2023 Banking Crisis

[havetheveryfun]

Nothing is guaranteed. But there is opportunity for capital gain besides just yield compared to money in banks or bills or bonds at issued price.

so buying again at 11.9x???

 

[TehSi99]

i think it will derail the Fed. Jerome Powell manage to bring down the banking system. Really is Ho seh boh.

It was no surprise something broke before interest rate hike to the max.

But bank run was unexpected. In fact, many people expect banks to do well under high interest rate environment.

Now this has backfired before inflation is under control. Is this just the beginning that more things to break?

 

[TehSi99]

If all depositors want to withdraw money, even pump 100b is not enough.

With the kiasu and kiasi mentality of Singaporeans, I am sure people will camp outside banks for withdrawal if same thing happened here.

 

[DevilPlate]

With the kiasu and kiasi mentality of Singaporeans, I am sure people will camp outside banks for withdrawal if same thing happened here.

Chances are super low for our 3 locals banks but cannot say the same for other foreign banks except SCB, Maybank, HSBC, Citibank.

I am pretty sure most Singaporeans will think our 3 local banks will never go bust. If it happens, SG whole economy also cui

There are simply too many smallish regional banks in USA. I read that ~200+ banks go bust between 2008-2010.

 

[lzydata]

With the kiasu and kiasi mentality of Singaporeans, I am sure people will camp outside banks for withdrawal if same thing happened here.

Why need to do that with FAST and PayNow? But yes, it will be all over the news and look very bad.

 

[DevilPlate]

Why need to do that with FAST and PayNow? But yes, it will be all over the news and look very bad.

If that happens, FAST tx and such will not work anymore and panic depositors will be queuing at the branch liao.
That's what happen to SVB and some regional banks.

 

[RedsYWNA]

If that happens, FAST tx and such will not work anymore and panic depositors will be queuing at the branch liao.
That's what happen to SVB and some regional banks.

I think majority of deposits at SVB were transferred out electronically, and not via bank teller queues?

SVB had a v unique and concentrated deposit base, unlike the too big to fail banks around the world.

 

[henrylbh]

so buying again at 11.9x???

Lend me and I will load more

 

[TehSi99]

Why need to do that with FAST and PayNow? But yes, it will be all over the news and look very bad.

We have many uncles and aunties who are not tech savy.

 

[boringLife-]

I think for SG, MAS can just use extreme measures like freezing withdrawals then send lawrence wong to go on TV smile smile abit announce assurance package and cdc vouchers. After that ok liao

 

[limster]

Does this reflect the culture differences? In non-Asia borrow monies to spend is the norm whereas in Asia we like to save and scrimp? I really dunno but seeing current younger generation they are slowly following the borrow monies to spend habit so economy can spin I guess.

Making bank doesn’t mean you have loot saved in the bank. Roughly 45% of those making more than $100,000 say they live paycheck to paycheck; 47% of those making between $150,000 and $200,000-a-year; and 28% of those making over $200,000, a new report from PYMNTS.com found.

https://www.marketwatch.com/picks/m...o-save-and-pros-offer-3-solutions-01667417202
https://www.nbcnews.com/business/co...-fight-inflation-save-to-buy-a-home-rcna69597
The more you earn, the more you spend? No wonder Morgan Housel is considered a guru in the USA.

When I read his book I thought its all common sense... make sure you spend less than you earn? The fact that people in America will pay money to buy his book to learn this....

 

[Nofear40]

Just read the news… republic bank may be the next…
have fed say anything yet

 

[Cryophoenix]

https://www.marketwatch.com/picks/m...o-save-and-pros-offer-3-solutions-01667417202
https://www.nbcnews.com/business/co...-fight-inflation-save-to-buy-a-home-rcna69597
The more you earn, the more you spend? No wonder Morgan Housel is considered a guru in the USA.

When I read his book I thought its all common sense... make sure you spend less than you earn? The fact that people in America will pay money to buy his book to learn this....

Even more, spend more.

Earn 100k drive Toyota, earn 1 million drive Rolls Royce.

 

[DevilPlate]

Banks saga may not be over just yet. With digitalisation and social media, SVB just collapse within 48hours.

https://www.forbes.com/sites/peterc...uirement-wont-halt-bank-runs/?sh=7bd937fe5e72

Banks Do Not Keep Enough Cash To Cover Sudden Deposit Redemption​

What would stop someone from removing their deposits from a bank? In my view, the answer depends on whether people see banks as safe.

Silvergate And Signature's Demise May Torpedo AKey Crypto Growth Driver
If so, consumers are likely to take deposits from a bank if they can they can get a much higher rate of return on their money elsewhere. If consumers are afraid that the banking system is destabilizing, they will move their funds to the safest financial institution that will give them easy access to their funds.

To identify such institutions, depositors could look at how much cash banks hold to pay back depositors. It turns out that the Federal Reserve has just such a number — called the reserve requirement — which used to require banks to hold a reserve against their demand and checking deposits.

Those reserves could be met “with vault cash and with balances in their Federal Reserve accounts.” In May 2002, the reserve requirement was 10%, according to Economic Policy Review.

That strikes me as fine as long as there are no lines of depositors at bank branches looking to withdraw their money,

So it made me very nervous to discover that the Fed lowered the reserve requirement to 0% three years ago. As the Fed announced in March 2020, “the Board eliminated reserve requirements for all depository institutions. [The goal of this change] was to support the flow of credit to households and businesses and thereby promote [the Fed’s] maximum employment and price stability goals.”

If a bank run panic begins to spread, I think the best way to stop it is for banks to boost their reserve requirement to 100%.

While I realize that is not going to happen any time soon, depositors would have little reason to move their deposits if a bank had enough cash available to them via bank branches or mobile apps. This would let them cash in all the money they hold in the bank.

In November 2022, the Fed reiterated its reserve requirements were still 0% with a twist. That is when the Fed noted “technical details related to reserve requirements for depository institutions” would go into effect in January 2023.

Banks have exceeded that reserve requirement. For example, at the end of December, Bank of America had 2% of its $1.93 trillion in deposits in cash; JPMorgan held 2% of its $2.3 trillion in deposits in cash and Silicon Valley Bank had 5% of its $175 billion in deposits in cash.

Sadly, those single-digit percentages strike me as falling short of what would be needed to prevent panic withdrawals.

FDIC Deposit Insurance Fund Is Too Small​

Could the government backstop a run on the banks? In 2008, we found out that it can — but it is expensive. Politico reported that the U.S. provided $23 trillion in guarantees and cash to prevent a collapse of the global financial system.

While we are not there at the moment, the FDIC does not have enough money in its insurance fund to cover all the deposits. In the third quarter of 2022, FDIC-insured banks had $19.4 trillion worth of deposits. At the end of 2022, the FDIC reported that its Deposit Insurance Fund had a balance of $128 billion, about 1.27% of the total insured deposits.

That is not even enough to enable SVB depositors to withdraw all their money. If the FDIC were to cover all of SVB's deposits — $175 billion, the balance in the FDIC fund would be negative $47 billion. Of course, the FDIC could raise more cash by selling the $209 billion in SVB assets that it now controls.

Fortunately, the Federal Reserve Bank created a new “Bank Term Funding Program” to help make depositors at SVB and Signature BankSBNY -22.9% whole. BTFP offers loans to banks under easier terms than the Fed typically provides.

Under the new program, banks can provide collateral that is valued at 100 cents on the dollar rather than marking them to their current market value — which is likely to be lower since the Fed began raising interest rates a year ago.

As a result, “banks can get bigger loans than usual for securities that are worth less than that,” reported Bloomberg.

 

[havetheveryfun]

Banks Do Not Keep Enough Cash To Cover Sudden Deposit Redemption​

thats what some of the financial youtubers are saying

the easiest way to bring down inflation is to forced banks to keep more reserves, but they think that this will never happen. because they are all greedy. if they have to keep more reserves, it will eat into their profits greatly .

 

[oceanicmanta]

with this event, is it correct to interpret that even a well capitalised bank with healthy Cap Adequacy Ratio does not help in the event of a Depositor's Bank run, which could also result in bank closure ?

 

[BBCWatcher]

with this event, is it correct to interpret that even a well capitalised bank with healthy Cap Adequacy Ratio does not help in the event of a Depositor's Bank run, which could also result in bank closure ?

I don't think there's any private sector bank in the world able to cope on its own with a bank run like the one SVB faced. SVB's depositors reportedly withdrew US$42 billion on March 9, 2023. That was at least 20% of total deposits at the time.

 

[di_andrei]

with this event, is it correct to interpret that even a well capitalised bank with healthy Cap Adequacy Ratio does not help in the event of a Depositor's Bank run, which could also result in bank closure ?

In principle yes, even a well capitalized bank cannot survive a bank run - even with good risk management. The dilemma is that it's very hard to match maturities of assets and liabilities and most banks borrow short and lend long - a problem when interest rates rise very fast and depositors inflows are negative. Arguably you still have the Fed acting as a lender of last resort.

 

[di_andrei]

4. I am happy for depositors at SVB and signature bank as their full deposits have been protected. But, question. If you were going to do that anyway, you should just make FDIC insurance up to unlimited amount of deposits from the beginning. Another way to put it, if individuals/companies were aware the insurance is up to US$250k only BUT they still decided to put in more than that. Why should their money above US$250k be saved? They have already understood that that amount of money is not insured. They should lose it. That's how its supposed to work, right? No doubt it was just cash deposits, but these individuals/companies were probably risk-taking in the sense that SVB was offering higher interest rates than bigger banks like JPM, BOA etc. Similarly for stocks, if i take risk, if i lose, i lose. It should be the same here? No?

One view is that banking should be viewed more like an utility, i.e. bank customers should not have to be put in a position where they have to assess the quality of the balance sheet of their bank. How many clients in SG who have more than 75k in the bank are able to make assessments like this? Also note, SVB was generally not offering higher interest rates than bigger banks - they were not a savings / investment vehicle, most accounts were just corporate current accounts for payroll, expenses, etc, that paid roughly 0%.

There is still a reason why FDIC insurance should not be unlimited, the wonderful concept of moral hazard. It would significantly incentivize bank managers to increase portfolio risk knowing full well that customers by and large would not withdraw funds (because they are FDIC insured) regardless of losses.

In the case of SVB, yes, customers got 100% of deposits but shareholders got wiped out, and bondholders as well, in all likelyhood.

 

[BBCWatcher]

Maybe going forward the FDIC could apply the following deposit insurance limits:

• US$500,000
• (or)
• 90% of your highest balance within the past 60 days
• (whichever is higher)

The idea here is that when a bank is wobbly and you have a big deposit you might have an incentive to withdraw as much as 10% per 60 day period to keep your big account(s) fully insured. So there would be some paced outflows from a failing bank. But there wouldn't be a stampede, and no depositor could ever lose more than 10%.

These deposit insurance limits would apply to every bank including the biggest ones.