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U.S. regulator set to take over First Republic
- pearjuice 3y agoAnother bank, another leeway for the FDIC insurance limit?
- VagueMag 3y agoIt's an interesting question in this case because last month a consortium of banks made a big show of depositing $30B "uninsured" as a show of confidence, and it's not clear whether it's still there.
- tedunangst 3y agoI guess they just bought FRC's loan book at par.
- zaroth 3y agoWhat do you mean it's not clear it's still there? It was there when they had their earnings call 4 days ago.
- VagueMag 3y ago4 days is a long time in bank deposit land now!
- deleted 3y ago[deleted]
- justapassenger 3y agoSilicon Valley bank had sudden collapse. While I don't agree with the decision of FDIC to make everyone whole, I understand why. First Republic Bank was collapsing for more than a month. If anyone still kept uninsured money there, it's mostly on them.
- justrealist 3y agoThe whole point of the FDIC is that it's not good idea to reward people for participating in a bank run.
- salawat 3y ago...Actually, there is no disincentive built into the FDIC for people to participate in bank runs. In fact, the entire point of the FDIC was to insulate depositors from banks doing stupid things with everyone's money. Now that the Fed has bailed out the creme de la creme, I'd like to see the argument employed when the FDIC hasn't got the liquidity left to backstop every other depositor in subsequent bank failures.
- willcipriano 3y agoThey don't have to argue anymore, this isn't the era you grew up in, that world is gone. A reporter who has a question about it won't be selected to ask one. Recent example of how fake it all is: https://nypost.com/2023/04/26/biden-cheat-sheet-shows-he-had-advance-knowledge-of-journalists-question/ https://nypost.com/2023/04/26/biden-cheat-sheet-shows-he-had...
- ahahahahah 3y agoYeah, maybe learn how fake the nypost is. This is typical preparation for a high profile q&a: https://www.cnn.com/2023/04/27/politics/biden-note-card-white-house-press-conference/index.html https://www.cnn.com/2023/04/27/politics/biden-note-card-whit...
- tjfl 3y agoExcept for the incoming question being on there, per your link: > While it was notable that a potential question was written on Biden’s card, every White House press office takes scrupulous care to prepare their president for news conferences.
- elecush 3y agoDoes this fix the market? Or are we just putting out fires as they crop up.
- downvotetruth 3y agofix the market? sir, this is a casino. $40 B market cap is chump change in the quadrillions derivatives market https://twitter.com/gaborgurbacs/status/1637522483476680710?lang=en https://twitter.com/gaborgurbacs/status/1637522483476680710?...
- kyaghmour 3y agoWarren Buffet on derivatives: "financial weapons of mass destruction."
- collegeburner 3y agothats like summing the value of all written insurance policies, meaningless number the figure is way lower netted out
- tootie 3y agoYou can't compare a notional value to assets under management.
- downvotetruth 3y agomarket cap is not assets under management
- deleted 3y ago[deleted]
- Zetice 3y agoMy layperson understanding is that this is a Bad Thing, but not the surprising outcome SVB was. The market, other banks, consumers, etc had a long window to digest this, so it won’t cause new panic the same way. Considering all of the stops the fed pulled out to prevent future bank liquidity failures, this probably means some gross negligence was revealed by the market state that goes well beyond even blatant risk mismanagement. Or not, I’m not an expert!
- chrisbolt 3y agoFrom yesterday's Money Stuff about First Republic: > Programming note: Money Stuff will be off tomorrow, back on Monday.
- deleted 3y ago[deleted]
- loeg 3y ago(The running joke here is that Levine taking a day off causes news to happen. It happened a lot during the Musk Twitter acquisition.)
- dragontamer 3y agoLevine needs to stop taking vacations. His vacations seem to have caused Crytpocoins to crash, Twitter buyout problems, SIVB failure and now First Republic Bank.
- garaetjjte 3y agoActually... https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4386256 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4386256
- andromaton 3y agoLevine wrote that somebody did a study and there is negative correlation between him being off and drama.
- sgammon 3y ago[flagged]
- kyaghmour 3y agoWho's next?
- toomuchtodo 3y agohttps://www.detroitnews.com/story/business/2023/03/14/bank-stocks-michigan-silicon-valley-bank-failure/70007709007/ https://www.detroitnews.com/story/business/2023/03/14/bank-s... > One of the three major bond credit rating businesses on Tuesday downgraded the U.S. banking system from a stable outlook to negative and put six banks, including Comerica Bank, under review for a potential downgrade following the second and third-largest bank failures in U.S. history. > Moody's also put under review for potential downgrade California's First Republic Bank, Kansas' Intrust Financial Corp., Missouri's UMB Financial Corp., Arizona's Western Alliance Bancorp. and Utah's Zions Bancorp.
- chaostheory 3y agoIs there any credence to the six essential US banks rumor, or is it just conspiracy?
- cypherpunks01 3y agoAre you asking about GSIBs? Wondering whether they exist? It's not clear what you're asking.
- chaostheory 3y agoThe rumor only applies to the US version https://www.fdic.gov/resources/regulations/federal-register-publications/2022/2022-resolution-resource-large-banking-3064-af86-c-026.pdf https://www.fdic.gov/resources/regulations/federal-register-...
- CSMastermind 3y agoI'm unfamiliar, what's the rumor?
- chaostheory 3y agoOnly 6-8 essential banks will supposedly survive the coming crash, helping pave the way for US / Fed CBDCs. It sounds suspect to me, hence the question. I am also not a finance expert
- collegeburner 3y agoits low probability but not impossible i think depends if the party line the media plays goes from "xyz bank might be unstable" to "small banks might be unstable". if that jumps from fintwit to cnn, houston, we have a problem
- dehrmann 3y agoWhat coming crash? Even if there is a crash, there must be a lot of regional banks in good shape. If you meant only 6-8 of the essential ones will survive, there are really only that many essential banks.
- sschueller 3y agoMy fear is not these "small" banks failing. It's that everyone runs to the top 3 large ones and they will get so huge that their failure will be unthinkably bad. Even if they do not fail their power to for example debank people would be a huge problem. Sadly I don't see congress breaking them into small units or adding stronger regulations.
- JumpCrisscross 3y ago> that everyone runs to the top 3 large ones and they will get so huge that their failure will be unthinkably bad Outside BofA, their balance sheets are healthy. There isn’t serious speculation of contagion out of the regional banks. We put in place regulations to prevent this after 2008. Numpties rolled it back for “community banks” in 2017 [1], and that’s why we have this problem. [1] https://apnews.com/article/banking-crisis-congress-lobbying-svb-c2bc00ad41ae7fd1ec9d0ffb781383f2 https://apnews.com/article/banking-crisis-congress-lobbying-...
- throwaway2203 3y agoIs this related to the Dodd-Frank rollbacks?
- JumpCrisscross 3y ago> this related to the Dodd-Frank rollbacks Mostly. The other component is how we pretend HTM Treasuries both hold their value and are liquid. Europe marks to market daily. I think you should get to choose: mark at $1, but they don’t count as liquid, or mark to market and they contribute to your liquidity ratio. (The rollback meant nobody was measuring liquidity. SVB would have failed its LCR in March 2022.)
- TMWNN 3y agoSVB's Tier 1 ratio was 12%, among the highest for US regional banks. <https://www.morningstar.com/articles/1144363/which-bank-stocks-are-most-at-risk-of-a-liquidity-crisis https://www.morningstar.com/articles/1144363/which-bank-stoc...> If you don't believe me, listen to Larry Summers and Dan Tarullo explicitly confirming that SVB would have passed a Fed stress test in 2022. <https://www.youtube.com/watch?v=cYgz4KSRPww#t=5m10s https://www.youtube.com/watch?v=cYgz4KSRPww#t=5m10s>
- ProfessorLayton 3y agoMy question is: What now? The feds are stuck trying to tame inflation, and the skyrocketing interest rates are crumbling regional banks. Big banks are a lot more hesitant to lend to small businesses, and many otherwise viable businesses will fail if credit freezes. Big banks are getting even bigger as depositors flee, and concentrating risk (even more) imo. I guess the higher interest rates are doing their job in slowing the economy down, but it's wild that we're stuck with whatever the feds do with their blunt toolset because congress is seemingly dysfunctional.
- dragonwriter 3y ago> The feds are stuck trying to tame inflation […] and many otherwise viable businesses will fail if credit freezes. That’s what “taming inflation” means. It means cooling off the economy, which means that businesses which would otherwise be viable fail, reducing demand, reducing upward pressure on prices. To the extent that unexpected banking issues accelerate this, within a fairly wide band, from a monetary policy perspective that just means the Fed can back off the brake pedal a little sooner.
- tflinton 3y agoI think more to the point was that much of this pain from the feds blunt toolset wouldn’t be necessary if congress could cooperate on a fiscal & monetary policy.
- tekknik 3y agoThis was happening prior to the monetary policy issues. This is a result of the mass amount of money spent during COVID. But interestingly it’s Congress that’s supposed to set the budget. But now you have the Senate and POTUS trying to force their say.
- Choco31415 3y agoIs there a way to help small businesses avoid failing in these situations?
- timwaagh 3y agoWhat i do not understand is that this happens while the bank still has enough liquidity to cover 50% of deposits. At least from what I understood. Seems like there will be quite a few banks with less than this.
- JumpCrisscross 3y ago> this happens while the bank still has enough liquidity to cover 50% of deposits American banking receivership is actually an effective system. The point is to reorganise when things look, but aren’t, fucked.
- 0zemp2c 3y agointerestingly, most of FRCs loans seemed to be residential real estate to wealthy people at crappy rates now (like most mortgages written in the last few years), but these borrowers seem extremely unlikely to default (and they can't refinance advantageously now so they are kinda stuck paying FRC)
- smcin 3y agoi.e. was overly concentrated in the SF real-estate bubble.
- Scoundreller 3y agowhile unlikely to default, also extremely unlikely to payoff early because of a move or death.
- CydeWeys 3y agoThe issue isn't that the loans are likely to default, it's that the present value of those loans has gone way down as even short term securities have higher interest rates now. If you need to sell those loans you'll take a large haircut on them.
- unstatusthequo 3y agoIf you personally don’t have enough liquid funds to cover your obligations of payment, that’s insolvency. Same with them.
- cypherpunks01 3y agoLikelihood that uninsured deposits will be made whole? What happened to the billions that larger banks "deposited" into FRB just a few short weeks ago?
- loeg 3y agoThat's the interesting question, isn't it. Does the FDIC hose a bunch of depositors by taking over a zombie bank that could have ambled along for a while, or do they make everyone whole and kill the (dumb) industry of sweeping deposits into <=$250k accounts at many banks?
- Scoundreller 3y ago> kill the (dumb) industry of sweeping deposits into <=$250k accounts at many banks I like that system: it props up several banks instead of just one "winner-take-all" that does the most risk and externalizes the costs to uninsured depositors (and sometimes FDIC) when it blows up.
- loeg 3y agoThe alternative system doesn't have uninsured depositors at all. Arguably this could be better for the multitude of banks. It's mostly worse for the businesses offering sweep services for a fee / net interest margin.
- deleted 3y ago[deleted]
- unstatusthequo 3y agoI pulled it all out earlier this week. Under contract in house. So glad I did or I’d be at the mercy of the FDIC to get my closing funds. Hello, JPM.
- grogers 3y agoUltimately it will be the big banks paying more to the FDIC to cover the shortfall anyways. So that will be pretty much a wash either way. It's the non-bank uninsured depositors that matter.
- Xcelerate 3y agoSo for FR customers, what does this mean? Is there a risk of funds being inaccessible? I normally only keep enough in that account to cover two months of expenses.
- VagueMag 3y agoThe FDIC generally likes to do this on Fridays so they can reopen the bridge bank and everyone can access their funds on Monday. If you're under the insurance limit you're almost certainly fine.
- zamnos 3y ago> If you're under the insurance limit you're almost certainly fine. If you're under the insurance limit of $250k per type of account and not fine, the whole world will find ourselves with some much larger problems to solve.
- VagueMag 3y agoYes, it's still a very unlikely scenario but the TGA running low and debt ceiling brinkmanship at the same time banks are going under does make me think there's some nonzero chance of some insured depositors in some banks having to wait awhile for their funds. But yes, low probability at the moment.
- dehrmann 3y ago> If you're under the insurance limit JP Morgan isn't.
- deleted 3y ago[deleted]
- causality0 3y agoIs there an easy way to keep an eye on the health of whatever bank you use? I use a local credit union so it doesn't exactly make headlines.
- Scoundreller 3y agoRead the balance sheets and income statements. Every credit union will publish them. And as you own shares, you can pose questions to their investor relations and ask questions at their AGM.
- DonsDiscountGas 3y agoIf you're under the FDIC limit, do you really need to? Worst thing that happens is you can't access your account over a weekend. If you're over, there are services which spread deposits across banks, eg https://www.wintrust.com/business-solutions/mid-market/banking/maxsafe.html https://www.wintrust.com/business-solutions/mid-market/banki....
- paulpauper 3y agoAs to be expected, many people on reddit's wallstreetbets made or lost futures as this saga unfolded. I dunno why anyone would invest in bank stocks. Too risky. Index funds offer comparable return but without the tail risk of bank run.
- natebleker 3y agoHow many are we going to see taken over?
- SeanAnderson 3y agohttps://www.fdic.gov/bank/historical/bank/ https://www.fdic.gov/bank/historical/bank/ - Here's how many banks have collapsed in a given year for the past 20 years. https://i.redd.it/ooln252yxjna1.png https://i.redd.it/ooln252yxjna1.png - Here's a visualization of the size of the banks which collapsed. It does not include FRB which was comparable to SVB at about ~200B AUM. As you can see, we're nowhere near the number of banks that could collapse, but, with the collapse of FRB, we've passed the total AUM of banks which collapsed during the height of the '08 GFC. So, that's a little staggering... Personally, I'm not expecting any others to collapse, but I also wouldn't be surprised to see up to five more. Moody's downgraded six banks when SVB collapsed - one was FRB. All of the others seem to be doing okay for now, but only one (Western Alliance) is trading higher than its price at time of downgrade.
- dehrmann 3y agoSVB had some idiosyncrasies with its customer base that most banks don't, so I understand why it failed. I didn't think First Republic was big in the startup space, so I'm curious what got them. I know they hold a lot of mortgages on their own books, but other than that, was it just another bank run? Was it exasperated by their customer base becoming very aware of FDIC limits and the potential of failures because SVB was in the same region? The median Fifth Third customer doesn't have $250k, and sees all of this as "rich silicon valley problems."
- remote_phone 3y agoFirst republic had a lot of high net worth individuals. Similar to SVB their high bank balance made a percentage of them moving away very damaging and it looks like it accelerated. With a regular bank, you would have much smaller accounts so a proportional number of accounts leaving Wells Fargo would have less of an effect.
- blake1 3y agoIt was mainly just the mortgages. The quirk is that they marketed to extremely high-net worth homeowners—I think this is the penthouse condo crowd. In order to attract them, they offered 3% interest-only loans. Without principal pay down, these mortgages are more sensitive to interest rate rises, leaving the bank with roughly $35bn in losses as interest rates have been rising. They have been insolvent for several months, but a typical bank didn’t have losses on their mortgages which were nearly so steep. As compared to SVB, this is the same basic situation: interest rate losses led to insolvency, which could be temporarily ignored because they were “small” banks. However, once deposits started fleeing, the losses could not be ignored when they needed to sell the impaired assets for actual cash. They have been in limbo for a few weeks thanks only to the injection of $30bn from other banks. Another similarity in the two banks’ situations is that the same catalyst of rising interest rates cause asset losses and drive deposit flight. It’s a weird quirk of accounting that they are allowed to ignore these losses for the life of the assets. But the other extreme is weird too, because sometimes the market value of assets can undergo a “V” shaped dip before recovering, and it would be bad to make a bank insolvent because some flash crash. The accounting rules try to split the difference by letting the bank partition its assets into buckets that take losses immediately, or at the end of life of the asset. This is an easily abused system. It seems, hopefully, that the three failures were exceptionally badly run banks, and that this doesn’t indicate a wider wave of bank failures. Not yet.
- _heimdall 3y agoI'm assuming the other big banks that threw $30b in deposits at First Republic in a made-for-TV vote of confidence get all that back. I'll never understand how that wasn't illegal collusion and/or market manipulation.
- TacticalCoder 3y agoU.S. chancellor on the brink of second bailout for banks?
- ur-whale 3y agoAn interesting question: how is the FDIC financed? Will they go bankrupt if enough small banks collapse? Or are they sitting on an infinitely deep well of money somehow?
- hayksaakian 3y agoFDIC charges insurance premiums to banks
- ur-whale 3y ago> FDIC charges insurance premiums to banks In other words: the float is finite [1] No other source of financing? Someone mentioned "backstopped by the government". What does that mean? Unlimited credit line with the Fed? [1] https://www.arnolditkin.com/blog/insurance/understanding-insurance-company-float/ https://www.arnolditkin.com/blog/insurance/understanding-ins...
- piperswe 3y agoFDIC is backed with the full faith and credit of the United States government, so in the event that they run out of money they will pay out of a "line of credit with the U.S. Treasury." - https://www.fdic.gov/consumers/assistance/protection/depaccounts/confidence/symbol.html https://www.fdic.gov/consumers/assistance/protection/depacco...
- rcme 3y agoThey have money paid in from member banks but they are ultimately backstopped by the government.
- itsgrimetime 3y agoDepartment of Treasury, so effectively infinite
- adastra22 3y agoThis is incorrect. It is an insurance scheme paid through bank premiums. Obviously if the money ran out the Fed would (probably) step in, but that is not how it is structured and supposed to work.
- gobengo 3y agoAnyone else notice how First Republic bank was bought a few years ago by Colony Capital co-managed by Thomas Barrack, who was a Senior Advisor to the Trump Campaign before being found guilty of acting as an unregistered foreign agent for UAE? https://en.wikipedia.org/wiki/Tom_Barrack https://en.wikipedia.org/wiki/Tom_Barrack Probably nothing.
- gobengo 3y agofrom wikipedia “Barrack recommended that Trump hire Paul Manafort as his campaign manager. Barrack first met Manafort in the 1970s when they were both working for Saudis and living in Beirut. In 2007, Barrack had loaned Manafort $1.5 million to refinance a home in the Hamptons.” some folks wish they were too big to fail but aren’t. they’re just small big failures
- _2d30 3y agoYou mean found NOT guilty. Anyone notice how gobengo actively lied and misled (he bought SOME of FRC, a publicly traded entity) in his comment implying conspiratorial dealings?
- boeingUH60 3y agoColony Capital acquired a $1.9bn stake in First Republic alongside General Atlantic, a well-known private equity firm. It was a minority stake [1]. Barrack was also acquitted on the charges of acting as a foreign agent for the UAE [2]. There are endless legit things to criticize the Trump administration of. You don't need to add conspiracy drivel to it. 1- https://www.perenews.com/colony-general-atlantic-finalise-1-9bn-first-republic-deal/ https://www.perenews.com/colony-general-atlantic-finalise-1-... 2- https://www.politico.com/news/2022/11/04/trump-chair-tom-barrack-acquitted-uae-00065186 https://www.politico.com/news/2022/11/04/trump-chair-tom-bar...
- ploppyploppy 3y agoYou are clearly lying here: https://en.wikipedia.org/wiki/Tom_Barrack#cite_note-:4-19 https://en.wikipedia.org/wiki/Tom_Barrack#cite_note-:4-19
- zetazzed 3y agoI kept my money in FR even when they were at risk because they have been BY FAR the best financial institution I've ever worked with. They gave me a mortgage rate much better than any other bank was offering. When my appraisal came in a bit lower than was required for my desired loan size, they got an exception. When I need something, I email or text one of the two people there who I know by name and they immediately take care of it. I needed a new ATM card, so I pinged my guy at FR and had a new card the next morning. The web portal is fine - basic but does everything you need and does not bombard you with internal quasi-ads like Bank of America does. When I wanted to set up a particular kind of new account I talked to one of my people there, and they explained how they would do it but basically advised I'd be better off doing it at another bank. They never tried to upsell me or push junk onto me. It's really a nice place to do business. And in the end, though I have a meaningful amount there, it is within the FDIC limits, so a crash should turn into an inconvenience rather than a financial disaster.
- zzleeper 3y ago> They gave me a mortgage rate much better than any other bank was offering Isn't this why they got in trouble on the first place?
- downrightmike 3y agoyup
- blitzar 3y ago[flagged]
- nostromo 3y agoThere is more than one way to tame inflation than jacking up interest rates so quickly. A less discussed way is to raise taxes and cut deficit government spending. Unlike interest rates, the effect is immediate, and can be undone quickly too. It’s hard to do during high unemployment or during a recession, neither of which is currently the case.
- drumhead 3y agoPeople can dodge taxes, and the blame for spending cuts falls directly on the government which is politically dangerous to them. Raising interest rates is crude but very very effective, it's what crushed the high inflation of the 70s
- personomas 3y agoThe last thing we need is to raise taxes, which would further hamper our economy when we need growth in the face of rapidly growing China and the East. What we do need is to cut government spending, especially social welfare, of which first and foremost should be Social Security and Medicare.
- breatheoften 3y agoI'm wondering what is going to happen to the banking sector as the commercial real estate apocalypse starts to manifest in full ... banks have a lot of interest bearing loans for commercial real estate that is going to continue turning into increasing quantities of illiquid pure junk in the very near term as leases end coincident with a mass cost cutting environment and occupancy rates drop even more ... obviously this has been a concern for awhile but seems like we are approaching a real inflection point
- SeanAnderson 3y agoStill have a little ways to go for this, but yeah, agree. IMO, CMBS has the highest likelihood of being the next MBS catastrophe. https://finance.yahoo.com/quote/HPP/ https://finance.yahoo.com/quote/HPP/ Hudson Pacific is who I've been following to track the health of San Francisco's commercial real estate market. I believe they have the largest public position in SF real estate. They're down 85% since 2020. This tracks with articles like https://www.wsj.com/articles/san-francisco-commercial-real-estate-office-buildings-471742ea https://www.wsj.com/articles/san-francisco-commercial-real-e... implying some commercial real estate in downtown SF is being devalued by 60-80%. As a counter-point, https://fred.stlouisfed.org/series/DRCRELEXFACBS https://fred.stlouisfed.org/series/DRCRELEXFACBS commercial real estate delinquency rates haven't begun ticking up yet and are nowhere near the levels of '08. May we live in interesting times and all that. :)