[HN Gopher] There have been 562 bank failures since 2000
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There have been 562 bank failures since 2000
Author : pranshum
Score : 125 points
Date : 2023-03-11 19:09 UTC (3 hours ago)
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| Kyragem wrote:
| Trump and republicans increased the capital treshhold of banks
| from 50B to 250B where banks must comply with an FDIC stress test
| as defined by Dodd-frank regulations. A small bank like SVB would
| have probably been required to hold more capital and wouldn't
| have gone bankrupt.
| muyuu wrote:
| or perhaps it wouldn't have been able to survive to that
| regulation in the first place
|
| it does seem like the current banking system is weird and full
| of vestigial features, they are so regulated they might as well
| be publicly owned
| jansan wrote:
| But with the other banks there never were six top stories at the
| same time on Hacker News' front page.
| capableweb wrote:
| Makes sense. Y Combinator is a startup incubator who created
| HN, HN was originally called Startup News and there is probably
| no other bank so closely associated to startups as Silicon
| Valley Bank. HN is basically "Silicon Valley News".
| bsuvc wrote:
| You can upvote the submissions you want to see higher.
| kibwen wrote:
| Is that "second largest bank failure of all time" adjusting for
| inflation?
| frompdx wrote:
| Based on the wiki for WaMu, the numbers are not inflation
| adjusted. According to the BLS CPI calculator, $1.00 in October
| 2022 has the buying power of $0.73 in September 2008, when WaMu
| failed. 20.9b is closer to 15.3b in 2008 dollars. Based on the
| graphic in the post, it's still the second largest, yet half as
| large as the largest.
|
| As a disclaimer, I'm not an expert and am unaware what flaws my
| analysis may have.
|
| https://en.wikipedia.org/wiki/Washington_Mutual
|
| https://www.bls.gov/data/inflation_calculator.htm
| 29athrowaway wrote:
| Pick 2009 as a starting date instead of 2000.
| mdasen wrote:
| It's not just SVB, but the title is a bit misleading. There's
| been 22 failures since 2016 and 10 since 2018 and they've been
| really small compared to SVB. The article has this information so
| it isn't a misleading article, but damn the title is misleading.
| The 562 number makes it seem like bank failures are really
| common.
|
| These failures aren't common, especially of SVB's size.
| Washington Mutual is the only larger failure at the height of the
| 2008 financial crisis (47% larger). The next largest was IndyMac,
| but SVB's failure is 6.5x larger than IndyMac (which also failed
| during the financial crisis).
|
| As the article shows, there were many years of fallout from the
| 2008 crisis, but then bank failures became quite rare again.
|
| The author believes that SVB will be acquired given that's what
| happened to Washington Mutual. The author doesn't talk about
| Wachovia and they technically were bought before failure, but
| they were bought as well. However, I'm less sure of this for SVB.
| WaMu and Wachovia had vast branch and ATM networks allowing Chase
| and Wells Fargo to hugely increase their footprint. SVB doesn't
| come with that. Given that SVB has seen a run on its deposits and
| its reputation shredded, is it coming with enough stuff to be
| worthwhile? I guess it'll depend on how bad its situation is.
| When Wells Fargo bought Wachovia, they essentially doubled in
| size and had the largest branch network in the US. WaMu
| essentially doubled the size of Chase. In both cases, it opened
| up huge new parts of the country to the acquiring banks. What
| does SVB offer? Existing relationships with tech companies which
| have now soured?
|
| I think calling this "not just SVB" is misleading. SVB really
| stands alone as an extremely large failure and the only large
| failure since the end of the 2008 financial crisis. Maybe that
| will change in the coming weeks or months, but lumping them in
| with 562 other failures (most of which were a result of the 2008
| financial crisis) is really misleading - especially for an
| article that is actually good.
| vishal0123 wrote:
| > These failures aren't common
|
| These are common when inflation rate grows faster than
| expected. Since 2016 is a small timeframe to find the average.
| TheOtherHobbes wrote:
| The point is that there's a constant background noise of
| failures with occasional explosive peaks.
|
| Although it's not easy to call the exact timing, the same manic
| depressive financial cycle has been happening for centuries.
|
| Banking is supposed to limit its effects. Somehow -
| inexplicably, to the constant shock and surprise of economists
| and the industry - it seems to make them worse.
| FormerBandmate wrote:
| SVB is the second largest failure ever. Nobody really cares in
| finance circles if some tiny bank in Missouri with $5 million
| in assets fails, people certainly do about this
| lucb1e wrote:
| Is that "second largest failure ever" after adjusting for
| inflation? (I have no idea, I'm not really following these
| things so I hope it's okay to just ask the obvious)
|
| Edit: randomly spotted that I asked a duplicate question from
| another subthread
| https://news.ycombinator.com/item?id=35111958 According to
| the reply there, it's not adjusted, so the highscore seems a
| bit meaningless
| SilverBirch wrote:
| One thing that's kind of weird here is the peverse incentives.
| There are quite a lot of people going around insisting that the
| government has to step in and bail out the large depositors of
| SVB becuase if you don't, well... then no small bank is safe!
| There should be a run on every bank! Which is kind of... you
| know. Scummmy. If your money is locked up in SVB its certainly
| convenient if the Fed feels it has to step in and bail you out
| even though SVB isn't systemically important. So what you do is
| you make the argument that the system _will_ collapse because
| there will be a run on every bank! But... the only thing that 's
| likely to cause a run on every bank is... you. You, running
| around shouting that no bank is safe. Real people are FDIC
| insured.
|
| The problems with SVB are specific, not systemic, and there are
| other banks and they may also have this specific issue, but if
| they do then people will pretty quickly catch on (hint: these
| issues weren't hidden). You can make a broader point, which is
| that SVB failing will impact a lot of silicon valley businesses,
| and you can do your best to argue those businesses are creating a
| fantastic new world and there worth saving (and definitely aren't
| causing teen depression, minting billionaires who use their
| wealth to destroy free speech, and generally just enriching
| loathsome fraudsters), but then you are basically arguing for the
| Fed to step in and socialise the losses of douchebag
| libertarians. Fine, save SVB, funded by a 1-off 100% wealth tax
| on anyone worth over $10m in silicon valley. Welcome comrade.
| adolph wrote:
| > Fine, save SVB, funded by a 1-off 100% wealth tax on anyone
| worth over $10m in silicon valley.
|
| The interesting part to this is that if wealth (assets) were
| taxed thusly, they would probably lose a lot of value when
| liquidated to pay taxes, thus decreasing the realized taxable
| amount. As I understand it, a similar principle was behind
| SVB's "losses" as well.
| benatkin wrote:
| Yes just SVB. It was huge and we already know about WaMu.
| IndoorPatio wrote:
| If only there were some sort of effective regulation to prevent
| this...
| [deleted]
| rvz wrote:
| This is total 'whataboutism'. This bank failure is the second
| largest of all time in the US, and has a potential massive
| contagion with lots of ripple effects through the tech industry.
|
| This _" Not just SVB"_ and _" There have been 562 other bank
| failures before"_ deflection doesn't help those affected.
| froglets wrote:
| Is it just the tech industry though? It sounds like they
| invested too much of their deposits in mortgage backed
| securities, which doesn't really have to do with tech?
| marginalia_nu wrote:
| I think 'whataboutism' only really makes sense in accusations
| of moral error.
|
| You can accuse the financial sector of many moral errors, but I
| don't think SVB would intentionally fail.
| mindcreek wrote:
| these banks are connected to each other, secure yourself in
| physical assets until shitstorm is over, oh wait :)
| ezekg wrote:
| I'm surprised the author didn't include a chart like this:
| https://twitter.com/alistairmbarr/status/1634275645235793920. It
| shows how bad the SVB situation really is. It's been very quiet
| since 2008 and its aftermath. Until now.
| mjlawson wrote:
| Also note that the prior large spikes were due in large part to
| multiple banks failing as well [1]. It's also notable in that
| this is the second largest bank to fail in the data I've been
| able to track since 2008 [2].
|
| [1] https://www.fdic.gov/bank/historical/bank/ [2]
| https://en.wikipedia.org/wiki/List_of_bank_failures_in_the_U...
| jvanderbot wrote:
| Wait so svb made up that whole spike? A chart with number of
| banks would hardly show a blip this year?
| ezekg wrote:
| Yes. SVB was the first bank failure since 2020.
| raziel2701 wrote:
| Wasn't silvergate the first failure just days before SVB?
| rektide wrote:
| That shows money, which is interesting.
|
| I'd also like to see "Years of Banking Institutions Lost"...
| SVB is supposedly 40 years old... how old were banks that had
| failed in the past? That'd be an interesting other way to
| tally/view the magnitude of what happens, a kind of indicator
| of volatility.
|
| My thought is... if a whole bunch of banks open then shut down
| 3 years latter, it doesn't seem as notable as a bunch of more
| established banks going under.
| bumby wrote:
| Why does that sort of "infant mortality" matter in finance if
| they play by the same rules?
|
| I'm not being argumentative, just trying to understand. In
| physical systems, that view would be used to apply additional
| stress testing early to reduce the overall risk exposure
| (e.g., test a pump for a certain run time to be assured it's
| made it out of the early failure age and is more likely to
| last a lot longer). I'm not quite sure how this applies to
| contrived (non-physical) systems.
| davrosthedalek wrote:
| I can imagine two effects why a younger bank might
| experience higher risk:
|
| 1) a young bank is more likely to experience a high-growth
| phase, which produces operational challenges
|
| 2) a young bank might be founded to serve a new business
| niche, and experience with the challenges of that niche
| might be less prevalent in the banking sector. Like
| airplane regulations, rules are written in blood.
| bink wrote:
| Yeah, I don't know anyone saying "it's just SVB since 2000".
| They're saying SVB is the first major bank in a long time (and
| hopefully not a harbinger of things to come).
| saalweachter wrote:
| I'm actually curious if SVB failed _because_ it had so many
| highly connected "big" customers.
|
| A panic moves a lot faster if each person is pulling 8+
| figures from the bank, and you have a lot more incentive to
| panic if you have more than the 6 figures of FDIC insured
| balance in the bank. There's also a measurable difference in
| hearing crazy Jim down at the pub pulled his $400 out of the
| local credit union because he heard the fed was raising rates
| and hearing from the VC on your startup's board that three
| guys -- guys you know and think are cooler than you -- have
| pulled their next year of runway from SVB because they're
| worried for vague handwaving macroeconomics reasons that
| sound plausibly impressive to you.
| latency-guy2 wrote:
| It sure is, and I hope congress and the Fed learns their
| lesson this time, seeing as some of the same people who
| worked in previous economic failures are still around, I
| doubt it.
| Grimburger wrote:
| What lesson is that? To allow inflation run rampant in
| order to protect Basel exempted businesses from their own
| bad decisions?
|
| Inflation must be tamed, it's detrimental longterm effects
| is magnitudes worse than a bank deservedly going bust for
| it's lack of risk management.
| raziel2701 wrote:
| In my opinion the Fed should be more decisive and data-
| dependent. In 2021 the Fed stubbornly stuck to an
| "inflation is transitory" narrative that meant they did
| not start raising rates all of 2021 when most people
| could see the excess and the mania of a bubble. Rates
| should have started to be raised since the summer of
| 2021, they could've done a slow and steady pace.
|
| Instead, once things got super hot inflation-wise, then
| they flip flop and start a very rapid pace of rate hikes,
| unsurprisingly something broke and here we are once more
| talking about bailouts, about more QE. We're frenetically
| going from rapid tightening of financial conditions, to
| potentially, rapid loosening of said conditions. The Fed
| is supposed to raise rates in two weeks, I'm not sure if
| they will change their mind given what just transpired
| this last week.
|
| I agree inflation must be tamed, I criticize the Fed's
| inability, or unwillingness, to start addressing it at
| least a year earlier. From my cynical perspective,
| keeping rates super low is a fucking party to the stock
| market and lots of powerful people want to keep the party
| going and they closed their ears to the inflation alarms.
| Now we're facing the possibility of another crisis (we'll
| see how things play out next week) and we know that the
| proposed solution will be to lower rates and
| accommodative policy that actually contributes to
| inflation. It's a shit show I'm tired of seeing repeat.
| TheOtherHobbes wrote:
| Inflation is caused by profiteering and opportunism aided
| by the occasional supply shock.
|
| Trying to control it solely with interest rates makes as
| much sense as trying to fly a beach ball to Mars.
| frankfrankfrank wrote:
| Those are simply common correlate effects. Inflation is
| really rather simple, it is inflation of the money
| supply, i.e., printing more Monopoly money for oneself,
| knockoff purses, using chemicals to create fake honey,
| it's what counterfeiters do ... whether it's some North
| Koreans or the federal government ... its fraud,
| criminal, illegal, immoral, evil, and a clear indicator
| of illegitimacy of this or any government that does what
| this fake government has done.
| dragonwriter wrote:
| > What lesson is that?
|
| That there maybe shouldn't be as many:
|
| > Basel exempted businesses'
| saveferris wrote:
| Not the poster you asked. But, a lesson we continue to
| ignore is that there are other options to tame inflation
| besides raising interest rates. The problem is the option
| isn't politically expedient so Congress just raises its
| hands in mock exasperation and says well, it's the Fed's
| mandate to manage inflation.
|
| Congress are cowards and won't do what should be done -
| raise taxes. That is likely the fastest least painful
| long term solution to quickly climbing inflation
|
| I say likely solution because at this point economies are
| so complex I'm not certain there are solutions without
| any butterfly effect consequences
| di456 wrote:
| The notion of managing "core" inflation ignores huge cost
| increases for housing, energy, education, and healthcare
|
| All of those are to me basic infrastructure to support a
| healthy economy.
| tines wrote:
| I know nothing about economics. Can you help me
| understand how raising taxes helps deal with inflation?
| Is the idea that the federal government "deletes" some of
| the money it receives through taxes, like the opposite of
| printing more money which cheapens the existing supply?
| convolvatron wrote:
| that would .. actually make sense. I can't imagine anyone
| who is winning in the status quo being anything but
| horrified at the thought.
|
| has any currency ever done this? isn't there a risk of a
| Japanese-style concurrent inflation and recession?
| frankfrankfrank wrote:
| Yes, on the face of it. The issue with what appears to be
| the same old game is that those who absconded with the
| wealth pillaged through funny money, are not going to be
| the ones getting punished to "fix things". This opens up
| a whole different set of cascading consequences because
| now on top of the moral hazard we had, we've gone well
| beyond that because the perpetrators have learned there
| are not only no consequences, but that you will be
| rewarded for your evils.
|
| Combined with other factors too numerous to really go
| into here, we are seeing the emergence of essentially an
| aristocracy in the USA and Europe, consisting of, as the
| earlier aristocracy, of the pillagers of their own people
| and the people of the rest of the world.
| AnimalMuppet wrote:
| That is an interesting idea, but it won't happen, because
| Congress won't "delete" the money. Instead, they'll spend
| it.
| lifeisstillgood wrote:
| You have stated Modern Monetary Theory precisely. Yes
| that is the new modern argument - government prints
| money, spends it on hospitals etc thus putting it in
| circulation and deletes it by taxation.
|
| One HN comment == ten years of economic debate. :-)
| adolph wrote:
| Too bad malloc gets called significantly more often than
| free.
| [deleted]
| nico wrote:
| Unfortunately, the current tax structure
| disproportionately affects not-as-wealthy
| people/companies. So raising taxes would probably be a
| very unfair move to most people.
|
| My fantasy would be for the government to abolish taxes
| altogether and just print the money they need, then use
| whatever mechanisms they have to take enough money out of
| the market to keep inflation in check.
|
| That way we wouldn't have to pay taxes and the government
| could just get whatever money they need when they need
| it. I mean, they already do, so why make people jump
| through hoops and threaten them with jail for not paying
| taxes properly, if they could just do without taxes in
| the first place?
|
| It kinda feels like the whole system is a scam to keep
| control over the population.
| mindslight wrote:
| > _then use whatever mechanisms they have to take enough
| money out of the market to keep inflation in check._
|
| What mechanisms would these be, if not taxes?
|
| The other main contemporary mechanism is raising interest
| rates, which only works on money that has been previously
| loaned out at a lower rate, and thus isn't a long term
| sustainable mechanism for recapture.
| nico wrote:
| Great question. I don't know, that's why it's a fantasy.
|
| But I'm guessing that taxes isn't the only or even the
| biggest way in which money is taken out of circulation.
|
| In fact, if you ask google "how is money taken out or
| circulation?", the first few answers don't mention taxes
| at all.
| mxkopy wrote:
| > Congress are cowards and won't do what should be done -
| raise taxes.
|
| They're still cowards for not doing it but what should've
| been done is an increase in interest rates half a decade
| ago.
| lazide wrote:
| The fed tried - and the chairman almost got fired for it.
| Remember?
|
| [https://www.cnbc.com/amp/2018/12/22/trump-reportedly-
| wants-t...]
|
| Almost 5 years ago exactly.
| [deleted]
| asimpletune wrote:
| Yeah it's crazy bc everyone's talking like it's just the
| rise in rates that's to blame for the asset/deposit
| mismatch, but really it was the 0% interest rates that
| came before that really did it. It was during that time
| that SVB had a lot of extra deposits, but no short term
| way to back it, since short term t-bills were paying
| practically 0% interest.
| dantheman wrote:
| Wouldn't it be better for congress to spend less? That's
| way better than raising taxes.
| mindslight wrote:
| That doesn't address inflation. The point is that money
| needs to be taken out of the system. That used to be done
| by high tax rates on high incomes, and the estate tax.
| Both have basically been neutered.
|
| But all things considered, 5% is not really a high
| interest rate. People are just acting as if it's
| unreasonable because they'd become accustomed to ZIRP.
| Personally I hope rates stay above several percent for
| the foreseeable future, for climate/resource reasons.
| dantheman wrote:
| Not spending takes it out of the system.
| mindslight wrote:
| I don't really know what you're try to say with this
| short blurb. Yes, money has to be taken out of the system
| via taxes and then not re-spent in order to successfully
| shrink the money supply. But compared with the current
| approach of creating new money and spending it, raising
| money through taxes for that spending will be an
| improvement.
|
| Also focusing on executive spending is a bit of a red
| herring given how much outflow has occurred from the Fed
| itself over the past few decades via low interest rate
| loans. Basically rather than letting the gains from
| technology and offshoring accrue throughout society (via
| price deflation), or be spent purposefully (executive
| spending), the Fed has been squandering these gains to
| create an asset bubble.
| chimeracoder wrote:
| > It sure is, and I hope congress and the Fed learns their
| lesson this time, seeing as some of the same people who
| worked in previous economic failures are still around, I
| doubt it.
|
| Don't bet on it. One of the big changes after the 2008
| crisis was the passage of Dodd-Frank, which was then
| repealed in large part in 2018.
|
| Some of the repealed provisions in Dodd-Frank would likely
| have mitigated or even prevented this bank run, due to the
| capital and liquidity testing requirements.
| Waterluvian wrote:
| I'm still not clear on if it's even the same.
|
| My very weak understanding is that in 2008 a ton of assets
| turned out to be valueless junk mortgages that were all going
| to default. Is that true for SVB or are their assets just too
| locked in for now?
|
| What that graph doesn't show is the percentage of the blue bars
| that are recoverable assets.
| pclmulqdq wrote:
| I'm not sure if we know how much of the blue bar is
| recoverable. SVB is holding a lot of fixed-income vehicles
| that currently yield less than:
|
| * Depositing money in a fed account (available to banks)
|
| * Depositing money in a money market savings account
|
| * Every treasury instrument you can buy today
|
| When they go to sell those assets, they may take a much
| bigger haircut than the pricing models suggest given the
| supply and demand. The assets definitely won't be worthless,
| but they may not be worth very much.
| pgwhalen wrote:
| It turns out that there was very little defaulting in 2008,
| the problem was the _fear_ of default which resulted in
| changing valuations that were not broadly expected.
|
| In this case, there is no doubt about the value of SVB's
| assets: they're lower than they were a year ago simply
| because they were heavily long duration and rates went up a
| lot. That's bond pricing 101.
|
| That, in combination with a low diversity of depositors that
| starting withdrawing at once, set up the bank run that VCs
| created by emailing all their portfolio companies to run.
| bink wrote:
| Not valueless, exactly. The mortgage backed securities were
| rated more highly than they should have been as the default
| rate was assumed to be much lower. When that became obvious
| the securities lost a lot of value and the banks found out
| they were over-leveraged.
|
| I'm not in finance (clearly), but it seems to me there are a
| lot of similarities with interest rates rising and forcing
| banks to re-value their investments in bonds and mortgage
| backed securities. The clear difference this time IMHO is
| that valuing bonds based on interest rate movements is much
| less opaque (even fully transparent) compared to valuing
| mortgage backed securities based on default rate predictions
| that are outright lies.
|
| We know, or should know, how many of these investments are
| held by large banks and what the rates and maturation dates
| are. The big question I have is the more traditional
| financial contagion. If companies that had millions in SVB
| lose that money there will be impacts for other banks as the
| companies and bank investors become more conservative or
| paranoid. If many of those companies go out of business that
| means fewer deposits and fewer investment opportunities.
| arcticbull wrote:
| That chart would probably be more useful if expressed as the
| shortfall between assets and deposits. It's not really a huge
| issue if a bank with $1T in assets has a $1M shortfall but the
| regulators will sure a shit still close it down.
| lazide wrote:
| No bank with $1T in assets will ever have a shortfall of only
| $1m - it's too easy to shuffle things around to move the
| problem forward another day or whatever.
|
| A bank the size of SVB has a whole team that does that - it's
| just a necessary part of operating at that scale.
|
| Blowups like SVB happen when an entire team of financial
| experts have tried everything - and have nothing left they
| can do.
|
| Then it blows up big, because all their other moves 'come
| due' at once.
| mike_d wrote:
| Almost all failed banks (including SVB) in recent history
| held more assets than deposits. Liquidity is the issue.
|
| Imagine you take your $10 million fortune and convert it all
| into gold bars and hide it under you bed. Then you order a
| pizza. When the pizza guy shows up, even though you are
| "rich," you are also in that moment broke and can't pay for
| the pizza. Not only will the pizza guy not take gold, you
| can't find someone to convert your gold into cash before the
| pizza guy gives up and leaves.
| swatcoder wrote:
| That analogy only works when your gold is _obviously_ worth
| a lot more than your pizza bill.
|
| For SVB, the knock on the door is more like a loan shark
| coming by to call in for their return. You have gold under
| the mattress that is sometimes worth plenty, but it's value
| isn't determined until it sells and it isn't looking to
| square up with what's due.
| rtkwe wrote:
| Isn't the thing they got caught out on mainly TBills
| though? So the metaphor falls apart again because they
| have a practically guaranteed value just with a long time
| horizon.
| swatcoder wrote:
| The value at maturity doesn't matter. It's not like they
| were going to sit on them for the whole term anyway.
| They're just an asset that's _usually_ fairly stable and
| that _usually_ stays that way over a certain window, and
| so they're actively traded and have a market value based
| on those characteristics.
|
| In their case, the market value of the TBills that they
| purchased slipped too much. Because that's just paper
| value and could have recovered or been been balanced for
| eventually, it might not have been an issue without a run
| of withdrawls. But buzz hit that they were in an
| unexpectedly and unisually fragile position, and that
| made people start the run that broke them.
| tshaddox wrote:
| There's still a big difference between being 10 cents short
| on your pizza bill and being $10 short.
| beebmam wrote:
| Except instead of just leaving, the pizza guy sues you and
| the state takes your gold bars under your bed and sells it
| to pay the pizza guy. Not saying this is a bad or good
| thing.
| greenthrow wrote:
| Your assertion about SVB does not match up with all the
| information out there, which indicates they do have a
| shortfall of at least $1.5B.
|
| I don't know why HN seems to have locked into this meme
| that SVB does not have a shortfall. It does not reflect
| reality.
| peter422 wrote:
| Yes they don't have a shortfall as long as there wasn't a
| bank run and they'd have time to unwind their long term
| bonds.
|
| But they don't have time and did have a bank run, and
| therefore they do have a shortfall.
|
| I think you might be able to argue that the bank itself
| had enough intrinsic value beyond it's ledger which could
| make up the shortfall, but that's all in the eye of the
| beholder who might want to buy them. We'll really see
| whether this is the case or not based on whether they
| have a new owner on Monday or they don't.
| vikramkr wrote:
| The shortfall only occurred because they had to sell
| their assets before maturity, and the value of those
| assets have decreased. If they were able to hold them to
| maturity there wouldn't have been a problem - they still
| pay out the same amount of money at the end - but right
| now people are willing to pay less for future money than
| they used to. So if they spend 90 bucks on a bond that
| matures in 5 years and pays 100 bucks, if they were able
| to hold for 5 years, they'd still have gotten their
| hundred. But, both the accidental run (no new vc money
| while companies keep spending their deposits) and the
| actual run on thursday meant they had to get that cash
| back now, and today people might only be willing to pay
| 80 bucks for that bond that still pays 100 bucks 4 years
| from now, so they lose 10 bucks. This is why if there was
| no run, there was no shortfall, but because there was a
| run, there was shortfall.
| dylan604 wrote:
| um, i'm sorry, but if i'm the pizza dude and i show up at
| your house where you offer to pay for the pizza in 1 bar of
| gold (sorry, we don't make change), then i'll gladly take
| that deal and pay for the damn pizza myself.
|
| of course, we've already done all of the tests to prove it
| is gold and not lead dressed up in sheep's clothing
| paulddraper wrote:
| I agree.
|
| Also, the shortfall is never tiny (else there wouldn't be a
| failure) not is ever large (else there would have been a
| failure sooner).
|
| So there is some standardized range.
| igonvalue wrote:
| The article has an entire infographic titled "Most banks held
| more assets than deposits at the time they failed".
| gnfargbl wrote:
| I'll ask the obvious question, because I have no clue about
| this stuff. The early failures in 2008 seem to have been
| followed by a cascade of smaller failures. Is that going to
| happen again?
| eqmvii wrote:
| It might. Have to see what else breaks and/or gets bailed out
| on Monday.
| resource0x wrote:
| I'm very curious about the bailout criterion. They can't
| set the rules individually for each "problematic" bank.
| Whatever formulation they come up with, will be immediately
| abused by creative financial engineering, so the problem
| will soon re-emerge in a different, totally unexpected
| shape.
| dragonwriter wrote:
| > They can't set the rules individually for each
| "problematic" bank.
|
| Most past bailouts have been _sui generis_ actions with
| rules adopted for individual or small numbers of
| institutions currently in trouble, not forward-reaching
| "rights" that future actors could exploit. So I don't see
| why you characterize this as impossible here; if there is
| any bailout _beyond_ regular FDIC process, the most
| likely case would be a unique specific plan for this
| institution that creates no general rule that anyone else
| could force the government to use in the future.
| resource0x wrote:
| This "future" will arrive the very next day wrt another
| bank under the same type of stress, and then the next...
| Ad-hoc action for SVB might aggravate the situation.
| humanizersequel wrote:
| >They can't set the rules individually for each
| "problematic" bank.
|
| Can't they?
| resource0x wrote:
| In principle, they can do whatever they want, but they
| already know SVB is not the only problematic bank -
| there's a whole pipeline of them; inventing individual
| bailout protocol for each would look ridiculous. My bet
| is that Fed's PhDs are desperately looking for a formula
| as we speak. That won't be easy. :-)
| raziel2701 wrote:
| We don't know yet, we're slowly finding out who had exposure
| to what and how things are interconnected. It's a complicated
| machine and we'll probably know only after the fact. There's
| a lot of damage control messaging going on right now, and
| that actually makes me feel more bearish: All rumors are
| false until officially denied.
|
| Right now we're dealing with the psychology of markets, if a
| large enough group of people get scared and want their money
| out, there's no amount of assurance that can stop that. They
| will only be appeased once they know their money is safe with
| them.
| tekla wrote:
| There doesn't really seem to be any evidence of greater
| contagion, SVB is already gone.
| ezekg wrote:
| It's been a day. We don't know anything. The day before SVB
| fell, everybody said everything was fine. There could very
| well be contagion come Monday.
| tekla wrote:
| SVB was gone Friday morning. There was a entire half day
| of churn that should have been much more evident if there
| was systemic risk.
| dragonwriter wrote:
| > The day before SVB fell, everybody said everything was
| fine.
|
| Well, no, people were saying "Get your money out of SVB
| if its above the insurance limit", because the run was
| already happening and that SVB couldn't handle the run
| was a pretty widespread opinion.
|
| But, while there are systemic/institutional/regulatory
| reasons why SVB's conduct which created the vulnerability
| was possible, it doesn't seem that the vulnerability
| _itself_ is systemic in a way which makes other similar
| failures likely to be imminent.
| rufus_foreman wrote:
| I have no clue about this stuff either, but in my mind, every
| competent CEO has already asked their staff what uninsured
| deposits they have, what the financial condition of the
| institutions they have those uninsured deposits in is,
| they've asked their staff what they can do to mitigate risk
| from those uninsured deposits, and they want that answered
| over the weekend so they can go over it in an 8AM meeting on
| Monday and decide on what actions to take.
| chitowneats wrote:
| LMAO
| radicaldreamer wrote:
| Seems like we have a systemic crisis every 5-7 years
| MonkeyMalarky wrote:
| Between covid, an attempted insurrection, proxy war with Russia
| and now this potential financial crisis, there's a new black
| swan event happening every ~12 months.
| jacquesm wrote:
| How many black swans make a flock? At this rate the
| unpredictable and rare events are becoming frequent enough to
| lose that status.
| MonkeyMalarky wrote:
| The analogy kind of breaks down because black swans all
| look the same so I'll propose switching to snowflake
| events. Each one is beautiful and unique and we're starting
| to head into a flurry of them.
| ad404b8a372f2b9 wrote:
| The H5N1 scare was around 2006, Russo-Georgian war in 2008,
| and the financial crisis in 2008.
|
| SARS 2002, Afghanistan 2001, Dot-com crash 2000.
|
| AIDS becomes the leading cause of death for men 1991, Gulf
| War 1990, Collapse of USSR 1991, early 1990s recession.
|
| AIDS 1981, Soviet Afghan war 1979, early 1980s recession
| samstave wrote:
| My mom was a contracts law/construction loan specialist at
| several diff banks (key bank, wells fargo, Wachovia, etc)
|
| The horror stories from her experiences were nuts.
|
| They are all bad.
|
| I met a Giannini in San Mateo (I went to school with his (great?)
| grandkids in Tahoe (they use to be dropped off in a bently each
| morning to north lake tahoe HS...
|
| The bank consolidation has been bad.
|
| I met Giannini in San Mateo, and he was telling me how "important
| family is"....
|
| It was tough to hear how the most important thing is "family"
| from a billionaire who has never struggled with money and owns
| Bank of America.
|
| Fuck banks.
| jcpsimmons wrote:
| "This is normal" just like in 2008.
| xeeeeeeeeeeenu wrote:
| All the numbers in the chart have a decimal point in the wrong
| place. Washington Mutual had $307bn in assets[1] (not $30.7bn),
| SVB had $209bn[2] (not $20.9bn), etc.
|
| [1] - https://www.fdic.gov/resources/resolutions/bank-
| failures/fai...
|
| [2] - https://www.fdic.gov/news/press-releases/2023/pr23016.html
| pranshum wrote:
| OP here, you're right! Argh, this is embarrassing. Thanks for
| spotting this, fixed now.
| ajross wrote:
| "Bank failures" are routine. Most banks are small. Small
| businesses make mistakes and fail all the time. Banks are just a
| special kind of business with a federally-mandated insurance
| regime and so fail in specific and spectacular ways. A smaller
| company that can't make payroll files chapter 11 and gets
| acquired piecewise over several years. A bank that fails gets
| instantly seized by the FDIC.
|
| SVB happens to be notable _here_ because lots of HN posters are
| customers or employes of customers.
|
| And it's notable elsewhere because this is sort of a capstone on
| the current era of cheap VC money. The proximate cause may have
| been some questionable investment decisions, but the root cause
| of SVB's failure is the fact that startup funding dried up.
|
| And... is that maybe a good thing? Over the last few years, the
| tech community, and HN in particular, has been been almost
| entirely fixated on _funding_ and not technology. We talk about
| "founders" and not products these days. Series B rounds and not
| launches. Companies get acquired before an MVC is ready. No one
| even _remembers_ "ramen profitable" any more.
| xwdv wrote:
| It's because "ramen profitable" is for losers now: Small
| bootstrap operations with uninteresting tech trying to not
| starve.
|
| The days of dorm room wunderkids are over. You don't build a
| company like Facebook anymore with one guy and a website. Big
| tech is always watching and anyone that is doing anything of
| potential will attract money. If they aren't, then it's because
| the potential isn't there, so we don't care.
| ajross wrote:
| See, that's _exactly_ the attitude that 's prevailed for the
| past 6 years or so. And what I'm saying is that to me that's
| clearly a rationalization. It's something the finance bros
| tell themselves to explain why the stuff they like
| (dealmaking) is more important than the stuff they don't
| (making stuff people want).
|
| Interestingly, we've been here before, in the hangover of the
| dot com boom. And what lifted us out of that mindset was... Y
| Combinator. Now? YC is maybe the biggest single part of the
| problem. Just go look at their funding list for the last 3-4
| years and genuinely think on how many of those ideas _really_
| need the kind of funding you 're imagining.
| asimpletune wrote:
| Yeah, this is ultimately very much needed. A recession is a
| great time to start a business of you're smart and focused
| on solving problems.
| xwdv wrote:
| Not sure what you're proposing. Y Combinator was started
| for a different era, those days aren't coming back until
| there's a new greenfield catalyst for some engineers to
| build on, where simple implementation of some new tech can
| birth huge businesses quickly, with little existing
| competition.
| capableweb wrote:
| > "Bank failures" are routine
|
| At different points of time, yeah. But not recently. Last "bank
| failure" in the US before SVB seems to have been October 23,
| 2020. Not sure you can call something that hasn't happened for
| the last ~2.5 years is "routine".
| AnimalMuppet wrote:
| So I looked it up. As of September 30, 2022, there are 4,746
| commercial banks in the US. That's 11.8% failure in 23 years.
| That includes 2008.
|
| Those banks total $23.6 trillion in assets. Looking at the tweet
| cited by ezekg, I'd eyeball that as about $1 trillion in assets
| in the banks that have failed in the last 23 years. So, 11.8% by
| number of banks, but only 4.2% by assets.
|
| That's still more than I thought. But the real question is, of
| those $1 trillion in assets, how much did people actually lose,
| and how much did either the FDIC or a taking-over bank cover?
| Anybody have that number?
| dpkirchner wrote:
| I'm curious how many of these banks were young -- like were
| they fly-by-nights or were they established players that made
| bad bets?
| vkou wrote:
| > But the real question is, of those $1 trillion in assets, how
| much did people actually lose, and how much did either the FDIC
| or a taking-over bank cover? Anybody have that number?
|
| Zero.
|
| Since the FDIC was founded, no depositor has lost a dollar of
| _deposits_ in an FDIC-insured institution.
|
| There are some non-deposit things that, if you squinted, looked
| a bit like deposits, and people have lost out on those.
| MrFoof wrote:
| I believe the reason you are being downvoted is over a
| technicality.
|
| It is correct that no depositor has ever lost a penny of
| FDIC- _insured_ deposits. This is excellent for the average
| person, as the average normally-employed person isn't the one
| worrying about losing large piles of money.
|
| Uninsured deposits is an entirely different ball of wax. In
| the case of IndyMac for example, of the ~$19B in deposits,
| roughly ~$1B was uninsured. This was out of ~$32B AUM. I'm
| not sure what haircut was taken on uninsured deposits, nor
| other instruments. FDIC's Sheila Behr has spoken about the
| receivership of IndyMac in the past and has said that the
| FDIC's reserve took about a $9B hit to deal with IndyMac.
| jacquesm wrote:
| What's the distribution by size?
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