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Plunge in regional bank stocks triggers spate of trading halts
- cs702 4y agoEveryone now knows that SVB's depositors will be bailed out by the federal government, but SVB's shareholders will not. Given that SVB's losses exceed its equity capital, it's likely that SVB shareholders will get... nothing. By implication, the common stock of all other banks in a similar situation are also worth... nothing.
- maxerickson 4y agoSeems like there won't be that many banks with such large average account sizes (which is probably one component of being in a similar situation). First Republic touts their large average account sizes though.
- sanderjd 4y agoBut one of the new facilities announced yesterday is designed to keep that from happening to the other banks... If they have this liquidity problem due to long-term bonds, they can now turn those into cash for a year without paying interest.
- nevir 4y ago...and if they demonstrate less risky behavior, their stock should (hopefully) become valuable again.
- nostromo 4y agoSVB definitely mismanaged risk. But I don’t think people realize that no bank could have 25% (and counting) of deposits withdrawn in a day and survive. If they had still been allowing withdrawals on Friday that number would be much much higher.
- partiallypro 4y agoMost community banks aren't in a similar situation though. This is mostly caused by panic, not reality. If people didn't panic about SVB eating a loss, even it wouldn't have likely failed. Now people are not using logic and causing panic across the board. Mostly caused by VC tech bros going around stirring up things in a hope to get a bailout. That's why the Fed/Treasury/FDIC stepped in this morning to hopefully instill confidence.
- mellosouls 4y agoThis is mostly caused by panic, not reality. If people didn't panic about SVB eating a loss, even it wouldn't have likely failed That's not "reality" though. The phenomenon of people "panicking" (ie acting sensibly when their savings are at risk and getting them out while they still can) is a fundamental part of the crisis-process of any bank when it is badly managed. Saying "well if people just ignored history and group psychology and hope nothing bad will happen and risk all their savings by doing nothing, then nothing bad will happen" just isn't remotely realistic.
- Msw242 4y agoThey just want to blame the users
- JumpCrisscross 4y ago> people didn't panic about SVB eating a loss, even it wouldn't have likely failed Silvergate, SVB and Signature were insolvent. This wasn't a fire sale prompting a decline in their asset values, i.e. classic illiquidity. It was their assets being worth less than their liabilities. If it were purely a liquidity issue, they could have borrowed at the Fed's discount window. (As First Republic appears to be doing.)
- danielvf 4y agoSVB was literally insolvent though. Not only that, but they couldn't put together a rescue stock sale - it fell through. This was not a bank run caused by panic, but a run caused by an already failed, insolvent institution.
- jastanton 4y agoI'm not very financially literate. How does SVB shareholders getting nothing translate to shareholders of all other banks being in the same situation?
- cs702 4y agoYou misread my comment: I mean all other banks that happen to be (i.e., put themselves) in the same situation.
- nickvanw 4y agoSVB shares are worth $0 because there was a run on the bank and the US Government did not step in to save the bank, only the depositors. If the same thing happens to other banks - everyone withdraws, they shut down and the government steps in - the assumption is that their equity will eventually be worth $0 too. So, everyone sells at >$0. It's not going to be all banks, though.
- mullingitover 4y ago> SVB shares are worth $0 because there was a run on the bank and the US Government did not step in to save the bank, only the depositors. And there was a bank run because the investors panicked and caused the share price to plummet. Depositors saw stock plummeting, got nervous and pulled out. If this type of thing spreads to other banks we'll have a bad time.
- disgruntledphd2 4y agoHence, the US government stepping in to ensure both depositors are made whole, and (more importantly) saying that the banks can redeem their underwater treasury bills at par (up to some limit under some circumstances obviously).
- mullingitover 4y agoHopefully this isn't too little, too late. There are already a few regional banks with share prices getting hammered in the market this morning regardless of the intervention.
- spywaregorilla 4y agoWhy would there be a run on other banks if depositors are confident they'll be protected though?
- tempsy 4y agoa “run” can simply be a wake up call to wealthy people with hundreds of thousands or millions in some 0% earning checking account to funnel that money into a money market or t-bills earning 4-5%. that would alone create some outflow even if the reason is not panic
- arbuge 4y agoThat dynamic, known as cash sorting, had already been going on for several months, and appeared to be stabilizing. If anything, I think the events of the last few days could reduce it somewhat. Better to have your funds safe earning little in a Big 4 bank than somewhere else with higher rates but now perceived to be risky.
- jliptzin 4y agoI happened to check what my citibank savings account pays these days...0.12% interest. Not that I keep any significant amount of money there, anyway. I would if they would pay remotely close to competitive interest rates, but I guess they're banking on most people being too dumb to realize that they can get 4-5% more on their money if they take 5 min to open an account elsewhere.
- deleted 4y ago[deleted]
- monero-xmr 4y agoOnly need 5 banks now. All the benefits of a regional bank (“local knowledge”) can be replicated digitally. Clearly there is no loyalty on the customer side, as VCs told their portfolio companies to exit SVB immediately. Just have JPM, BoA, and pick your favorite other 3 and let’s nationalize this already. Government wants an iron grip on access to financial rails anyway so we can speed this along.
- xapata 4y ago> (“local knowledge”) can be replicated digitally I think that's one of those "citation needed" assertions. At least some explanation.
- malchow 4y agoYou are being downvoted but there are really people who think like this. Regional banks do not have a substantive underlying issue and do not deserve to die by a rotating regional bank panic.
- toomuchtodo 4y agoCredit unions will survive. Let banking regulators deal with the fallout of not permitting narrow banks. “No narrow banks so we can encourage fractional reserve lending, but be responsible!” “Okay, fine, we’ll cover everything.” “Systemic risk!” “Narrow bank now pls?” “No! Fractional reserve lending responsibly!”
- kasey_junk 4y agoHow are credit unions different in that case?
- antoniuschan99 4y agoThere are still credit union failures but less compared to bank failures. Credit Unions are owned by the members instead of shareholders and are non-profit but yea seems very similar to a regional bank. What else are different? I do wonder though, why SVB became so large compared whereas a credit union like First Technology Credit Unit which manages 15 billion in assets. Wouldn't a credit union be a better fit since they are local at its core. And credit unions serve the financial needs of a specific group of people who share a common interest or affiliation (in this case Tech/VC firms in Silicon Valley). There's also the 250k insurance but by NCUSIF instead of FDIC
- dukeofdoom 4y agoWhat are the implications in two weeks?
- xyst 4y agoI see two paths: 1) dead cat bounce in bank sector (recovery) 2) continued bank failures at public regional banks and power continues to consolidate at the "too big to fail" banks
- samizdis 4y agoA dead cat bounce isn't a recovery, it's a bounce before the fall continues. {Edited wording for clarity.] See https://en.wikipedia.org/wiki/Dead_cat_bounce https://en.wikipedia.org/wiki/Dead_cat_bounce
- Analemma_ 4y agoSavvier investors not prone to uninformed panicking pick up a bunch of bank stocks on the cheap. Nobody else was making the dumb interest rate bets that SVB was.
- tqi 4y agoI hope that is the case. I think the counter case is investors putting themselves into the shoes of a CFO at a company with >250k in cash. Why would they choose to park it at a regional bank rather than one of the big banks? Sure, FDIC made depositors whole this time, but does it have enough to continue doing that? If not, is there enough political will to push a taxpayer funded bailout through (especially this close to an election year)? And even then, how long would that take?* *This excludes banks that are primarily dealing in consumer deposits, who I assume will be fine.
- NotAnEconomis23 4y agoGo for it. How do you know if this is the bottom? It's catching a falling knife.
- DoingIsLearning 4y agoIs there any parallelism between SVB's fall and Lehman's in 2008, in terms of contagion effects? I am sure that there are many people in my position holding a bunch of index funds trying to figure out if this is the beginning of something bigger or just a mouse fart that will be absorbed by whoever is SVB's creditor in the near future.
- trts 4y agoIf other big or small banks were also holding long-term, illiquid assets that have rapidly declined in value along with the increase in Fed rate increases, then they have the same problem. SBV bought 10-year term mortgage backed securities to earn yield on their cash holdings. When the risk-free interest rate started to exceed the yield on these assets, the MBS value declined. As a result SBV became insolvent. Either it was an isolated, stupid move by a big bank who expected that interest rates would not rise, or they didn't care because of moral hazard.
- chatmasta 4y agoYou can see some comparative data in this thread [0] (the author is also worth a follow). It looks like SVB was mostly an outlier but there are a few other banks with possibly similar issues. My understanding is that the FED also announced they will loan money to banks that need to cover a shortfall due to haircuts to bond values caused by rate hikes, but that's just according to a tweet [1] from Thomas Massie an hour ago. I don't know the details of that arrangement. [0] https://twitter.com/GRDecter/status/1634208659407351812 https://twitter.com/GRDecter/status/1634208659407351812 [1] https://twitter.com/RepThomasMassie/status/1635316221108449280 https://twitter.com/RepThomasMassie/status/16353162211084492...
- disgruntledphd2 4y ago> My understanding is that the FED also announced they will loan money to banks that need to cover a shortfall due to haircuts to bond values caused by rate hikes, but that's just according to a tweet [1] from Thomas Massie an hour ago. I don't know the details of that arrangement. This was covered by a statement yesterday I think, as I read it in the FT this morning (on GMT).
- NotAnEconomis23 4y agoWhat the Fed isn't doing is assure the greater market that the fundamentals of why the banks failed will be fixed. The Fed screwed up by raising interest rates too quickly. Don't just assuring depositors that their money is safe, assure everyone that the money in their 401ks (which invest in banks) is also safe. Publicly come out and pause interest rates. Admit that there is a strong possibility of lowering interest rates in the short to medium term future. There are massive ripple effects of moving cash, and retirement accounts. The Fed MUST get off their high horse, admit they made mistakes, and be transparent about getting help from industry experts. Without eating humble pie, the Fed will capsize the economy.
- mwerd 4y agoLet's hope not, that would be a disaster. Inflation is far more pernicious than regional bank instability. The fed is acting appropriately in response to a spendthrift Congress, and in the process, stressing the system. There's not a good alternative, especially from the Fed's seat. I'm not trying to make it a political argument, but you're really pointing the finger in the wrong direction. The fed has two mandates when it comes to monetary policy - price and employment stability. That price stability is about market wide inflation, not bank stocks. Banks come and go. If you expect the Fed to prioritize something other than those two mandates, I do believe you're kidding yourself. Rate hikes will continue until the labor market or the inflation data indicate they should stop.
- postalrat 4y agoAre you predicting the feds will continue to raise rates in the next couple months?
- mwerd 4y agoYes. Unemployment below natural level and inflation still high single digits. They will raise rates. They have no choice. It's literally their dual mandate to do it.
- albatross13 4y ago
- ck2 4y ago$42 BILLION withdrawn in 10 hours. Imagine if that happened at multiple banks. We really need to re-visit "too big to fail".