Banks with the highest risk of collapsing according to market data
banksonthebrink.com
banksonthebrink.com
At the very least do some domain research and look up things like Texas ratio.
The Texas ratio takes the amount of a bank's non-performing assets and divides this number by the sum of the bank's tangible common equity and its loan loss reserves. A ratio of more than 100 (or 1:1) indicates that non-performing assets are greater than the resources the bank may need to cover potential losses on those assets.
I agree the website looks very naive, but not necessarily naive on purpose.
The collapses that occurred were a combination of factors. The most important were the massive withdrawals of capital these highly specialised banks faced when their crypto and startup customers ran out of money.
Assuming they're incorporating all relevant info seems Hopeful (ie when did you see SVBs widen).
I definitely agree they're an obvious datapoint
- quantified: What's the difference in default probability between ranks 1-8 and rank 9? what about between rank 10 and rank 200? Without quantifying or at least qualifying what this ranking means, it's impossible to assess the accuracy of prediction in either direction.
- actionable: What do you do with this information, and what is the cost of taking that action?
An absolute ranking based on four statistics without even explaining the relationship between the statistics and the ranking is the statistical version of blogspam.
i.e. I was looking for the lowest ranked Canadian bank... which seems to be Equitable Bank... which tends to offer some of the higher high-interest-rate saving accounts.
Still, if the source data includes these institutions and it makes sense to add them, I would be very interested in seeing how for instance Britain's Nationwide or Spain's Caja Rural compare with publicly traded banks in this ranking of numbers that to be honest I don't really understand well enough to evaluate them.
My first intention was to mainly base my ranking on their balance sheet, but the balance sheet of SVB, Signature, Silvergate and Credit Suisse was average, it wasn't terrible (Many banks do much worse). In fact Moody's gave SVB an A rating.
What broke SVB,Signature and Silvergate's neck was their lack of diversification, their high exposure to crypto and tech startups and the bankrun that ensued when crypto collapsed and VC cut their funding.
Almost every bank can't sustain a bankrun. In the "cash equivalents % of total assets" column you can see how much of their assets the bank can actually let people quickly withdraw and it isn't that much.
Silvergate had 40% of their assets in cash equivalents, more than almost every bank, and they still failed.
We've taken "Show HN" out of the title now.
There is a rock and a hard place for banks because low interest rate debt tends to be safe from default. But drops in value when interest rates rise.
After 15 years of zero interest rate policies by the Fed and other central bankers, banks are now sitting on huge amounts of safe from default low interest rate debt. And now that the Fed is raising rates the value of that debt is falling hard.
My opinion is this is all on the Fed. They caused this problem, they need to fix it.
What's important are:
- strong regulations (not half of Dodd-Frank becoming a banking lobbyist for weaker regs)
- results of recent, meaningful stress tests
- diversification of its asset portfolio in inflation- and interest-rate-safe instruments
- P&L exposure to liabilities or downturns in revenue
- diversification of product mix to weather commercial and retail downturns
Besides that, the status quo emerges from the set of laws and regulations applied to banks. Removing the banks and keeping everything else unchanged is the best way to get an exact copy of the bad outcomes you‘re hoping to prevent.
Additionally the raking is mainly based on price action since March 1st and the price-to-book ratio.
The balance sheet of the banks that failed so far was not the bottom of the list, I would say it was slightly bellow average. In fact they even had good ratings by Moody's. What broke their back was their lack of diversification (exposure to crypto and tech startups that massively withdrew in recent time) and the bankrun that ensued.
If there are some banks out there valued at xxxx with only yyy in assets, thats good to know
Logically, it should not go bellow 1, if it does, it means that the market thinks something is wrong with the company.
TL;DR: if you swipe left on web3-cum-gtp (sic) people when considering investment and collaboration, swipe left here as well. Otherwise, load up on risky bets that these bank fails, comment with your positions below, and please don't gamble with assets your family needs for a comfortable life.
To my critique, in no particularly intentionally order:
1. The weighting of these four statistics is not disclosed. I'm working on figuring out that weighting and will post below if I figure it out.
2. Presentation. The "price to book", "cash eq % of assets", and "Assets / liabilities" columns are presented in absolute terms with no coloring while the "stock price change" is RED RED RED and base-lined from 19 days ago (?).
3. The ranking is already empirically invalid, depending on how you characterize what just happened at CS.
4. Speaking of CS, what does "collapsing" even mean? What risk is being measured here? Risk to depositors? Risk to creditors? Risk to owners?
5. Looking at these rankings, I'm not really sure what role this is supposed to play. I would not use this list to purchase any sort of financial contract or to decide where I should deposit my cash. Even if this list accurately captures the "collapse", for any particular value of "collapse", it's unclear what actual action should be taken...