[HN Gopher] FDIC set to take First Republic Bank into receivership
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FDIC set to take First Republic Bank into receivership
Author : VagueMag
Score : 81 points
Date : 2023-04-28 20:40 UTC (2 hours ago)
(HTM) web link (www.reuters.com)
(TXT) w3m dump (www.reuters.com)
| chaostheory wrote:
| Is there any credence to the six essential US banks rumor, or is
| it just conspiracy?
| CSMastermind wrote:
| I'm unfamiliar, what's the rumor?
| chaostheory wrote:
| Only 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
| cypherpunks01 wrote:
| Are you asking about GSIBs? Wondering whether they exist? It's
| not clear what you're asking.
| chaostheory wrote:
| The rumor only applies to the US version
|
| https://www.fdic.gov/resources/regulations/federal-
| register-...
| Xcelerate wrote:
| So 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 wrote:
| The 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 wrote:
| > 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.
| chrisbolt wrote:
| From yesterday's Money Stuff about First Republic:
|
| > Programming note: Money Stuff will be off tomorrow, back on
| Monday.
| loeg wrote:
| (The running joke here is that Levine taking a day off causes
| news to happen. It happened a lot during the Musk Twitter
| acquisition.)
| [deleted]
| dragontamer wrote:
| Levine needs to stop taking vacations. His vacations seem to
| have caused Crytpocoins to crash, Twitter buyout problems, SIVB
| failure and now First Republic Bank.
| pearjuice wrote:
| Another bank, another leeway for the FDIC insurance limit?
| VagueMag wrote:
| It'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 wrote:
| I guess they just bought FRC's loan book at par.
| zaroth wrote:
| What do you mean it's not clear it's still there? It was
| there when they had their earnings call 4 days ago.
| VagueMag wrote:
| 4 days is a long time in bank deposit land now!
| justapassenger wrote:
| Silicon 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 wrote:
| The whole point of the FDIC is that it's not good idea to
| reward people for participating in a bank run.
| jonathankoren wrote:
| No. The people that _didn 't_ participate in a bank run are
| the ones that get hurt. The whole point of depository
| insurance is that people like you and me with less than
| $250,000 in a single account shouldn't get screwed over
| with billionaires like Peter Thiel decide to play games
| with other people's money.
| ChadNauseam wrote:
| > The whole point of the FDIC is that it's not good idea
| to reward people for participating in a bank run.
|
| > No. The people that didn't participate in a bank run
| are the ones that get hurt.
|
| These are the same, right?
| jonathankoren wrote:
| No. Because the people that participated got their money
| out leaving the people that didn't participate with
| nothing in their accounts. This happens because of
| fractional reserve banking.
|
| Think about it. Assume we both have an account with $1
| dollar in it, and the bank only has $1 on hand. Now I
| create a run where I take my dollar out, but you don't
| participate. I have my dollar, and now you have nothing
| because the bank failed.
|
| How are we the same?
| dragontamer wrote:
| > and the bank only has $1 on hand
|
| Well, that's not the truth either. The bank is holding
| onto 30Y mortgages / 30Y Treasuries that will be worth $2
| in the year 2050, but is only worth $1.4 (fair market
| value) right now.
|
| This loan was good 2 years ago (ie: its fair-market value
| was $2) in the year 2021. But the Fed rate-hikes have
| caused the loan's value to collapse, and so here we are.
|
| You withdraw $1, the bank doesn't want to sell the bonds
| because it'd lock in the loss. The Fed provides a loan at
| the full principle of the bond (so the Fed now backstops
| the missing money). The Fed is now acting as the bank of
| last resort, providing $2 of true dollars to backstop the
| $1.4 (fair market value) of the bond, which will truly
| become $2 by the year 2050. The Fed will exist that long
| so everything should be kosher, in theory.
|
| Or so goes the story one month ago. Why didn't this work?
| Why is FRC still collapsing despite these loans from the
| Fed?
|
| ----------
|
| Believe it or not, life is a bit more complicated than
| just "fractional reserve banking". You're missing a huge
| part of the story if that's all your mind is open to. I'm
| not claiming to have all the answers, but I think it
| would behoove you to at least try to understand the
| current situation with a bit more nuance.
| salawat wrote:
| ...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 wrote:
| They 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...
| dragontamer wrote:
| > First Republic Bank was collapsing for more than a month.
| If anyone still kept uninsured money there, it's mostly on
| them.
|
| The big banks deposited 30-billion dollars uninsured to try
| to rescue FRC. Are you saying that you don't want big-banks
| trying to rescue smaller banks anymore?
|
| Moral hazards, all the way down. We like the deposit they
| made, but they did so because FDIC seemed to offer assurances
| to cover even uninsured deposits. We're back to SIVB
| questions and just delayed by a month.
| causality0 wrote:
| Is 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.
| sgammon wrote:
| ruh roh
| sschueller wrote:
| My 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 wrote:
| > _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-...
| cm2187 wrote:
| Neither regulations or good capital and liquidity ratios
| helped Credit Suisse. Banking is about trust, if people are
| getting worried about you, it doesn't matter what your
| financial statements say, you are done.
| throwaway2203 wrote:
| Is this related to the Dodd-Frank rollbacks?
| JumpCrisscross wrote:
| > _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.)
| RC_ITR wrote:
| >Outside BofA, their balance sheets are healthy.
|
| Woah, let's not over-exaggerate in times like these. Bank of
| America has about $110bn of unrealized losses on HTM
| securities, but that is against $200bn of Tier-1 capital.
| Comp that to SVB who had $16bn of unrealized losses against
| about that much Tier-1 capital.
|
| BoA has a _worse_ balance sheet that peers, but not an
| unhealthy one.
| cm2187 wrote:
| A bank cannot afford to loose half of its capital base
| without creating a panic. I'd rather not think what a
| market scare on BoA would look like.
| JumpCrisscross wrote:
| > _BoA has a worse balance sheet that peers, but not an
| unhealthy one_
|
| Correct. The big banks' balance sheets are healthy. BofA's
| isn't, but it's stress tested to prevent these problems.
| peyton wrote:
| Sounds like BofA has a problem too? Why are you blaming 2017
| numpties?
| JumpCrisscross wrote:
| > _Sounds like BofA has a problem too?_
|
| They do! But it won't tank the bank. Because they've been
| working on them for years. Because they're still under
| Dodd-Frank's liquidity coverage rules.
|
| > _Why are you blaming 2017 numpties?_
|
| They rolled back the regulations that would have, if not
| prevented this mess, caught it much sooner. BofA has
| similar issues, but it's subjected to stress tests. As a
| result, the risk has been managed in a way it wasn't at
| these banks.
| loeg wrote:
| > they will get so huge that their failure will be unthinkably
| bad
|
| That's already the state of the world. That's why they're
| considered systemically important banks.
|
| https://en.wikipedia.org/wiki/Systemically_important_financi...
| KerrAvon wrote:
| It's why Obama didn't put anyone in jail for this mess. He
| should have. We'd be in much better shape.
| JumpCrisscross wrote:
| > _He should have. We 'd be in much better shape_
|
| We'd be in better shape if we'd kept the rules we wrote
| after 2008 to keep 2008 from happening again.
| 0zemp2c wrote:
| all of the banks have some Treasuries yielding next to nothing
|
| all of the banks have DOA car loans (bigger than student loans
| now?)
|
| all of the banks have mortgages they underwrote for thirty
| years at 3%...these may be a relative loss to Treasuries for a
| generation
|
| all of the banks financed now-empty commercial real estate
|
| when I last checked, First Republic was #10 in % of holdings
| not covered by FDIC, and plenty of big banks were ahead of them
|
| First Republic may have sucked, but your bank does too
| cm2187 wrote:
| That's a long term issue, but the contraction of credit is my
| shorter term concern. When deposits flow out of regional banks
| into big banks, it limits the capacity of those regional banks
| to fund themselves and forces them to cut lending (not the
| least to not consume their liquidity).
|
| On the other hand the big banks might receive more deposits but
| they can't lend it either because they are constrained by
| capital requirements, not funding.
|
| So logically you should have a contraction of credit, which
| combined with higher rates, is going to be ugly. Clearly the
| markets aren't pricing that right now.
| kyaghmour wrote:
| Who's next?
| toomuchtodo wrote:
| 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.
| elecush wrote:
| Does this fix the market? Or are we just putting out fires as
| they crop up.
| downvotetruth wrote:
| fix 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?...
| collegeburner wrote:
| thats like summing the value of all written insurance
| policies, meaningless number
|
| the figure is way lower netted out
| [deleted]
| kyaghmour wrote:
| Warren Buffet on derivatives: "financial weapons of mass
| destruction."
| tootie wrote:
| You can't compare a notional value to assets under
| management.
| downvotetruth wrote:
| market cap is not assets under management
| JumpCrisscross wrote:
| > _Does this fix the market?_
|
| On its own, no. The Fed has proposed a solid package of rules
| that largely restore those rolled back in 2017 [1]. That is the
| systemic solution.
|
| [1] https://www.bloomberg.com/news/articles/2023-04-28/fed-
| seeks...
| Zetice wrote:
| My 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!
| ProfessorLayton wrote:
| My 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 wrote:
| > 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.
| 0zemp2c wrote:
| what do you want Congress to do?
|
| if they increase spending, you get more inflation, and then
| they have to eventually pay higher rates on their own debt
|
| if they cut spending, they can deflate the economy, and they
| can't attract the tax revenues to pay their own debt
|
| no good options in a society that has OD'd on debt since the
| mid 90s
|
| if we were honest, the President would go on TV and tell us we
| are just going to be poorer for a while, which is something
| most people already know anyway
| JumpCrisscross wrote:
| > _if they cut spending, they can deflate the economy, and
| they can 't attract the tax revenues to pay their own debt_
|
| This is not a serious constraint on deficit reduction.
| timwaagh wrote:
| What 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 wrote:
| > _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 wrote:
| interestingly, 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)
| cypherpunks01 wrote:
| Likelihood 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 wrote:
| That'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?
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