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.
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I don’t understand why so many people here are so angry — it was well known that once something broke, the Fed would pivot immediately.
The probability for 0.5 hike is now at 0.0%.
The probability for 0.0 hike grows by the minute (damn I checked before / after writing all this, it was +3% diff).
CPI doesn’t matter anymore. In all cases expect 0.25 hike + dovish statement of a hike pause.
What’s not to understand. People are and should be upset because the rich are getting bailed out yet again while we should be getting eaten alive for there greedy and irresponsible behaviors
The frustration is totally understandable
The question is what comes next
What kind of resolve will central banks have because it seems pretty clear to me that inflation isn’t going away on its own.
I think you’re incorrect on dovish settlement by the Fed.
My guess is 25bps hike with a dot plot that projects higher terminal rates and higher rates for the next several years. Maybe even long run rate protections going higher. Dovish I think not
The Gods of Finance have spoken, per CNBC article titled:
Goldman Sachs no longer expects the Fed to hike rates in March, cites stress on banking system
——————–
So basically one rich and ignorant banking CEO has the ability to cash out $3.6 million in company stock options before it collapses, and then single handily determine the fate of billions of humans in regards to future inflation rates???
Illogical
And all rates are plunging – treasuries, mortgage rates, etc. This just guarantees inflation will continue crushing the little guy. We are in a credit bubble and the FED keeps interfering, perpetuating it.
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???
https://www.goldmansachs.com/insights/pages/gs-research/moving-to-seven-rate-hikes-in-2022/moving-to-seven-rate-hikes-in-2022.pdf
“CPI doesn’t matter anymore.”
It does to the People of this nation.
“why so many people angry”
These “bankers” are costing us lots of money.
The CEO of the SVB was on the San Fran Fed Board
The CEO sold a chunk of stock shortly before the debacle.
The Fed is now likely to trim back their fight on inflation.
The 250K limit on deposit insurance was suddenly waived. Why?
That change will raise the cost of FDIC insurance which will be passed onto the People.
More banks are being dragged into this….
OK I have a question in a field I avoid because it is mined and frustratingly complex.
Wolf, what happens with derivatives, as the bank is now wound up ?
Further, what happens if say, Mr Ackerman had a big short on SVB, does he get it in the neck. Conversely what of the other side, the call and that which is near always taken, as a straddle to limit loss.
Are all bets now off and money returned because the fight has been cancelled in the first round.
I have a bad feeling that this ends any trust in Wall street and as for the reserve currency, changing rules and covering obvious mistakes of Fiduciary oversight lends itself into the Zimbabwe Junk yard where nothing is certain and rules altered after the fact.
Thank you in reply
It would be interesting to know what positions Ackerman has and how much he benefits from the FED/Treasury/FDIC actions taken, which he was loudly prescribing. Were his words just talking his book. He has been accused of this in the past.
“as required by law.” Ha. Bet that won’t last long now.
I understand the mechanism as laid out by Wolf.
BUT, the enormous consequences of backing uninsured deposits, NOW SET AS PRECEDENT, across the entire banking system is an obligation no one can get their head around. Enormous does not approach the magnitude of this NEW obligation. Does Yellen have the authority to upend set policy of the FDIC (250K) which, I assume, was legislative in nature?
Wolf, are you serious? “Shareholders and some unsecured bondholders of both banks get bailed in”. “All of this has now ended”. LOL!
You should add the disclaimer, “For now…”. Until we find out that the big 6 banks have been as reckless or even more reckless than SVB, lending out ridiculous mortgages on dumpy condos in SF. How much of SVB’s problems is the Housing Bubble 2 imploding? Do we know? Could it be that the issue is that their Private Wealth management, their Vacation Residence business, etc has all imploded as Family Offices and HNWI have pulled their money out? Case in point: Blackstone, who gets a sweet heart deal from the University of California to the tune of $5B, just so they can hike rates on students by 20%. Are they the next ones to be bailed out?
This is just beginning. Essentially, the Fed and the FDIC has now sent a clear message to anyone to take as much risk as they want to, because in the end they will bail you out if things get dicey enough.
So all depositors get their deposits. That seems like the right thing to do. It’s for the economy and people’s lives. The problem I’m having is the liquidity window for the banks again not so directly as last time. How can their stock prices be so high? They are underwater bonds not being marked to market. So the money supply again rises. All about protecting depositors and indirectly banks.
“It’s for the economy and people’s lives. ”
There must be consequences for poor risk management, lest you get more of it.
Everyone knew of the 250K limit.
“People’s lives”? The big money is not mom and pop deposits. Dice rollers, gun slingers.
This more of the “don’t worry, the govt will save us” attitude.
I get it. Anage ent and shareholders, bonds holders are toast. Start ups are business’s, looking for an ipo. There are still workers needing to be paid too.
unemployment insurance.
if the business has merit, it can be sold and bought. New operators will still need workers.
a change of ownership. capital mobility. maybe existing workers can buy in. a narrowing of the wealth gap?
can the market sort it out?
Wolf…
is there any apparent and direct connection to FTX?
In terms of Silicon Valley Bank? I haven’t heard.
I had my first order against a treasury auction for the 6 mo to happen this morning. I just cancelled it. This SVB mess has driven down yields and prices up. Sometimes I feel like the government is personally targeting me. But I’m sure it’s only my imagination.
PS
Speaking of which, is this mess disruptive of treasury auctions? How many other people cancelling their orders, you think?
Yes, and if investors cancel their orders, yields will jump, and yields are already jumping, with the six month yield up 24 basis points from the low this morning. These are HUGE moves. Better to stay away from the auction and let the dust settle.
You can keep your cash temporarily in your TreasuryDirect account in the cash management securities that pay no interest, so that the money doesn’t go back to your bank, if you’re worried about that.
People and companies should be able to have an account with the central bank, for their savings to be safe.
All creditors to commercial banks should take the risk.
That would be a clean thing.
This whole ongoing debacle is the direct result of ZIRP and the recent attempt to normalize rates. Sooooo many people have gotten used to near-zero rates and assumed they would always be there.
Interest rates should generally fall into a relatively narrow range. It is no surprise when banks have problems when they fluctuate wildly.
I can’t help but suspect that SVB/Sig is not the last bank to get caught in this trap.
I’m tired of reading comments by people who either can’t read or can’t think. Wolf – I’d really appreciate your putting a ? at the start of comments that I can happily skip. And maybe a ! for the good ones?
Comments need a vote up or vote down mechanism.
Futures are now down this morning by as much as they were up last night. As Wolf predicted, this is a nothingburger for the economy as a whole or for QT.
Looks like the prediction by Larry McDonald about the market crashing in the next 60 days was right on the money. He must have known these banks were about to go under and take the stock market with it. I concur. I think we’ll have an Oct 87 crash in the next 60 days or sooner. They’ll close the stock market for a week or more.
The 10 year yield is crashing and now mortgage rates. This bank bailout will now give Powell and The FED their long awaited excuse to print $, stop rate hikes, QT, etc. This phony WWE “fight” against inflation was always a bluff. Can’t pay your mortgage? Car? Rent? Utilities?…Capitalism and free markets are toast. Socialism is here and bigger than ever.
Socialism will be here when they start redistributing assets. Saving wealthy depositors was the opposite.
unless you are talking socialism for the rich …………
Pretty panicky out there this morning lol😳
Stocks are up substantially right now despite the hammering of the regional banks.
Pre market First Republic Bank down 60% , many more regional banks down 20% , all europe banks down 5-10% ! So much for containment 😁
A long time reader and first time poster here. First of all thank you for your superb work Wolf. You are an island in a sea of madness. One quick comment re SBNY referencing a comment above. Signature Bank did not lend to the crypto crazies. They held deposit funds. No financial interest here as I am not a shareholder. I’ve been a client of the bank since it’s inception and can truthfully state their lending practices were not speculative in any way. Crypto did not kill it, a potential bank run did. Frankly their balance sheet and loan portfolio was was so solid they would have, in my opinion, survived this mess. Thank you for giving me a listen…a contribution to your valuable efforts will be forthcoming.
How does a Potential bank run kill a bank? It might “kill” the stock price, but that is market in action. It takes an actual bank run to kill a bank.
So ALL DEPOSITS are 100% insured FOREVER going forward.
THIS IS THE BIG STORY. The precedent has been set. The exposure of the FDIC is now infinite.
The FDIC doesnt have the money to cover this….they will get NEW MONEY from the Fed.
How will this affect the reducing the Fed’s balance sheet?
Wondering why Scwab is tanking hard today? Any insight?
They are another very dodgy bank.
Exposure to interest-rate risk via long-term bonds on its balance sheet. But the stock jumped $8 already from the low this morning.
First Republic is the next big bank to tank.
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
“Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
As in any business, aren’t all operating costs (special assessments included) passed on to, and covered by their customers?
But then, in these days of Disney Land finance, maybe there really IS a ‘Scrooge McDuck’, sitting on piles of wealth in his vault room, that can be used to cover “special assessments”.
I was under the impression that this was a unique issue. A bank with a highly speculative depositor group and horrendous risk management practices. Was there really a legitimate threat of a bank panic? Or is this just rich people with the big microphone changing the rules midgame for their own benefit? I doubt that depositors in a bank in Oklahoma or flyover country would be made whole. But, the whole thing stinks because it seems like the rich don’t have to play by the rules.
I think that if there was truly a risk to the banking system Wolf is right and this is probably the best way to deal with it and hopefully the jawboning is enough to calm things down and they don’t even have to use the program.
From the 2021 FDIC annual report, the latest one I can find:
2021 Financial and Program Results
Despite continued economic uncertainties related to the pandemic, the resilience of the banking industry is reflected in the continued increase in the DIF balance. The DIF balance rose to a record $123.1 billion as of December 31, 2021, compared to the year-end 2020 balance of $117.9 billion.
Crane data crap fyi
The report tells us, “Cash is king again. Higher short-term rates and volatility in long-term asset classes have made cash more attractive, supporting MMF revenues. The yield pick-up MMFs offer over bank deposits will help them maintain a competitive advantage. Macroeconomic uncertainty will also mitigate investors’ shift towards riskier assets, particularly in H1 2023. Industry AUM will end 2023 at or above current record levels, with growth tempered by corporate investors’ need to draw on cash balances as costs rise and earnings growth slows. MMFs will be able to charge full fees, as the end of the near-zero interest rate era has removed the need for waivers to keep clients’ returns positive.”
Moody’s explains, “MMFs have significantly shortened the weighted average maturity (WAM) of their portfolios as interest rates have risen, allowing them to quickly reinvest capital at higher yields. WAMs will rise gradually during the year as MMFs reposition their portfolios for a likely end to the current cycle of rising rates. This will modestly increase their exposure to interest rate risk. They will however maintain ample liquidity buffers in case of unexpected events such as the September 2022 UK gilt crisis.
There’s no incentive for banks and big businesses to color within the lines because they know they will get bailed out by the government.
Goldman Sachs no longer expects the US Federal Reserve to raise interest rates at its meeting next week, reports CBS.
Goldman Sachs added that it still expects rate hikes of 25 basis points in May, June and July, firming its forecast for a top rate range of 5.25% to 5.5%.
GS rate expectations have been horribly wrong EVERY STEP ALONG THE WAY.
February 10, 2022, a year ago, 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%.
https://www.goldmansachs.com/insights/pages/gs-research/moving-to-seven-rate-hikes-in-2022/moving-to-seven-rate-hikes-in-2022.pdf
My understanding is the banks held way to many mortgage securities at yesterday’s low interest rates. They become liabilities to the banks as the market is very limited for liquidating for cash. Dodd-Frank was amended, during one political party’s majority, that gave regulators less to audit.
Can’t let business banking totally collapse because every business needs these banks. Think of your local hospital. They have to have millions in their checking account to do payrolls, pay for meds, supplies, equipment, services, etc. Can’t tell a hospital system that they are screwed if they have more than $250,000 in their checking at any one time or that they have to use 25 different banks for checking accounts. Same with many other businesses. Businesses have to have access to loans, checking, financial services. If we don’t have that, we don’t have businesses and that means we are all going back to small farm agrarian.
Yes, I think most people agree innocent business’ should not be harmed by a banks actions. However, I think this narrative is being manipulated. This does not involve the farmer, manufacturing plant, or mom and pop business.
SVB only dealt with “founders” who apparently was one of the few banks that took the risk dealing with them and required them to only have money in that bank. As a result, over 90% of their deposits were uninsured and concentrated on an undiversified field. Of course you smell something you are going to pull your money. But, compare this to Bank of America I think only 33% of deposits are uninsured. The vast majority of people have no reason to pull deposits so the risk of a run and the bank not meeting liquidity is much lower.
To me I just don’t see where the broader risk of a bank panic is grounded—it seems to be concentrated at a couple of actors. I don’t think it is smart generalizing over SVB’s extremely unique and troubling business model to make policy for all banks. As for the depositors at these banks I am sympathetic but I also ask myself at what point does “too good to be true” or buyers beware kick in? The only bank that will deal with you should that raise red flags.
Wolf,
You will need a well deserved rest when the dust settles on this.
Hopefully you got some sleep last night, or maybe this morningfollowing this huge amount of comments.
Sleep???
From the point of view of the Feds and Govt, this is all going according to their plan of consolidating power and wealth, at little cost to the big banks as they swallow up the smaller ones.
TreasuryDirect down for system maintenance this morning? Perhaps they’re trying to stop the “bleeding” out of the banks.
TreasuryDirect went down when everyone and their dog wanted to buy i-bonds before the deadline last November. Brokerage websites go down when the market crashes and everyone trades. Servers overload and go down. Back in the day, my server used to do that too. Now I got the Big Bertha, and it’s holding up fine.
Lots of people are trying to set up accounts at TreasuryDirect it seems.
SIBV had no swaps for interest rates. I’m sure you understand about swaps Wolf, more than me. Well that’s what I read today.
They were incredibly reckless. They didn’t hedge their interest rate exposure at all. Free money had turned their brains to mush.
So now banks can buy the riskiest best yielding treasuries as security, irrespective of duration, and the FDIC will cover the spread from par vs market value if they need to liquidate fast.
Great move, more risk.
If they buy Treasuries now, they will fine. The problem are the Treasuries with the low yields that they bought two 2-3 ago.
CPI comes out tomorrow. If it’s over 6%, which it will be, then its game over.
J Powell will be sh$ting in his pants.
Inflation is actually over 10%. Every item I buy, and these are necessities, are up 10 to 15% in the last month alone. Services are running 25%. if you can even get them.
I saw that my post was deleted. But with him I was asking what will the Fed do with rates on March 22nd? Do you think there will be a raise or not?
Your comment was not deleted — none of your comments were. You may have replied in a thread below a comment that was deleted, in which case all comments in that sub-thread went down with the deleted comment.
FDIC insured is meaningless when ALL the depositors are being ‘bailed’ out in one way or the other (BTFP)
The Fed ‘prints’ to give it FDIC and so on. What about inflation with this new money into circulation?
Our ‘Fractional banking is based on 1.8 Trillion in bank deposits being collateral for 17 orv18 Trillions in circulation.
Apparently there are 620 Billions in ‘unrecognized’ losses in various TBTF + Banks including BAC with 110 Billions. Who knows, what else is lurking under ‘opaque’ derivatives!?
2008 DEJAVU?
We are one of the companies that didn’t get their payroll deposited Friday over the SVB fallout. Our processing company banked with SVB. Friday morning, the CPA told us payroll should post in the afternoon. Then the afternoon came, and the CPA said he was told it would post Monday.
About an hour ago, the CPA called to say to write paper checks for last week and anticipate writing them for this week’s payroll on Friday.
On Friday, I offered my employees cash or paper checks, but nobody took me up on it.
Bill.com?
No one lost a dime. It’s fine. Everything’s fine.
Crypto (tulips) should be shut down pronto, gov could easily do this. The purveyors of this magic elixer are really just rats and seagulls at a landfill. As to blockchain (the enabler) likewise. Granted it is a ledger system advanced from someone slumped over a desk with candle and quill but immature and unproven. Ban both from transacting anything.
These people getting bailed out 100% are the same [fill in epithet of your choice] who whine about college students getting their loans canceled and how unfair that is to all the hard-working capitalists in America who honor their commitment, take risks and make this country great.
Eat the rich! (This is ironical since I am rich but I do think that society could be improved if we creamed off the top 1%.)
So much BS from the talking heads on TV today. “The Fed caused this by reckless money printing on the way up. The Fed is causing this by reckless interest rate increases/QT on the way down.”
Does this post win the most comments ever?
I’ve got a business idea. Set up a bank. Pay really high rates to attract lots of deposits. Lend it all out as quickly as possible booking the profits up front. Pay myself enormous bonuses. If it goes wrong my limited liability and Fed guarantees means the depositors are happy because they are whole and have had high rates, loanholders are happy because because they got loans they couldn’t get elsewhere and the staff and management are happy with their bonuses and share options. What is not to like?
Another Ponzi scheme goes bust.
Some say depositors shouldn’t be bailed out if in excess of 250k.
1. These people don’t have to be rich in general !
They could be worth 800k, have 600k in a bank.
Not poor but middle class. I don’t want them to lose 250k because they didn’t go to the trouble of splitting this 600k into 3 segments, 3 banks.
2. Someone said companies need to scrutinize the bank to ensure they are safe to do business with. This forces EVERY company to do this.
Huge redundacy. Better to have a rating company or 3 of them to do this. (Yes…they failed this go round and perhaps before). They can specialize in it. Yes i know there have been issues with the ratings companies. Well fix that problem… send them to jail for a long time if necessary. But why should a company that makes bats, or makes medical devices, or runs a small restaurant chain… why do we want to burden them with the need to carefully assess the banks business dealings ? Yes they have accountants but that doesn’t make them investment specialists. Heck mutual fund managers invest in say 30 companies and 5 years later many have performed poorly. The MF managers have MBAs and 20 years experience and they get it wrong NOT INFREQUENTLY.
I just don’t like redundancy of it…we have huge redundancies in our economic system that is arguably a huge waste. Having EVERY company do its own assessment of the bank would just add to this redundancy. A rating agency should get specialized and do a better job. If the bank is investing questionably the rating agency and government need to take action.
Yes I know…the rating agencies failed in this case. Why? If an agency whose sole purpose is to determine the viability of a bank fails to raise a red flag why expect a company’s accounting or financial department to do better ?
Make the rating companies accountable !
I read elsewhere that only one analyst had a sell rating on SVB (or Silvergate). All others neutral or better. That sounds like an integrity problem to me.
Rating companies need to be held accountable.
If they do their job then hopefully the brakes can be put on banks before they take on too much risk.
3. Having said the above…maybe I’ll backtrack a little. Even do a bit of a 180.
Perhaps depositors SHOULD be on the hook a little if they choose to invest in a bank that…per ratings… is taking on more risk to provide higher yields than its competitors.
But depositors in safe (ratings) banks should not be penalized if a rating agency then screws up.
Let the penalty correspond to the extra (risk and) yield the depositor chose to pursue.
Just food for thought if a bit redundant itself.
I’m sure it’s buried in the comments……to d*mn funny to see
a guy with the last name Frank…on the board of directors.
Perfect.
If only I had paid more attention to South Park.
tom15
Barney Frank (sponsor of the Dodd-Frank) Pushed to Ease Financial Regulations After Joining Signature Bank Board.
(wsj)
Wow!
Wolf,
Sorry if this is duplicative but couldn’t find an answer with search. Do you expect the fed to make public the names of the borrowers under the btfp?
Not the names. But the total amount. I will report on it monthly as part of my QT report, next one in early April.
Clear unbiased coverage on this one. Comments are particularly entertaining. Much appreciated.
The Silicon Valley Bank Bailout
The bill for bad policy comes due, but there’s risk in a second rescue of the banking system in 15 years.
(wsj)
Even the business establishment WSJ decries this to be a BAILOUT.
I posted this once. It seems to have disappeared w/o comment. Its not full of the financial savvy sometimes found here. But if its deleted I should receive some sort of explanation. I emailed it elsewhere. Hence this copy.
==================
Wrote this in a hurry and posted to wolfstreet.com.
Some say depositors shouldn’t be bailed out if in excess of 250k.
1. These people don’t have to be rich in general !
They could be worth 800k, have 600k in a bank.
Not poor but middle class. I wouldn’t want them to lose 250k because they didn’t go to the trouble of splitting this 600k into 3 segments, 3 banks.
2. Someone said companies need to scrutinize the bank to ensure they are safe to do business with. This forces EVERY company to do this.
Huge redundacy. Better to have a rating company or 3 of them to do this. (Yes…they failed this go round and perhaps before). They can specialize in it. Yes i know there have been issues with the ratings companies. Well fix that
problem ! … send them to jail for a long time if necessary. But why should a company that makes bats, or makes medical devices, or runs a small restaurant chain… why do we want to BURDEN them with the need to carefully assess the banks business dealings ? Yes they have accountants but that doesn’t make them INVESTMENT SPECIALISTS. Heck mutual fund managers invest in say 30 companies and 5 years later many have performed poorly. The MF managers have MBAs and 20 years experience and they get it wrong NOT INFREQUENTLY.
I just don’t like redundancy of it…we have huge redundancies in our economic system that is arguably a huge waste. Think insurance companies that all do the same d*** thing more or less. Ah, but they provide tons of redundant jobs. Having EVERY company do its own assessment of the bank would just add to this redundancy. A rating agency is specialized and should do a better job if they have integrity.
If the bank is investing questionably the rating agency and government need to take action.
Yes I know…the rating agencies failed in this case. Why? That needs investigation. But if an agency whose sole purpose is to determine the viability of a bank fails to raise a red flag… why expect a company’s accounting or financial department to do better ? That is NOT their specialty.
Make the rating companies accountable !
I read elsewhere that only one analyst had a sell rating on SVB (or Silvergate). All others neutral or better. That sounds like an integrity problem to me.
Rating companies need to be held accountable.
If they do their job then hopefully the brakes can be put on banks before they take on too much risk.
3. Having said the above…maybe I’ll backtrack a little. Even do a bit of a 180.
Perhaps depositors SHOULD be on the hook a little if they choose to invest in a bank that…per ratings… is taking on more risk to provide higher yields than its competitors.
But depositors in safe (ratings) banks should not be penalized if a rating agency then screws up.
Let the penalty correspond to the extra (risk and) yield the depositor chose to pursue.
Just food for thought if a bit redundant itself.
I think it’d be nice if, at least some, banks were to offer a simple account in which you could just store your money. That’s it. Your money just sits there. They’d charge you a monthly fee of course, and that’s fine as you could be sure your money would be there whenever you want it. If they go bust the money’s still yours, you just need to move it all to another such bank.
It’s much like having furniture in storage. If the storage company goes bust they don’t sell off half you furniture to pay their creditors, that’d be theft.
These banks could also provide other types of account or not[1]. They’d also change a fee but would pay a return on the amount deposited. Money in such accounts would be at risk. At least you get the choice of taking zero risk or not with your money. As it is you don’t have that choice, and that means it’s not truly a free market.
I know, it’s a ridiculously simple idea.
[1] Banks that only store money, for a fee, would likely be very safe.
@ Wolf –
We have split your comment section into 2 parts. Headed for 600. Highest count I have noticed since I have followed you; 3 or 4 years I think.
It might be a record. This site got something like 1,600 comments in four days over the weekend. I was too busy dealing with comments and couldn’t get a couple of articles done that I wanted to do.
I have a neighbor who is retired at 45. He sold software for 20 years. He owns a house that he paid $500k for that is now worth $1.1m. He has solar panels that power his house and his tesla.
We should all be like him. But, then how would the rich continue to exploit the masses.
There was a time whan a millionaire was rich. Then the FED, bailouts and QE came along.
Man, I sure hope the FDIC has been hastily arranging a big selloff of SVB’s Treasuries these past few days (3/13-3/15) with yields plummeting as they have. Seems like a golden opportunity to lock in good prices and minimize the negative bank assessment externality of SVB’s closure.