Experts flag moral hazard risk as U.S. intervenes in SVB crisis
reuters.com
reuters.com
People buy index funds so that they don’t need to do deep research on individual companies.
And, how can not having a CRO not be a critical issue for a bank? I understand another officer in the UK was taking on those duties but apparently they were busy with other roles and didn't give the CRO role the importance it deserved.
It's an open secret that state banking regulators are much more lax than Federal Regulators (eg. Basel III exemption).
This is a big reason why almost all the post-GFC bank collapses are all State Chartered Banks.
That was a big reason why they pushed regional banks to be acquired by National Charter banks during that fiasco.
Because of the limits of American Federalism, it's easier to use M&A driven consolidation to make the banking industry more robust in the US than by dealing with 55 different legislatures (50 states and the 5 territories).
If you want to have a rough feel of dealing with local charters I'd recommend seeing the whole Mesa Verde storyline in Better Call Saul - (spoilers) the whole reason Kim Wexler was hired to work with them was because that local NM bank wanted to expand into other states and as such needed to get a charter in other adjacent states like TX, AZ, UT, CO, etc.
I know the answer is that they are leveraging a fee across firms, but then it looks like practically the backstop is unlimited while the on paper there is a limit. Overall just not great there.
During the early weeks of Covid, I was amazed how quickly the Fed created new tools to address the financial crisis that was unfolding [1]. Although I interacted with Fed regulators, I was not close enough to ask them if they pulled all-nighters. It would not surprise me if they did. In fact, that was the only plausible explanation I could find, either that, or some of them are 10x guys.
President Biden just gave an address [2] saying that the Fed will work with the Congress to make sure the situation will not repeat. So, yes, you are right, increasing the limit will require an act of Congress, and this will come, but it will take some time. Until then, the new "infinite limit" will be de facto, but not de jure.
[1] https://www.americanactionforum.org/insight/timeline-the-fed...
As a bit of digression I do believe at some of these institutions such as the FED they have actual 10x employees particularly for emergency situations, playbooks, and really fucking smart people working there just like many other prominent organizations. They probably worked all-nighters too.
Wonder when the movie is going to come out on Netflix. Who will play Peter Thiel?
Moral hazard achieved as a precedent has been set. I suspect billions, if not trillions, of dollars are rotating positioning to game this liability displacing outcome.
We will find out who gamed it best and what strategies they used in the coming months/years.
Funny that there's never concern about moral hazard when they're shoveling billions to banks and major corporations, but there's always major pearl clutching about making little guys whole when a house of cards like SVB collapses.
There are other, systemically controversial aspects (BTFP), but there was no need based on published reports, to drag out resolution of SVBs depositor claims (even VCs'). And next, since the VC community is systemically important, will they be regulated too?
I'm not surprised that the government stepped in on this one. It is worth it just to shore up faith in our banking system.
If even 10% of business get spooked and started pulling their money out of banks, then absolute financial chaos would ensue.
If you pull money out of one bank it goes into a different bank. The central bank can then easily fix the discrepancy by taking the 'up' from the different bank and supplying it to the original bank that is 'down' - all within the books of the central bank.
All we need are central banks prepared to do their job properly and there can be no such things as destructive bank runs - particularly as those central bankers are also the regulators and have therefore agreed that the assets of a bank, and its capital levels, are adequate.
Even worse, many countries seem to be working on and passing legislation to limit access to cash/withdrawals partially for this outcome, further feeding the beast.
Corporativismo è bella!