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2023 bank failures


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1 hour ago, StassneyHorn said:

Friday, the business I work for said not to onboard new members or authorize any new appts for SVB. Late today got the message to keep onboarding and approve.

Take this info and invest accordingly 

So... What is the name of your business and can I short it?

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Either someone is wired to take big risks or they aren't - a guarantee on deposits changes nothing.  This is just human nature stuff.

I disagree. It’s all about what is incentivized. I moved from an operations to a sales career in 2009 and it changed me a lot. I’ve watched it happen to others.
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36 minutes ago, Chewbacca said:
1 hour ago, Buzzrock said:

I disagree. It’s all about what is incentivized. I moved from an operations to a sales career in 2009 and it changed me a lot. I’ve watched it happen to others.

I'm talking from an ownership perspective. You know, the guys who lost their bank last week.

Do you think banks just like, absolutely ignore banking laws and regulations or something?

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The Nash Equilibrium on bank runs (game theory) indicates spooked SVP depositors acted irrationally.

Under the Diamond-Dyvbug model of bank runs, perfect rationality is presumed.  Neither the bank nor the depositors acted rationally.  Everyone with half a brain understands the deposit limits for FDIC insurance, but SVG failed to hedge the risk of a run and depositors failed to use well-known “Insured Cash Sweeps” for deposits in excess of $250,000.  Rewarding those poor decisions creates perverse incentives and moral hazard.

Those fanning the fears of additional bank runs in the wake of SVG (to force bailouts of those poor choices) created additional damage and negative externalities that may be actionable.  Those benefiting from “yelling fire in a crowded theater” deserve scrutiny from regulators.

 

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On 3/14/2023 at 10:58 AM, Hefeweizen said:

They’re not nearly as smart as they think they are .  That is the main problem.  Knowing what you don’t know is the biggest challenge professionals face.  Engineers lose their license for practicing outside their area of expertise.  Attorneys refer clients to experts in other areas.  Doctors refer to specialists. Bankers say hold my beer.

I worked in a startup with a banker friend from college. One time I described to him how I (engineer) was taught that it’s extremely important to acknowledge when you don’t know something because there’s usually going to be someone in the room who knows the subject better than you do. He said that in the financial world that’s not allowed. You have to have “a view” on every subject, whether you actually know anything or not.

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Last night Frontline on PBS had a great documentary on how free money for the last 2 decades got us here. Must watch. Spoiler alert. This is just the start of a long overdue bill. Whoda thunk decades of free money and everyone and everything leveraged to the max would be a good thing?

https://www.pbs.org/wgbh/frontline/documentary/age-of-easy-money/

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2 minutes ago, crash_davis said:

Last night Frontline on PBS had a great documentary on how free money for the last 2 decades got us here. Must watch. Spoiler alert. This is just the start of a long overdue bill. Whoda thunk decades of free money and everyone and everything leveraged to the max would be a good thing?

https://www.pbs.org/wgbh/frontline/documentary/age-of-easy-money/

Peter Zeihan has essentially been saying that for a while. People got used to incredibly low capital costs. A lot of it is demographics driven.

 

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16 minutes ago, Auto Driller said:

I worked in a startup with a banker friend from college. One time I described to him how I (engineer) was taught that it’s extremely important to acknowledge when you don’t know something because there’s usually going to be someone in the room who knows the subject better than you do. He said that in the financial world that’s not allowed. You have to have “a view” on every subject, whether you actually know anything or not.

Sounds like they would make excellent social media users.

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3 hours ago, Chewbacca said:
4 hours ago, Buzzrock said:

I disagree. It’s all about what is incentivized. I moved from an operations to a sales career in 2009 and it changed me a lot. I’ve watched it happen to others.

I'm talking from an ownership perspective. You know, the guys who lost their bank last week.

Ok that wasn’t clear. I thought you were making a comment about human nature and people never changing. 

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3 hours ago, wildcat09 said:

Do you think banks just like, absolutely ignore banking laws and regulations or something?

No, I don't think most do.  That's kind of my point here.  Bankers are, for the most part, pretty conservative people.  However, if one were predisposed to do so, guaranteeing deposits does not change that.

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On 3/14/2023 at 12:34 PM, Chewbacca said:

Either someone is wired to take big risks or they aren't - a guarantee on deposits changes nothing.  This is just human nature stuff.

Well, I guess Kenneth Arrow is going to have to give back his Nobel Prize.  Well done!

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23 hours ago, gsoda3 said:

1.)  plenty of people realized that wasn't true.  it's mindblowing that the supposed experts at the highest levels didn't see it.  

2.)  even if you didn't believe rates were going to keep rising at that pace you *have* to hedge.  have to have to have to.  

What's really incredible about this story to me is that SVB got killed by duration mismatching, which, if I were teaching an Intro to Commercial Bank Management class, would literally be the one thing that I would want to make sure everyone understood by the end of the semester.  

It's like a lawyer getting a case thrown out for misnumbering exhibits.

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SVB’s deposits tripled during the two years that $6T extra dollars were printed and dumped into the world. I can’t believe the two things were completely unrelated.

I heard an economist say the Fed is acting as arsonist and firefighter. Funny.

Doesn’t excuse the bank runners on the duration mismatch. Huge blunder.

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9 hours ago, Beau Vine said:

What's really incredible about this story to me is that SVB got killed by duration mismatching, which, if I were teaching an Intro to Commercial Bank Management class, would literally be the one thing that I would want to make sure everyone understood by the end of the semester.  

It's like a lawyer getting a case thrown out for misnumbering exhibits.

quite shocking.  i've heard several third hand stories about the former CRO the past few days and from the picture they paint she was more interested in pet projects than the actual operations side of her job which is why they forced her out.  even if true and she was performing her job on cruise control it literally takes less than 5 minutes to look at your book and see that's something wrong. 

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Looks like First Republic may be looking for a buyer, among other options.  Our checking account is with FRC, so this sucks.  Their service has been excellent throughout the time we've been in CA.  A few years ago when my father passed away I had to get some documents medallion signed (notary on steroids).  I first tried this at a nearby Wells Fargo which took HOURS.  Next time I went to FRC and they had it done in minutes.  Just top notch.

Not sure what their risk people were doing wrong, if anything, but their customer service has always been top notch.

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1 hour ago, longhornmatt said:

 

I guess it turns out that the whole “making loans” and “having customers who can afford to pay interest” thing is kind of a critical part of the banking business. 

Not always, there are other ways to run a successful bank. But you need volume.

 

 

 

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On 3/14/2023 at 6:53 PM, StassneyHorn said:

Friday, the business I work for said not to onboard new members or authorize any new appts for SVB. Late today got the message to keep onboarding and approve.

Take this info and invest accordingly 

 

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2 hours ago, Skipper said:

Most likely nothing.  Depositors are just fleeing smaller/regional banks in droves.  

Our client base has seen no deposit loss as a result. I think people are fleeing the regionals (to your point) to move up to the mega banks, but the smaller sub $1B community banks seem fine. 

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3 hours ago, 27-25 said:

Looks like First Republic may be looking for a buyer, among other options.  Our checking account is with FRC, so this sucks.  Their service has been excellent throughout the time we've been in CA.  A few years ago when my father passed away I had to get some documents medallion signed (notary on steroids).  I first tried this at a nearby Wells Fargo which took HOURS.  Next time I went to FRC and they had it done in minutes.  Just top notch.

Not sure what their risk people were doing wrong, if anything, but their customer service has always been top notch.

11 huge banks depositing in FRC.

 

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Good write up on the parallels between these few banks and Penn Square from back in the day.  I thought that was a more local story but I guess it was national.  I was surprised how quickly the business media brought it up.  Basically, they made a bunch of loans to a sector that hid the skids.  Balance sheet went bad and rising rates wiped them out.  With PS, the contagion was limited to the one sector (O&G).  May play out like that now.  These are all tech heavy banks and the others, even the mid sized, don’t seem to have the same problems.

https://www.axios.com/2023/03/15/the-silicon-valley-bank-crisis-parallels-to-the-1980s

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I don't know why the so-called experts are missing the obvious part of this story.

Silicon Valley Bank  |  Signature Bank  |  Silvergate Bank

Do you see it?

 

If you have money in the following banks, watch your cornhole (not a complete list):

Sidney State Bank

Silex Banking Company

Silver Lake Bank

Simmesport State Bank

Simmons Bank

Simply Bank

Siouxland Bank

 

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I was traveling spring break during this (great timing) but did catch up on some of this thread on flight home.  I don't like Ackman but I think he's been pretty dead on since Friday. Agreed he was probably primarily referencing FRB in the tweet this AM but I'm sure they aren't the only regional bank getting hammered with a run on deposits this week.  SVB had fundamental issues, who knows, maybe some of the others could as well, but this seems like it is primarily a psychological crisis.  Basically it seems like businesses across the country saw what happened to SVB and if they weren't banking with a Bank that is "too big too fail" (i.e., big 4) have been pulling deposits once the FDIC did not explicitly guarantee deposits over the weekend.  Whether or not the FDIC should have can be debated but it appears Ackman was likely right on the result.  I mean BOA getting $15 Billion in deposits in a couple of days is pretty insane.  Glad to hear per note above smaller banks haven't been taking the hit (probably smaller businesses with stronger relationships) but long term impact of this is pretty concerning.  No idea how you shift the corporate mindset that it's safe to bank with regionals after this many panic moves.

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11 huge banks depositing in FRC.
 
It doesn't makes sense for the big banks to add cash to these regionals without receiving something back (like preferred shares a la Buffett 2008). I suppose yellen could have threatened dimon with something (but what) when they met this afternoon. Bankers aren't going to add cash which receives the same dividend as everybody else's cash already there out of the goodness of their own hearts.
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6 hours ago, 27-25 said:

Looks like First Republic may be looking for a buyer, among other options.  Our checking account is with FRC, so this sucks.  Their service has been excellent throughout the time we've been in CA.  A few years ago when my father passed away I had to get some documents medallion signed (notary on steroids).  I first tried this at a nearby Wells Fargo which took HOURS.  Next time I went to FRC and they had it done in minutes.  Just top notch.

Not sure what their risk people were doing wrong, if anything, but their customer service has always been top notch.

Medallion is not just notary on steroids, it means the owner of the stamp (i.e. first republic) is guaranteeing that the transaction is legit and authorized and the counterparty can seek damages against them if it's not.  So if first republic was using that for you in minutes without a little background check, then their risk controls are a little lax.  

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I was traveling spring break during this (great timing) but did catch up on some of this thread on flight home.  I don't like Ackman but I think he's been pretty dead on since Friday. Agreed he was probably primarily referencing FRB in the tweet this AM but I'm sure they aren't the only regional bank getting hammered with a run on deposits this week.  SVB had fundamental issues, who knows, maybe some of the others could as well, but this seems like it is primarily a psychological crisis.  Basically it seems like businesses across the country saw what happened to SVB and if they weren't banking with a Bank that is "too big too fail" (i.e., big 4) have been pulling deposits once the FDIC did not explicitly guarantee deposits over the weekend.  Whether or not the FDIC should have can be debated but it appears Ackman was likely right on the result.  I mean BOA getting $15 Billion in deposits in a couple of days is pretty insane.  Glad to hear per note above smaller banks haven't been taking the hit (probably smaller businesses with stronger relationships) but long term impact of this is pretty concerning.  No idea how you shift the corporate mindset that it's safe to bank with regionals after this many panic moves.
FRC put out a statement after the close that they had accessed the discount window for between 20 to 105 billion since March 15th. At any other time this bank would have gone into receivership, but in order to keep confidence in the system we see the big boys putting tens of billions of dollars into FRC to bolster the reserves.
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On 3/12/2023 at 8:09 PM, gsoda3 said:

There's such a stigma to accessing the discount window I can't think there would be a change of behavior solely on the easing of access.

 

On 3/12/2023 at 8:15 PM, Jackson P. Neighbors said:

As I also said in another post, nobody is going to rush to be the canary utilizing the Fed window.

Don’t know if this is referring to the same thing or not. If it’s the same thing, then either the stigma is gone and they’re taking advantage of the free money, or they’re desperate. 
 

 

 

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6 minutes ago, Not a cat said:

Medallion is not just notary on steroids, it means the owner of the stamp (i.e. first republic) is guaranteeing that the transaction is legit and authorized and the counterparty can seek damages against them if it's not.  So if first republic was using that for you in minutes without a little background check, then their risk controls are a little lax.  

They did a background check and they had a multi-year relationship with us already.  What they did differently than Wells Fargo is they did it quickly and efficiently.  When I said in minutes I did not mean 5-10.  It was thorough.  But they did not spend half a day on the phone with some national call center trying to explain things.  They knew what they were doing and what was required.

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Accessing the discount window isn't a bailout. It's a short term collateralized loan used whenever there's a liquidity issue and suitable credit isn't found. The loans are always backed up by assets and the terms are renewed every day. There's a stigma to using it because people wonder why they can't find a suitable interbank loan- is it because no one wants to lend to you or is it because no one else has the capacity?

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Quote

Data published by the Fed showed $152.85 billion in borrowing from the discount window — the traditional liquidity backstop for banks — in the week ended March 15, a record high, up from $4.58 billion the previous week. The prior all-time high was $111 billion reached during the 2008 financial crisis.

Everything is fine.

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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...

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18 minutes ago, Jackson P. Neighbors said:

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...

that risky bank just announced they're raising more cash via an issuance of new equity in a private sale. 

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8 minutes ago, gsoda3 said:

that risky bank just announced they're raising more cash via an issuance of new equity in a private sale. 

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.

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  • blacklab changed the title to 2023 bank failures

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