surprised that it wasn't Chase that got most of the deposits. Rippling, for example, switched to JP Morgan as it's payment processor. There's just something more trust worthy about JPMs brand in my opinion
Is there? JP Morgan Chase repeated stated throughout 2022 that Fed would lower interest rates; that they'd be foolish not to. And, they haven't. So, if SVB (and anyone else) took JP Morgan's cavalier assertions as fact when deciding how and where to invest, that would prove catastrophic.
Interestingly, majority of the articles highlighting JP Morgan's position are no longer available on the first few pages of DuckDuckGo and Google search engines...
Here's a June 2021 report stating that JP Morgan would stand to lose the most of all banking institutions under severe recession (roughly 84 billion US dollars), according to Federal Reserve Dodd-Frank Act Stress Test:
"JP Morgan’s loan portfolio would be hit the hardest under a severe recession, according to the results of this year’s Federal Reserve Dodd-Frank Act Stress Test. Bank of America, Wells Fargo and Citi would be the next worst hit.
JPM’s losses as projected under the DFAST’s severely adverse scenario, which saw real US GDP drop as much as 4% below end-2020 levels and unemployment peak at 10.75%, would amount to $84 billion, representing 17.7% of total losses across the 23 banks subject to the test..."
May be worth rethinking one's opinion about the position of "more trustworthy" + "JP Morgan Chase."
Makes one wonder what it takes to be designated Tier 5. On percentage of global GDP basis, surprisingly to laypeople JPMC hardly makes a dent measuring by AUM, but I’d like to see the total transaction value run through them tallied as a percentage of global GDP.
Here’s a back of the envelope: the global GDP is about 100 Trillion USD [1]. The annual volume of Fedwire transactions is about 1 Quadrillion USD [2]. The Fed does not disclose volumes by bank, but let’s make the assumption they are roughly proportional with the AUM of the bank. JPMorgan has a 25% market share when calculated by AUM [3]. So a rough approximation would be that the volume of Fedwire transactions where JPMorgan is one of the counterparties is more than twice the global GDP.
To be honest, I think it's fine to deposit your money into any big bank. They're already deemed too big to fail and will get bailed out. The only question is whether you should invest your money into their stocks, which are riskier.
Exactly my point. I'm using the term customer service to say service of the customers. You are using the term to mean a department of a company you call.
I personally know the open agriculture stuff was a joke, I got wrapped up in it and actually had several conversations and email exchanges with Caleb Harper (not in any shady or illegal way, I just sold kits of their open source food computer after seeing Caleb's TED talk, until I found out they didn't work, and never did, and don't provide any real benefit over something like an Aerogarden)
JPMorgan, by being deemed "too big to fail" is basically so large as to be immune to overall regulation, as any enacted fine of sufficient magnitude to make a punitive difference would jeopardize it's load bearing in the global financial system.
If I can't toss you out without slitting my own throat, you don't have a problem, I do.
> Why isn't the assumption basically that all banks are insolvent right now?
Because the FDIC decided to make all depositors immediately whole. Looking at their FAQ [0], depositors can even continue using their money directly from their existing accounts as they have been before the collapse. This is a pivot from their original position of providing more limited support [1]. The same is being done for Signature bank [2]
This is a strong signal, that they will do the same if other banks fail.
Additionally, the larger banks, such as Bank of America, are simply not allowed to be insolvent. If they are insolvent, the government will go to extraordinary measures to make them solvent, as a large bank failure is simply not acceptable
Also, most people have less than $250,000, so their bank failing is little more than an inconvenience, as they will be made whole by the FDIC as a matter of law. The inconvenience of a "normal" switching over to a new bank is only a bit greater than the inconvenience of switching over from a failed bank with FDIC insurance, so for most people it simply isn't worth worrying about.
If you are the FDIC/Federal Reserve/Treasury Department/President/etc, then the belief seems to be that there is significant risk of additional bank failures and steps need to be taken to prevent those. In addition to the additional FDIC support mentioned above, these steps include projecting confidence in the banking system (earned or not). Further, the Federal reserve has expanding its backstop programs, making additional liquidity available to other banks.
> Moreover, why is everyone phrasing SVB's insolvency as illiquidity?
Because it was a liquidity problem. Of course, there assets were not completely illiquid, as they could sell them at a discount relative to their face value. Doing this can turn a liquidity problem into a solvency problem, but the core issue was still one of liquidity. Had the depositors waited to withdraw their money, the bonds would have reached maturity and all depositors would be able to withdraw their full balance without any issue.
The official position of the FDIC is that the assets from the failed banks are still enough to cover all depositors, so even with the discounted selling they already did, they have still not been pushed into insolvency (to the extent that you believe the FDIC's accounting, and possibly ignoring creditors who are not considered depositors).
Frankly, if you asked me to come up with a scenario that demonstrates a bank failure due to a liquidity crunch, I doubt I could come up with something clearer than what saw last week.
Having said that, a bank's core business is arbitraging the difference between long and short duration loans, so avoid liquidity problems is pretty central to what they are supposed to do
> If you have your money in a Ponzi scheme (an example of insolvency), then you aren't "making a run on the Ponzi scheme" when you withdraw your money.
In a Ponzi scheme, there is no way to make everyone whole. The money simply is not there. In the recent bank failures, there is an clear path to make everyone whole. If the banks had been allowed to limit withdrawals for long enough that their bonds would reach maturity, then they would have had the money to make everyone whole. This is, in effect, what the original FDIC process [1] would have been. Everyone gets their insured deposits almost imminently. Uninsured funds would be partially paid out quickly, and the remainder would have been paid out as the FDIC liquidates assets in a more controlled manner (they would only be repaid fully if the FDIC recovers sufficient money from the liquidation, which the current indications are that they expect to).
" Had the depositors waited to withdraw their money, the bonds would have reached maturity and all depositors would be able to withdraw their full balance without any issue."
If that was the case the Fed 'lender of last resort' function would have allowed that to happen - by taking over the SVB deposits that were just moving to another bank. In effect lending back JP Morgan, et al's increase in reserves.
In reality the problem was that the income from the assets SVB had was insufficient to pay the Fed's penalty rate. Therefore SVB couldn't meet the Fed's cash letter - which is the stated reason for the bank's insolvency.
Essentially SVB lent out money too cheaply by inexplicably swapping its floating rate reserves for fixed rate mortgage bonds that it overpaid for. SVB was relying upon keeping non-interest bearing deposits for the duration. Without those it was insolvent.
Perhaps we need a new term: "insolvent at the Fed rate".
Bank of America's internal activities were found to be absolutely atrocious when the dust settled after the 2008 crash. They were a big part of why the Occupy Wall St movement started.
The relaxed approach to depositor insurance SVB clients took should absolutely not be duplicated at BOA after a move there.
I would personally recommend avoiding that bank at all costs.
Because it highlights the flight to mega banks that people were concerned about. The dollars here represent dollars fleeing smaller banks making them more susceptible to bank runs and less likely to continue to independently exist.
It's probably wiser to just keep the bare minimum at a bank (two months of payroll and a/p stuff), and the rest in a money market fund that buys US treasuries.
28 comments
[ 2.2 ms ] story [ 74.1 ms ] threadInterestingly, majority of the articles highlighting JP Morgan's position are no longer available on the first few pages of DuckDuckGo and Google search engines...
Sept 2022: https://markets.businessinsider.com/news/stocks/stock-market...
Jan 2023: https://www.barchart.com/story/news/13401774/two-of-the-larg...
Here's a June 2021 report stating that JP Morgan would stand to lose the most of all banking institutions under severe recession (roughly 84 billion US dollars), according to Federal Reserve Dodd-Frank Act Stress Test:
https://www.risk.net/risk-quantum/7848481/fed-stress-test-jp...
"JP Morgan’s loan portfolio would be hit the hardest under a severe recession, according to the results of this year’s Federal Reserve Dodd-Frank Act Stress Test. Bank of America, Wells Fargo and Citi would be the next worst hit.
JPM’s losses as projected under the DFAST’s severely adverse scenario, which saw real US GDP drop as much as 4% below end-2020 levels and unemployment peak at 10.75%, would amount to $84 billion, representing 17.7% of total losses across the 23 banks subject to the test..."
May be worth rethinking one's opinion about the position of "more trustworthy" + "JP Morgan Chase."
The reason it would be hit the hardest is because it's literally the biggest among entities deemed Too Big To Fail.
[1] https://en.m.wikipedia.org/wiki/Gross_world_product
[2] https://www.frbservices.org/resources/financial-services/wir...
[3] https://www.statista.com/statistics/727548/market-share-top-...
https://www.wired.com/story/dirty-money-and-bad-science-at-m...
$13B settlement for fraud related to sub-prime mortgages
https://www.google.com/amp/s/www.southflalaw.com/amp/jp-morg...
JP Morgan to pay $920 million in settlement over precious metals market manipulation fraud.
https://www.justice.gov/opa/pr/jpmorgan-chase-co-agrees-pay-...
JP Morgan pays $614 million settlement over mortgage fraud
https://www.whistleblowerllc.com/false-claims-act-whistleblo...
JP Morgan $2.2B settlement for helping facilitate Enron fraud.
https://www.rgrdlaw.com/news-item-JPMorgan-Enron-Settlement-...
France fines JP Morgan $30m in tax fraud scheme.
https://www.reuters.com/business/france-fines-us-bank-jp-mor...
JP Morgan to pay $154m for defrauding investors with mortgage backed cdo products
https://www.sec.gov/news/press/2011/2011-131.htm
$153m fine for recommending investment vehicles that the bank was secretly betting against
$56m settlement for evicting guiltless people from their homes.
$229m settlement for ruse to rig municipal bond market in 30 states
$88m fine for doing business with Iran, Liberia, Sudán, and other embargoed countries.
$5B fine for faulty foreclosure processing
$100m fine for check sequencing to cheat customers by charging overdraft fees
https://www.google.com/amp/s/www.southflalaw.com/amp/jp-morg...
JPMorgan, by being deemed "too big to fail" is basically so large as to be immune to overall regulation, as any enacted fine of sufficient magnitude to make a punitive difference would jeopardize it's load bearing in the global financial system.
If I can't toss you out without slitting my own throat, you don't have a problem, I do.
Moreover, why is everyone phrasing SVB's insolvency as illiquidity?
If you have your money in a Ponzi scheme (an example of insolvency), then you aren't "making a run on the Ponzi scheme" when you withdraw your money.
Because the FDIC decided to make all depositors immediately whole. Looking at their FAQ [0], depositors can even continue using their money directly from their existing accounts as they have been before the collapse. This is a pivot from their original position of providing more limited support [1]. The same is being done for Signature bank [2]
This is a strong signal, that they will do the same if other banks fail.
Additionally, the larger banks, such as Bank of America, are simply not allowed to be insolvent. If they are insolvent, the government will go to extraordinary measures to make them solvent, as a large bank failure is simply not acceptable
Also, most people have less than $250,000, so their bank failing is little more than an inconvenience, as they will be made whole by the FDIC as a matter of law. The inconvenience of a "normal" switching over to a new bank is only a bit greater than the inconvenience of switching over from a failed bank with FDIC insurance, so for most people it simply isn't worth worrying about.
If you are the FDIC/Federal Reserve/Treasury Department/President/etc, then the belief seems to be that there is significant risk of additional bank failures and steps need to be taken to prevent those. In addition to the additional FDIC support mentioned above, these steps include projecting confidence in the banking system (earned or not). Further, the Federal reserve has expanding its backstop programs, making additional liquidity available to other banks.
> Moreover, why is everyone phrasing SVB's insolvency as illiquidity?
Because it was a liquidity problem. Of course, there assets were not completely illiquid, as they could sell them at a discount relative to their face value. Doing this can turn a liquidity problem into a solvency problem, but the core issue was still one of liquidity. Had the depositors waited to withdraw their money, the bonds would have reached maturity and all depositors would be able to withdraw their full balance without any issue.
The official position of the FDIC is that the assets from the failed banks are still enough to cover all depositors, so even with the discounted selling they already did, they have still not been pushed into insolvency (to the extent that you believe the FDIC's accounting, and possibly ignoring creditors who are not considered depositors).
Frankly, if you asked me to come up with a scenario that demonstrates a bank failure due to a liquidity crunch, I doubt I could come up with something clearer than what saw last week.
Having said that, a bank's core business is arbitraging the difference between long and short duration loans, so avoid liquidity problems is pretty central to what they are supposed to do
> If you have your money in a Ponzi scheme (an example of insolvency), then you aren't "making a run on the Ponzi scheme" when you withdraw your money.
In a Ponzi scheme, there is no way to make everyone whole. The money simply is not there. In the recent bank failures, there is an clear path to make everyone whole. If the banks had been allowed to limit withdrawals for long enough that their bonds would reach maturity, then they would have had the money to make everyone whole. This is, in effect, what the original FDIC process [1] would have been. Everyone gets their insured deposits almost imminently. Uninsured funds would be partially paid out quickly, and the remainder would have been paid out as the FDIC liquidates assets in a more controlled manner (they would only be repaid fully if the FDIC recovers sufficient money from the liquidation, which the current indications are that they expect to).
[0] https://www.fdic.gov/resources/resolutions/bank-failures/fai...
[1...
If that was the case the Fed 'lender of last resort' function would have allowed that to happen - by taking over the SVB deposits that were just moving to another bank. In effect lending back JP Morgan, et al's increase in reserves.
In reality the problem was that the income from the assets SVB had was insufficient to pay the Fed's penalty rate. Therefore SVB couldn't meet the Fed's cash letter - which is the stated reason for the bank's insolvency.
Essentially SVB lent out money too cheaply by inexplicably swapping its floating rate reserves for fixed rate mortgage bonds that it overpaid for. SVB was relying upon keeping non-interest bearing deposits for the duration. Without those it was insolvent.
Perhaps we need a new term: "insolvent at the Fed rate".
If I then go buy a 10 year bond with the rest, that will mature to 100 dollars, this DOES NOT CHANGE THAT SITUATION.
The relaxed approach to depositor insurance SVB clients took should absolutely not be duplicated at BOA after a move there.
I would personally recommend avoiding that bank at all costs.
https://youtu.be/egeltMDPquE
They got cleared out for that one if I recall. Suppose it’s a “bad” attempt at mass destruction.