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FDIC holds $128 Billion that aims to protect ~$17 Trillion in depositor funds. With a 0.75% coverage ratio I do worry what happens in the case of more bank fai

by lowkey 4y ago

FDIC holds $128 Billion that aims to protect ~$17 Trillion in depositor funds. With a 0.75% coverage ratio I do worry what happens in the case of more bank failures. The only question is will the bag holders be the US taxpayer or all dollar holders globally via inflation? The Fed is determined to fight inflation until their shareholders, the banks, are in trouble. Then we get to learn who the Fed really works for. Hint: not the people.

kortilla 4y ago
The fed has a dual mandate: employment and control on inflation. They don’t care about banks. Powell explicitly said as much in the press conference after they announced another rate hike and no intention to reduce interest rates in reaction to the SVB implosion.
- bradleyjg 4y ago
  They are now also a bank regulator, though it seems a poor one given these events. https://www.federalreserve.gov/supervisionreg.htm https://www.federalreserve.gov/supervisionreg.htm
- lowkey 4y ago
  You put more faith in the Fed than I do. As I see it, the Fed caused this crisis with a decade of loose money policy. Then they told us there would be no inflation. Then inflation was transitory. Then they were serious about fighting inflation until banks started failing. Suddenly they reversed course and wiped out 2 years of quantitative tightening in the past 2 weeks. [0] The Fed hasn’t apologized for any of those actions or accepted any responsibility, which tells me they haven’t learned a thing. As far as I am concerned the Fed is both regulator and PR arm of the banking industry. The Fed regulates their member banks, and very poorly it would seem based on events during the GFC and today. You can take Powell at his word. I remain skeptical. [0] https://mobile.twitter.com/1MarkMoss/status/1640099789537939457/photo/1 https://mobile.twitter.com/1MarkMoss/status/1640099789537939...
  - kortilla 4y ago
    >Then they were serious about fighting inflation until banks started failing. Their stance on interest rates has not changed. That tweet is someone who doesn’t understand the nuance of the balance sheet. >As far as I am concerned the Fed is both regulator and PR arm of the banking industry. They are not helping banks. What are you missing here? Nothing they are doing with rapid rate hikes is advantageous to banks. >You can take Powell at his word. I remain skeptical. I’m not, I’m just looking at his actions and the markets priced in probabilities of interest rate changes from the fed.
    - lowkey 4y ago
      I agree that they have not lowered rates. However as the chart shows they did dramatically increase the Fed’s balance sheet in the past two weeks. They did this in order to facilitate loans to banks who have underwater assets on a mark to market basis. It would be one thing if they were lending to banks based on the current market value of the assets, but instead they are letting the banks pretend the assets are worth what they would be if held to maturity. So both the Fed and the banks are playing pretend. We can argue about whether or not this is inflationary. I suppose it would depend on what these funds are used for. It certainly isn’t as inflationary as if the Fed had simply given this money to consumers to spend. However, I do think it is an error to ignore such a swift reversal of quantitative tightening over the past couple years.
itsoktocry 4y ago
>With a 0.75% coverage ratio I do worry what happens in the case of more bank failures. Hypotheticals like this are detached from reality. Under what scenario would the entire depositor base try to withdraw all of their funds? What would be happening in the world for that to happen? People "lose faith" in banks? Okay, where are they now putting their money, under their mattress?
- lowkey 4y ago
  It wouldn’t need to be the entire depositor base. If only 2% of banks by deposits were to fail then FDIC would itself be bankrupt and require a bailout.
  - balderdash 4y ago
    You’re forgetting the ~ 10% of tier 1 capital, and even more in other buckets…
  - seanw444 4y ago
    Plus, every time you think a social issue "would never ever happen," it happens.
  - xur17 4y ago
    Only if 2% of banks lost all of their money. It would more likely be something like 10% of banks by deposits lost 20% of their money.
    - lowkey 4y ago
      I disagree with your numbers. Based on current bank reserves, if ~20% of a banks deposits were to be withdrawn the bank would be insolvent. You don't need to withdraw 100% of deposits to have a run on the bank.
blitzar 4y ago
> The Fed is determined to fight inflation until their shareholders, the banks, are in trouble. Then we get to learn who the Fed really works for. Hint: not the people. Then we move into the real world where reality exists: Fed officials double down on rate rise decision citing high inflation

by lowkey 4y ago

kortilla 4y ago

The fed has a dual mandate: employment and control on inflation. They don’t care about banks. Powell explicitly said as much in the press conference after they announced another rate hike and no intention to reduce interest rates in reaction to the SVB implosion.

bradleyjg 4y ago
They are now also a bank regulator, though it seems a poor one given these events. https://www.federalreserve.gov/supervisionreg.htm https://www.federalreserve.gov/supervisionreg.htm
lowkey 4y ago
You put more faith in the Fed than I do. As I see it, the Fed caused this crisis with a decade of loose money policy. Then they told us there would be no inflation. Then inflation was transitory. Then they were serious about fighting inflation until banks started failing. Suddenly they reversed course and wiped out 2 years of quantitative tightening in the past 2 weeks. [0] The Fed hasn’t apologized for any of those actions or accepted any responsibility, which tells me they haven’t learned a thing. As far as I am concerned the Fed is both regulator and PR arm of the banking industry. The Fed regulates their member banks, and very poorly it would seem based on events during the GFC and today. You can take Powell at his word. I remain skeptical. [0] https://mobile.twitter.com/1MarkMoss/status/1640099789537939457/photo/1 https://mobile.twitter.com/1MarkMoss/status/1640099789537939...
- kortilla 4y ago
  >Then they were serious about fighting inflation until banks started failing. Their stance on interest rates has not changed. That tweet is someone who doesn’t understand the nuance of the balance sheet. >As far as I am concerned the Fed is both regulator and PR arm of the banking industry. They are not helping banks. What are you missing here? Nothing they are doing with rapid rate hikes is advantageous to banks. >You can take Powell at his word. I remain skeptical. I’m not, I’m just looking at his actions and the markets priced in probabilities of interest rate changes from the fed.
  - lowkey 4y ago
    I agree that they have not lowered rates. However as the chart shows they did dramatically increase the Fed’s balance sheet in the past two weeks. They did this in order to facilitate loans to banks who have underwater assets on a mark to market basis. It would be one thing if they were lending to banks based on the current market value of the assets, but instead they are letting the banks pretend the assets are worth what they would be if held to maturity. So both the Fed and the banks are playing pretend. We can argue about whether or not this is inflationary. I suppose it would depend on what these funds are used for. It certainly isn’t as inflationary as if the Fed had simply given this money to consumers to spend. However, I do think it is an error to ignore such a swift reversal of quantitative tightening over the past couple years.

itsoktocry 4y ago

>With a 0.75% coverage ratio I do worry what happens in the case of more bank failures. Hypotheticals like this are detached from reality. Under what scenario would the entire depositor base try to withdraw all of their funds? What would be happening in the world for that to happen? People "lose faith" in banks? Okay, where are they now putting their money, under their mattress?

lowkey 4y ago
It wouldn’t need to be the entire depositor base. If only 2% of banks by deposits were to fail then FDIC would itself be bankrupt and require a bailout.
- balderdash 4y ago
  You’re forgetting the ~ 10% of tier 1 capital, and even more in other buckets…
- seanw444 4y ago
  Plus, every time you think a social issue "would never ever happen," it happens.
- xur17 4y ago
  Only if 2% of banks lost all of their money. It would more likely be something like 10% of banks by deposits lost 20% of their money.
  - lowkey 4y ago
    I disagree with your numbers. Based on current bank reserves, if ~20% of a banks deposits were to be withdrawn the bank would be insolvent. You don't need to withdraw 100% of deposits to have a run on the bank.

blitzar 4y ago

> The Fed is determined to fight inflation until their shareholders, the banks, are in trouble. Then we get to learn who the Fed really works for. Hint: not the people. Then we move into the real world where reality exists: Fed officials double down on rate rise decision citing high inflation