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I don't quite get like this is making the front page of HN. Banking system working as intended, FDIC doing a great job like normal.

by bwb 3y ago

kenneth 3y ago
The FDIC killed a bank that was absolutely fine. For the 3rd time in 2 months. FRB was solvent and had plenty of liquidity if the FDIC didn't force kill it. The FDIC just wanted to flex its muscle because it didn't like the situation — but there was zero reason FRB couldn't have held all its good loans to maturity and been totally fine. Fuck the FDIC and fuck Jerome Powell for causing all this unnecessary destruction.
- JumpCrisscross 3y ago
  > FRB was solvent and had plenty of liquidity if the FDIC didn't force kill it This is totally incorrect. Face value and market value are a material difference when one faces a liquidity crunch. First Republic was in a slow death spiral for months, and everyone across its capital structure knew it for at least a week. > there was zero reason FRB couldn't have held all its good loans to maturity and been totally fine You can’t tell depositors you won’t give them their money for ten years.
- disgruntledphd2 3y ago
  Well except for the $100bn of deposits they'd lost in the last month they were totally fine! Tis but a scratch...come back and I'll bite your legs off ;)
- bwb 3y ago
  I don't understand, the bank is having a massive run on it and collapsing. Thus the FDIC steps in per the norms of the last 50 years and fixes it. The system works like a charm? How is this bank fine? They have lost confidence and everyone is pulling their money out. They would collapse if not for FDIC insurance and the system stepping in.
  - loeg 3y ago
    They had approximately $200B in (market price, or $220B HTM) assets against approximately $200B in liabilities (including deposits). They weren't especially insolvent, even if depositors kept fleeing.
    - bwb 3y ago
      FDIC disagrees...
      - loeg 3y ago
        The FDIC's tolerance for insolvency is "zero," not "pretty close." I'm just saying they were, by all accounts, pretty close. We'll learn more in the coming days.
        kenneth 3y ago
        Insolvent has a precise meaning in accounting. FRB was not insolvent. The book value of their bond and loan portfolio was accounted as held-to-maturity keeping it at cost value and not market value. As long as they could hold to maturity they'd be just fine. The Fed put in a facility that was supposed to let banks borrow against their securities portfolio at their book value and not at their market value, plus on top of that there's also the discount window facility, which means FRB had plenty of access to capital to handle any withdrawals. The FDIC is just on a power trip here. They don't _like_ that the market value of those securities is down based on the inverse relationship between yields and price. So they force killed the bank. There was ZERO need to do that, FRB could have just held the loans to maturity, and sure they'd lose some money on the interest they'd have to pay to borrow from the Feb to make up for lost deposits, but in no way were they insolvent and in need of a shut down.
DonsDiscountGas 3y ago
Yes the system is working and the FDIC did its job. The second largest bank failure (by inflation adjusted assets) in US history is still news.
- bwb 3y ago
  why? IE, why does this matter for HN in your opinion? generally curious as it seems like a non issue Adjusted for inflation is this in the top 10 versus the 80s?
  - DonsDiscountGas 3y ago
    Well maybe you're not interested in it so downvote away. Like many people I'm at least mildly interested in news that affects a lot of people, even if it doesn't affect me personally today. According to wikipedia, second largest by assets: https://en.wikipedia.org/wiki/List_of_largest_bank_failures_in_the_United_States https://en.wikipedia.org/wiki/List_of_largest_bank_failures_... I haven't researched this thoroughly, but I think the banking sector (like many other sectors) has been concentrating a lot over the years. So in the 80s we had many small bank failures, and in 2008-2010 we had many many small+medium bank failures (+WaMu, the largest in US history), and today we have a few large bank failures (so far).
    - bwb 3y ago
      I didn't downvote :); that is others, I guess. Right, but the concentration isn't a bad thing just because it is concentrated. It might just be a reflection of the changing nature of the world (globalization, finance changes, etc). I checked, and currently, there are 4,844 banks in the USA. There are also 4,759 credit unions, but I am not sure if that is also included in the bank numbers.
  - gonzo41 3y ago
    A tight credit market affects valley companies. If there's a liquidity squeeze/crisis then startups may have to face real world challenges like actually making money.

I don't quite get like this is making the front page of HN. Banking system working as intended, FDIC doing a great job like normal.

by bwb 3y ago

I don't quite get like this is making the front page of HN. Banking system working as intended, FDIC doing a great job like normal.

kenneth 3y ago

The FDIC killed a bank that was absolutely fine. For the 3rd time in 2 months. FRB was solvent and had plenty of liquidity if the FDIC didn't force kill it. The FDIC just wanted to flex its muscle because it didn't like the situation — but there was zero reason FRB couldn't have held all its good loans to maturity and been totally fine. Fuck the FDIC and fuck Jerome Powell for causing all this unnecessary destruction.

JumpCrisscross 3y ago
> FRB was solvent and had plenty of liquidity if the FDIC didn't force kill it This is totally incorrect. Face value and market value are a material difference when one faces a liquidity crunch. First Republic was in a slow death spiral for months, and everyone across its capital structure knew it for at least a week. > there was zero reason FRB couldn't have held all its good loans to maturity and been totally fine You can’t tell depositors you won’t give them their money for ten years.
disgruntledphd2 3y ago
Well except for the $100bn of deposits they'd lost in the last month they were totally fine! Tis but a scratch...come back and I'll bite your legs off ;)
bwb 3y ago
I don't understand, the bank is having a massive run on it and collapsing. Thus the FDIC steps in per the norms of the last 50 years and fixes it. The system works like a charm? How is this bank fine? They have lost confidence and everyone is pulling their money out. They would collapse if not for FDIC insurance and the system stepping in.
- loeg 3y ago
  They had approximately $200B in (market price, or $220B HTM) assets against approximately $200B in liabilities (including deposits). They weren't especially insolvent, even if depositors kept fleeing.
  - bwb 3y ago
    FDIC disagrees...
    - loeg 3y ago
      The FDIC's tolerance for insolvency is "zero," not "pretty close." I'm just saying they were, by all accounts, pretty close. We'll learn more in the coming days.
      - kenneth 3y ago
        Insolvent has a precise meaning in accounting. FRB was not insolvent. The book value of their bond and loan portfolio was accounted as held-to-maturity keeping it at cost value and not market value. As long as they could hold to maturity they'd be just fine. The Fed put in a facility that was supposed to let banks borrow against their securities portfolio at their book value and not at their market value, plus on top of that there's also the discount window facility, which means FRB had plenty of access to capital to handle any withdrawals. The FDIC is just on a power trip here. They don't _like_ that the market value of those securities is down based on the inverse relationship between yields and price. So they force killed the bank. There was ZERO need to do that, FRB could have just held the loans to maturity, and sure they'd lose some money on the interest they'd have to pay to borrow from the Feb to make up for lost deposits, but in no way were they insolvent and in need of a shut down.

DonsDiscountGas 3y ago

Yes the system is working and the FDIC did its job. The second largest bank failure (by inflation adjusted assets) in US history is still news.

bwb 3y ago
why? IE, why does this matter for HN in your opinion? generally curious as it seems like a non issue Adjusted for inflation is this in the top 10 versus the 80s?
- DonsDiscountGas 3y ago
  Well maybe you're not interested in it so downvote away. Like many people I'm at least mildly interested in news that affects a lot of people, even if it doesn't affect me personally today. According to wikipedia, second largest by assets: https://en.wikipedia.org/wiki/List_of_largest_bank_failures_in_the_United_States https://en.wikipedia.org/wiki/List_of_largest_bank_failures_... I haven't researched this thoroughly, but I think the banking sector (like many other sectors) has been concentrating a lot over the years. So in the 80s we had many small bank failures, and in 2008-2010 we had many many small+medium bank failures (+WaMu, the largest in US history), and today we have a few large bank failures (so far).
  - bwb 3y ago
    I didn't downvote :); that is others, I guess. Right, but the concentration isn't a bad thing just because it is concentrated. It might just be a reflection of the changing nature of the world (globalization, finance changes, etc). I checked, and currently, there are 4,844 banks in the USA. There are also 4,759 credit unions, but I am not sure if that is also included in the bank numbers.
- gonzo41 3y ago
  A tight credit market affects valley companies. If there's a liquidity squeeze/crisis then startups may have to face real world challenges like actually making money.