3 ms·

Compare to the Federal Reserve's own realized losses of over $100b[1] and recent articles pointing out that's actually an off-balance-sheet liability of member

Compare to the Federal Reserve's own realized losses of over $100b[1] and recent articles pointing out that's actually an off-balance-sheet liability of member banks[2]. These aren't the Signature Banks and SVBs of the world and for that reason the concern on this board about what happens if the trend line extends still further-- it won't be. The concern really should be that this all represents a policy response that cannot be sustained, and so it won't be. [1] https://www.reuters.com/markets/us/fed-is-cutting-staff-after-more-than-decade-payroll-growth-2023-09-22/ https://www.reuters.com/markets/us/fed-is-cutting-staff-afte... [2] https://www.wsj.com/articles/the-new-bank-bailout-fed-member-district-banks-taxpayers-losses-b1b4735e https://www.wsj.com/articles/the-new-bank-bailout-fed-member...

landemva 3y ago
> this all represents a policy response that cannot be sustained, and so it won't be. Are you implying increased interest rates, as set by Federal Reserve, will not continue? Or that Federal Reserve plan to pump underwater bank UST holdings will be enough to make it all OK? "The Bank Term Funding Program (BTFP) is a lender of last resort facility. It was created in March 2023 ..." https://www.brookings.edu/articles/what-did-the-fed-do-after-silicon-valley-bank-and-signature-bank-failed/ https://www.brookings.edu/articles/what-did-the-fed-do-after...
- JumpCrisscross 3y ago
  > Are you implying increased interest rates, as set by Federal Reserve, will not continue? This is a recurring meme in Silicon Valley. To the point that I think executives at SVB believed it: that the Fed is constrained in raising rates by things like balance sheet losses or the interest cost of the federal debt. (It's not. It's constrained by job losses.)
  - landemva 3y ago
    SVB didn't care and had a C-level on board of directors of S.F. branch of Federal Reserve which was SVB's regulator. To clarify, I think it is likely increased interest rates will continue. Federal Reserve follows interest rates / inflation numbers, and war brings inflation.
zie 3y ago
I don't understand how comparing it to the Fed's balance sheet makes any sense whatsoever. The Federal Reserve can literally invent real USD money, they can make their balance sheet whatever they want, whenever they want.
- unyttigfjelltol 3y ago
  If a money center TBTF bank were in danger of failing, the US Gov't will, as you say, "literally invent real USD money, [to] make their balance sheet whatever they want...." If SVB can't fail gracefully, then anything larger certainly has the full faith and credit of the US Gov't behind its deposits, just like the Federal Reserve itself. That is why drawing comparisons between them makes sense.
  - zie 3y ago
    I seriously doubt they would do it like that. For the next year or so, BOA can borrow at 100% nominal value for ALL of their US govt debt, so they are basically guaranteed to survive for a year, regardless of what anyone does. Probably what they would do, if BOA were to fail, would be to let it "pretend fail", where they essentially just replace all the senior officers and CEO(and all their equity goes to zero), and then give the new management team a big fat loan to help them get back on their feet. There is very little chance that the FDIC would let BOA get swallowed up by another TBTF bank, that would be letting even more concentration into public banking, something I don't think they want. Even if we are way more diversified in banking than every(?) other country. There is zero chance they would swallow it up and become a bank themselves like you are suggesting. SVB failed because they were incompetent people running the bank. They had no risk management dept for a long time before failure, and had no diversification of any kind. When they saw the writing on the wall, instead of trying to deal with the problem, they tried to play Ostrich. Their equity in the bank went to zero like it should. BOA has a risk management department, and they are working hard to keep the lights on. I'm a BOA/ME customer and am not worried.

landemva 3y ago

> this all represents a policy response that cannot be sustained, and so it won't be. Are you implying increased interest rates, as set by Federal Reserve, will not continue? Or that Federal Reserve plan to pump underwater bank UST holdings will be enough to make it all OK? "The Bank Term Funding Program (BTFP) is a lender of last resort facility. It was created in March 2023 ..." https://www.brookings.edu/articles/what-did-the-fed-do-after-silicon-valley-bank-and-signature-bank-failed/ https://www.brookings.edu/articles/what-did-the-fed-do-after...

JumpCrisscross 3y ago
> Are you implying increased interest rates, as set by Federal Reserve, will not continue? This is a recurring meme in Silicon Valley. To the point that I think executives at SVB believed it: that the Fed is constrained in raising rates by things like balance sheet losses or the interest cost of the federal debt. (It's not. It's constrained by job losses.)
- landemva 3y ago
  SVB didn't care and had a C-level on board of directors of S.F. branch of Federal Reserve which was SVB's regulator. To clarify, I think it is likely increased interest rates will continue. Federal Reserve follows interest rates / inflation numbers, and war brings inflation.

zie 3y ago

I don't understand how comparing it to the Fed's balance sheet makes any sense whatsoever. The Federal Reserve can literally invent real USD money, they can make their balance sheet whatever they want, whenever they want.

unyttigfjelltol 3y ago
If a money center TBTF bank were in danger of failing, the US Gov't will, as you say, "literally invent real USD money, [to] make their balance sheet whatever they want...." If SVB can't fail gracefully, then anything larger certainly has the full faith and credit of the US Gov't behind its deposits, just like the Federal Reserve itself. That is why drawing comparisons between them makes sense.
- zie 3y ago
  I seriously doubt they would do it like that. For the next year or so, BOA can borrow at 100% nominal value for ALL of their US govt debt, so they are basically guaranteed to survive for a year, regardless of what anyone does. Probably what they would do, if BOA were to fail, would be to let it "pretend fail", where they essentially just replace all the senior officers and CEO(and all their equity goes to zero), and then give the new management team a big fat loan to help them get back on their feet. There is very little chance that the FDIC would let BOA get swallowed up by another TBTF bank, that would be letting even more concentration into public banking, something I don't think they want. Even if we are way more diversified in banking than every(?) other country. There is zero chance they would swallow it up and become a bank themselves like you are suggesting. SVB failed because they were incompetent people running the bank. They had no risk management dept for a long time before failure, and had no diversification of any kind. When they saw the writing on the wall, instead of trying to deal with the problem, they tried to play Ostrich. Their equity in the bank went to zero like it should. BOA has a risk management department, and they are working hard to keep the lights on. I'm a BOA/ME customer and am not worried.