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"Larger banking behemoths" is NOT the solution - it's the result of deregulation and gutting of oversight - also referred to by libertarians here as "small gove

by papito 3y ago

"Larger banking behemoths" is NOT the solution - it's the result of deregulation and gutting of oversight - also referred to by libertarians here as "small government". These banks should have been aggressively audited and diversification should have been enforced, as it used to be. We just keep going in this "deregulate-collapse-regulate" cycle.

junofan 3y ago
They took a 40% hit to deposits. What do you want them to do? It’s not survivable. This is just how our banking system works.
- matwood 3y ago
  > This is just how our banking system works. That's just how business works. Many businesses would have a hard time surviving losing 40% of their business in a short period of time.
- TacticalCoder 3y ago
  > They took a 40% hit to deposits. What do you want them to do? It’s not survivable. This is just how our banking system works. You're making it sound like people taking out their money out were those in the wrong, causing the failure of the bank. That's not what happened. People taking their money out were in the right. The root cause is bankers at FRB miscalculating risk. And they are those who were wrong.
  - r00fus 3y ago
    I mean, banks are allowed to curtail the egress of funds through rules limiting the velocity of funds. I see this in some of the recent high-interest yield offerings. Of course, then the super-rich and their millions might stay away. But perhaps that's the most stable course after you have too many "over the FDIC limit" account balances.
- 0zemp2c 3y ago
  those people fled because they were told to by the financial press this really feels like a setup to let a big bank buy a little bank for nothing if we are really talking about people fleeing banks in "trouble", they would all close tomorrow...and don't tell me about stress-tests, those don't incorporate things like a broad collapse in commercial RE (which ALL the banks will be hit by)
  - JumpCrisscross 3y ago
    > those people fled because they were told to by the financial press …reporting First Republic’s balance sheet losses and falling stock and bond prices. > feels like a setup to let a big bank buy a little bank for nothing It’s not. That JPMorgan wound up buying it means literally nobody else submitted a valid bid, because the OCC and FDIC would have much preferred to not waive rules in making this happen. (Remember, too, the $30bn the big guys deposited with First Republic in March [1].) [1] https://www.cnbc.com/2023/03/16/group-of-financial-institutions-in-talks-to-deposit-about-20-billion-in-first-republic-sources-say.html https://www.cnbc.com/2023/03/16/group-of-financial-instituti...
  - xmcqdpt2 3y ago
    Real estate (commercial and otherwise) is included in the stress tests, https://www.federalreserve.gov/publications/2023-Stress-Test-Scenarios.htm https://www.federalreserve.gov/publications/2023-Stress-Test... I think financial regulators are a bit too soft-touched, but they aren't so incompetent that they would neglect real estate, of all things, in stress test scenarios in this post GFC world.
- papito 3y ago
  WHY did they take the hit? Because the word was out these banks were putting all of their eggs in one bond basket at the time of increasing interest rates. I am a just a simple country 401K investor, and even I knew not to do that.
  - makomk 3y ago
    Your 401k is presumably mostly invested in shares. Banks aren't allowed to structure their investments like that (it's considered too risky). In general they have limited options for investment which are generally bad in times of increasing interest rates with the remaining ones being bad during recessions, not to mention the impact of the current collapse in commercial real estate demand. As far as I can tell there's no way for the government and the Fed to pursue the policies they have been without blowing up the banking system as a consequence.
- toast0 3y ago
  A 40% withdrawal in a short time isn't survivable. Can't really fix that in a bank that does bank things. But the underlying situation that made depositors nervous could be addressed by regulation. Some ideas, not necessarily good or thought out, would include: mark assets to market, so the present value is reported accurately, but also report on expected future values at some intervals; an on the record increase of deposit insurance maximums would also help confidence, although there's lots of details there.
- roenxi 3y ago
  Peter Schiff tried to run a full reserve bank and was shut down by the regulators. So it is just how the banking system works, but it is by fighting the free market all the way through. I don't like to recommend podcasts, but in of his podcast [0] he had a really interesting walkthrough of his perspective on the regulators working to shut down his bank. For me it was the most powerful advertisement for cryptocurrency I've heard to date. An opinion that would probably annoy Schiff. Even if you don't believe in any particular bank, in a 0 interest rate environment a full reserve bank would have been competitive. If you don't get money anyway, avoiding the inevitable crash when rates rose would have been a nice selling point. [0] https://schiffradio.com/ https://schiffradio.com/ Ep. 887
  - chii 3y ago
    I tried to find an explanation for why the Feds didn't want a narrow bank. This article has some speculations, but nothing definitive: https://www.chicagobooth.edu/review/safest-bank-fed-wont-sanction https://www.chicagobooth.edu/review/safest-bank-fed-wont-san... It doesn't quite make sense why the Feds don't want narrow banks, except that they might compete with traditional banks (and those banks' deep reaches into the Fed's policy decision makers are forcing out potential competition before they take root).
    - naveen99 3y ago
      Fed wants the public savings to fund private sector loans, not public sector spending, which they already do with presaving taxes.
  - yellowstuff 3y ago
    Matt Levine has explained the Fed's disdain for narrow banking. Fed payments are a subsidy for regular banks, and regular banks are effectively public/private partnerships that make loans, enforce regulations, and generally satisfy the goals of the government. A narrow bank would capture the entire subsidy and not satisfy any of the other goals.
  - pjc50 3y ago
    > Peter Schiff tried to run a full reserve bank and was shut down by the regulators I've heard this before and I very much doubt that is the full story. Does anyone have the _regulators_ side of this argument?
jameshart 3y ago
Split large diversified banks into small banks with correlated asset portfolios and you will get MORE banking collapses, not less.

by papito 3y ago

junofan 3y ago

They took a 40% hit to deposits. What do you want them to do? It’s not survivable. This is just how our banking system works.

matwood 3y ago
> This is just how our banking system works. That's just how business works. Many businesses would have a hard time surviving losing 40% of their business in a short period of time.
TacticalCoder 3y ago
> They took a 40% hit to deposits. What do you want them to do? It’s not survivable. This is just how our banking system works. You're making it sound like people taking out their money out were those in the wrong, causing the failure of the bank. That's not what happened. People taking their money out were in the right. The root cause is bankers at FRB miscalculating risk. And they are those who were wrong.
- r00fus 3y ago
  I mean, banks are allowed to curtail the egress of funds through rules limiting the velocity of funds. I see this in some of the recent high-interest yield offerings. Of course, then the super-rich and their millions might stay away. But perhaps that's the most stable course after you have too many "over the FDIC limit" account balances.
0zemp2c 3y ago
those people fled because they were told to by the financial press this really feels like a setup to let a big bank buy a little bank for nothing if we are really talking about people fleeing banks in "trouble", they would all close tomorrow...and don't tell me about stress-tests, those don't incorporate things like a broad collapse in commercial RE (which ALL the banks will be hit by)
- JumpCrisscross 3y ago
  > those people fled because they were told to by the financial press …reporting First Republic’s balance sheet losses and falling stock and bond prices. > feels like a setup to let a big bank buy a little bank for nothing It’s not. That JPMorgan wound up buying it means literally nobody else submitted a valid bid, because the OCC and FDIC would have much preferred to not waive rules in making this happen. (Remember, too, the $30bn the big guys deposited with First Republic in March [1].) [1] https://www.cnbc.com/2023/03/16/group-of-financial-institutions-in-talks-to-deposit-about-20-billion-in-first-republic-sources-say.html https://www.cnbc.com/2023/03/16/group-of-financial-instituti...
- xmcqdpt2 3y ago
  Real estate (commercial and otherwise) is included in the stress tests, https://www.federalreserve.gov/publications/2023-Stress-Test-Scenarios.htm https://www.federalreserve.gov/publications/2023-Stress-Test... I think financial regulators are a bit too soft-touched, but they aren't so incompetent that they would neglect real estate, of all things, in stress test scenarios in this post GFC world.
papito 3y ago
WHY did they take the hit? Because the word was out these banks were putting all of their eggs in one bond basket at the time of increasing interest rates. I am a just a simple country 401K investor, and even I knew not to do that.
- makomk 3y ago
  Your 401k is presumably mostly invested in shares. Banks aren't allowed to structure their investments like that (it's considered too risky). In general they have limited options for investment which are generally bad in times of increasing interest rates with the remaining ones being bad during recessions, not to mention the impact of the current collapse in commercial real estate demand. As far as I can tell there's no way for the government and the Fed to pursue the policies they have been without blowing up the banking system as a consequence.
toast0 3y ago
A 40% withdrawal in a short time isn't survivable. Can't really fix that in a bank that does bank things. But the underlying situation that made depositors nervous could be addressed by regulation. Some ideas, not necessarily good or thought out, would include: mark assets to market, so the present value is reported accurately, but also report on expected future values at some intervals; an on the record increase of deposit insurance maximums would also help confidence, although there's lots of details there.
roenxi 3y ago
Peter Schiff tried to run a full reserve bank and was shut down by the regulators. So it is just how the banking system works, but it is by fighting the free market all the way through. I don't like to recommend podcasts, but in of his podcast [0] he had a really interesting walkthrough of his perspective on the regulators working to shut down his bank. For me it was the most powerful advertisement for cryptocurrency I've heard to date. An opinion that would probably annoy Schiff. Even if you don't believe in any particular bank, in a 0 interest rate environment a full reserve bank would have been competitive. If you don't get money anyway, avoiding the inevitable crash when rates rose would have been a nice selling point. [0] https://schiffradio.com/ https://schiffradio.com/ Ep. 887
- chii 3y ago
  I tried to find an explanation for why the Feds didn't want a narrow bank. This article has some speculations, but nothing definitive: https://www.chicagobooth.edu/review/safest-bank-fed-wont-sanction https://www.chicagobooth.edu/review/safest-bank-fed-wont-san... It doesn't quite make sense why the Feds don't want narrow banks, except that they might compete with traditional banks (and those banks' deep reaches into the Fed's policy decision makers are forcing out potential competition before they take root).
  - naveen99 3y ago
    Fed wants the public savings to fund private sector loans, not public sector spending, which they already do with presaving taxes.
- yellowstuff 3y ago
  Matt Levine has explained the Fed's disdain for narrow banking. Fed payments are a subsidy for regular banks, and regular banks are effectively public/private partnerships that make loans, enforce regulations, and generally satisfy the goals of the government. A narrow bank would capture the entire subsidy and not satisfy any of the other goals.
- pjc50 3y ago
  > Peter Schiff tried to run a full reserve bank and was shut down by the regulators I've heard this before and I very much doubt that is the full story. Does anyone have the _regulators_ side of this argument?

jameshart 3y ago

Split large diversified banks into small banks with correlated asset portfolios and you will get MORE banking collapses, not less.