.
The above is what google tells and is line with what I have read about the total amrket capitalization of crypto. Yet one paticipant in the market had $3.3 billion in cash. Wonder how that works?
It was a “company” that had this cash at the bank. That company issued the crypto (a stablecoin) and sold it 1-to-1 for USD and then invested the USD, including in a bank account at the bank, to back the stablecoin and keep it 1 to 1 with the USD.
@ Wolf – Thanks. Shows how stable that their issued stablecoin wasn’t.
yes, but $3.3 trillion. 3 times larger than the entire crypto market. Stable coins are crypto, are they not?
“Stablecoin issuer Circle to transfer $3.3 billion in cash held at Silicon Valley Bank to BNY Mellon”
speak English. What does this mean??
BNY Mellon? That’s where I got all my money.
The Fed is socializing the duration losses for every bank. That’s QE.
Nothing ever changes. These folks have turned the USA into an overpriced homeless encampment.
Oh, but they are saving silicon valley, aka esg./s
sounds like a valid point
That last sentence is priceless..
They socialized nothing for the bank. The bank, its shareholders, and upper management are wiped out. They only socialized the losses that would have otherwise been incurred by depositors. You do not want bank depositors in general to start thinking that they are taking a big risk by just letting their cash continue to sit in their bank accounts. The best way to prevent them from thinking that is to make sure that there is no such risk.
Most bank depositors aren’t depositing more than $250k into accounts.
If you have that much cheddar in one basket, maybe the onus is on the depositor to deal with that risk accordingly. Unfortunately we’ve been in such an extended delusional period that gross financial incompetence seems to be the norm.
The panic had to be stopped, but god damn.
How are even relatively small businesses supposed to deal with this? Limit their choices to the TBTF banks?
$2 Bills with Janet Yellson Photo on them ?
Just knock a zero off each FRN.
A 10$ becomes a 1$
A 20$ becomes a two
A 50$ becomes a five
A 100$ becomes a ten
The 1$ and 5$ become collectors item.
Problem solved Zimbabwean way!
I guess these bankers could have used some artificial intelligence!
Don’t joke about that, I do analysis. I do think artificial intelligence has a place in data and reporting to the gov about the true books of companies. I think artificial intelligence has a good way of reporting bad practices with requiring insurance premiums increase on high risk companies. It shouldn’t come at the cost of tech growth but at the billionaires who risk nothing and take all. Alot of people see a recession coming a couple of years back and inflation not being transitory. But that doesnt stop wallstreet from pumpndumpin stocks.
Dr. Pippa Malmgren has an interesting take Today on this Failed SVB bank model, i believe it worths to share with your audience.
SVB raises funds for startups, in return they require to deposit their cast in the bank , bank invest these on risky assests to make profit, VCs / pE firms fund startups and once business gains momentum they throw them off the bus , then of course they sell the shares in stock market multiples time more ( maybe hundred times more than they invested ) in stock market for unsuspecting investors. :
The world is panicking about the demise of Silicon Valley Bank, but for the wrong reasons. Yes, a whole lot of businesses had raised capital that will now take years to retrieve, if ever. It’s just like Lehman Brothers in one respect. It’s about captivity and re-hypothecation. This situation is exactly what we should really be thinking about. First, why is the financial world full of captive models? In the world of banking and hedge funds, you have to place cash on deposit with a bank that raises capital for you or gets you new clients. That’s the meaning of Prime Brokerage. The bank raises money for you and gets to keep it on deposit to improve its liquidity and increase their size. This is how Lehman Brothers hurt so many hedge funds. They all had vast sums on deposit with Lehman when that bank went bust. Ultimately, the hedge funds got their money back because the funds never belonged to Lehman in the first place. They were just holding them on behalf of clients. Except, it seems the team at Lehman started to trade with this “dormant” money on their own account. Why not make some money on the side? This is called re-hypothecation. It’s not legal. Finding and restoring the re-hypothecated funds took years.
SVB has a similar issue. Note that the Chief Administrative Officer of SCB had been the CFO of Lehman’s Global Investment Bank, so this approach would have been familiar. The business model was a winner for everybody till it wasn’t. All the Silicon Valley start-ups wanted was capital. All the PE funds wanted was a filter so they didn’t have to waste time meeting every single wannabe founder. All the successful founders wanted access to the coolest deals in town so they could make more money faster. SVB became the broker that met everyone’s needs. If SVB raised the capital for you, there were conditions. One of them was, “but you must keep the cash with our bank.” So, that’s what the start-ups did. The start-ups were captive. There was no choice. What happened from there remains to be seen. Most likely, most of the start-ups simply never delivered the returns. SVB, like everybody else, thought that one unicorn would offset a ton of donkeys (not to malign donkeys). It turns out that’s just not true.
All this raises a huge question about how we fund the most critical and fragile part of the economy, which is the start-up sector. It also raises huge questions about start-ups. Why is the failure rate so high? Does it need to be that high? Does it have to be so hard to raise money?
My impression from working with a wide array of start-ups across multiple sectors is that there are many points of failure and very little conspiring to support their success. Even successful start-ups with naïve founders usually find that the VCs simply throw them off the bus as soon as the business gains momentum. Some founders get to stay on, but they are exceedingly rare. Founders usually get chucked. At worst, there are almost no successful start-ups. The failure rate is well over 90%. Why? Because the world is full of people who do not understand the difference between a brilliant product and a brilliant business. We call them founders. A few of these founders figure out how to convert a brilliant product, even a mediocre product, into a business. “
John, thanks. I’ll be paying attention to Dr. Malmgren going forward.
If I understand correctly the immediate costs of the bailout are absorbed by the government through one agency or another with those costs eventually distributed amongst all banks? If that’s the case I’m sure there’s no way the banks will ever consider resorting to all their favorite tricks of extracting cash from the customers to cover these distributed costs. I mean there are quite a few taxpayers who are bank customers, so if they were to raise fees and whatnot…..oh I get it now.
Why do I have a strong feeling this is going to be another Lost Decade?
How did $42 billion get withdrawn Friday alone without thousands in line? – By Phone ( some via internet?)
After 14 years of QE, and Greedy Banks are still paying (meagerly) 0.50% on accounts when T-bills are yielding 5.00%. Initially as rates passed 2%, 3% and 4%, the public did not notice.
But at 5% the public finally noticed, and millions reached for the phone at once and transferred to a money market account or Treasury direct to buy T-bills. Banks were squeezed to convert loans and securities to cash instantly so depositors could leave for better rates. Banks, better increase the rate 3% or 4% otherwise there will be leak of deposits, slowly.
Wells Fargo would have tens of thousands in line for their $1500 bucks. SVB depositors each want’s to withdraw their 10 billion so the line is only a few people and if you drove by you would think it was just another day at the bank?
it had to be done, I’m sure there are some FTX laundering democrat election money in that pile of papers…
FTX was an equal opportunity palm-greaser, Democrat and Republican.
You need your eyes checked. Go ahead and publish the breakdown, prove me wrong.
OK, here we go. Glad you asked, LOL:
Republicans: $523,200 — 53.88%
Democrats: $447,760 — 46.12%
More than 90% of FTX “donations” went to the dems.
Republicans: $523,200 — 53.88%
Democrats: $447,760 — 46.12%
I’m glad that Wolf pointed this out. If you’re rich, you play both sides to keep your money. Americans are being fooled by these 0.1%ter. Our political class is compromised. No longer the government of the people, for the people.
FTX did give relatively small donations in 2022, but Sam Bankman-Fried, who founded FTX, gave 40 million in recorded donations for political causes in 2022, and it was almost all supporting Democratic Party causes. That’s about 40 times what FTX donated. So yes, FTX donated to both sides, but it’s founder was close to it not the largest donor for the left in 2022.
Ryan Salame, then co-chief executive of FTX Digital Markets, gave nearly $23 million almost exclusively to Republicans and right-leaning PACs, according to FEC data.
Donors should not be decieved by the red or blue color of the Uniparty jackets. Once inside the big club, they are all loyal to the club and its donors no matter the cost.
Under the Corporatocracy run Country, red. blue or blue matters little. They all have been bought via K-Street.
Is this a permanent change to FDIC coverage or just temporary? I might be misunderstanding this situation, but I would think this would encourage riskier behavior in the future. Will banks pass on the special assessment to their customers? I don’t understand why other banks would be on the hook for this.
Are you saying that putting your cash in a bank is a risky behavior?
No, I’m referring to the banks taking more risks.
To the extent depositors enjoy rewards from putting money into a bank, yes, there is commensurate risk. If you have over 250k, there used to be risk. Even if you have less than that, there’s risk that your deposits could be frozen during a crisis. There’s risk that the whole house of cards could fall at one time and there won’t be enough to even cover all the FDIC-insured deposits. There’s risk that keeping assets in cash in any form could be lost to inflation or annihilation of the currency itself, in which case holding hard assets would’ve been the better play.
All these risks are fairly small, but so are the rewards for holding sums at the bank. So, maybe it’s not super risky, but it’s also not risk-free.
I understood Janna’s comment as having a negative connotation. I do understand there’s a limit, but why is it 250K not some other value? My point is that cash should involve no risk, regardless of the sum. Would it be better if one have to keep her hard earned money under the mattress?
“Is this a permanent change to FDIC coverage or just temporary?”
The statement explicitly applies only to these two banks. But how they heck are they going to not do it when the next bank topples?
A lot of media are reporting it is as the limit being lifted and deposits now being effectively insured to an unlimited amount.
Which begs the question, what happens if we get great depression style bank runs? Would they actually be able to insure all deposits? My intuition is no but I honestly know nothing about this.
Once a ‘MORAL’ hazard has been committed first during GFC and now again, Imprudent behavior rewarded where as the prudent ones penalized, again.
Fed has lost further credibility, if any left. Sheeple will end up holding the bag just like before. TARP is ‘tarp’ by any other name including BTFP or some other SPV fund.
With recent bank failures (all with terrible internal risk management, and equally terrible supervision by Federal Bank Examiners) we now have a new program of what is effectively bank QE, while simultaneously continuing Fed bal sheet QT. Wasn’t the Fed looking for some pain to develop in the economy? and an end to Moral Hazzard and bailouts?
Beyond these few banks, there are hundreds of other banks with depositors wising up and looking for alternatives. These banks have restless depositors and hold underwater bond portfolios. A classic mis-match of short term liabilities and long term assets. If the Fed pays FFR for bank reserves, don’t we deserve the same rate? Of course we do.
The prospect of deposits leaving the banks en mass terrifies the Treasury.
This is occurring after years of zero rates by the Fed, pushing
investors into riskier bets, and giving a cold shoulder to savers. Now, with higher short term Treasury and CD rates, due to higher FFR, depositors are getting wise and moving assets from banks to where they can get these higher rates.
Again thank you Fed. Banks don’t want to offer higher rates to their depositors and hurt their high net interest margins, which would damage their divided and share buy-back policies. So apparently, a new program is needed to counteract that, soon to be followed by another, and yet another.
This ever expanding box of Fed and Treasury “tools” along with massive Fiscal spending continues to create money and add complexity to what is an already insane situation.
“This ever expanding box of Fed and Treasury “tools” along with massive Fiscal spending continues to create money and add complexity to what is an already insane situation.”
It’s all the same one tool: Money printing. They’re just trying to print and paper over everything. Mark my words: THEY WILL DESTROY THIS COUNTRY BEFORE THEY STOP.
D.C., they have already destroyed this country from the inside out. No true price discovery in the financial markets for some 11 years with Fed manipulation of interest rates and hence, stock prices. No interest paid to savers who experienced inflation in excess of the bogus 2% imaginary line for a dozen years. Excessive speculation in financial products to include the soon-to-be-history crapto-currency quagmire, Zombie companies with capitalizations exceeding all reality, debt pricing with no premiums for potential defaults, and the infamous Fed Put slyly nestled in the weeds.
This is the true Lehman moment. Republic Bank has just been taken over by the FDIC, so stay by your computer screens Fair Readers, it is going to be very interesting as the layers get peeled from the insolvency onion. No crying out loud permitted. Today’s Fed and Treasury responses will be the Dutch boy trying to plug the holes in the dike with no fingers left. Confidence is dead. RIP.
Me bad, I meant Signature Bank, now I have started a run on Republic Bank, whopppeeeessss.
But arch-libertarian Thiel & his operation was at least a trigger for this event.
The fact remains that the cause of this was poor management at the bank and a failure to meet the basic requirements to cover the depositors’ funds securely.
This was bound to happen. The outrage is not at the bank failing, it’s directed at the Fed and Executive branch of the Gov’t bailing out those who took a risk and lost, and then expect to not have to pay for that gamble.
In no way should one assume that depositors in these two banks were bailed out in whole because both banks are packed with political megadonors. Just because the FDIC has never bailed out uninsured large deposits in the past, it doesn’t mean they can’t start now. Of course, any banks after these two will be limited to the $25 billion in funds. This has been a public service announcement, with an emphasis on public service (definitely not money laundering through donors).
Definitely NOT a public service announcement. Just an opinion.
“Follow the money”. That’s probably the only cultural truism older than Prostitution. If that makes it an opinion, I’m at peace with that.
Sorry, meant to put it beneath my comment. Kind of reinforcing what you meant.
Uninsured depositors have always gotten a portion of their money back. What’s new is 100%.
Special fast lane for tech bros.
Isn’t the same ‘moral hazard’ decried by many critics for the initial bank bailouts?
BTFP = TARP 2.
Why 100% bailout for misbehavior and mismanagement of risk by these Professional bankers and VC industry. This will encourage more impudent behavior, in future
No one learned from 2008.
Well, they bailed out depositors. That’s a different kind of moral hazard than bailing out depositors + bailing out investors + enriching investors.
With this action, and now popup inflation possible, is CBDC around the corner?
If “member” banks will have to make up the shortfall of the FDIC liquidation, then these losses are in fact socialized as those banks will have to raise interest rates to borrowers, increase usage fees etc. While it is a better solution than the direct bailouts of the GFC – I’m not sure the end result is a whole lot different ?
Or it squeezes their profit margins. Banks DO compete with each other, as you can see from the interest rates some banks are offering, such as 4.5%, which others don’t, and some bank accounts have zero fees on anything under certain conditions, which is also a competitive edge, and if they add fees, they’re going to lose clients. Competition is pretty fierce in the banking sector.
I am glad the Fed and FDIC were expeditious. Glad the investors suffered the risk. Friday gave us good deals in the credit markets. A brief window but I’ll take what I can get.
And tomorrow? Everything will be fantastic again, technology companies, inflation, departments will raise their prices to 10,000 million dollars, auditing companies will put AAAA++++AAA++++ to the NEWSVB.
Meanwhile John Steinbeck will wait for us sitting under the Grapes of Wrath
some crypto bros ought to be happy. I understand that coinbase had $240,000,000 with Signature Bank.
Basically, people and companies will get a free lunch as they usually get in the Global North. Why can’t they study what banks do and have done for centuries? Prepare for events like this which happen and are part of Capitalism. Oh no, God forbid! Poor kids, they should not experience uncertainty, hell no! That’s for “third world countries”, they’re use to it, your know: REALITY, they can handle that and more. Haha, it must be nice to live in a bubble and not having to educate yourself in a wide array of subjects because shit happens every day (real world) and you ought to be prepared. How cool to believe in “good and evil” since life hasn’t taught you those are constructs. If you’ve ever wondered why we are fed up with westerners, this is why. Anyhow, thanks for your work, Wolf. I really appreciate it.
In a separate statement, the Fed said that this funding for other banks “will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions.”
Get ready for new, more, expanded, hidden fees.
When that sinks in get ready for more new rounds of attrition.
Crypto Bank my ass.
This might be a bailout for venture capital and private equity firms. Not only are these firms very large depositors of SVB, they are also very large borrowers. And selling all of SVB’s loans will be required to pay back the banks depositors.
Selling these billions of VC and PE loans will require an evaluation of its collateral (which are startup companies) and assigning them a reasonable value (marking them to market). As Wolf has explained in previous posts, the IPO and SPAC market are dead, which has closed a primary exit for VC and PE to pay back these loans. SVB probably has these loans on their books at book or some amortized value which has nothing to do with their true market value. Selling these loans, however, will initiate a price discover for thousands of ‘private’ Silicon Valley firms. This is where most or all of SVB’s losses will be realized (their Treasuries and Agencies won’t have losses if they can wait for maturity to be paid back).
The consequences of this ‘startup’ price discovery would go way beyond just SVB.
Wow you’re right more pumpndumpn, like when big hedges were saying that buying Chinese stocks of big names at price discovery was a safe and sure bet. Since regulations took their toll on the companoes in question. Also, who wants to buy “assets” that put the bank into insolvancy anyway? What assets does svb really have?
Let’s be real. The treasury will print enough money to prevent generalized panic. If the FDIC recovers 35% from asset sales, and special assessments of other banks, it will be declared a roaring success. Indeed no taxpayers were harmed, except when they notice that they need $10 for a coffee at McDonald’s in 2024. Even people that pay no taxes will ultimately be “taxed” by inflation. Nice. Maybe Bitcoin is not so hair-brained after all, since it’s limited in supply.
FALSE, supply of Bitcoin is unlimited
Bitcoin is supposed to be limited to 21 million (or slightly less because of rounding operators…whatever those are).
BTC can be divided to 8 decimal places or something. Pretty much unlimited.
It’s all destined to be tied up in the accounts of dead people eventually anyway. With no strong legal process of passing the “wealth” on to heirs, every coin will eventually wind up being locked up…One car wreck, heart attack, or ham sandwich at a time.
Can we all finally collectively agree to let crypto disappear from our brains yet? It sure is wasting a lot of mental capacity.
My problem with Bitcoin is the speculation, the greed, the fraud, the unstable price, the shilling, the money-laundering, the price manipulation, the pump and dump – you get the point. Otherwise I’d be in long ago.
Sorry Wolf, you are probably freaking out on these comments.
Trying not to, LOL.
Dare I ask? Yes I Dare?
Is this a pivot?
No. It settles down a bank panic and gets it out of the way, which allows the Fed to address inflation as a separate issue with rate hikes and QT.
Common schmuck gets pounded by interest rate hikes and Stablecoin gets bailed out over the weekend. 2020 showed that companies have no contingency plans for any form of emergency. SVB showed that yet again.
All that Powell hikes are smoke and mirrors hopium for the masses. They now have “ammo” to blame him for hiking rates. Next will be a pivot, which historically shows that when that happens, the real financial crisis begins.
The correct response to this crisis:
1) End the Fed and the Fractional Reserve Banking system
2) Banks are no longer special businesses with govt backing. End FDIC (not in the Constitution therefore another illegal program). Ideally, oligopoly banks would also be split up by antitrust regulations.
3) If above steps cause current banks to fail and investors or depositors to lose money, good*. Long overdue.
*Always remember, banks are for borrowing, not depositing.
Um, although I agree with conservitive spending and such, how do you regulate a deregulating mantra? The purpose of the FDIC is to stablize peoples trust on the banking system thereby stablizing the trust in U.S currency. It shows you do not educate yourself, I agree the gov should have never printed $8 trillion. There should have been a capped limit, also this printed money is an example of why UBS will always be a failure. I understand that people that work hard for their money should get to keep it. That outspending your neighbor with debt will always lead to failure. But what needs to happen is the Fed needs to keep battling inflation. Otherwise we will be looking at real economic issues.
I can tell you all that Canada only guarantees bank deposits up to $100,000. That’s it!
Destruction of credit in excess of that is very scary.
How is it possible to expand FDIC insurance to all depositors without legislative action?
If it’s done under some sort of emergency authorization, it should be temporary, yet I didn’t hear Yellen put a term on it. They once said QE was an emergency measure that would be temporary, yet here we are with successive rounds of QE totaling $8T.
It’s probably not legal or constitutional, but it’s not a culture wars issue so I’m sure the Supreme Court will stay silent. FDIC insurance levels are legislated. Everything else is uninsured and available as part of the dissolution process, where depositors get some high percentage of their funds back because most of the money is tied up in illiquid assets.
They announced a reasonable plan at first – everyone would get something back above and beyond FDIC limits, then eventually whatever was left down the line.
The FDIC and Fed should have just done what they were required to do and kicked it to congress. Why does the Legislative branch continually get a pass on having to make hard decisions?
I think the problem is bigger for regional banks. Before this year I never purchased treasuries or CD. I just let my money sit at my regional bank for 0.3% or less. But I got fed up. I am now shopping around and putting my liquid money in short term treasuries and CDs earning around 4.5 to 5%, plus high yield savings accounts earning around 3.5%. Some large banks have bonuses to open a high yield savings. I just got a $500 bonus plus 3.4% from Capital One (for depositing $50,000 for 60 days). Now, since that bonus has been deposited, I will transfer my money to another bank with a bonus (e.g., Discover Bank has a $200 bonus for depositing $25,000 plus 3.5% APY). I keep moving around the money. If my local bank would actually pay a decent yield, I would leave it there. They are taking the deposits and screwing the depositors by giving them a paltry 0.3% and then parking it at the Fed overnight and getting 4.5%. If everyone would wake up and move their money out of the banks that pay low yields, then there would be a bigger banking problem (or the banks would get the message and increase their rates).
@Wolf Why are bailouts of depositors “revolting”? After all the entire FDIC is a bailout mechanism, albeit with a cap.
“After all the entire FDIC is a bailout mechanism, albeit with a cap.”
The FDIC is a liquidation mechanism. Its job is to take over banks when they become insolvent and shut them down and sell their assets, and from the proceeds and bank fees fund deposit insurance. It always takes over the bank and shuts it down before it pays out deposit insurance.
The “Moral Hazard” is the elephant in the room in regards to FDIC 100% no limit insurance, as per CNBC Peter Schiff comments and tweets:
Peter Schiff, chief economist and global strategist at Euro Pacific Capital, said the move is “yet another mistake” by the U.S. government and the Fed.
Bailing out depositors of failed banks is yet another mistake by the #Fed & the U.S. Govt. Not only does the moral hazard lead to even greater instability in the banking system and larger future losses, but the #inflation created to pay for it unfairly socializes current losses.
He explained in another tweet: “The bailout means depositors will put their money in the riskiest banks and get paid higher interest, as there’s no downside risk.”
″… all banks will take on greater risks to pay higher rates. So in the long-run many more banks will fall, with far greater long-term costs,” Schiff said.
Going forward I now assume all deposits at federal banks are insured.
Why the limit was 250K? Not 420K or 1M?
Especially when one can split the funds between multiple banks.
THERE Is no LIMIT now.
Yellen just set the precedent ….. a very very dangerous move. She has no idea the magnitude of what she just did.
She doesn’t care.
She’s got hers, and she’ll be dead before the true impact of this hits hard.
Yes, without Congress, she is the law.
Not if you are poor. If you have 10m plus count yourself safe, otherwise step it up
How much is the ‘special assessment’ actually worth, ballpark? 10 billions, 1 billion, or 100m? It seems that for the VCs it was large enough to trigger the panic wave, but for the Fed it’s small enough that it won’t trickle down to taxpayers. I wonder if anyone can put some numbers around it. Thanks
This is the new reality.
The rules or the patterns of the past are not as valid as they once were.
Notice the two big failures have been connected to California, especially the San Francisco tech industry.
The government now bails out everyone for everything.
What does this mean for all here? Fewer will know what actually is happening so it will be difficult to get viable returns in nearly all activities except for gambling-like stock buying.
Just amazing to see one thing after another defying the “investing” reality of the past.
It seems nearly impossible to even preserve the value of money.
“The government now bails out everyone for everything.
What does this mean for all here?”
My recommendation is to watch the film, “Dr. Zhivago”.
The biggest take-away I got from this (other than a reminder that there are, and always will be, different rules for the rich), is that the supposed geniuses all thought it was “smart” to bank at the same regional bank.
Because you know this must have come from the “money guys”, the VCs. Here’s your round of money. Now, let us introduce you to this great bank, SVB. It’s local, gluten-free, and lightyears ahead of the rest of the banks.
And they apparently did this thoughtlessly forever, every damn time. Then, they told their startups, go do a run.
I wouldn’t give these guys $5 of my money. The risks are obvious to anyone simply pays attention.
SVB’s website as of yesterday bragged all over it’s pages about making international money and asset transfers smoother and easier. Maybe it was much much easier than normal.. They also claimed to be one of the few banks dealing easily with lots of Chinese capital.
They’re also not regional. They have branches in Ireland and several other countries and partnerships in China etc.
Everything’s obvious when you have the benefit of hindsight.
Does the BTFP effectively absolve all banks of interest rate risk hedging of MBS and duration risk from all their bond holdings?
Does the BTFP effectively transform 30yr MBS into “reverse repo collateral” except at 0 rate?
In the near future, will there be a followup to BTFP, only this time to absolve banks of CREDIT RISK underwriting due diligence?
With all systemics trickling up the food chain to the Fed/Tsy, are the pro-cyclical nature of these facilities likely to eventually be priced in to UST yields and will they weaken the USD? It’s a joke they haven’t already.
1. Gold backed BRICS R5+ currency launch.
2. BRICS members request G7 for trade payment in R5+ or Gold instead of USD/Euro.
Then the effects of overleveraging by the Fed/Tsy will come home to roost in a hurry.
* systemic risks
The Fed charges the banks about 4.75% for these loans, plus they have to post collateral. So for banks, this is expensive money. They’re not going to borrow this way unless they have to, and they don’t have to because this announcement settled down the panic, and depositors stopped withdrawing their funds, and banks have no need to borrow.
Love the optimism.
Svb was a first mover than, in setting up the post 3/12/23 framework, which essentially states, no other bank can fail the way svb did, yesterday.
So this is our American capitalism.
And, that’s OK, because, like you are saying, it is necessary, and I agree.
Rise and shine silicon valley, though. Svb did provide them premiere service.
This may change things in the long term, when their local, hugely successful boutique bank bellies up.
Maybe, it’s just time for this to happen, and American capitalism has worked tremendously well, through it all.
But, it has been done awfully quickly..
Wolf, how is this different than a bank issuing a CD for 4.75%? Many are doing this right now. Instead of the Fed loaning the money, you and I are loaning the money to the bank at 4.75%. It must not be too expensive for the banks if they are already doing it. Plus, do they have any duration on the Fed loan? Or is it like a callable CD where the bank can choose when to pay back the funds if conditions change?
I recall that in that critical weekend in Mid. Sept. 2008, Hank Paulsen made the top 10 bank CEOs in the country meet at the Federal Reserve and forced them to all chip in to save Lehman. Otherwise, he said, all banks would be put at risk by Monday. He told them flat out something like, “I did the last bailout, this time you guys will do the next one.”
For the tech industry, after all, it was a small lender who loaned Steve Jobs, still working from his garage, around $250,000? Much the same is true for most other former startups, from Microsoft to Facebook to Paypal. Add in the many foreign start-ups from China and India trying to get off the ground here in the U.S.
So maybe some tech leaders could get the top 100 tech CEO’s together and form some kind of holding company to invest a percent of their mega-billions in yearly profits back into the banks that may soon be bleeding even more. After all, this isn’t just a general banking problem.
If they did at least try to save a bank that helped most of them get bootstrapped up, it could set a precedent. It would also send a strong signal to Europe and China that American businesses don’t forget those who helped them when they needed it.
Lehman Brothers was *not* saved, and least of all by Hank Paulson, who was an enemy of Lehman CEO Dick Fuld. Paulson only tried to engineer a purchase of Lehman by other institutions but they all walked away. You may be thinking of the bailouts Treasury gave to Merrill Lynch and similar.
So…now that we have this policy of every depositor being bailed out, why will these banks ever fail? Because they are insolvent? No. This bank was insolvent for a long time and still had deposit funding. Remember the Lat Am banking crisis and the creation of Brady bonds to clean the bad loans off the banks’ books ending possible insolvency? Institutions can remain insolvent for a very long time, but cannot be illiquid for a minute. Too bad the Fed’s new “Bail Out Every Depositor” scheme wasn’t in effect last Wednesday. Do you think this bank would have failed if it was? Doubt it. And this piece of crap would have kept doing all its same crap even now. Probably would have gotten at least part of the capital raise done, too.
No, bad banks will still fail. The difference is that healthy banks won’t fail because of bank runs. Bank runs have always been a self-fulfilling prophecy. People are worried that a bank is failing, so they withdraw their money. Enough people do that (and with social media, the panic spreads faster than it did in the 1930s) and the bank DOES in fact fail.
If the government is going to insure every deposit, why would people get worried about a bank failing? Why would they run to get their money out if they know they are going to be made whole and made whole quickly? This is why deposit insurance was created in the first place. Depositors ran out of SVB because they knew they were over the $250k limit and the bank was having a big funding problem due to its poor capital position AND its poor funding structure—almost entirely non core deposits. I say again: programs like this ensure that bad banks will go along without paying the consequences of their actions. No matter if good banks are spared consequences from bad banks’ actions as an additional result.
It was for the special people – you know, the same billionaires who are destroying our quality of life:
“Mark Cuban Had Millions at Failed Silicon Valley Bank”
Mark Cuban is a special guy who had millions over the FDIC limit but doesn’t have to play by the rules. It’s the same people, always.
Wonder how much in PPP gifts, I’m sorry, I mean “loans” (snicker) Cuban got as well.
These billionaires were intentionally spreading fear of an imminent collapse so that they quickly got another bailout.
Special weekend meetings by the US Treasury Secretary and the FED to make Mark Cuban whole, but “we’re not even thinking about thinking about raising rates” while inflation is absolutely DESTROYING the little guy.
Let’s call this what it was: Another billionaire bailout.
I agree with your comments but you always seem to be surprised that the US government represents the wealthy instead of the average person. This has always been true. Why do you think only 60% of the eligible voters vote in presidential years and 40% in non-presidential years? People do not feel that the US government represents them or their interests. They are correct – it doesn’t and it never has.
Your mistake is extrapolating what has transpired the past 25 years as if it’s been happening forever. That’s a very dangerous mindset. These FDIC limits have NEVER been removed.
What you are doing is basically bargaining with yourself, saying “oh, it’s always been this way.” Nope, it hasn’t. These are extraordinary, outrageous acts. And people NEED to be outraged as if this is the first time it’s happened. Because otherwise the country will fail.
The country IS a failure. A miserable failure. This is why most Americans feel completely alienated from their government and each other. This is why they seek solace in conspiracies.
This is more of the
“they will save us”
“markets always come back”
“the gvt will make it happen, don’t worry”
and they were right!
Pitchbook’s Index of VC-backed IPOs born Jan. 2016 peaked at +520% (2/15/21) and was still up +450% on Nov. 16, 2021.
The Fed’s negative real interest rates sent asset prices soaring, especially venture capital. (See Marc Andreessen’s recent $177 million Malibu home purchase.)
A year ago VCs began telling their startups to tap their savings for cash because the VCs didn’t want to print “down round” valuations.
SVB’s collapse would have saddled those startups with losses of 10-20% on their uninsured balances.
My question is: Why should the government “make whole” the startups’ losses when their VC parents had reaped huge 4x profits during the go-go years attributable to the same negative real interest rates that eventually sank SVB ?
The startup’s losses should have been “made whole” by their money-bag VC-funders, not by the FDIC.
“A collapse of the system would allow prices to fall dramatically, so the cost of living for the poor and middle class would be affordable and we would have alot less rich jerks. My problem with the rich these days is that very few of them have made their money through invention, creation and value creation. ”
Forget about affordable. I just read report that states 7% of the 14 million single family rental homes are owned by big companies. Thus the majority is owned by individuals or small partnerships. This report predicted that in 10 to 15 years, 40% of SFH rentals will be owned by big corporations.
This report was not by a biased real estate-based company. It was from an insurance company that insures homes. They said the current trend of Wall Street becoming landlords is just in the beginning phase.
Just think about it. Those big companies can bundle all the mortgages into MBS and hand the risk off to MBS investors. The investors love the MBS because they are all guaranteed. So if some renters trash a home, or if the neighborhood goes down hill and the house is not cash flow positive, they will just jingle mail the keys back to investors. Individual investors really cannot do this as it wrecks their credit history and ability to buy future rental homes.
SPG REIT does this all the time with Malls and Retail buildings. If the asset stops being cash flow positive, they just stop making payments and hand the mall to the bank.
Economist Friedrich Hayek famously described this situation as like grabbing a “tiger by the tail”; once the central bank decides to accelerate the process of credit expansion and inflation in order to head off any recession risk, then it continually faces the same choice of either accelerating the process further or facing an ever greater risk of recession as distortions build in the real economy.
Jerome Powell and Janet Yellen just grabbed the tiger by the tail…
That they did.
Dismissing the 250K limit is a move that carries so much consequence the idiots at the Treasury and White House have no idea.
The PRECEDENT has been set…….all deposits now covered.
Imagine the MAGNITUDE OF THAT DECISION!!!
Rules, laws, limits all are ephemeral … first deliberated and enacted…..then swept away when inconveniences arise.
In the history of our nation, this has never been done. Yet no one seems to understand the consequences of the Treasury/Fed/FDIC forever moving forward insuring ALL deposits. For the precedent is set, the laws and regulations wiped aside by Janet Yellen. What does a monarchy look like?
Jerome Powell and Janet Yellen made sure that their rich friends money is safe by throwing the FDIC limits.
This really shows that there is no law/rule of the land. All these rules/laws can be thrown away the moment it hurts rich people.
Oh I see how it is. Stealing my moniker eh?
Jeez- lots of comments already!
A near death weekend for many people, I guess!
Let’s hope access to funds happens today for the thousands of small businesses!
Does anyone have an indication of whether or not the orderly sales of SVIB assets will be enough to make depositors whole? If the proceeds are enough to cover the depositors, with some left over for bondholders and possibly preferred shareholders, does it really make sense to call this a bail-out?
Quoting Barrons: “At the end of 2022, SVB held $117 billion of securities, which accounted for the bulk of its $211 billion in assets. These bonds were showing big losses at the end of 2022, with some $91 billion of the bond portfolio, classified as “held-to-maturity” securities for accounting purposes, worth just $76 billion.”
So the answer is no. These huge losses, which have even increased since December, will crystallize the moment they are sold, orderly or not.
When a bank gets wound down, and the FDIC sorts through the debris, it gets kind of ugly, and there is never enough left over for stockholders and preferreds holders. If there were, the FDIC wouldn’t have wound down the bank.
Is there any way to not have my name hijacked, Wolf? Or is it every man (John Galt) for himself? I know you can see where we post from based on our Internet protocol location. . .I’ve been posting here under that name for a couple years now. Perhaps I need to change it up.
I know you’re two different commenters. This happens a lot with common names, such as “Mike.” Over the years, there were probably quite a few John Galts here.
Best thing to do is to add something that makes the name unique, such as a number or a symbol.
JG – might have to run that past the multiplicity of ‘Tony’s’ who have posted in Wolf’s fine establishment…
may we all find a better day.
My concern is not about the welfare of the bondholders and equity holders, per se.
What I am asking is if the uninsured depositors are getting more than they would in a liquidation scenario, or if they are getting the same amount they eventually would, only faster.
If the unsecure bondholders eventually get even one cent on the dollar, that would mean that the depositors (who are senior to bondholders) would have eventually been made whole (except perhaps for the time value of money).
This seems more acceptable on the face of it, but it is only one bank. How many others are teetering on the edge with bazillions in bond “assets” that are now in negative territory? How many times will they print to bail, how many net losses will be lumped onto the remaining banks, how far can this go before it all falls apart? And it all boils down to many years of utter ineptitude by those in charge: poor regulation, 2008 bust, decade and a half of near zero rates and bond rate suppression, lockdowns and printing, inflation up the wazoo then the big unwind. Boils your blood, and the same ineptitude in every other sphere of existence.
I’m just an ordinary person, not a finance expert. I understand BTFP may be prudent to provide liquidity in case of need. But why on earth is the collateral (US Treasuries, agency debt, mortgage-backed securities) valued at “par” and not at “market price” (which is already now likely much lower than par because of the rate increases we have experienced)? I thought the Fed has now finally started its quantitative tightening to reduce its balance sheet. If the Fed is now prepared to acquire all this collateral at par (in case the emergency loans are not repaid), does it not mean quantitative easing through the back door?? Please explain.
The Fed is trying to provide easy liquidity for the banks, rather than put restrictions on it.
And remember, this is expensive money, not free money. So banks won’t use this facility unless they are forced to by continued deposit outflow. The main purpose, in reality, of this facility is to let the world know that banks have access to all the funds they need to meet their deposit outflow, which should inspire confidence in said banks and stop the run on the bank.
then Western Alliance Bancorporation is a regional bank holding company headquartered in Phoenix, Arizona. It is on the list of the largest banks in the United States and ranks 13th on the Forbes list of the best banks in the United States.
– 44 %
¿ que piensas de estos datos? Yo no se mucho sobre estos temas pero es un numero notablemente negativo
What do you think of these data? I don’t know much about these issues but it is a remarkably negative number.
No matter how does the Fed do (slice & dice) to prevent the bank run, it sounds and smells like TARP 2 (BTFP), which you may not agree.
The Fed announced over the weekend that they will make depositors whole, which is tantamount to confessing yet another Fed bailout of bad banks under the new name of the $25B “Bank Term Funding Program”—or BTFP. Does this suffice is the question, going forward.
There appears to be run on small and regional banks, to yank and transfer the deposit to a larger bank. JPM appears to be main beneficiary.
Apparently there is 620 Billions in unrecognized loss (es) in the Banking system, apparently in US. Global wise I don’t know.
The collateral money for the existing(circulating) 18 Trillions is the deposit of 1.8 Trillion at the banks, wonder of fractional banking. NOT even talking about interest rate swaps or derivatives which remains opaque.
Ok, thanks for your explanation, I think that makes sense. If I understand correctly, the BTFP will be provided one-year overnight index swap rate plus 10 basis points which is currently something like 5.25% + 0.10% compared to the Fed funds rate which is currently 4.75%.
Still, I don’t understand all the details. For example, I’m curious if it is possible that an institution would borrow under the BTFP and not pay back instead forfeiting the collateral. In such case, would the collateral be counted at par value or at market value? If at par, then wouldn’t that in a way still constitute something like a back-door QE?
And, btw, thanks for your very insightful website. Economics is really a fascinating area when you watch it unfold in real time. I recently came across Principles For Navigating Big Debt Crises, a publication by Ray Dalio which can be downloaded on the website of Bridgewater. It really opened up new horizons for me although it makes for a chilling reading (in my view). I think I’m even more scared of inflationary depressions than deflationary depressions.
It feels like the corner Paycheck Advance business has set up shop with the Fed/Treasury.z.🤑
” It’s the other banks that are paying for this: ” … I say : IF THEY CAN AFFORD IT
and I say further : The only cheap money the banks currently have are the deposits by average depositors cumulative quite a chunk of money .. and thats why the Moneypowers who are came up with this tranquilizer action intended to calm down these small depositors .
I say further : THE WHOLE THING … STINKS ..
i remember the initial actions and soothing words by the powers who are during the Lehman crisis and have a vague feeling of uncanny similarities
” It’s the other banks that are paying for this: ”
WE are paying for it. In two ways…
1. FDIC insurance will cost more for the banks, and thus they will charge more fees and/or pay less interest on deposits.
2. WE the People will now have to deal with inflation higher and longer if the Fed pivots or halts their attempts to reign it in.
Yep. A tax on a business is paid by the people who use the business.
I wonder if more of the impact will come from the squeeze on new lending. Both these banks won’t be lending any more money out, and now presumably the other banks will have to put aside provision for any potential losses – and will that have a reduction on what they will further lend. Maybe between them not a large figure, but a lot of start-ups could not get lending from elsewhere, so where do they go now?