*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[GGG]

Originally Posted by Bill Bumface

Well that's great news if they can pull it off without taxpayers footing the bill. Any idea how the FDIC would cover this? Is it just that much in their self interests to keep things from falling apart to pony up and prevent a bunch of potential future claims if more banks fail?

I’d assume they will provide liquidity in exchange for the underlying value of high quality bonds at a rate that covers the interest. So the cost is the interest rate differential over a bunch of years.

[Slava]

Originally Posted by Bill Bumface

Well that's great news if they can pull it off without taxpayers footing the bill. Any idea how the FDIC would cover this? Is it just that much in their self interests to keep things from falling apart to pony up and prevent a bunch of potential future claims if more banks fail?

It’s because they’re assessing other banks to raise the cash. Would that standup if a pile of banks failed? Maybe not. But there was obviously contagion with the Signature Bank failure and they wanted to stop that immediately.

To kind of bring this thread back, I think that what this allows is the federal reserve to power through with rate hikes though. The banks can use the bonds at full price, which alleviates that rate risk issue for them.

[opendoor]

Originally Posted by Bill Bumface

Well that's great news if they can pull it off without taxpayers footing the bill. Any idea how the FDIC would cover this? Is it just that much in their self interests to keep things from falling apart to pony up and prevent a bunch of potential future claims if more banks fail?

I don't know the exact details, but it's probably a combination of things. They had something like $175B in deposits and $210B in assets, so there's room to lose value while still mostly covering depositors (shareholders and most unsecured creditors are getting nothing).

It sounds like they're auctioning off what they can, and then the FDIC will cover the difference. And then any losses from that will be made up through a special assessment against financial institutions.

[Firebot]

And...the floodgates are open...or are they?

https://www.investors.com/market-tre...e-bank-stocks/

And the floodgates are barricaded as soon as the announcement of Signature Bank's collapse as a result of another bank run, regulators concede and guarantees all of SVB's depositors money.

Dow Jones futures jumped Sunday night, along with S&P 500 futures and Nasdaq futures amid flurry of news. The FDIC and other financial regulators announced that all SVB Financial depositors will get access to all funds Monday morning, while also announcing a plan to limit the contagion. Regulators also said they would close embattled Signature Bank (SBNY). An auction for SVB and Silicon Valley Bank took place Sunday, though no winner has been announced.

This was absolutely needed, this was going to be catastrophic as the contagion was realizing itself.

Now we wait to see the economic damage as a result of some very negligent economic policies in the past 2 years, but needless to say for the rest of the year rates are likely to stay as is or go negative to save the economy.

[Slava]

Originally Posted by Firebot

And...the floodgates are open...or are they?

https://www.investors.com/market-tre...e-bank-stocks/

And the floodgates are barricaded as soon as the announcement of Signature Bank's collapse as a result of another bank run, regulators concede and guarantees all of SVB's depositors money.



This was absolutely needed, this was going to be catastrophic as the contagion was realizing itself.

Now we wait to see the economic damage as a result of some very negligent economic policies in the past 2 years, but needless to say for the rest of the year rates are likely to stay as is or go negative to save the economy.

Oh wow, you think rates get cut now as a result of this? It looks to me like the fed has cover to increase rates as banks have immunity from rising interest rates, essentially.

[calgarywinning]

Originally Posted by GGG

I’d assume they will provide liquidity in exchange for the underlying value of high quality bonds at a rate that covers the interest. So the cost is the interest rate differential over a bunch of years.

The wipeout isn't in the bank, and you are correct they will be able to cover the spread for mitigation.

The real disaster here is the corrupt syndicate operation of the banking system that has not been corrected to date. Canada is also in a far worse situation.

Can anyone verify that insurance based banks such as ManuLife and SunLife have to have 2:1 on deposits?

[opendoor]

I don't know if what the Fed and FDIC did changes a whole lot in the broader context, though maybe they'll announce more. The FDIC is covering depositors (that likely would've been fine anyway) in a way that might not be able to be replicated if there are wider issues. And the Fed's new Bank Term Funding Program only has $25B in funding; that's obviously not going to provide a whole lot of liquidity when we're talking about something like $20T in deposits.

[blankall]

Originally Posted by Yoho

https://twitter.com/user/status/1634330335675662336

You'd think all the news cunning coming out of the states bodes well for this?

[burn_this_city]

When is the perp walk for the tech bros that caused the bank run? Peter Thiel, and a couple hundred other SV founders in a group chat were the ones who caused the run. Advising each other and everyone they knew to quickly pull their money out, $42B tried to move on Thursday before the collapse.

[Yoho]

Small banks in US are getting crushed in early trading..

https://twitter.com/user/status/1635275128815894531

[Azure]

Well that isn't surprising at all. What did we expect would happen?

My issue here is the lack of oversight leading up to this. Up till a few weeks ago they had like a A credit rating? I don't get how something like this gets to the point where thousands of small businesses can't afford to do payroll, and not because they actually can't, but because their deposits, which they've worked hard to secure, are gone.

[Bill Bumface]

Originally Posted by Azure

Well that isn't surprising at all. What did we expect would happen?

My issue here is the lack of oversight leading up to this. Up till a few weeks ago they had like a A credit rating? I don't get how something like this gets to the point where thousands of small businesses can't afford to do payroll, and not because they actually can't, but because their deposits, which they've worked hard to secure, are gone.

Yeah, it's funny. I've read online comments about "see, this is what happens when you don't let the free market do it's thing". Which is baffling to me, the risk taken by these banks would be way higher without regulation. The failure here is that existing regulations don't actually provide enough protection, and innocent people were still able to be wiped out. There's also a secondary failure of businesses to be able to manage their risk accordingly, but some of the prescriptive conditions regarding their deposits in order to get funding really had them held hostage by those with the $ (VCs).

[Azure]

Originally Posted by Bill Bumface

Yeah, it's funny. I've read online comments about "see, this is what happens when you don't let the free market do it's thing". Which is baffling to me, the risk taken by these banks would be way higher without regulation. The failure here is that existing regulations don't actually provide enough protection, and innocent people were still able to be wiped out. There's also a secondary failure of businesses to be able to manage their risk accordingly, but some of the prescriptive conditions regarding their deposits in order to get funding really had them held hostage by those with the $ (VCs).

I mean we don't expect any bank to be able to handle a bank run, but to me as someone who doesn't really understand the backend of banking, if I have have cashflow of $10 mil per month, which all goes into a bank, and then I use that to pay my employees, etc....it is extremely concerning that just by the fact that I am utilizing a bank like SFIB who clearly didn't have their ducks in a row, that money could be gone on Monday when payroll happens.

As a business I literally didn't do anything wrong, other than picking the wrong bank to work with.

[Torture]

Hilarious that Bitcoin is surging as a result of the SVB collapse. I guess we've forgotten all about FTX already?

[Fuzz]

Originally Posted by Torture

Hilarious that Bitcoin is surging as a result of the SVB collapse. I guess we've forgotten all about FTX already?

Look, people just want their money somewhere safe that they can trust, that is stable and insured. Bitcoin tics all the boxes, so I can see why people are leaving legacy banks behind.

[Slava]

Originally Posted by Azure

I mean we don't expect any bank to be able to handle a bank run, but to me as someone who doesn't really understand the backend of banking, if I have have cashflow of $10 mil per month, which all goes into a bank, and then I use that to pay my employees, etc....it is extremely concerning that just by the fact that I am utilizing a bank like SFIB who clearly didn't have their ducks in a row, that money could be gone on Monday when payroll happens.

As a business I literally didn't do anything wrong, other than picking the wrong bank to work with.

Ok, but there are a few considerations here. One is that they did have a bank run and there were withdrawals of $42bn in one day last week. So....clearly that's a big problem and it's not just a normal day of operations. The other consideration is that they're insured up to $250k, and there are services to manage that for you so that you're not incredibly exposed like this.

Just like Canada, there are four major banks in the US (JPM, Citigroup, Wells Fargo and Bank of America), where exceeding the FDIC (CDIC in Canada) would be less concerning than a smaller regional bank.

[Yoho]

Famous last words.

https://twitter.com/user/status/1635251422077018114

[GGG]

The whole federal reserve system was set up for exactly this circumstance and is doing what it’s supposed to do. End bank panics

https://www.crf-usa.org/images/pdf/jpmorgan.pdf

The above is a reasonable read on the 1907-08 US banking crisis which led to the creation of the federal reserve. Sad/Ironic/Hilarious that we are just repeating the same mistakes as 1907/08.

[Firebot]

Originally Posted by Slava

Oh wow, you think rates get cut now as a result of this? It looks to me like the fed has cover to increase rates as banks have immunity from rising interest rates, essentially.

https://twitter.com/user/status/1635268439488233477

Pretty clear cut and obvious?

Feds effectively nearly broke the banking system with their incessant quick raising of rates to combat inflation (that inflation they once deemed transitory and kept historically low interest rates for 2 years). They tried to brute force a recession without taking in consideration the fallout at banks in a rapidly increasing rate environment and subsequent loss of confidence, as a result they have to do damage control. Only government intervention and bailout saved the banking industry from potential total collapse and mass contagion. This intervention of course has its own side effects, it will make for an interesting year.

Western Alliance down 50% after being initially down 80%
First Republic Bank down 63% today alone
Charles Schwab stock down 10% after initially being down 20%

What would the numbers have looked like had the government not stepped in to secure deposits?

In other news HSBC bought SVB's British branch for 1 pound, but deposits are safe.

https://www.cnn.com/2023/03/13/inves...hnk/index.html

[chemgear]

Originally Posted by Fuzz

Look, people just want their money somewhere safe that they can trust, that is stable and insured. Bitcoin tics all the boxes, so I can see why people are leaving legacy banks behind.