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Jackson P. Neighbors

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Everything posted by Jackson P. Neighbors

  1. A few comments: Of course they would have, and I guarantee they had ongoing capitalization stress tests done internally all the time. This is just how banks that size operate despite the uninformed comments here. There is zero that would have been done differently considering the D-F $250B threshold and the so-called rollbacks. For those that care, a stress test is a set of pre-defined economic scenarios that attempt to describe an adverse operating environment and the output is what an institution's capital adequacy, earnings performance, asset quality, liquidity, and market risk/sensitivity position would look like given such a scenario. There is no proscribed model to carry out a scenario, it is up to each institution to develop their own which is then scrutinized and blessed by the regulator. If you happen to be a stats nerd, think of the overall scenario as a 95% adverse VAR case. Basically a very extreme outlier economic situation. What SVB encountered was well beyond that and cannot be effectively modeled. Just like it is impossible to model fraud, it is equally impossible to model a bank run. "Human nature" is not a measurable value to be used as an independent variable in multivariate regression. Regarding the post about the Fed having 'heightened attention' or somesuch on SVB, this is just to try and get out ahead of inevitable upcoming criticism of FRB regulation by congress. MRA (matters requiring attention) are not uncommon and are outlined in examination reports. These are issues to be addressed by bank management but they are not legal issues. This is a very important but poorly understood fact. If the Fed had ongoing, long-term serious regulatory issues with SVB, a publicly-available Enforcement Action/Formal Agreement/Cease and Desist order would have been issued in the normal channels. This is what such a document looks like: Order to Cease and Desist (federalreserve.gov) There may have been plenty of issues identified in a recent regulatory exam, but they did not rise to the level of a public notice. This is a fact. This was simply a bank run driven by self-fulfilling hysteria. And frankly, that is much scarier than an actual failure due to capital or bad loans or fraud or insider conduct. The government and public cannot guard effectively against a run. It is gut wrenching to look at what is happening right now and to know there is no easy way out.
  2. Biding a little time before a sale is announced? FRB has a very different business model than SB and SVB so its just ugly all around.
  3. And the race is on. Is Goldman handling the capital raise? Worked out well last time. Seems like those deposits are going to get insured one way or another. Community bank to GSIB to Regional bank to FDIC bridge bank isn't the most efficient method, but whatever works.
  4. What a week. Reminded me of 3/20 when the world was ending. I tried to skim the thread a little but gave up after the 20-30th definition of a 'bailout' was thrown out there. Just digesting overall where we are at, I have to chuckle at the irony of smaller depositors all around getting skittish at "risky" banks and pulling their money out and placing at the safe GSIBs. GSIBs, having absolutely no need or use for the deposit growth, are in turn banding together in an amazing show of unity by making a $30B uninsured deposit of said inflow at... a "risky" bank. Circle of life stuff...
  5. The straightforward answer is… kinda. I posted about the difference between tangible equity and regulatory capital per PCA previously. This is a move to align with the regulatory capital definition. I’m not certain it will have the intended effect. To your question, banks do not fail because of Sensitivity to Market Risk. It is a side issue and its effects are compounded given other problems. There are a lot of posts here trying to dissect the investment portfolio problems but it’s a forest for the trees thing. That did not cause this bank failure, period. As I also said in another post, nobody is going to rush to be the canary utilizing the Fed window. It’s a death sentence and everyone knows it.
  6. Still digesting this, but this action shows/affirms that ALL banks nationwide are sitting on gigantic unrealized AOCI losses, SVB was not even close to being the worst bad actor. And as I’ve said in other posts, it’s a complete non-issue for 99% of them. Think my other post is in the Markets are falling thread but I digress. What this would do is remove the AOCI component from the equity calculation in determining the borrowing capacity at the Fed window. At first blush, it makes sense. But also, consider that the Fed is the lender of last resort. You are on the verge of failure of you have to resort to Fed borrowing. The very fact that you are utilizing the window is a clear sign of a death knell to the markets. So I’m trying to process how this benefits any institutions but the most critically undercapitalized. Day two of kiddos spring break and haven’t been off calls the whole time. Cmon guys! Time your banking crisis better!
  7. I didn't know this separate thread existed until this morning so I'm copying/pasting my post from last night on Markets are Falling thread here, apologies. I'd enjoy discussion on the talking points. Smart folks abound here. There are so many nuances to this situation. A real shame... Correct, this was a liquidity failure due to a deposit run, plain and simple. If the deposit volume on Tuesday would have remained stable, this is a perfectly solvent bank, albeit certainly needing a relatively manageable capital raise for regulatory compliance purposes. Many of the posts above accurately identify issues that contributed to the failure, but none of them individually caused it. TL/DR me if I'm getting a little/really wonky here but after taking a few minutes to peek at their call report, this is how I view a few of these issues: - Outsized Treasuries position and long portfolio duration / funding mismatch: Just to be precise, "Treasuries" were not a large part of the portfolio (14% of assets vs comparable peer banks 23%). They had a greater proportion of Agency MBS (55% vs 36%). Overall though you could call it more of a bond bank, loans 33% of assets, securities 58%. However, the size of the security position doesn't particularly matter here. Most of the position was HTM which doesn't flow to AOCI and although the AFS portion does, it only affects the stated total equity position rather than the regulatory capital position that must be maintained. There is a big difference between equity and regulatory capital. This is why you hear that most banks are in the same boat when it comes to unrealized AOCI losses. It is absolutely true, and there are a bunch with a worse AOCI position than SVB had. Right now there are dozens of banks nationwide which report a negative equity position and, while they are probably getting a stern taking-to from regulators during an exam, they are most likely perfectly solvent. The reportedly long duration of the portfolio (I have not looked at the IRR/sensitivity financial data, just going off what is in media) simply impacts the size of the unrealized loss in AOCI. Longer duration = greater downside risk when rates rise, finance 101. So yes, the $1.8B loss on the sale of securities -may- have been larger than with a shorter tenor portfolio, but again, this was not a major contributor to failure at all. - Failure to raise capital CNN had an article out yesterday headlined: Silicon Valley Bank collapses after failing to raise capital. This is misleading at best or flat out wrong. SVB attempted to raise $2.2B to plug the $1.8B from the loss on securities. The bank's capital position was generally fine prior to the loss, leverage capital 8% vs peer 8.76%, and risk-based capital ratios were higher than peer because of the higher proportion of securities vs loans on balance sheet. They had almost $17.5B capital prior to the $1.8B loss, so yeah, the loss certainly made an impact but they would still be considered "Adequately Capitalized" (versus "Well Capitalized") by regulators without raising additional capital. Adequately Capitalized banks absent other major issues are not getting closed, period. - Customer base is niche This did not cause it but I think when it's all said and done, this will be seen as a major contributor to what historians 50 years from now will deem the most efficient bank run in the history of western civilization. I'm being a little facetious there but also not really. What we saw yesterday should not happen. $42B deposit outflow and resultant -$958M cash position in one day is worthy of Congressional investigation in my opinion, and I have zero axes to grind. Previous posters showed the data on deposit size % which is spot on. Prudential regulators are going to have to reassess the entire playbook on liquidity management after this. Bank failures occur mostly due to liquidity, but it happens over weeks and months and quarters which gives the bank and regulators time to find buyers for assets, etc. Technology, an astute and influential client base, and a huge average relationship balance meant that this could happen with unprecedented speed. I really dislike the "perfect storm" label when describing root causes of major disasters but here I have no other choice to label this as such. What a mess, and the ashes sifting will last for years to come. So many bad decisions - why announce capital raise right after the security sale filing? Why do it on the day of SG announcement, why were so many tech titans calling for withdrawals? I'm a simple outside observer with no answers but I hope they start coming.
  8. Correct, this was a liquidity failure due to a deposit run, plain and simple. If the deposit volume on Tuesday would have remained stable, this is a perfectly solvent bank, albeit certainly needing a relatively manageable capital raise for regulatory compliance purposes. Many of the posts above accurately identify issues that contributed to the failure, but none of them individually caused it. TL/DR me if I'm getting a little/really wonky here but after taking a few minutes to peek at their call report, this is how I view a few of these issues: - Outsized Treasuries position and long portfolio duration / funding mismatch: Just to be precise, "Treasuries" were not a large part of the portfolio (14% of assets vs comparable peer banks 23%). They had a greater proportion of Agency MBS (55% vs 36%). Overall though you could call it more of a bond bank, loans 33% of assets, securities 58%. However, the size of the security position doesn't particularly matter here. Most of the position was HTM which doesn't flow to AOCI and although the AFS portion does, it only affects the stated total equity position rather than the regulatory capital position that must be maintained. There is a big difference between equity and regulatory capital and that is a very good thing. This is why you hear that most banks are in the same boat when it comes to unrealized AOCI losses. It is absolutely true, and there are a bunch with a worse AOCI position than SVB had. Right now there are dozens of banks nationwide which report a negative equity position and, while they are probably getting a stern taking-to from regulators during an exam, they are most likely perfectly solvent. The reportedly long duration of the portfolio (I have not looked at the IRR/sensitivity financial data, just going off what is in media) simply impacts the size of the unrealized loss in AOCI. Longer duration = greater downside risk when rates rise, finance 101. So yes, the $1.8B loss on the sale of securities -may- have been larger than with a shorter tenor portfolio, but again, this was not a major contributor to failure at all. - Failure to raise capital CNN had an article out yesterday headlined: Silicon Valley Bank collapses after failing to raise capital. This is misleading at best or flat out wrong. SVB attempted to raise $2.2B to plug the $1.8B from the loss on securities. The bank's capital position was generally fine prior to the loss, leverage capital 8% vs peer 8.76%, and risk-based capital ratios were higher than peer because of the higher proportion of securities vs loans on balance sheet. They had almost $17.5B capital prior to the $1.8B loss, so yeah, the loss certainly made an impact but they would still be considered "Adequately Capitalized" (versus "Well Capitalized") by regulators without raising additional capital. Adequately Capitalized banks absent other major issues are not getting closed, period. - Customer base is niche This did not cause it but I think when it's all said and done, this will be deemed a major contributor to what historians 50 years from now will deem the most efficient bank run in the history of western civilization. I'm being a little facetious there but also not really. What we saw yesterday should not happen. $42B deposit outflow and resultant -$958M cash position in one day is worthy of Congressional investigation in my opinion, and I have zero axes to grind. Previous posters showed the data on deposit size % which is spot on. Prudential regulators are going to have to reassess the entire playbook on liquidity management after this. Bank failures occur mostly due to liquidity, but it happens over weeks and months and quarters which gives the bank and regulators time to find buyers for assets, etc. Technology, an astute and influential client base, and a huge average relationship balance meant that this could happen with unprecedented speed. I really dislike the "perfect storm" label when describing root causes of major disasters but here I have no other choice to label this as such. What a mess, and the ashes sifting will last for years to come. So many bad decisions - why announce capital raise right after the security sale filing? Why do it on the day of SG announcement, why were so many tech titans calling for withdrawals? I'm a simple outside observer with no answers but I hope they start coming.
  9. The FDIC, OCC, and some execs / key people will work through the weekend to ensure normal operations Monday morning under the temporary name. Unless there are a crazy number of essential personnel resigning today, the checks will still get cut, the bills get paid, etc. Nobody with an essential role will be fired, to be sure. In this case, the shit hit the fan so quickly that a bridge bank had to be formed because the regulators had no real time to understand what was actually under the hood, much less market it for sale piecemeal or as a going concern.
  10. FDIC: PR-16-2023 3/10/2023 For Immediate Release WASHINGTON – Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank. Also: A bridge bank is a new national bank chartered by the Office of the Comptroller of the Currency (OCC) and controlled by the FDIC in accordance with section 11(n) of the Federal Deposit Insurance Act. Creating a bridge bank permits parallel functions to continue. First, the bridge bank allows client banks to maintain their correspondent banking relationship with the least amount of disruption. Secondly, operating a bridge bank allows FDIC's preexisting efforts to market the bank to continue. Thirdly, operating the bridge bank allows time for the failed bank to be liquidated in an orderly fashion if marketing efforts are unsuccessful.
  11. We haven't had a Failure Friday since October 2020. Largest failure since WaMu. Amazing. What a time to be alive. My condolences to anyone with deposits above the insured limits. This sucks for so many. First Republic trading volume approaching 28M vs 1.7M average daily volume.
  12. Yellen just said Fed is now monitoring "a few" banks as a result of what is happening with SVB. Contagion.
  13. SVB will not survive this. I am not sure what you mean by bailed out, but there most definitely is a group from the FDIC being assembled to enjoy a nice long weekend in Santa Clara to monitor the situation. I have no inside knowledge at all to predict if this will be a receivership situation or sale of assets to a 3rd party. Given their clientele, I would question the value of said assets, however. This is a classic bank run unfolding (liquidity failure) but the underlying cause is very different from situations in the past. Almost every single bank right now is carrying massive unrealized losses in their securities books right now due to the interest rate environment. However, for 99% of them, it's a complete non-issue. They have ample liquidity, a solid funding base of deposits, and a reasonably manageable portfolio duration. Where it becomes problematic is when a bank is forced to sell and realize those losses, see SVB. Couple that with an announced capital raise and the messaging is awful for investors. These are cardinal sins for any respectable banker. From an investment standpoint, these niche lenders like SVB, SG et al are on increasingly shaky ground and should be avoided. But otherwise, most of the others that saw massive drops yesterday? I'm a buying man. A regional bank with a horribly boring balance sheet that is down over 5% this week is easy money.
  14. I cook a fantastic steak and risotto when the New Years VP concert is aired and we sit down as a family and watch every minute of the PBS broadcast. It’s definitely cheesy in parts but overall quality family time and the kids kinda like being told that I guarantee they are the the only ones of their friends who are watching it. Regarding your Bach/math comments, buy Gödel, Escher, Bach: An Eternal Golden Braid. I am still tackling sections of it piecemeal after 10 years and I’m a pretty good pianist and my job is 99% math. It’s a super hour-long-at-a-time diversion.
  15. I remember that one now. Was it named something like roaring rapids or something related to a canyon? Also, in mdmosts aerial pic, unless I'm totally mixing things up, I'm pretty sure that partial slice of a building on the far left is the World's Shittiest Grandy's, which I ate at often and hold dear in my heart. Also only Grandy's I've ever eaten at, not coincidentally.
  16. I remember the name but can't recall what White Lightning looked like. Dragon's Tail was the beatdown for me. I can still feel the seams of the pipe pieces intermittently scraping me raw.
  17. Good bump. A few things: I could be wrong but wasn't the Garland White Water just renamed Wet n' Wild later after a corporate sale or whatnot? Also, the three-tubed big slide in the middle was comprised of the Black Hole, Caribbean Cannonball, and....? But for my money, nothing beat a leisurely splash down the Body Flumes. Mostly because you could stand up near the final stretch and get taken out by your friend who was riding after you. csb: A week or so after the end of 6th grade, my school district rented it out one night so that all student crossing guards (a highly sought-after position) from all the elementary schools got to have the place to ourselves. It was epic and the scene of many awkward first time boob encounters... /nopedo Next door was Sears Driving School where I got my permit and did all the driving practices/test. If you know the intersection of LBJ & Centerville, it was and still is a nightmare cluster of awful fast merging traffic. Couldn't have been a worse place for a bunch of 15 year olds to learn to drive. Science Place at Fair Park - spent the night there a few times for scouts I believe. Also scout related, did anyone do the flight simulator at DFW? A little before my time but older brother had friends in a few bands that played Arcadia. Romeo and the Dreamers anyone? Looking back, I don't understand how dozens of limbs and appendages weren't lost annually at Penny Whistle Park. Approximately 98% of the total revenue taken in at Vikon Village was related to fake IDs. Championship Sunday which was usually Easter at the Dallas Cup when it was at LHHS stadium. I remember the Mexican teams all had throngs of family and friends following them into the stadium carrying huge crosses and easter regalia and going nuts. In fact, I need to post something to the Ukraine thread about something related I found in the attic recently... I'll think of more I'm sure.
  18. I listened to the live English translated press conference with the ER surgeon - some weirdly specific and detailed questions were asked by the press BTW, assume it’s a cultural thing - who indicated that there was a significant open wound to his heart. So he likely had no chance and was dead within a very short time. The translation could be wonky, but that’s what I got out of it.
  19. I felt off on Wednesday and had major congestion/allergy symptoms Thursday and so decided to test then. My wife was about 7 days into recovery from it though at that point so I pretty much tested as just a formality. YMMV. Good luck.
  20. I was just going to post that. Huh. I also learned the word estray.
  21. Day 3, and I am generally back to normal. Strange, after feeling like death 24 hours ago. I’m still a little stuffy and slight cough, but yeah… On the third dose of Paxlovid (30 pills total in the prescription). It mentions one side effect is a metallic taste and they aren’t kidding, but I wouldn’t really call it metallic as much as just chemical. Unpleasant, but I’ll take it.
  22. Proud to join the party here. Pfizer x 2; Moderna x 1. /csb Wednesday, I feel a little off, like just not on my A game at work (remote) or making dinner, or whatever. Thursday, I have major congestion, watery eyes but feel fine. Decided to test obviously and it's a bingo. So now everyone is avoiding everyone else. I wake up last night at 3 and my chest is tight so I grab my rescue inhaler that I hadn't used in 9 months, take a few pulls and I can tell it helped. But after my lungs relaxed, awful phlemmy coughing started. I manage to get a little more sleep and wake up feeling like I got hit by a truck. I've never had the flu in my life but know all the symptoms, and I think I had extreme versions of all of them: horrible aching, freezing and shivering one minute, burning up next, splitting headache, and the cough is somehow worsening. Plus, I realize I need my inhaler again and the O2 sensor. Fuck. I am winded after the 10 foot walk to the medicine drawer and just collapse in a sweaty pile. Wife is super worried and makes me a virtual appt with doc. It takes about an hour but he took one look at me and said he was prescribing Paxlovid, but made me show him the O2 meter which never really got down close to 90%. Also, never cracked a fever at all. So weird. So today has progressed actually really well. I thought I was DYING this morning for about 5 hours. Had a little lunch, and I'm at least walking around and able to get on the computer a little. I'll report back on the Pax. Now I'm pretty dizzy, fuck this shit. Oh, and doc did mention that they are seeing cases trending up in a big way the past 2-3 weeks. Not that we don't all know that but he sounded a little worried.
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