6 ms·

Think of it a different way. Wells Fargo/BoA are "too big to fail" institutions in the United States. They got significant back hand, handshake deals, from Wa

by urthor 4y ago

Think of it a different way. Wells Fargo/BoA are "too big to fail" institutions in the United States. They got significant back hand, handshake deals, from Washington institutions to not only stay afloat, but for hundreds of little issues. In essence, the FDIC is a well crafted "redistribution," of all the under the table benefits Wells/BoA get from lobbying the Feds, to the smaller banks. The US has a deep interest in keeping its smaller banks alive. I can say, in Australia, the small business lending market is hugely overvalued due to monopolist price gouging by a handful of large institutions. In Canada, I'm told the situation is similar. Costs to small business are immensely higher than the United States. Banks similar to Silicon Valley Bank are essential because they undercut BoA, and prevent the "Canada" situation. Unfortunately, SVB blew its top off. But the system itself is good.

jeremyjh 4y ago
BoA was never at risk of failing. They stepped in to buy Merrill Lynch because basically the treasury ordered them to, but they didn't need TARP to absorb the continued losses in that unit, and paid it back with interest as soon as they were allowed to.
- ProjectArcturis 4y ago
  They weren't at risk of failing when TARP passed. If TARP hadn't passed, and a few of their counterparties had gone bankrupt, they might have been next as the whole system went under.
  - jeremyjh 4y ago
    Yes and that is why they did what the Treasury told them to. It was directly in their shareholder's interests to support the recovery of the banking industry. Ken Lewis still lost his job for doing it.
- dragonwriter 4y ago
  > BoA was never at risk of failing. Yes, they were, that's why the systemic risk exception was invoked for them. > but they didn't need TARP They needed the systemic risk exception and their own specific, $20 billion capital injection and government loss protection bailout plan very similar to Citigroup's to be announced (the announcement itself stabilized things enough that they ended up not needing the bailout, which also happened with Wachovia’s before Citigroup.)
cm2187 4y ago
They mostly get significantly more scrutiny and regulations. The sort of interest rate risk SVB took is shocking to anyone who works in a large bank.
- jgalt212 4y ago
  Indeed. This is a license for any small / mid-sized bank to take any crazy risk they want.
  - plantwallshoe 4y ago
    Is it thought? The shareholders of SVB are going to lose out big. The message this is sending to bank owners and investors is “the government may bail out your customers but you will lose everything.”
    - rvnx 4y ago
      Lose everything ? The responsibility of the shareholders is limited to what they brought to the cap table, but the potential for upside is significant. If it fails, you can restart and recreate a bank, but you, your partners and your friends keep all the profit and privileges that you collected before the failure. All that at the expenses of the government. Your main task is to not fail too early, so you can recoup your initial investment (and if it can last forever if you are lucky / well-managing the risk, then better for you!)
      - lupire 4y ago
        Shareholders lost all the money they spent on capital. That’s a lot. Exec employees extracted a lot, and in a just world that would be clawed back.
        rvnx 4y ago
        But wait, I see that SVB was paying 4.50% of interest per year to depositors (cf. https://www.svb.com/account/y-combinator https://www.svb.com/account/y-combinator ) Even if depositors lose 5%. 5% that they shouldn't have earned because of the ultra high-risk position taken, maybe it's from them it should be taken...
Forgeties79 4y ago
> Banks similar to Silicon Valley Bank are essential because they undercut BoA, and prevent the "Canada" situation. There are plenty of small banks that didn’t ignore when Powell/the Fed were repeatedly saying “inflation ain’t over, interest rate hikes are coming.” We talked about this in another thread. What SVB did wasn’t essential, smart, innovative, etc. There is a reason they are crumbling so catastrophically. And I’ll give you a hint: it wasn’t due to a bold vision or new ideas or being disruptive or whatever. Simply put: SVB was reckless and went against known information.
TMWNN 4y ago
>Banks similar to Silicon Valley Bank are essential because they undercut BoA, and prevent the "Canada" situation. >Unfortunately, SVB blew its top off. But the system itself is good. Yes. Canadians who brag about how none of their banks had to be bailed out in the 2008 crisis are a) wrong (they received tens of billions from Ottawa, and US TARP money), and b) don't realize that the Big Five Canadian banks have far, far, far more market share than the US's Big Four. As you said, there is no equivalent of a Silicon Valley Bank in Canada. There are no regional banks whatsoever; no smaller player that may be more friendly to startups, or otherwise more flexible, than the Big Five.
- bcrl 4y ago
  Canada is 1/10th the population of the US. We don't need regional banks. There are also plenty of credit unions for those of us that don't want to bank with the big banks which are just as capable as many of the larger banks.
  - TMWNN 4y ago
    Credit unions are by design not meant to serve business customers (some do, but they're the exception for a reason). Further, Canadian credit unions (with the kinda sorta exception of Desjardins) are insignificant in size, which is why I didn't bother mentioning them in the first place. Let me repeat: Canada lacks the equivalent of regional banks, and that's a problem for entrepreneurs looking for banking (let alone loans) for new ventures.
- Scoundreller 4y ago
  Yeah, CDN banks got massive direct and indirect money from Ottawa: https://www.cbc.ca/news/business/banks-got-114b-from-governments-during-recession-1.1145997 https://www.cbc.ca/news/business/banks-got-114b-from-governm... Canada also had its own duration mis-match crisis with Asset-Backed Commercial Paper where debtors expected to just roll over the paper every 30-45 days... until they couldn't and it froze up. Took a decade to unwind. https://www.advisor.ca/news/industry-news/lesson-to-learn-from-the-abcp-crisis/ https://www.advisor.ca/news/industry-news/lesson-to-learn-fr... > There are no regional banks whatsoever Sure there are. Laurentian Bank is almost entirely based in Quebec. National Bank of Canada has almost all of its branches in Ontario, Quebec and NB. Then there are the credit unions which are almost entirely provincial (with a riskier backstop than that of US credit unions).
deleted 4y ago
[deleted]

by urthor 4y ago

jeremyjh 4y ago

BoA was never at risk of failing. They stepped in to buy Merrill Lynch because basically the treasury ordered them to, but they didn't need TARP to absorb the continued losses in that unit, and paid it back with interest as soon as they were allowed to.

ProjectArcturis 4y ago
They weren't at risk of failing when TARP passed. If TARP hadn't passed, and a few of their counterparties had gone bankrupt, they might have been next as the whole system went under.
- jeremyjh 4y ago
  Yes and that is why they did what the Treasury told them to. It was directly in their shareholder's interests to support the recovery of the banking industry. Ken Lewis still lost his job for doing it.
dragonwriter 4y ago
> BoA was never at risk of failing. Yes, they were, that's why the systemic risk exception was invoked for them. > but they didn't need TARP They needed the systemic risk exception and their own specific, $20 billion capital injection and government loss protection bailout plan very similar to Citigroup's to be announced (the announcement itself stabilized things enough that they ended up not needing the bailout, which also happened with Wachovia’s before Citigroup.)

cm2187 4y ago

They mostly get significantly more scrutiny and regulations. The sort of interest rate risk SVB took is shocking to anyone who works in a large bank.

jgalt212 4y ago
Indeed. This is a license for any small / mid-sized bank to take any crazy risk they want.
- plantwallshoe 4y ago
  Is it thought? The shareholders of SVB are going to lose out big. The message this is sending to bank owners and investors is “the government may bail out your customers but you will lose everything.”
  - rvnx 4y ago
    Lose everything ? The responsibility of the shareholders is limited to what they brought to the cap table, but the potential for upside is significant. If it fails, you can restart and recreate a bank, but you, your partners and your friends keep all the profit and privileges that you collected before the failure. All that at the expenses of the government. Your main task is to not fail too early, so you can recoup your initial investment (and if it can last forever if you are lucky / well-managing the risk, then better for you!)
    - lupire 4y ago
      Shareholders lost all the money they spent on capital. That’s a lot. Exec employees extracted a lot, and in a just world that would be clawed back.
      - rvnx 4y ago
        But wait, I see that SVB was paying 4.50% of interest per year to depositors (cf. https://www.svb.com/account/y-combinator https://www.svb.com/account/y-combinator ) Even if depositors lose 5%. 5% that they shouldn't have earned because of the ultra high-risk position taken, maybe it's from them it should be taken...

Forgeties79 4y ago

> Banks similar to Silicon Valley Bank are essential because they undercut BoA, and prevent the "Canada" situation. There are plenty of small banks that didn’t ignore when Powell/the Fed were repeatedly saying “inflation ain’t over, interest rate hikes are coming.” We talked about this in another thread. What SVB did wasn’t essential, smart, innovative, etc. There is a reason they are crumbling so catastrophically. And I’ll give you a hint: it wasn’t due to a bold vision or new ideas or being disruptive or whatever. Simply put: SVB was reckless and went against known information.

TMWNN 4y ago

>Banks similar to Silicon Valley Bank are essential because they undercut BoA, and prevent the "Canada" situation. >Unfortunately, SVB blew its top off. But the system itself is good. Yes. Canadians who brag about how none of their banks had to be bailed out in the 2008 crisis are a) wrong (they received tens of billions from Ottawa, and US TARP money), and b) don't realize that the Big Five Canadian banks have far, far, far more market share than the US's Big Four. As you said, there is no equivalent of a Silicon Valley Bank in Canada. There are no regional banks whatsoever; no smaller player that may be more friendly to startups, or otherwise more flexible, than the Big Five.

bcrl 4y ago
Canada is 1/10th the population of the US. We don't need regional banks. There are also plenty of credit unions for those of us that don't want to bank with the big banks which are just as capable as many of the larger banks.
- TMWNN 4y ago
  Credit unions are by design not meant to serve business customers (some do, but they're the exception for a reason). Further, Canadian credit unions (with the kinda sorta exception of Desjardins) are insignificant in size, which is why I didn't bother mentioning them in the first place. Let me repeat: Canada lacks the equivalent of regional banks, and that's a problem for entrepreneurs looking for banking (let alone loans) for new ventures.
Scoundreller 4y ago
Yeah, CDN banks got massive direct and indirect money from Ottawa: https://www.cbc.ca/news/business/banks-got-114b-from-governments-during-recession-1.1145997 https://www.cbc.ca/news/business/banks-got-114b-from-governm... Canada also had its own duration mis-match crisis with Asset-Backed Commercial Paper where debtors expected to just roll over the paper every 30-45 days... until they couldn't and it froze up. Took a decade to unwind. https://www.advisor.ca/news/industry-news/lesson-to-learn-from-the-abcp-crisis/ https://www.advisor.ca/news/industry-news/lesson-to-learn-fr... > There are no regional banks whatsoever Sure there are. Laurentian Bank is almost entirely based in Quebec. National Bank of Canada has almost all of its branches in Ontario, Quebec and NB. Then there are the credit unions which are almost entirely provincial (with a riskier backstop than that of US credit unions).

deleted 4y ago

[deleted]