JPMorgan Chase Bank Assumes All the Deposits of First Republic Bank

[1] https://www.reuters.com/markets/us/fdics-special-fee-make-ba...

No, the liquidity coverage ratio defers to GAAP for all asset values, and doesn’t discount Level 1 assets [1]. So a U.S. Treasury is considered comparable to unrestricted Federal Reserve balances [2].

My proposal is screw GAAP, for liquidity calculations, your assets are market valued every quarter. If there is legitimate concern about an asset not having a market, it isn’t a HQLA.

[1] https://www.occ.treas.gov/news-issuances/federal-register/20... page 61471

[2] https://www.richmondfed.org/-/media/richmondfedorg/publicati...

Then why do we read this: “Fed’s Bank Tests Overlooked Risk of Rapid Rise in Interest Rates”.

https://www.bloomberg.com/news/articles/2023-03-15/fed-s-key...

Boomers hold 53.2%.

Those figures are from 2020 - it's probably gotten worse since.

... And those wealth holders aren't just ignoring the problems of today; they're exacerbating them.

Ageism won't solve our problems - all of this is still very much a class issue.

But let's not pretend that as a generation, the Boomers didn't fail like no generation has ever failed. And let's not pretend they aren't still blaming the victim.

Baby boomers outnumber other generations, and they successfully used their numbers to bend our political systems to benefit themselves at as they progressed through life.

Which I suppose is fine, that's democracy. But as they reach their twilight years and reflect upon the world they're leaving behind, I do hope they take some responsibility for the plights they've created for the younger generations.

We've just witnessed several of the largest bank failures in history happening this year. In an unexpected turn of events, Bitcoin is proving to be more stable than institutions like First Republic Bank (and Credit Suisse). We'll probably see a few more interesting names before this is through.

Run me through this "can't happen again" part. We've had banks for 300 years now and there is a financial crisis every decade or so these days. What is "this"? It seems to be happening quite regularly for something that can't happen again. The government has been all but force-feeding credit into markets for the last decade, that is hardly a strategy to build strong institutions. The US is at serious risk of being overshadowed by nominal Communists. My money is on the pension system bearing the brunt of this crisis.

What are the signs of regulatory success that we're supposed to be looking at? They seem to have taken an era of unprecedented prosperity and technological progress and done their best to bring that back to neutral.

Bank Failures --> Glass-Steagall --> Repeal --> Bank Failures --> Dodd-Frank --> Repeal --> Bank Failures --> ...

By the time of Hitler's rise, hyper inflation was over and German economy was stable and beginning to prosper. Here is one paper covering it

https://blogs.lse.ac.uk/businessreview/2021/10/19/debunking-...

A key difference here is that bond and equity holders are wiped out, which helps reduce moral hazard.

The broader concern is the privatization of profits while losses are absorbed by the government/public.

The only way the monetary supply changes is when a bank loan begins or ends, or when the Fed buys or sells something, because those are the only cases in which a transaction occurs with more or less money across all parties after it completes. In all other transactions money is just moving from one account to another (but the Fed issues money, so their account is special in that it can create or destroy any quantity).

Reality is a bit more complicated than this, but when a bank gets a deposit for $100 that becomes both a bank asset ($100) and liability (they need to be able to pay out $100 on short notice). Loaning the money out to another account in the bank, you’ll notice that the bank now has $200 in liabilities, $100 in cash assets, and a loan for $100 paying some interest and principle over time. Those loans can be valued at some price between starting and ending based on risk, duration, and rates.

When the Fed raised rates, those previously issued loans at lower rates become less valuable. Now the bank has the same amount of liabilities but less valuable assets. Banks can lend from each other to make up for short term liquidity problems, but if the situation gets bad enough, nobody will lend to the bank anymore and they can only look at their balance sheet in terms of their current asset prices (which may have fallen a lot compared to the full value they were using for accounting) and liabilities. Shortly thereafter they become unable to meet liabilities and are considered to have failed and enter receivership (basically bankruptcy).

The monetary supply then changes in one of two ways: it decreases by any amount that depositors lose due to the bank not having it (they end up with an account with less dollars) or it increases by any new money loaned/printed to shore up the failed bank’s balance sheet so it can be sold off to other banks (since in aggregate it has negative value, it can’t completely sell off as-is). I don’t know exactly what financial trickery backs FDIC insurance but I suspect it’s not new-money. What is monetary supply inflation is when the failed bank exercises the new Fed backstop to cover losses past FDIC, because this lets them sell some debt-based-instruments at coupon value (amount ultimately due) rather than fair-market-value (amount if you tried to sell it right now) to the Fed (remember, them buying stuff means more money gets created). And that is why these bank failures are causing everybody with cash to be effectively bailing out depositors: https://www.reuters.com/business/finance/feds-new-banking-ba...

Technically, the FDIC has to find the failure to be systemically important. Legally, nobody defined what that process should be, so you are in practice correct.

> All depositors of First Republic Bank will become depositors of JPMorgan Chase Bank, National Association, and will have full access to all of their deposits.

as long as the payout doesn't exceed the FDIC's funds

its a $100 billion fund insuring $14 trillion in deposits...

There is a search feature on archive.is, which so far hasn't failed me when I looked for links on these somewhat popular paywalled sites.

The FDIC holds an adequate deposit insurance fund, financed by banks who must buy FDIC insurance. It's over $100 billion dollars, which is enough to weather some major failures. With large failures, the FDIC may issue special assessments to maintain the fund at a safe level (they did this with SVB).

You're making it sound like people taking out their money out were those in the wrong, causing the failure of the bank.

That's not what happened. People taking their money out were in the right.

The root cause is bankers at FRB miscalculating risk. And they are those who were wrong.

this really feels like a setup to let a big bank buy a little bank for nothing

if we are really talking about people fleeing banks in "trouble", they would all close tomorrow...and don't tell me about stress-tests, those don't incorporate things like a broad collapse in commercial RE (which ALL the banks will be hit by)

That's just how business works. Many businesses would have a hard time surviving losing 40% of their business in a short period of time.

I don't like to recommend podcasts, but in of his podcast [0] he had a really interesting walkthrough of his perspective on the regulators working to shut down his bank. For me it was the most powerful advertisement for cryptocurrency I've heard to date. An opinion that would probably annoy Schiff.

Even if you don't believe in any particular bank, in a 0 interest rate environment a full reserve bank would have been competitive. If you don't get money anyway, avoiding the inevitable crash when rates rose would have been a nice selling point.

[0] https://schiffradio.com/ Ep. 887

I think the regulations add a false sense of security. If it's highly regulated like the financial industry people just follow the regulations and think that's enough. Investors don't care and assume correctly any mess up at the bank with be bailed out. Less regulated industries tend the have more savvy buyers because you know there won't be a backstop

only to put themselves in the very same seat, but without any actual regulatory oversight.

Bitcoin isn’t ideal for payments still and, speaking personally, I don’t want to ever be in the situation where I have tens of thousands of dollars that could permanently evaporate just because I forgot a code. So in practice I think most people would want custodians to facilitate payments or larger deposits. And it’s still possible for those custodians to make a purely technical fuck up and permanently lose funds in a way that is unrecoverable and irreversible but not possible in the current banking system.

Any coin with a fixed supply will be very deflationary which will make lending very difficult. Ever since we made it really hard to build new buildings and decided most early stage businesses are too risky for banks, it kinda seems like this isn’t as bad as it sounds. But, people are gonna want to do it sometimes and it will be hard. And you can’t rely on a basal protocol for a real world lending system because most real world loans can’t be fully/overcollateralized like with crypto (there is only a market for this because of tax avoidance that AFAIU is not even tested in court) and there is a real risk someone will not be able to pay it back, you need an oldschool system for stopping fraud and handling bankruptcies up to and including a guy with a gun taking away your toys.

If we’re gonna have custodians and a market for loans, I got bad news for you, some custodians will combine the two and pass on those benefits to consumers. If done with CD-like instruments this won’t change things much, until some bank gets this genius idea: if a lender and lendee make most of their payments within the same bank, you don’t actually need to debit the lender the full loan because most of that money will stay within the bank. And if lender-custodians all partner up they can fully debit all such loans. And then because lenders don’t get their accounts locked up, whether or not their balance is loaned and for how much can be completely abstracted and presented as a shared flat yield across all lenders at the bank… (this is a simplified version of modern banking)

Maybe it won’t be exactly like that, but I guarantee you, something banking-like will happen. And eventually a bank will fail because of bad risk management or a bank run. With crypto, it actually is feasible to do a huge bank run of all your money even if it’s millions of dollars, so it’ll be quick and sharp. Anybody who isn’t fast enough loses everything with no Fed to help them, we hit an extremely severe and instant deflationary depression where credit is completely unavailable, and there is no Fed to pass centralized monetary policy measures to fix it.

Instead of speedrunning digital Black Friday, I’d rather the Fed just let any individual meeting whatever reserve/audit/whatever requirements use any special facility available to member banks (or remove a facility if it cannot be offered as such). So rather than replace the system due to an unfair advantage, let everybody play by the same rules. If a bank can’t compete with that, they’re not a viable business. As a consumer I can better manage my risk within what is (to me) a very similar system. Ultimately, I want the Fed to be able to buy treasuries (print money) and raise/lower rates to control inflation because I’ve tried to learn as much as I can about banking history, economics, and crypto and this still seems like the most solid way to control inflation and prevent depressions.

Bitcoin hasn't solved corruption or unfair advantage, it just moves it out of the hands of the few politicians and bank executives in charge to the few running a handful of mining pools.

There are still people pulling the strings that can, and have, changed the rules along the way. Even the magic number of how many bitcoins will ever be produced can be changed, that limit is no more real than the gold standard that was killed with the stroke of a pen.

With that said, as closely tied our government and the major banks are there might not be much functional difference from power they have today.

It requires re-working the financial system from the ground up, and commitment to that new vision, because there isn't a graceful way to ease from fractional reserve to narrow banking or public accounts at the Fed, and there isn't a simple way back to our status quo from it.

It was mostly killed by the FDIC, which allowed private banks access to what was its competative advantage.

There's a proposal to revive the postal banking service in Congress every year or so; but thus far none have gone anywhere.

As an investor, I presume you’d be better off with the current situation, even when there are occasional hair cuts.

What I’m proposing is less like a full service bank and more like a lockbox or mattress where you can stuff dollars for later. You wouldn’t get interest (or if you did it would be tiny) in this system, because the money would not be lent or otherwise put to work like it is in normal banking

It’s kind of dumb tbh

To expand your balance sheet means to load up on assets. In the parent comment's specific example, it means that the bank could simply hold onto the money it makes, rather than paying that money out as bonuses to the executives or dividends to the shareholders. This would give the bank a better cash cushion to weather a storm (e.g. interest rates rising unexpectedly, account holders pulling out their deposits, etc.)

Now perhaps you don’t care if a gun dealer can’t get a bank account but every 4 years there’s a presidential election and maybe the next person wants to cut off abortion clinics from the banking system.

The Fed is trying to stop them at all costs.

Realistically, who would these people be?

$50-$100/mo is quite a substantial amount for just a banking fee, so it would have to be people rich enough that it's not a showstopper. But people that rich have no problem moving their money to investment accounts where they can do much better on return, so they wouldn't be customers of this.

https://www.cbc.ca/news/politics/emergencies-act-explainer-1...

But if "the answer" you are referring to is to prevent consolidation in banking, then I think it's not quite as cut-and-dry. Regulation, especially risk-management regulations, can act as barriers to entry and create an environment that favors larger/established institutions leading to market consolidation. As an over simplification by a layman, it could look something like:

    - Higher regulation constrains profitability and raises fixed costs of running a bank (compliance burden).
    - This means that the amount of assets under control by a bank has to be higher in order for the bank to be profitable.
    - This higher floor reduces the likelihood new banks start (since the asset requirements to be profitable are higher).
    - Existing banks, in an effort to increase profits, acquire and merge with other banks.

I am definitely _not_ suggesting small banks should be exempted from Dodd-Frank like they were. I actually found the 2018 deregulation disturbing and disappointing. I am only trying to illustrate that even if 2018 hadn't happened, I don't know for sure if there would be more competition in the banking industry. (Only that the banks we do have would be less risky)

It would likely cause people and companies with uninsured money in other banks to pull their funds out, quite possibly leading to cascading failures even for banks that are perfectly smart and healthy today.

The simple fact is that no bank can survive a run. Not a single one. Because that's how the business works.

IMO the best offramp from the systemic problem is to announce a schedule to phase out any protection for uninsured deposits. Say, 100% insurance for the next 6 months, declining by 1% per month after that, phased out completely in 8ish years.

Slow enough to avoid panic and dramatic swings while allowing the industry to create new products and address the market need.

Depositors shouldn't have to do due-dilligence on their bank. It might be something worth doing if you're going to park a large amount of money in the bank about the $250k insurance cap, but otherwise it shouldn't be necessary.

The investors should be doing this. And if they get wiped out, too bad.

There are also ways to spread money over $250k so it stays insured. What we have here is essentially making the $250k cap meaningless for these "too big to fail" banks. The problem is nobody really knows if their bank is considered a "systemic risk" or not. Nor should they have to care.

There are many reasonable issues with this purchase and sale. But “money printer go brr” isn’t a particularly insightful nor relevant one.

[1] https://fred.stlouisfed.org/graph/?g=lJS

Nobody will argue we didn’t print money in the last decade. Per unit of GDP, we have 22% more money than we had ten years ago [1].

Implying recent bank failures are causing that to increase is false, and in some ways backwards.

[1] https://fred.stlouisfed.org/graph/?g=lJS

We spent millennia with examples of stable, metal currencies and bank failures. Then, like now, bankers chased risks. First Republic financed long-term Treasuries. Romans financed eastern fineries [1]. Many others blew capital on kings’ failed wars.

Booms and busts are inherent to money and credit, this is a foundational learning every industrialised non-Malthusian society learned fast and, in many cases, including our own, the hard way.

[1] https://epicenter.wcfia.harvard.edu/blog/financial-crisis-th...

You wouldn't have had a stable fractional banking system prior to the 1930s anyway. So yeah, in a way you're right.

Generally financial systems are much more stable nowadays than they were under the gold standard.

It's 15 years later, and I don't recall the details, but I'm pretty sure that at least one of the big players went down in a way that the stockholders got zero.

Shares of those banks play a much larger role in index funds, retirement accounts, etc than First Republic or SVB. The major banks are so tightly coupled that if one fell most of the others would have, and the very debt that created our currency in the first place would have disappeared.

Whether bailing out the banks in 2008 was a net positive won't be known for a while. We're still dealing with the blowback from 2008 and we can't know whether the bailouts saved us from further pain or pushed it under the rug and made the pain worse later.

I like the idea of banks giving consumers a prospectus, but I should point out that publicly traded banks do, every three months, in the form of a quarterly earnings statement. How many people use it as such, I’m not sure.

The vast majority of the population would not have the time or ability to digest and perform a comparative analysis between countless pages of bank prospectuses. We put that effort into stocks now. Most use some variety of funds, often suggested by general guidance from 401k plans based on a vague risk tolerance and retirement goals.

The important thing to the people who deposited money is that they get made whole, but the shareholders will still get nothing (or a nominal sum) so they still have an incentive to hold the bank executives accountable in the future.

Well, the FDIC anticipate a total cost of $13B, right? Which will be paid by assessment on member banks, including JPMorgan.

After each adjustment, people change their behavior to fit the new conditions. That changes the conditions and sows the seeds of the next problem. So there always has to be a next adjustment coming. Those periodic adjustments are what keeps the system stable - but they don't feel like stability, because the system isn't statically stable.

According to wikipedia, second largest by assets:

https://en.wikipedia.org/wiki/List_of_largest_bank_failures_...

I haven't researched this thoroughly, but I think the banking sector (like many other sectors) has been concentrating a lot over the years. So in the 80s we had many small bank failures, and in 2008-2010 we had many many small+medium bank failures (+WaMu, the largest in US history), and today we have a few large bank failures (so far).

They did perfectly. The bank failed to manage risk. And consumers fled.

I’ve seen this claim from AEI folks [1], and while I’m listening, I’m not (yet) buying it. It looks more like the BTFP [2][3]. (EDIT: It’s not the BTFP. Something screwy here, but unclear how much.)

> the FRC deal, FDIC is giving JPM a 50B term loan, which is most likely again borrowed from the Fed

Source? The press release notes a loss-sharing arrangement. No loan. (EDIT: there is a loan.)

[1] https://thehill.com/opinion/finance/3908515-the-fed-circumve...

[2] https://www.federalreserve.gov/financial-stability/bank-term...

[3] https://www.federalreserve.gov/newsevents/pressreleases/mone...