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Comment by pjc50 | Hacker News Reader

Since half the comments haven't read the article and are making knee-jerk responses:

"Bank of America, Citigroup, JPMorgan Chase and Wells Fargo announced today they are each making a $5 billion uninsured deposit into First Republic Bank. Goldman Sachs and Morgan Stanley are each making an uninsured deposit of $2.5 billion, and BNY-Mellon, PNC Bank, State Street, Truist and U.S. Bank are each making an uninsured deposit of $1 billion, for a total deposit from the eleven banks of $30 billion. This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities. Regional, midsize and small banks are critical to the health and functioning of our financial system."

Big highlighter on "deposit". No government or even FDIC money is involved in this.

It's significant that this is a private action. It's basically the exact opposite of the VCs telling each other to get their money out of SVB; it's a bunch of banks putting their own money into FRB. A "hold the line" move.

"We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not" is a rather powerful statement.

View on HN

> Big highlighter on "deposit". No government or even FDIC money is involved in this. > > It's significant that this is a private action.

No evidence on my part of back this up, but assuming that the government _isn't_ implicitly involved in de-risking this for banks seems naïve. I don't think these organizations, not exactly known for their civic-mindedness or charity, would risk any of their own precious liquidity without assurances or incentives from the government.

On the contrary, they have a very strong incentive to do so: it shows the market that they not only trust their own long term position but that they are able to act in concert to take care of a competitor in trouble exactly without the government forcing them to do so, in effect doing an end run around those that are now asking for more regulation.

And that is all the incentive they need.

isn't this almost like a cartel move

Laws against cartels in the US say things like "in restraint of trade or commerce" and "monopolize any part of the trade or commerce".

Propping a competitor up in this nature is fairly hard to argue as "restraint of trade".

They are colluding to keep a repeatedly failing system alive.

This is like saying a bunch of nodes behind a load balancer are "colluding to keep a failing system alive" when one of them fails over; it's technically correct but .. you don't actually want the system to fail? Because people are using it?

But a possibly better and more optimized implementation can't be put in place until the current one fails, that's the core issue here. Many people want reforms to the banking system, bit the system is defended fiercely until it's un-ignorable. This is a defense of god awful ways of doing things so the general public can ignore it.

Banks directly acting to help their competition? Why? Isn't that how competition is supposed to work?

What we're seeing is yet another version of capital and capitalism in decline, and rich financiers are still claiming the empire is wearing a wonderful robe. News flash! he's wearing nothing at all.

> But a possibly better and more optimized implementation can't be put in place until the current one fails

That's like saying we can't implement renewable energy until the grid goes dark, and the best way to get reform is to go round blowing up some power stations. People are depending on this infrastructure to work! Advocating for bank failures without regard to the consequences to the users is the sort of accelerationism that you normally only hear from revolutionary Communists.

What is the acceptable level of collateral damage from bank failures to you?

Yes-ish.

Let's be real, banking is a public-private partnership. While it IS significant that the banks themselves are doing this, and not the Fed/FDIC, it would also seem quite possible (likely?) to be some nudging from the Fed/Treasury. Some form of "hey, we did our part (the new emergency backstop), you guys need to show you're worth this effort".

While the top-tier of banking is obviously in competition with each other, they're also bound together by their shared interest in the status quo, and then doubling bound together by the Fed/USG also being very interested in the status quo. So it's cartel-like, but it would be a mistake to only include the banks as members of the cartel.

So why didn't these same banks band together and buy out SVB / its assets instead of letting it file chapter 11? Wouldn't have preventing the 2nd and 3rd biggest bank failures in U.S. history happen within a few days of each other been a much better way of preventing future regulation?

Because it moved too fast I suspect. And FDIC wasn’t calling the banks boards and saying “you need to do this”.

SVB's fall happened in less than 48 hours and nobody actually thought they'd fail until they did - with FRB, people took the risk seriously because of the precedent.

SVB's liquidity problems were known for months because they were a function of interest rates and failure to manage interest rate risk on their part - besides, the CEO was on the board of the SF Fed. It's not like they weren't in communication with other banks about what's going on with the markets and the Fed itself.

But SVB was solvent and basically fine long-term. If VCs hadn't panicked at herd-mentality stampeded $40,000,000,000 out of the bank in a day, forcing it to sell 10 year treasuries at depressed market rates, it would have been fine.

SVB isn't like the 2008 banks that held mortgage-backed securities that turned out to be full of people who lied about their income and assets and would never get repaid. SVB had treasuries that absolutely would have been repaid.

SVB was trying to do an equity raise to solve their short-term liquidity issues. If they'd done so quietly, and gotten money from a big institution before going public, they'd probably have been fine. Instead, the public equity raise spooked people, caused a bank run, and made their liquidity go from "risky" to broken.

> If VCs hadn't panicked at herd-mentality stampeded $40,000,000,000 out of the bank in a day, forcing it to sell 10 year treasuries at depressed market rates, it would have been fine.

Is there any (publicly viewable) analysis of the extent to which this is - or isn't - true?

It certainly would have survived longer, and for all I know maybe they would have been fine for the 6-7 (iirc) years remaining on those 10yr assets.

But at the same time, with money no longer as cheap as it had been for a long time, it's likely that had they not had the immediate run they would have seen money gradually leaving the bank as less new money gets put into VC and as their startup customers gradually spent down their investment lump sums without raising any new money. Would that gradual trickle out have been strong enough to push them under in the following months or years even without a bank run?

SVB failed because of flighty deposits, not because of liquidity problems.

The liquidity problems seem to have lead to the bank run, but the immediate cause of the collapse was VCs panicking.

> not because of liquidity problems.

The liquidity problems caused the flight - why else would they take a $1.8b haircut on a securities portfolio and then try a bone-headed cap raise to cover the difference?

You can certainly draw that chain of events.

However, just because the link can be drawn, doesn’t mean it was the ultimate underlying cause. If the depositors weren’t so heavily coordinated and concentrated together, there’s no way the money would have come out that fast, if at all. Regardless of the loss on the bond sale.

As various Financial Twitter people have been arguing, why didn't the venture capitalists, who by definition have lots of capital, and often were banking with SVB and encouraging their invested companies to do so as well, buy out SVB?

That's a common misconception: because it is not their money to do so as they wish with. It comes with strings attached in the form of agreements tied to multiple LPs (Limited Partners) dictating own that money can, and cannot be invested.

> venture capitalists, who by definition have lots of capital

Actually VC funds don't have much capital. If I agree to put $10MM into a $50MM fund as an LP, I don't send them $10MM. What I agree to do is that when they make an investment in Startup X, they can call me and ask for a fifth of that investment.

LPs invest in venture firms on the theory that the firms can pick good startups. I want the use of my money until they ask for it.

(This explanation ignores the annual management fee and the fact that some VCs have made a lot of money in the past).

"The US banks are so strong that this time they can just bail themselves out. We didn't think of that back in '08"

~ Government Officials, on the horrifically unpopular '08 bailouts that nobody lets them forget.

The odds are quite good that the lesson learned in the last crisis was not to tell people what is going on. The US government has consistently responded to every crisis in the last ... 10? 20? ... years by turning on the printing presses. It is a real leap to say this time will be different. Why will it be different? It is a crisis. They're going to print.

Ironically, the bank bailouts of 2008 were a wild success. The TARP program was paid back in under a year at a decent profit to the taxpayer. ("Through the Treasury, the US Government actually booked $15.3 billion in profit, as it earned $441.7 billion on the $426.4 billion invested."). That's basically the cost of funding NASA for that year, paid for by the return on the bailout investment.

I get that the optics of having the government loan money to banks is bad, but realistically, it was wildly successful.

That's if you ignore the secondary effects: "moral hazard," knowing that if you become big enough to create political waves in the event that you fail you can continue to gamble with depositor money, make your annual bonus, and safely be rescued by Federal depositor backstop / bailout in the event that you eventually go tits up. I wonder if that'll ever happen again after 2008...

What they did with SVB prevents this thinking. Make the depositors whole, wipe out shareholders, prosecute the executives.

Not really - rewriting the rules (FDIC insurance limits) midway through because SVB's own depositors yelled "bank run!" loud enough is still moral hazard. Do I need to make sure I bank with an institution that Jason Calcanis, Mark Cuban, et al use so I can insure my deposits with their political / popular leverage?

It's hardly a rewrite, everyone knows that your deposits with the big 5 are already 100% "too big too fail" anyway.

The only change is that some smaller organizations might also get the same unspoken benefit that the big 5 already enjoy.

This keeps them competitive, and as the US Gov and many folks noted, if they did not do this, everyone would flee to the Big 5 and regional/community banking would be wiped out.

The irony is that "moral hazard" was the excuse used for not bailing out the homeowners directly who were defaulting on mortgages 15 years ago.

Aside from the moral hazard, you are right. But most of the histrionics about bailouts, particularly the 2008 bailouts, are often based more on feelings than facts.

>are often based more on feelings than facts.

This is how it's being framed on many news networks as well. But I don't know if I quite buy it; maybe you can clarify.

The 2008 was considered "different" because it was essentially driven by a bunch of bad bets on sub-prime mortgages. In contrast, this current one is being framed as just ensuring depositors. But that assurance is needed because the banks made bad bets on the bond market. Are the two really fundamentally different?

Well, when SVB got its “bailout”, what happened to its shareholders? They got wiped out. The people that made the bad bets didn’t get rescued.

Those are lies on the level of when the Russians do their tour talking about how they are defending themselves against Ukrainian aggression. If there was that much money to be made, it doesn't make any sense for the government to be involved sucking out all the profits.

Bank creditors aren't idiots, they can be persuaded to wait a few years for a $15.3 billion bumper profit if the alternative is losing all their money. The issue is someone is pulling out smoke and mirrors in a complex situation to pretend that everything is going ok. Probably involving, to stick to theme, money printing.

I don't think "the Russians" actually said that. Maybe you should use a different example, like when the US lied at the United Nations about WMDs in Iraq.

> Russian Foreign Minister Sergei Lavrov made headlines over the weekend when his claim the Ukraine war was “launched against” Russia provoked laughter from the audience during a forum in India. But I was in the room and can report he also received applause and indifference.

https://theconversation.com/russias-foreign-minister-got-lau...

Putin absolutely used language suggesting these actions were defensive against "fundamental threats" and in reaction to "the military machine is moving and, as I said, is approaching our very border". Putin puts the war against Ukraine as "a matter of life and death, a matter of our historical future as a nation" and a threat "to the very existence of our state and to its sovereignty." He even literally states "we are acting to defend ourselves."

Putin himself has absolutely, 100%, without question, very publicly stated they needed to go to war against Ukraine to defend themselves against Western aggression. He absolutely framed it as a completely defensive action. Those words aren't some misquote or mistranslation or taken out of context, they're hosted on the Kremlin's website.

I guess you don't consider Putin to be a Russian?

http://en.kremlin.ru/events/president/news/67843

https://www.atlanticcouncil.org/blogs/new-atlanticist/markup...

Please quit spreading lies.

You are implying that "Western aggression" is the same as "Ukrainian aggression". They are not.

Please quit gaslighting.

"The purpose of this operation is to protect people who, for eight years now, have been facing humiliation and genocide perpetrated by the Kyiv regime." - Putin, from the links above. Please read them before arguing what Putin has or has not said.

Who is the Kyiv regime? I guess to you they're not Ukrainians. Who's gaslighting, the person literally quoting what Putin says, or the one essentially arguing Putin isn't a Russian and the Kyiv regime isn't Ukranian?

The current Kyiv Regime == Western, to Putin. So "defending against Western aggression" is "defending against Kyiv regime" is "defending against Ukraine."

Please quit spreading lies.

>Who's gaslighting

You are.

You are continuing to imply that "Western" and "Ukrainian" are the same to Putin. While in your links, which I read, right near the top, there is a statement about "the fundamental threats which irresponsible Western politicians created for Russia consistently, rudely and unceremoniously from year to year. I am referring to the eastward expansion of NATO, which is moving its military infrastructure ever closer to the Russian border." Maybe read the whole thing again.

And please stop your gaslighting already.

So the regime in Kyiv isn't Ukrainian, it's "Western". Got it. Makes total sense.

And to defend against the Western world, they need to shell checks notes dozens of Ukrainian cities, which were controlled by the government in Kyiv. Right. Which isn't Ukrainian, it's "Western", which are definitely two different things. Huh.

I'm quite confused by how you've twisted things. Is they Kyiv regime Ukranian or not? Is Ukraine Western or not? Did they have to defend themselves from Western world? Did they have to defend themselves from Ukraine? Are those really separate? Isn't saying they had to defend against the Western world and the Kyiv regime acknowledging they're one in the same?

I'd love if you'd spell out what you really think about the topic.

What have I twisted? Look at my opening post, to which you replied "Please stop spreading lies". What was the lie again? You doubled down and had to twist like an eel to try and justify your statements.

As for what I think: I think that we, "the West", are playing a stupid and evil role in this conflict. Furthermore, we are spreading misinformation in order to manufacture consent among the public, often in an incredibly crude manner. I'm prepared to discuss this, but maybe one thing - you pick which - at a time.

What you've twisted is you're essentially arguing the Kyiv regime isn't Ukranian. Putin sees the Kyiv regime as Western and an expansion of NATO influence, he says so in the speech I linked above.

If the special operation is having to defend against Western influence, and the Kyiv regime isn't Western, why is he shelling the Kyiv regime?

Your lie is arguing Putin never said they had to defend against Ukranian aggression. In my quote above, he talked about needing to act because of aggressive actions from the Kyiv regime. So either the Kyiv regime isn't Ukranian to you, or Putin did say they needed to defend against Ukranian aggression.

Putin feels the Kyiv regime is an extension of Western NATO influence, and he stated he had to act in defense against their aggression in DNR/LNR/Crimea. This is all in the speech I linked, not twisting any of his words at all.

So yes, Putin has absolutely argued he had to defend against "the regime in Kyiv", which I think most of the world would take to mean Ukraine. So it's pretty fair to say Russia phrased this as "defend against Ukraine", unless you are arguing the regime in Kyiv isn't Ukranian or Putin and the Kremlin aren't Russian.

Could you answer if you believe the Kyiv regime is Ukranian?

>Kyiv regime isn't Ukranian

I'm not actually arguing that. However: Zelensky was elected largely by the voters in the eastern regions of Ukraine, and largely because he promised to bring peace to those regions. He has failed in that promise and betrayed his voters. Most likely because of Western influence.

>Putin sees the Kyiv regime as Western ... ... he says so in the speech I linked above.... etc.

I read the entire thing and I don't see it. Which paragraph are you talking about? Is it this one:

"...the leading NATO countries are supporting the far-right nationalists and neo-Nazis in Ukraine, those who will never forgive the people of Crimea and Sevastopol for freely making a choice to reunite with Russia. They will undoubtedly try to bring war to Crimea just as they have done in Donbass..."

because that's certainly not about "Ukrainians" in the sense that you keep on implying.

>Could you answer if you believe the Kyiv regime is Ukranian?

Let me try. The current Kiev regime is made up of Ukrainian nationals. However, it is no longer acting in the interests of Ukrainian people. It has become a sock puppet of the NATO countries. So I believe that it is "Ukrainian" in the same sense that the ruling party of China is "communist" or that Donald Trump is a "conservative". Hope that answers your question.

Putin sees the Kyiv regime as Westernized. He doesn't directly state this as a single line, but you don't need to look too deep in his statements to understand this. Unless you're thinking he's talking about someone else when talking about far-right nationalists and neo-Nazis here.

"Focused on their own goals, the leading NATO countries are supporting the far-right nationalists and neo-Nazis in Ukraine, those who will never forgive the people of Crimea and Sevastopol for freely making a choice to reunite with Russia."

"Any further expansion of the North Atlantic alliance’s infrastructure or the ongoing efforts to gain a military foothold of the Ukrainian territory are unacceptable for us." What foothold would he be talking about here if not a Westernization of the regime in Kyiv?

"...are supporting the far-right nationalists and neo-Nazis in Ukraine"

> because that's certainly not about "Ukrainians" in the sense that you keep on implying.

What nationality are those people who are those "far-right nationalists and neo-Nazis in Ukraine"? Isn't he referring to the regime in Kyiv and its supporters with this language? Is Zelenskyy not a Ukrainian? Are those people in the Ukrainian army with the Ukrainian flag on their uniforms not Ukrainian? What nationality are those nationalists supposedly fighting for? Talk about gaslighting.

>Putin sees the Kyiv regime as Westernized. He doesn't directly state this as a single line...

If you dismiss what he is saying directly, and look for some obscure meaning instead, with some help of semantic distortion you will find what you want to find.

>What foothold would he be talking about here

Very obviously NATO foothold, that's the "North Atlantic alliance".

>What nationality are those people who are those "far-right nationalists and neo-Nazis in Ukraine"?... etc.

They are Ukrainians. And Ku Klux Klan members are American. But you can't interchange the terms willy-nilly. Eg it is wrong to say "Americans advocate the use of violence against people of colour and Jews".

> And Ku Klux Klan members are American. But you can't interchange the terms willy-nilly. Eg it is wrong to say "Americans advocate the use of violence against people of colour and Jews".

Those leading NATO countries are supporting the regime in Kyiv, the government headed by Zelenskyy, which he also "will never forgive the people of Crimea and Sevastopol for freely making a choice to reunite with Russia." Ergo, by Putin's own words, Zelenskyy == a far right nationalist/neo-Nazi. If I say a rectangle is a four sided shape with all right angles, and describe a shape with four sides and all right angles, I just called it rectangle without actually using that word directly, right?

This is very different from your example with the KKK, as the leaders of the KKK aren't currently the leadership of the US government. If the leadership of the US government was composed of largely KKK members and they started instituting KKK policies, I would agree with that statement. Are you seriously suggesting that Putin explicitly wasn't connecting Zelenskyy to the "far-right nationalists and neo-Nazis" here?

Hello again!

>Those leading NATO countries are supporting the regime in Kyiv, the government headed by Zelenskyy

Unfortunately, this is a misleading half-truth.

The truth (this is my opinion, but based on literally hundreds of hours of scouring the internet for information) is that:

1) Zelensky was elected because Ukrainians, especially Eastern Ukrainians believed that he would work to bring peace to Donbas;

2) For a year or so after his election, he actually tried to do that. The West disapproved and pressured him to change course, while the far right nationalists basically told him to f@#k off and made public death threats against him. I don't know if you understand Ukrainian, but at least skim these videos https://www.youtube.com/watch?v=_KxLuDpP4_w / https://www.youtube.com/watch?v=d5RRDnF7lKM to get an idea. I think Putin called Ukraine a failed state at that point.

3) After a while, Zelensky basically folded and let foreign backed parties and interests dictate Ukrainian policy. Ultimately leading to where we are today.

So it is not so much that "leading NATO countries are supporting the regime in Kyiv". but rather "the regime in Kyiv is a NATO puppet regime".

>This is very different ... Are you seriously suggesting that Putin explicitly wasn't connecting Zelenskyy to the "far-right nationalists and neo-Nazis" here?

I'm certainly not suggesting that, quite the opposite. He was connecting the two, just not in the way you imply. He quite rightly IMO is saying that Zelensky is carrying out the agenda of far-right nationalists and neo-Nazis. But not "Ukrainians", meaning the people of Ukraine in general.

> I don’t think “the Russians” actually said that.

As well as the broader “NATO moving up to our doorstep” justification, the more specific (as to timing) “Ukraine shelling and moving troops to prepare to follow up the shelling with a massive ground offensive against the DPR/LPR” excuse is regularly used by both Russian official sources and Russian proxies.

Hmm... You are equating responding to a "massive ground offensive against the DPR/LPR" with Russians "defending themselves against Ukrainian aggression". Are you implying that DPR/LNR are Russian?

> Are you implying that DPR/LNR are Russian?

Russia has described them as Russian by identity and allegiance and responsibility of the R.F., even if not juridically (and has since purported to annex them juridically, as well.)

Putin also cited direct military threat by Ukraine to Russia generally (including nuclear threat), and invasion threat to “Russian” Crimea specifically, in his speech coinciding with the opening of the 2022 invasion.

Man, there is some heavy semantic distortion happening in this subthread. To make sense of the NATO narrative:

"Western" = "Ukrainian"

"DNR/LNR" = "Russia"

"Threat" = "aggression"

Next, we will be "warmongering" = "peacemaking". Oh wait, this is already a thing. Along with "ignorance" = "strength".

DNR/LNR isn't in Russia though, it's Ukraine according to treaties Russia agreed to. Same thing with Crimea.

Next thing I know you're going to tell me Autonomous Republic of Abkhazia is a real, sovereign country and totally not just Russia invading a neighbor.

>DNR/LNR isn't in Russia though

Not sure of you are agreeing with what I said above, or disagreeing. Can you re-read the thread carefully and clarify?

>Next thing I know you're going to tell me Autonomous Republic of Abkhazia is a real, sovereign country and totally not just Russia invading a neighbor.

Well, I had to look this up on Wikipedia, but in a nutshell, that is roughly correct. To be precise, Abkhazia is a de facto independent state, and has been since the Georgian-Abkhaz war of 1992. Russia only recognised its independence in 2008, probably in response to Georgia's plans to join NATO.

fascinating, where can I read more about that?

Nobody profits when a bad loan is made. Money that represents a promise of future spending made to someone who saved instead spent is destroyed. The only question is who is going to pay the cost.

In 2008 the wizzes of the banking industry had made billions of bad loans. Who paid for it? Anybody who saved instead of spent and invested instead of speculated. In other words, almost all of us did. Once all the pluses and minuses are canceled out we’re all poorer for it. Saying anything else is putting lipstick on a pig.

> Ironically, the bank bailouts of 2008 were a wild success. The TARP program was paid back in under a year at a decent profit to the taxpayer.

I'm not sure that getting paid back by reinflating a bubble is the net positive you think.

The only reason the banks were around to pay back TARP is because the US government declared them to be "too big to fail," essentially guaranteeing their debts. So the government put the taxpayer on the hook for all the liabilities of the banking system in exchange for a $15.3 billion profit. I would call that a lot of things, but a "wild success" isn't one of them.

In uk it wasn’t though. Taken from Wikipedia regarding uk bail out. As at October 2021, the UK Office for Budget Responsibility reported the cost of these interventions as £33 billion

Ireland took an even bigger hit from Anglo-Irish, although in that case Sean Quinn did actually go to jail.

Was it paid back? Or was it "paid back" in the same way that a father might let his deadbeat son roll a loan so he can lie to his golf buddies about it?

https://fred.stlouisfed.org/series/WALCL

It sure seems to me that at least $1T stayed printed. Of course, that amount seems positively quaint now.

That graph isn’t a graph of TARP assets…

That's my point. It's misleading to zoom in on TARP because TARP is only part of the story. Swapping one asset for another without reducing the net position is a dumb trick and it's embarrassing that so many people fall for it.

Looking at the Fed's balance sheet is a simple way to track the big picture.

Those were different program that frankly had nothing to do with each other policy wise.

In one instance, the fed took over assets to backstop troubled banks, in the other, it sought to increase the monetary base.

It’s not a “dumb trick” it’s basic monetary policy.

It stops being a dumb trick the moment the Fed manages to wind down the balance sheet (i.e. never). Until then, the Fed is just the bagholder of last resort, and talk of a money printer is more accurate than talk about backstops and the monetary base.

They’ve literally been winding down the balance sheet for the last ten months.

15B profit on 420B investment amounts 3.5% return YoY. I wouldn't brag about that sort of return. Yes TARP worked to forestall an even greater collapse. People were less upset that the government acted as an emergency creditor than by the fact that the people who made the mess of 2008 got bonuses paid out of that federal backup (a bonus is given for good performance - which was obviously not happening in 2008).

It is annoying that this is currently grey despite being entirely correct for the US. The banking rescue worked. A few crimes did get swept under the rug, like "robo-signing", but those weren't directly linked to TARP.

Other countries did less well out of the event. The UK still owns the emergency nationalised RBS. AIB blew up Ireland quite badly; Kaupthing even worse for Iceland, and so on down to Cyprus where the depositors were deemed to "dirty money" to get a bailout and actually took losses.

I also don't think people have considered what the alternative society of "contagion" would have looked like, where enough banks had failed that a significant fraction of companies could not make payroll and millions of Americans suddenly could not buy anything.

my problem with this, and I think others share it, is that nothing came out of the situation to fix the conditions that made it happen.

The best we got was the Volcker rule (RIP). and even that wasn't nearly enough. If you're "too big to fail" you're _too fucking big_.

I realize you are not proponing printing, but wouldn’t the Fed realize that continuing to print now would be the opposite of what is needed?

Wasn’t it precisely allowing the insanely low interest rates allowed to sustain over an unprecedented years-long period, coupled with non-stop printing and spending, and with the Fed continuing that trend and turning a blind eye to obvious inflationary indicators from even two years ago, and doing nothing until the non-gradual knee-jerk rate hikes in a 6 month (with the speed of which has proven deleterious to the system) period—- that caused this specific situation?

For practical purposes they've had benchmark interest rates at 0% for a decade. They have a fig leaf over that because they made it to 2% in the late 2010s before they folded and went back to 0%.

Anyone who thinks 0% made sense for that long just thinks 0% makes sense. They probably aren't capable of spotting a situation where positive interest rates are sensible.

It’s completely insane that they did that..

The banks have concluded that the public statement may be worth more than those government assurances anyway. And yes these banks are TBTF

Avoiding a crisis of trust and financial system meltdown is enough to get them to commit to this.

He's not saying the government isn't involved he's saying no government money, or even FDIC money is involved in this.

If they get a tax write off for those $30B that's technically goverment money involved.

Please explain how you get a tax write off for depositing money in a bank.

I don't think this is civic-mindedness at all the great depression taught us that bank runs and failures are contagious. The very purpose of FDIC is to prevent this (and other countries have similar schemes), but it can only go so far.

Putting their own money in can be entirely in their own self interest if it stops problems from spreading. None of those banks want the kind of problems that come with SVB, Signature and First Republic (and whichever one is next).

Something I don't understand: The people withdrawing above FDIC insurance limits aren't just putting the millions they withdraw under a mattress. They have to put it somewhere. And the most logical place to put it seems to be one of these big banks. Don't these big banks stand to gain from the collapse of small banks, as people flee small banks and into big banks? What risk do the big banks have of experiencing a run? Where would people put all that money?

Game Theory. Will you be the last one standing?

Also, I imagine the "people flee[ing] small banks ... into big banks" makes this particular stabilizing action easier. The big banks just redirect all the new deposits they're getting back to the small banks where they came from to stabilize things.

There are bigger considerations here for these banks than the gains they would make from the failure of small banks. They know that they are in a very nice position with the government guaranteeing all of their debt while at the same time leaving them free to make as much profit as they can. They know that the mass failure of regional banks while big banks gain would be a political event as much as a financial one. They know that they are some of the most widely hated organizations in the US, and that the political fallout from such an event would not go in their favor like last time, so they will pull out all the stops to prevent it from happening.

Every bank failure sends the stock value of all banks downwards. As well as corroding political confidence in the system.

Take a look at what happened with SVB failed and needed to raise the cash to meet their deposits. It massively depressed the value of a lot of the investments they held in the markets. As other banks fail, similar kinds of movements can happen and potentially have other downstream effects causing a lot of instability and chaos into markets. Maybe the big banks will be able to capitalize on those, maybe they'll end up hurt as well. Keeping the market healthy can be a good thing.

> I don't think these organizations, not exactly known for their civic-mindedness or charity, would risk any of their own precious liquidity without assurances or incentives from the government.

The spectre of more regulation given all of the recent failures from 2008 to today has them spooked I bet.

> The spectre of more regulation given all of the recent failures from 2008 to today has them spooked I bet.

Exactly. Also probably the fear of a wider contagion contained by a government response that leaves the shareholders and executives high and dry (rather than the comfortable 2008-style bailouts). It's not in anyone interest for this to blow up further, which could spur fundamentally selfish organizations into seemingly altruistic action.

>"We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not" is a rather powerful statement.

It seems to me that there is a considerable amount of risk to the participating banks if FRB fails. "Hold the line" is right - if more banks fail, these participating banks will lose a lot more than their $1B each.

I do wonder if there's something specific to FRB that made them pick this - is it the most likely to go next? Did it have published liquidity issues?

It's been all over the news all week as the likeliest next failure, yes.

> It seems to me that there is a considerable amount of risk to the participating banks if FRB fails. "Hold the line" is right - if more banks fail, these participating banks will lose a lot more than their $1B each.

$5 billion each.

Up to $5bn. The actual likely value at risk is a lot smaller; would need a First Direct balance sheet to estimate it.

(Some are subscribed at $1bn and some at $5bn. That must have been an interesting meeting.)

A 100% haircut would mean that their assets are effectively worthless. I highly doubt that the depositing banks would have done this if that were the case.

Even if their assets are things like Treasury notes? I'm assuming JPM would get first dibs on those types of assets if First Republic went under, no?

Yes, that‘s my point: Even in case of an unprecedented interest rate hike and 10-year treasuries, the haircut due to depreciating asset values would not be 100% but much less.

Sorry, I misinterpreted your first post but thank you for clarifying.

They would definitely have very carefully checked their books. I expect they wouldn’t do it if the combined amount was not such that it all but guarantees the bank won’t fail.

Obviously these big banks have a strong interest in maintaining confidence in the wider banking sector so want to make sure it doesn’t go under.

As I understand things, the problem at SVB was that they had customer deposits tied up in multi-year treasury notes which are among the most secure investments going but they couldn't withdraw the money fast enough to keep up with customers' instant-access accounts.

Having your money be secure but inaccessible for several months is obviously a problem if you're a business that needs to make payroll, or a crypto exchange that needs to allow customer withdrawals.

If the bank has plenty of cash but some of it's time-locked, then JPMorgan aren't at risk of losing their entire $5bn - they merely risk having it tied up for a year or two, perhaps getting an uncompetitive interest rate.

It’s also a problem if another bank is offering a higher interest rate. Customers will smartly ask for their deposits back to get interest elsewhere requiring that a bank sells its assets early, which isn’t possible to do so if they are locked into long dated underwater assets.

> "We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not"

Same sentences read to me completely differently:

"First Republic is in so deep shit that we must intervene immediately with funds we will miss dearly - we are troubled too - so it would not drag all of us down later. We also need to push pompous text in the attempt of covering how big our troubles are."

Sounds more believeable than "betting" for fun or being philantrophic all of the sudden.

>It's basically the exact opposite of the VCs telling each other to get their money out of SVB; it's a bunch of banks putting their own money into FRB. A "hold the line" move.

It's interesting to remember that banking, at least from the perspective of the commons (depositors), is an issue of trust.

The more the commons say to withdraw their deposits, the more deposits will be withdrawn and the more banks will collapse; and the more banks will collapse the more the commons will say to withdraw their deposits, the more deposits will be withdrawn and the more banks will collapse.

The opposite also holding true.

Objectively, there is simply no value in giving one's money to a bank other than the ostensible claim that they will keep your money safer than if you just stash it under your bed.

Given that, the FRB, FDIC, and banks et al. pulling out all the stops to reinforce depositor confidence is not surprising. It's a natural response to fear making the rounds in the commons.

Traditionally banks which needed cash to balance their books worked through the interbank market. Interbank lending was unsecured but short term so the risks were manageable. If a bank was known to be insolvent however lending would quickly dry up and banks would need to go hat-in-hand to the Federal Reserves discount window. That came with a high cost and invited regulatory scrutiny.

Now the FDIC has indicated that it will insure deposits in unlimited amounts doing a direct deposit maybe a more attractive option to banks? That $30B previously was sitting around at the Fed earning a risk free return at prevailing interest rates. I have to assume that there is special treatment here and the banks are earning above market returns and the banks didn’t put cash-at-risk sitting in zero interest accounts out of the goodness of their hearts.

If that is the case the Fed, FDIC and Yellen have effectively nerfed the interbank market.

>Now the FDIC has indicated that it will insure deposits in unlimited amounts

My understanding is that the FDIC does not have cash on hand to cover "unlimited" amounts. My (somewhat dated reference, 2010) said they have about $0.70 for every $100 insured, based on the idea that the number of depositors they would have to cover at any single time is relatively small. Similar to the idea that banks don't have to have enough reserves because depositors won't all request to pull their funds at the same time. Until they do.

FDIC has government guarantees for the $250k portion, and implicit guarantees beyond that. And with the SVB bailout of depositors it’s now signaled that FDIC is effectively insuring the full balance backed by the Treasury.

Right, but the issue is they may not have $250k on hand for everyone who is insured. (Essentially no different than the banks needing enough reserves to cover withdrawal amounts.) The "implicit" part essentially means Congress will act on their behalf if needed. Which means the mechanism is to sell Treasuries to the Fed, who pays for it by printing money. I don't know if that's great option in the context of the highest inflationary period in 40 years.

Or am I wrong on that understanding?

Technically FDIC can "levy an assessment" on all banks to cover deficiencies, or anything they want to.

In reality Congress would step in, but they did the above for SVB.

See 5-(c): https://www.law.cornell.edu/uscode/text/12/1817

> In addition to the other assessments imposed on insured depository institutions under this subsection, the Corporation may impose 1 or more special assessments on insured depository institutions in an amount determined by the Corporation if the amount of any such assessment is necessary—

Practically this means that FDIC can levy on the banks for some amount more that won't crash the banks; anything above that and they'll be going to Congress, or the Treasury will do some trickery.

Yeah, that aligns with my (limited) understanding. The assessments are a relatively small portion of the funds, I believe. My understanding is that the rate charged is the same regardless of the riskiness of the bank, which could become a moral hazard in its own right. (I.e., if the assessment rate is the same regardless of risk, it may incentivize riskier behavior)

> Big highlighter on "deposit". No government or even FDIC money is involved in this.

I have deposit accounts in several of the banks listed. So my money is involved in a potentially bad investment. At least the balances I have do not exceed the FDIC insurance limit per bank.

> At least the balances I have do not exceed the FDIC insurance limit per bank.

That's is both the cure and the problem. All of your money is protected by the FDIC. So it's not "At least". Your deposits are protected.

But SME companies have just realized that they are not protected and are busy rearranging their finances, which is seeing a lot of outflows from smaller banks, both to distribute money under the $250K limit as well as a "run to quality" to the big banks.

All small banks with a mix of customers leaning towards SME will be impacted.

Once deposited it’s no longer your money. The bank has a liability to you equal to the deposited amount, but you have no more control of those (virtual) dollars. That’s an asset for you, but this action is not your “investment.”

If JPM fails you probably will have bigger issues...

> "We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not" is a rather powerful statement.

It is. But perhaps less so than it appears.

First, there may be downside to JPMorgan if First Republic fails, and especially if dominoes continue to fall after that. So JPMorgan has the upside of avoiding the downside, at least.

Second, JPMorgan is officially recognized as a systemically-important bank. They will not be allowed to fail. So their risk from this move is the risk of some loss, but not the risk of collapse/destruction.

Still a bold move, and one that, as you said, talks quite loudly.

> "We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not" is a rather powerful statement.

Is it though? Although there's no upside, there's also little downside since deposits are at the top of the liquidation stack in the case of bankruptcy.

The further up the liquidation stack your capital goes, the least risk you're taking.

So, the biggest vote of confidence would be if big banks purchased First Republic equity. I would categorize offering FRC debt as a strong signal also (like JPM did). Offering FRC uninsured deposits is perhaps the weakest vote of confidence when it comes to transferring cash to FRC.

>> "We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not" is a rather powerful statement.

The upside is the contagion doesn't spread to them.

“ it's a bunch of banks putting their own money into FRB” - aren’t these their clients money? If so, isn’t the same situation when clients make “deposit” and expect their money held by bank, but bank start treating them as bank creditors?

I wonder what if First Republic collapses anyways? Will they be made whole anyways even though deposits are uninsured because they are deposits?

In the event of a collapse of course the depositors will be made whole, especially after they've showed such courage.

Yellen says otherwise

And there is the government bail out...

So it's about as risky as bungee jumping 5cm high using a VR headset with 5 medics around you?

I agree. Either this will work, or the FED will step in and protect their member banks. Risk: zero.

Well it's non zero. If the banking system actually start collapsing the stock prices of these banks will also crash. I doubt their executives and other want that...

I wouldn't rule it out.

But you can see how this works: because the FDIC intervened and gave 100% on SVB where perhaps it might only have been 95% otherwise, the banks are now able to privately assemble an intervention into First Direct, which is even cheaper because now FDIC don't have to intervene!

Somehow I doubt this was planned entirely privately. For one thing, absent a government nod, this kind of coordination raises serious antitrust concerns.

> For one thing, absent a government nod, this kind of coordination raises serious antitrust concerns

What concern, exactly?

Suppose that (and this is not that wild a hypothetical under the circumstances) First Republic had been contemplating, barring significant new deposits, selling to an up-and-coming midsized bank, and the larger banks did not collectively desire that outcome.

Their CEOs can’t sit around a table and discuss joint billion-dollar strategic action. It’s the definition of a “conspiracy in constraint of trade”.

What constraint of trade results from this action?

If appetite for deposits is satisfied by some ingroup then the bank doesn't have to compete for deposits on the open market.

This would be an acquisition intention that's not been announced or registered already? Anything's possible, but it seems silly to worry about things like that.

It’s only antitrust if it’s anticompetitive.

It's a liquidity injection. If there's a bank run, say, tomorrow, suddenly they have $30 billion of cash on hand to cover it.

Why are the big banks doing this?

They believe the books are sound, but people (depositors and investors) are a bit jumpy / skittish currently.

No bank - and that is no bank - can survive a majority of its depositors all withdrawing their funds rapidly. Even the big banks can't survive that.

The $250k backstop for the FDIC should prevent the regular depositors from doing a bank run, but when the depositors are more single sector business oriented then that is a more real fear.

By putting in $30B into the bank it provides a few things. First, it is $30B of money that the big banks aren't going to be moving out soon. It is liquid money that can be used so that First Federal doesn't have to sell securities at a loss to close out depositors accounts (this is what got SVB). Secondly, it is a statement from the banks that they trust (with their money where their mouth is) that the bank will not fail - because if it does, they're way about that $250k FDIC insurance number. Those deposits are very much like yours and mine - just with a few more zeros on the end. They are deposits - not bond sales or other financial instruments, but rather cash in the bank.

From yesterday: https://www.marketplace.org/2023/03/16/first-republic-bank-3...

From this morning: https://www.marketplace.org/shows/marketplace-morning-report...

The upside should be (and hopefully is) a good interest rate on that deposit. Let's say Fed Funds plus 5%.

.. does anyone have any evidence for this? It's not in the press release.

These banks that would've gotten a run could accept a loss here, as long as it's in the future and can be funded. It's better than a run.

I read in one news article that they got the same terms as all the other depositors at FRC, so the interest rate is negligible.

Obviously the real benefit to them is calming the panic in the banking sector, which is harmful to all of them.

Bro this is residual investment for these banks, wake up.

This money is NADA, is part of a fund every bank saves for things like this, they are literally just burning cash with this movement because 30 billion alone isn't enough to cover for any of them, even them "small" ones like First Republic.

This is a political movement, in a time where these banks should be investing said "actual" money (another misnomer) in literally unfucking federal government gridlocks on systemic reforms.

Banks make hundreds of billions every year, for them to take 2.5 or 1b to fund whatever is literally part of the business, not even computed as loss since it can be classified as net cost avoidance if this money actually ends up helping systemic chaos because these things are way pricier than 30bn.

LOL, your analysis is literally made for children books, I'm not even scratching the surface here.

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