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Comment by bko | Hacker News Reader

> It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones.

I don't get it. Doesn't the unlimited FDIC insurance encourage mega-banks? If funds were only insured up to 250k, wouldn't that just mean we would have to spread money across multiple banks. And sure some banks would be wiped out but new better banks would take their place. It's not a closed system

Banks used to fail and be smaller failures. Now we removed almost all failures except when we have a failure its huge:

Total number of bank failures: 512

2023 1

2022 0

2021 0

2020 4

2019 4

2018 0

2017 8

2016 5

2015 8

2014 18

2013 24

2012 51

2011 92

2010 157

2009 140

https://www.bankrate.com/banking/list-of-failed-banks/

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Number of banks failed is less useful info than total size of the banks that failed.

So far this year we are looking a lot closer to 2009 than 2020[0].

[0] https://static01.nyt.com/images/2023/03/10/business/bank-fai...

Edit: wrong image linked

That estimate is misleading as SV failed after people pulled 45 billion out. It wasn’t a 200 billion dollar bank when it failed and people didn’t lose 200 billion dollars.

We are at ~1.3 bank failures per month in 2023 which is much closer to 2020’s 0.3/month than 2009’s 11.7 banks failing per month. That IMO says more about the rest of the year than the size of the banks that failed.

The parent comment just made the point that you need to normalize for the size of the bank, not for the number of banks per year.

Your comment takes the annual frequency and divides it by 12 to get an average monthly frequency, adding nothing to the argument of the grandparent comment.

They suggested you should normalize for the size of the bank but didn’t support it. They even used non inflation adjusted numbers.

Maximum assets under control don’t correlate with actual losses especially when people pulled money out before the collapse. It’s a completely meaningless number on it’s own.

Certainly very valid criticisms. To be fair, I specifically was trying to ballpark it and this graph does not contain the Signature failure yet so I think it is a fair representation of this particular metric.

I also think it's a good point that a dollar is not necessarily equal to another dollar in this context. But the same can be said for individual banks as well.

That’s fair, I do think it’s reasonable to compare losses or the size of bailouts. But we just don’t have that info yet.

Here's an infographic and wiki.

It's like forest fires, we shouldn't build fragility into the system by removing all risk and then rely on regulations to mitigate it. Hasn't worked in the past and will lead to more consolidation and bigger fires in the future. Remember in 08 the answer was to combine a bunch of banks and since then we've had no new banks created (besides Ally which was a spin off of an auto workers pension fund if i remember)

https://en.m.wikipedia.org/wiki/List_of_largest_U.S._bank_fa...

https://old.reddit.com/r/dataisbeautiful/comments/11p3555/oc...

I certainly don't agree with it. I totally agree all this sort of can-kicking does is make the explosion an order of magnitude larger down the line.

« QE1 QE2, the lender of last resort is you

QE3 QE4, increase M1 even more! 𝅘𝅥𝅯 »

https://youtu.be/CzvQxQYKO88?t=255

For some more fairly excellent data viz: https://yarn.pranshum.com/banks.

And that graph is now missing Signature Bank with another 110B assets. We are getting into 2008 territory and the first quarter is not yet behind us.

Let me put it this way.

I put the majority of my cash in one of the smaller banks. The news that has transpired in the past few days had me mulling moving those funds to a larger bank, likely Chase (one of the too big to fail ones).

Even with the FDIC guarantees, I was not at all confident that :

1. they actually had the funds to cover _many_ bank runs; and

2. it won’t take weeks if not months for me to recover my funds, if my bank fails.

It’s entirely possibly that these lines of thoughts will motivate many more people to consider this exact move, putting even more stress in the system.

The FDIC is backed by the full faith and credit of the US government. If a bank fails, your insured deposits will be made while, usually the next business day.

That's true, but many people will still freak out anyway.

Will changes to probably in the context that FDIC only has reserves of approximately ~1% of the total insured value.

With the Bank Term Funding Program, people who moved or previously kept monies in large banks have less incentive to do so, until 2024 when this program is scheduled to end. That is, if they think 25 billion is enough to prevent more runs, and the FED/treasury/FDIC will not greatly expand that in the event of another run.

IMO you should probably do business with multiple banks with somewhat separate market segments to try and diversify risks. You shouldn't have all your cash under one mattress ;)

Imagine you’re a business owner. Would you rather bank with Local Community Bank, the failure of which will essentially kill your business, due to haircuts on uninsured deposits that’ll annihilate your working capital, or will you bank with Chase, the failure of which forces government action to cover depositors because the economy is a goner otherwise?

Local Community Bank has free checking and few fees. Does Chase? That’s what they look at, not existential questions about the longevity of the bank.

Chase charges money to have an account if you are poor. If you have money, and logically could more easily afford to pay bank fees, it’s free.

Most of the big guys work like this. At a certain wallet size you get a free personal advisor who will help manage your wealth.

> free personal advisor

They take 1% of the money they manage. And then they invest it in their own funds, taking more fees there. They are not free.

I mean, duh ;P

But isn’t your CFO planning for financial risk? Do you have hazard insurance on your leased offices, what happens if one of your key employees is unavailable, a large customer is late on payment, you get hit by supply chain issues, etc.

You can’t seriously tell me that the CFO who is responsible for corporate finance at these SVB customers didn’t realize a business checking or savings account is not fully guaranteed? It’s in every single bank brochure and statement. If that’s that case, they need to suffer the consequences of poor contingency planning.

Most startups don't have a CFO until they reach a certain size.

Additionally many startups had covenants in their financing agreements with investors that required keeping funds in SVB so they didn't have a choice.

Sounds like the investors made a poor choice including that in the financing agreement.

Isnt then the whole thing fault of VCs who included those covenant? The same VCs that now cry hardest?

Moreover, both startups and VCs are literally the groups that celebrate risk taking and disruption. This is it, this is the flip side of risk, the definition of risk is that you might loose. But somehow, when they loose, due to risk taking, then suddenly they want extra bail outs and help.

This is literally what those small banks lobbied for. Heavily and they won. This is not someone external victimizing small banks.

According to the AP, there was a second bank failure today (Sunday) and there was a risk of a third:

> In a sign of how fast the financial bleeding was occurring, regulators announced that New York-based Signature Bank had also failed and was being seized on Sunday. At more than $110 billion in assets, Signature Bank is the third-largest bank failure in U.S. history.

> Also Sunday, another beleaguered bank, First Republic Bank, announced that it had bolstered its financial health by gaining access to funding from the Fed and JPMorgan Chase.

https://apnews.com/article/silicon-valley-bank-bailout-yelle...

That article is already out of date. Signature Bank also failed today.

I suspect that Signature Bank's failure is tied to their crypto activity. But the sight of 2 banks failing while there was an ongoing run on at least one more bank does seem like the kind of thing that could start a panic.

I thought Signature bank failed even before that ?

Bank Runs! What's Going On? – Patrick Boyle :

https://www.youtube.com/watch?v=kxcwn7xoXhU

The entire regulatory system encourages mega-banks. The entire “too big to fail” concept encourages it. Complex regulations benefit those who can afford the legal costs of compliance. Dodd-Frank probably made this outcome more likely.

The role of the government in letting this happen has been under-covered so far. Weren’t they supposed to be overseeing things, stress-testing banks, etc? Regulators either were not looking, or were looking but did not notice. Regardless, there is not much sense to the argument that the government is “stepping in” tonight, because it was always involved.

Has nothing to do with flooding the world with cheap money which chased unrealistic yields. Systemic excess liquidity when deposited needs excess assets to balance. Assets which were bought at inflated prices. The question now is only how much will this house of cards collapse.

> 2023 1

I'm not sure how 100% accurate that list is considering that it only lists SVB for 2023, but not Signature bank, NY that failed on the same day[1].

[1] https://home.treasury.gov/news/press-releases/jy1337

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