I seem to have a gift for understatement so to make this explicit: I'd put ~20% chance that we are in the beginning stages of a banking crisis. Banking crises are not the end of the world, but they are substantially worse than the failures of an individual bank
I'd put it at 5-95%. In other words, who knows. The big one is something like Schwab. It was down at one point 20% today.
He might well be right, but the market can stay irrational longer. He's been singing Tether's imminent doom for years now and nothing has happened. About the only thing that happened is money fled USDC for USDT recently for a short period.
So the Gov printed a ton more money, to cover the financial malfeasance of the banks yet again, which is a great deal of the reason why inflation is so bad right now from the last time they did that. This restores your faith in them?
Our memories are too short and our collective greed is too great.
Fractional reserve banking is basically giving banks the authority to create money on behalf of the government. They didn't create any extra money to cover this.
No money was printed, this will all come out of the FDIC's coffers, which is filled by banks paying essentially insurance premiums. It'll be covered by selling SVB's assets, with any gap covered by an additional assessment on banks.
I think that you need to read more into what backstops the FDIC.
Taxpayers do.
FDIC pulls from the Treasury when they can't cover what's needed. FIDC are only meant to cover up to 250k but it looks like Yellin has decided to cover a lot more than that, and that will come from the treasury.
>The FDIC is not supported by public funds; member banks' insurance dues are its primary source of funding.[8] When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides.[9]
It's not like the entire 160b at svb went poof. Fdic takes everything svb had and that covers A LOT more than just 250k per customer. Sure a little bit off the top would have been missing, but yellen figured covering that small gap out of the fdic's pocket was worth calming down the panic. All other banks will be assessed a little bit more for their fdic coverage and the fdic is made whole in just a few months.
So if anything it's a small short term loan from the money taxpayers already set aside as the fdic to cover the gap at svb.
Depends on how the deposit flows go. Prudent people will move their money to the big SIBs and that flow could be enough to force another smaller bank to have to sell underwater bonds to cover cash needs and then we get to do this all over again. It could end up being a vicious cycle even with this first bank's depositors were bailed out. Depends how the unrealized losses are distributed to which i have no visibility so will have to wait and see.
The confidence in a system where 'nothing bad ever happens to nobody' is at historical minimums actually.
After the lockdowns, the experimental vaccine, 3 Trillion spending, free money for everybody etc... people aren't stupid. They understand that forest fires are needed for a healthy forest. And this is true in any context.
In the last 3 years we have seen the fire brigade and the 747s water bombers being summoned as soon as even a small spark is seen (or even projected to appear).
Whatever solution engineered by humans will always be way inferior vis-a-vis Natural selection. This is true for virus, bacteria, antibiotic resistance and also bank failures. Not to mention how the solution is 99.999% of the times just kicking the can down the road, as it happened in the last 3 years.
> After the lockdowns, the experimental vaccine, 3 Trillion spending, free money for everybody etc... people aren't stupid. They understand that forest fires are needed for a healthy forest.
Aaron Klein (former Treasury official, now with Brookings) agrees with you:
>There are just under 5,000 banks in America ... the right answer for the number of banks to fail in a year is greater than zero. If you have no bank failing, then you probably have bigger problems in the economy. Look, the first time in American history you went a year without a bank failure was 2005. 2006 was the second year and the regulators told us at the time, that they'd won, that this was great regulation, see, no one was failing, the system couldn't be safer. Kablooey.
Speaking to a banking friend today, this almost seems inevitable at this point. So many banks did not expect interest rates to go up this much, this fast. Many banks are filling gaps right now, but with more money going out than going in (for various reasons), things are going to be tight.
A high profile bank in some tech circles, a bank with an abnormal balance sheet that actively resisted scrutiny and that did not have high systemic exposure, went bust.
Clearly, a banking crisis.
Alternatively, the market did what it should do and a shoddy player was exposed.
That outsized financial risk undertaken by its depositors, depositors with advisors that had ample means to mitigate putting-all-eggs-into-one-bank-risk, was subsidised out, perhaps should be more in focus as a cause of financial system risk.
Just go look up Asian and mostly BRICS countries are dumping US debts. China has lesser T-Bills than a decade ago. This massive sell off already spooked US Treasuries. Look up Janet traveling intinerary for the last 2 months. Fed is buying up and interest rates is higher than Fed rate at this moment. Many banks are parking their cash there. A doubling of rates will cause billions of immediate lost. Even they refuse to write off, bank run is happening. I have many friends fired from jobs couldnt get a single HR interviews for already 2 months...something unheard of just 6mths ago. These jobsless people will drain their deposit akin to bank run indirectly. Right now foreign countries e.g. China and many Asian and middle east countries are actively liquidating their American assets and repatriate their cash back. We will see at least 2008 if not the GD of the 1920s-30s in coming 12-24mths. The only thing that will stop this is USA go into war with Russia. That will temporary boost economy before total anhinilation. You will be surprise how shortsighted American leaders are trading short term gain for long term demise.
31 comments
[ 4.2 ms ] story [ 71.6 ms ] threadI'd put it at 5-95%. In other words, who knows. The big one is something like Schwab. It was down at one point 20% today.
The world and his dog have been expecting this for at least twenty years, if not thirty.
The US was "lucky" (/s) to have the World's Reserve Currency in the late 1980s.
Our memories are too short and our collective greed is too great.
Fractional should only be allowed if fully insured. which would make it cost inefficient, so they wouldn't do it.
and that should tell you something about fractional reserves...
Taxpayers do.
FDIC pulls from the Treasury when they can't cover what's needed. FIDC are only meant to cover up to 250k but it looks like Yellin has decided to cover a lot more than that, and that will come from the treasury.
>The FDIC is not supported by public funds; member banks' insurance dues are its primary source of funding.[8] When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides.[9]
https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
So if anything it's a small short term loan from the money taxpayers already set aside as the fdic to cover the gap at svb.
No money getting printed, no tax hikes.
The confidence in a system where 'nothing bad ever happens to nobody' is at historical minimums actually.
After the lockdowns, the experimental vaccine, 3 Trillion spending, free money for everybody etc... people aren't stupid. They understand that forest fires are needed for a healthy forest. And this is true in any context.
In the last 3 years we have seen the fire brigade and the 747s water bombers being summoned as soon as even a small spark is seen (or even projected to appear).
Whatever solution engineered by humans will always be way inferior vis-a-vis Natural selection. This is true for virus, bacteria, antibiotic resistance and also bank failures. Not to mention how the solution is 99.999% of the times just kicking the can down the road, as it happened in the last 3 years.
Aaron Klein (former Treasury official, now with Brookings) agrees with you:
>There are just under 5,000 banks in America ... the right answer for the number of banks to fail in a year is greater than zero. If you have no bank failing, then you probably have bigger problems in the economy. Look, the first time in American history you went a year without a bank failure was 2005. 2006 was the second year and the regulators told us at the time, that they'd won, that this was great regulation, see, no one was failing, the system couldn't be safer. Kablooey.
<https://www.youtube.com/watch?v=rzQx4qmMcJI#t=4m5s>
That against RE market wobbling lately, Ukraine situation being a mess...think I'm OK with sitting on the sidelines a bit and losing out on gains
Or you're just more worried about short-mid term market volatility than bank stability?
[1] https://en.m.wikipedia.org/wiki/List_of_systemically_importa...
SVB just looks like the first crack to appear. Very little of our financial system looks ready for the end of free money to me
>Cash in a SIB?
No exposure
Clearly, a banking crisis.
Alternatively, the market did what it should do and a shoddy player was exposed.
That outsized financial risk undertaken by its depositors, depositors with advisors that had ample means to mitigate putting-all-eggs-into-one-bank-risk, was subsidised out, perhaps should be more in focus as a cause of financial system risk.
If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html and taking the intended spirit of the site more to heart, we'd be grateful.