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2023 bank failures


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2 hours ago, bernorange said:

You should read the first link I posted. 

 

I did.  That's why I said this:

5 hours ago, ryskey said:

Banks with a bunch of 2% coupon treasuries with long-dated maturities are still in some trouble, but I'm not sure how prevalent those are.

Do you know?  Because all of the analysis I saw that happened earlier this year suggested there were enough long-dated maturities for some impairment to collateral coverage, and terms are generous, but there's no systemic risk.  Was that analysis wrong?  Maybe it was.  I wouldn't want to loan against a basket of treasuries at that valuation, and neither would any normal credit underwriter, but this isn't anything we didn't know 8 months ago.  This is exactly what the lender of last resort is supposed to be doing.

Confirmed the BTFP is loaned at prevailing rates (so the Fed, err... we are not losing money on the rate spread), and assets are marked to market.  So the impairment in coverage or loan to value only matters in 2 situations:

1.  The Fed sells the debt - this isn't going to happen

2.  A significant number of banks can't service or refinance the debt.  If that happens, equity of the banks go to zero, and assets are liquidated to pay back lenders.  Regarding the recent uptick in BTFP loans, if I were at a bank and I could borrow money at above-market terms, I would.

 

Reuters Graphics

 

Ok, so let's see how regional banks are doing.  This issue is known and quantifiable, so it should be priced into regional bank stocks.  This is an ETF for regional banks, supposedly the most at-risk.  Correction back in March during the first of the bank runs, and flat since.  Looks like permanent re-rate of the group due to higher risk, which is probably fair.  But still plenty of equity value sitting behind the debt.  

image.png.c4e5a28b45539392d635c19569fde7d1.png

 

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March 13, 2023:

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The Federal Reserve on Sunday unveiled a new program to ensure banks can meet the needs of all their depositors amid escalating chances of bank runs following the abrupt collapse of two major banks in the space of 72 hours.

The Bank Term Funding Program (BTFP) will offer loans with maturities of up to a year to banks, savings associations, credit unions and other eligible depository institutions.

Here are some key elements of the Fed's program:
...
A key element of the program is acceptable loan collateral - including U.S. Treasuries and mortgage-backed securities among others - will be valued at "par," meaning open-market bond values that have been impaired by a year of Fed rate hikes will not reduce what a bank may borrow from the central bank.

The same collateral terms will also be available for loans drawn from the Fed's "discount window," its traditional lender-of-last-resort facility. Ordinarily, loan amounts were governed by the market value of the pledged collateral.

"This will allow banks to fund potential deposit outflows Without crystalizing losses on depreciated securities," Goldman Sachs wrote Sunday after the Fed announcement.
...

https://www.reuters.com/markets/us/key-elements-feds-new-us-bank-funding-program-2023-03-13/

also, the Federal Reserve's BTFP page which I linked previously clearly states (bold emphasis is mine):

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... The BTFP offers loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging any collateral eligible for purchase by the Federal Reserve Banks in open market operations (see 12 CFR 201.108(b)), such as U.S. Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities. These assets will be valued at par. ...

 

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Unrealized Losses on Securities Increased From the Prior Quarter: Unrealized losses on securities totaled $683.9 billion in the third quarter, up $125.5 billion (22.5 percent) from the prior quarter.  Unrealized losses on held-to-maturity securities totaled $390.5 billion in the third quarter, while unrealized losses on available-for-sale securities totaled $293.5 billion.

https://content.govdelivery.com/accounts/USFDIC/bulletins/37d5a51

BTFP ends in March? 

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From last Friday:

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In a speech delivered Friday morning at a forum hosted by the European Central Bank in Frankfurt, Germany, Fed Vice Chair for Supervision Michael Barr said the failure of Silicon Valley Bank "changed everyone's perception of the possible speed of bank runs" and exposed weaknesses in emergency funding systems that are still being evaluated today.

"What occurred in two or three weeks or, in some cases, many months in previous episodes may, in the modern era, now occur in hours," Barr said. "These issues are top of mind as we review and consider future adjustments to the way in which we should supervise and regulate liquidity risk."

As a result, Barr said, the Fed is weighing whether adjustments are needed for the regulatory frameworks designed to help banks insure themselves against losses. These include the liquidity coverage and net stable funding ratios, which are designed to ensure banks can fund themselves through 30 days of deposit outflows.

"These requirements may not, on their own, be sufficient to stem a rapid run," Barr said. "The speed of bank runs and the impediments to rapidly raising liquidity in private markets that may be needed in hours rather than days suggest it may be necessary to re-examine our requirements, including with respect to self-insurance standards and to discount window preparedness."
...

More:

https://www.americanbanker.com/news/feds-barr-new-liquidity-requirements-might-be-needed-to-stem-bank-runs

 

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  • 2 weeks later...

Rickards:

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...
In less than two months from early March to early May 2023, we saw the failures of Silvergate Bank, Silicon Valley Bank, Signature Bank, Credit Suisse and First Republic.

In response, the FDIC stepped in with the mother of all bailouts. Going forward, the issue is: Once you’ve guaranteed every deposit and agreed to finance every bond at par value, what’s left in your bag of tricks? What can you do in the next crisis that you haven’t already done — except nationalize the banks?

Investors are relaxed because they believe the banking crisis is over. That’s a huge mistake. History shows that major financial crises unfold in stages and have a quiet period between the initial stage and the critical stage.

My next forecast is that a bigger and more acute Stage 2 of the banking crisis is coming after the quiet period that has prevailed since June. This new crisis will be focused on about 20 banks with $200–900 billion in assets — the so-called midsized regional banks that are not too big to fail.
...

https://dailyreckoning.com/rickards-five-2024-forecasts/

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Oh you posted something predicating another crash? NO WAY

Where do you find these weird fucking “News” sources? 

https://dailyreckoning.com/about/

[A letter from Daily Reckoning co-founder and Agora Financial executive publisher Addison Wiggin]

https://www.ftc.gov/news-events/news/press-releases/2021/02/publisher-will-pay-more-2-million-settle-ftc-charges-it-targeted-seniors-phony-diabetes-cure-money

A Baltimore-based company, Agora Financial, LLC, and several of its affiliates have agreed to pay more than $2 million to settle Federal Trade Commission charges that they tricked seniors into buying pamphlets, newsletters, and other publications that falsely promised a cure for type 2 diabetes or promoted a phony plan to help them cash in on a government-affiliated check program.

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The Federal Reserve Board on Tuesday announced the execution of the enforcement action listed below:

Marblehead Bancorp, Marblehead, Ohio, and Marblehead Bank, Marblehead, Ohio
Written Agreement dated December 14, 2023
...

https://www.federalreserve.gov/newsevents/pressreleases/enforcement20231219a.htm

Skimming through the actual agreement:

https://www.federalreserve.gov/newsevents/pressreleases/files/enf20231219a1.pdf

That bank seems to be getting slapped for their incompetent management team as well as FUBAR finances.  Yikes.

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On 12/19/2023 at 1:38 PM, bernorange said:

https://www.federalreserve.gov/newsevents/pressreleases/enforcement20231219a.htm

Skimming through the actual agreement:

https://www.federalreserve.gov/newsevents/pressreleases/files/enf20231219a1.pdf

That bank seems to be getting slapped for their incompetent management team as well as FUBAR finances.  Yikes.

Tiny $55M bond bank, 35% LTD, negative TE bcs of portfolio duration, weak NIM of course, sold securities in 3Q which resulted in their Q loss. Actual leverage capital $5.5M, 8.4%, not terrible, not great. "Well Capitalized" per PCA. Management paid themselves very healthy dividends at YE 2022 so this seems to be FRB telling them "Not this year." Unless there is something fraudulent going on, this is not a failure candidate. Probably great-grandaddy's heirs run it and just collect a decent paycheck.

Anecdotally, I hear that all regulators post-March now will issue public actions for repeat matters instead of the prior practice of keeping them non-public (MRA/MRBA) from exam cycle to cycle. This means you'll see more of these.

Also, I recommend signing up for the enforcement action email distribution lists from FRB/OCC/FDIC for a little laugh on occasion. You'd think that all little ol lady bank tellers 65+ are just defalcating left and right. 

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On 12/17/2023 at 4:54 PM, Neonmoon said:

A Baltimore-based company, Agora Financial, LLC, and several of its affiliates have agreed to pay more than $2 million to settle Federal Trade Commission charges that they tricked seniors into buying pamphlets, newsletters, and other publications that falsely promised a cure for type 2 diabetes or promoted a phony plan to help them cash in on a government-affiliated check program.

Fucking incredible. Never change, Bern.

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  • 4 months later...

First Republic has fallen.  FDIC press release:

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Fulton Bank, N.A. of Lancaster, Pennsylvania Assumes Substantially All Deposits of Republic First Bank, Philadelphia

WASHINGTON — Philadelphia-based Republic First Bank (doing business as Republic Bank) was closed today by the Pennsylvania Department of Banking and Securities, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect depositors, the FDIC entered into an agreement with Fulton Bank, National Association of Lancaster, Pennsylvania to assume substantially all of the deposits and purchase substantially all of the assets of Republic Bank.

Republic Bank’s 32 branches in New Jersey, Pennsylvania and New York will reopen as branches of Fulton Bank on Saturday (for branches with normal Saturday hours) or on Monday during normal business hours. This evening and over the weekend, depositors of Republic Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on Republic Bank will continue to be processed and loan customers should continue to make their payments as usual.

Depositors of Republic Bank will become depositors of Fulton Bank so customers do not need to change their banking relationship in order to retain their deposit insurance coverage. Customers of Republic Bank should continue to use their existing branches until they receive notice from Fulton Bank that it has completed systems changes that will allow its branch offices to process their accounts as well.

Customers with questions about Fulton Bank’s acquisition of Republic Bank may call the FDIC toll-free at 1-877-467-0178. The FDIC’s Call Center will be open this evening until 9 p.m. Eastern Time (ET); on Saturday from 9:00 a.m. to 6:00 p.m. ET; on Sunday from noon to 6:00 p.m. ET; on Monday from 8:00 a.m. to 8:00 p.m. ET; and thereafter from 9:00 a.m. to 5:00 p.m. ET. Interested parties may also visit the FDIC’s website.

As of January 31, 2024, Republic Bank had approximately $6 billion in total assets and $4 billion in total deposits.  The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) related to the failure of Republic Bank will be $667 million. The FDIC determined that compared to other alternatives, Fulton Bank’s acquisition of Republic Bank is the least costly resolution for the DIF, an insurance fund created by Congress in 1933 and managed by the FDIC to protect the deposits at the nation’s banks.  Republic Bank is the first U.S. bank failure this year; the last failure was Citizens Bank, Sac City, Iowa on November 3, 2023.

https://content.govdelivery.com/accounts/USFDIC/bulletins/398f972

Quote

...
The bank attempted to raise $125 million in additional capital from investors last year — an effort that launched on the same day that Silicon Valley Bank failed — but the deal fell apart only months later.

A subsequent capital infusion came together last fall amid reports that the FDIC was seeking a buyer for the troubled bank. But that capital raise also ultimately fell apart.
...

https://www.americanbanker.com/news/republic-first-fails-fulton-bank-acquires-assets-branches

American Banker says the sale will result in a $667 million loss for the Deposit Insurance Fund.

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