On March 13 2023 19:09 Gorsameth wrote: The saddest part to me is that the chance of there finally being a large scale reform of the entire financial sector to better secure everything is basically 0. So this will just keep happening every decade or 2.
In 2015, SVB President Greg Becker submitted a statement to a Senate panel pushing legislators to exempt more banks – including his own – from new regulations passed in the wake of the 2008 financial crisis. Despite warnings from some senators, Becker’s lobbying effort was ultimately successful.
Touting “SVB’s deep understanding of the markets it serves, our strong risk management practices”, Becker argued that his bank would soon reach $50bn in assets, which under the law would trigger “enhanced prudential standards”, including more stringent regulations, stress tests and capital requirements for his and other similarly sized banks.
Becker insisted that $250bn was a more appropriate threshold.
No surprise that this succeeded (albeit not immediately): under Trump the limit was raised from 50 to 250m.
There is no way to eliminate the risk of bank runs under a system fractional reserve banking. The only option would be to change to full reserve banking where banks are required to hold all deposits in reserve. Full-reserve banking has a fair share of issues though and will probably push the maturity transformation to the (less regulated) shadow banking sector so it is not even clear if it reduces systemic risk in the financial sector.
Who said anything about full reserve banking? That’s not what those regs require.
How is this seen as good news? JP Morgan is basically keeping them afloat because they don't have enough cash to cover the withdrawals. Would think that would deepen a panic for those that use their bank services.
Now that people know you can get unlimited hoards of cash functionally FDIC insured at certain banks and not others (at the expense of anyone with a bank account) I'd imagine there will be a lot of "corrections" and probably some more runs/collapses.
I'd at least expect any entities that regularly maintain accounts over the $250k FDIC insurance guideline to flee banks that wouldn't be covered in future bailouts like this one.
On March 14 2023 03:23 {CC}StealthBlue wrote: How is this seen as good news? JP Morgan is basically keeping them afloat because they don't have enough cash to cover the withdrawals. Would think that would deepen a panic for those that use their bank services.
It keeps the bank afloat as a going concern that may still be worth being purchased
On March 14 2023 03:35 GreenHorizons wrote: Now that people know you can get unlimited hoards of cash functionally FDIC insured at certain banks and not others (at the expense of anyone with a bank account) I'd imagine there will be a lot of "corrections" and probably some more runs/collapses.
I'd at least expect any entities that regularly maintain accounts over the $250k FDIC insurance guideline to flee banks that wouldn't be covered in future bailouts like this one.
Maybe, but you’d need to first ask why those entities were banking at those places and not elsewhere
On March 14 2023 03:23 {CC}StealthBlue wrote: How is this seen as good news? JP Morgan is basically keeping them afloat because they don't have enough cash to cover the withdrawals. Would think that would deepen a panic for those that use their bank services.
On March 14 2023 03:35 GreenHorizons wrote: Now that people know you can get unlimited hoards of cash functionally FDIC insured at certain banks and not others (at the expense of anyone with a bank account) I'd imagine there will be a lot of "corrections" and probably some more runs/collapses.
I'd at least expect any entities that regularly maintain accounts over the $250k FDIC insurance guideline to flee banks that wouldn't be covered in future bailouts like this one.
Maybe, but you’d need to first ask why those entities were banking at those places and not elsewhere
Some reasons would be similar to why they did it at SVB
I'd imagine they'd have a variety of reasons ranging from convenience/supporting local businesses/communities to maliciously/greedily leveraging their influence because they have outsized deposits in a bank. I'm sure there are tons of reasons that don't immediately come to mind as well.
We need to keep in mind that there is no bailouts happening nor has anyone in power suggested even that a bailout is happening. The failing banks will be closed and their value turned to zero.
What the FDIC has done is guarantee that the accounts of the depositors in the banks are going to be made whole. These bank failures so far have not been fraud and have only failed at the first possible time of weakness that the government stepped in before their losses became enough to threaten their depositors.
This is how a banking system is suppose to be run and nothing has changed. The institutions with cash are going to get good deals on assets that are worth what they were borrowed against.
On March 14 2023 05:17 Sermokala wrote: We need to keep in mind that there is no bailouts happening nor has anyone in power suggested even that a bailout is happening. The failing banks will be closed and their value turned to zero.
What the FDIC has done is guarantee that the accounts of the depositors in the banks are going to be made whole. These bank failures so far have not been fraud and have only failed at the first possible time of weakness that the government stepped in before their losses became enough to threaten their depositors.
This is how a banking system is suppose to be run and nothing has changed. The institutions with cash are going to get good deals on assets that are worth what they were borrowed against.
Yes, this is all good info and true. A country that does not guarantee this would not be a country worth banking with. This is just a part of being a society. It is wild to me that some people want individuals to suffer due to a bank being shitters.
On March 14 2023 05:17 Sermokala wrote: We need to keep in mind that there is no bailouts happening nor has anyone in power suggested even that a bailout is happening. The failing banks will be closed and their value turned to zero.
What the FDIC has done is guarantee that the accounts of the depositors in the banks are going to be made whole. These bank failures so far have not been fraud and have only failed at the first possible time of weakness that the government stepped in before their losses became enough to threaten their depositors.
This is how a banking system is suppose to be run and nothing has changed. The institutions with cash are going to get good deals on assets that are worth what they were borrowed against.
Yes, this is all good info and true. A country that does not guarantee this would not be a country worth banking with. This is just a part of being a society. It is wild to me that some people want individuals to suffer due to a bank being shitters.
I would be all for the rich taking a hair cut on this but whatever money that is being spent to make whole the positions are coming from the banks themselves. The SVC branch in the UK is being sold to a bank for a single pound but with the agreement that all deposits are respected fully. The banks that have failed are already gone and have been effectivly nationalized without payment.
Like in this case the government will be making money off of this worst case. The wacky ability for a government to make money off of buying its own debt is possible due to the description of events that kwark was able to provide to us normals. The debt was paid for already and the government can simple just stop making payments on that intrest if they don't want to anymore. The mechanism that they decided on today to prevent this from spreading was to start up a mechanism for banks to sell their government debt back to the government for less effectively than what the bond will be worth if its left to mature. A super power government can swallow $25 billion bites like its nothing beacuse its nothing to the national government.
On March 13 2023 19:09 Gorsameth wrote: The saddest part to me is that the chance of there finally being a large scale reform of the entire financial sector to better secure everything is basically 0. So this will just keep happening every decade or 2.
In 2015, SVB President Greg Becker submitted a statement to a Senate panel pushing legislators to exempt more banks – including his own – from new regulations passed in the wake of the 2008 financial crisis. Despite warnings from some senators, Becker’s lobbying effort was ultimately successful.
Touting “SVB’s deep understanding of the markets it serves, our strong risk management practices”, Becker argued that his bank would soon reach $50bn in assets, which under the law would trigger “enhanced prudential standards”, including more stringent regulations, stress tests and capital requirements for his and other similarly sized banks.
Becker insisted that $250bn was a more appropriate threshold.
No surprise that this succeeded (albeit not immediately): under Trump the limit was raised from 50 to 250m.
There is no way to eliminate the risk of bank runs under a system fractional reserve banking. The only option would be to change to full reserve banking where banks are required to hold all deposits in reserve. Full-reserve banking has a fair share of issues though and will probably push the maturity transformation to the (less regulated) shadow banking sector so it is not even clear if it reduces systemic risk in the financial sector.
Who said anything about full reserve banking? That’s not what those regs require.
Yes, the regulations also do not eliminate the risk of bank runs because there is still maturity transformation. They only reduce the probability of one. Only full reserve banking elimates that risk or maybe full deposit insurance does as well but I am not sure about that one.
It appears Credit Suisse is still taking on water.
Shares of Credit Suisse fell by 5% in early Tuesday trade to hit a new all-time low, after the bank announced it had found “material weaknesses” in its financial reporting processes for 2022 and 2021.
Shares have slightly pared losses since, but remained down by more than 4% by 9:30 a.m. London time.
The embattled Swiss lender disclosed the observation in its annual report, which was initially scheduled for last Thursday, but was delayed by a late call from the U.S. Securities and Exchange Commission (SEC).
The SEC conversation related to a “technical assessment of previously disclosed revisions to the consolidated cash flow statements in the years ended December 31, 2020, and 2019, as well as related controls.”
In the Tuesday annual report, Credit Suisse revealed that it had identified “certain material weaknesses in our internal control over financial reporting” for the years 2021 and 2022.
These issues related to a “failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements” and various flaws in internal control and communication.
Despite this, the bank said that it was able to confirm that its financial statements over the years in question “fairly present, in all material respects, [its] consolidated financial condition.”
Credit Suisse further said its net asset outflows had declined but “not yet reversed.” The bank confirmed its 2022 results announced Feb. 9, which showed a full-year net loss of 7.3 billion Swiss francs ($8 billion).
Liquidity risk
In late 2022 the bank disclosed that it was seeing “significantly higher withdrawals of cash deposits, non-renewal of maturing time deposits and net asset outflows at levels that substantially exceeded the rates incurred in the third quarter of 2022.”
Credit Suisse saw customer withdrawals of more than 110 billion Swiss francs in the fourth quarter, as a string of scandals, legacy risk and compliance failures continued to plague it.
“These outflows stabilized to much lower levels but had not yet reversed as of the date of this report. These outflows led us to partially utilize liquidity buffers at the Group and legal entity level, and we fell below certain legal entity-level regulatory requirements.”
Credit Suisse acknowledged that these circumstances have “exacerbated and may continue to exacerbate” liquidity risks. The reduction in assets under management is expected to result in reduced net interest income and recurring commissions and fees, in turn affecting the bank’s capital position objectives.
“A failure to reverse these outflows and to restore our assets under management and deposits could have a material adverse effect on our results of operations and financial condition,” the report said.
Credit Suisse reiterated that it has taken “decisive action” on legacy issues as part of its ongoing massive strategic overhaul, which is expected to result in a further “substantial” financial loss in 2023.
The bank’s board collectively forewent a bonus for the first time in more than 15 years, the annual report confirmed, while taking home a combined fixed compensation of 32.2 million Swiss francs.
Here's an update on Credit Suisse that one of their Saudi backers will not finance them. At the moment, their stock has dropped to 1,63 CHF, down 27,25%. Is their seemingly imminent demise going to be part of a larger trend? It reads to me like they're just horribly mismanaged and a bunch of reckless idiots rather than it being a problem shared by other major banks, but people are panicking across Europe and causing our banks to significantly tank
Shares of Credit Suisse on Wednesday plunged to a fresh all-time low for the second consecutive day after a top investor of the embattled Swiss bank said it would not be able to provide any more cash due to regulatory restrictions.
Trading in the bank’s plummeting shares was halted several times throughout the morning as it fell below 2 Swiss francs ($2.17) for the first time.
The stock recovered slightly by around midday London time, before extending losses in early afternoon deals. Credit Suisse was last seen trading nearly 29% lower for the session.
The share price rout renewed a broader sell-off among European lenders, which were already facing significant market turmoil as a result of the Silicon Valley Bank fallout. Several Italian banks on Wednesday were also subject to automatic trading stoppages, including UniCredit, Finecobank and Monte Dei Paschi.
Credit Suisse’s largest investor, Saudi National Bank, said it could not provide the Swiss bank with any further financial assistance, according to a Reuters report, sparking the latest leg lower.
“We cannot because we would go above 10%. It’s a regulatory issue,” Saudi National Bank Chairman Ammar Al Khudairy told Reuters Wednesday. However, he added that the SNB is happy with Credit Suisse’s transformation plan and suggested the bank was unlikely to need extra money.
The Saudi National Bank took a 9.9% stake in Credit Suisse last year as part of the Swiss bank’s $4.2 billion capital raise to fund a massive strategic overhaul aimed at improving investment banking performance and addressing a litany of risk and compliance failures.
Meanwhile, speaking to CNBC’s Hadley Gamble during a panel session in Riyadh on Wednesday morning, Credit Suisse Chairman Axel Lehmann declined to comment on whether his firm would need any sort of government assistance in the future.
When asked if he would rule out some kind of assistance, Lehmann answered, “That’s not the topic.”
“We are regulated, we have strong capital ratios, very strong balance sheet. We are all hands on deck. So that’s not the topic whatsoever.”
‘Material weaknesses’ Investors are also continuing to assess the impact of the bank’s Tuesday announcement that it had found “material weaknesses” in its financial reporting processes for 2022 and 2021.
The Swiss lender disclosed the observation in its annual report, which was initially scheduled for last Thursday but was delayed by a late call from the U.S. Securities and Exchange Commission.
The SEC conversation related to a “technical assessment of previously disclosed revisions to the consolidated cash flow statements in the years ended December 31, 2020, and 2019, as well as related controls.”
In late 2022 the bank disclosed that it was seeing “significantly higher withdrawals of cash deposits, non-renewal of maturing time deposits and net asset outflows at levels that substantially exceeded the rates incurred in the third quarter of 2022.”
Credit Suisse saw customer withdrawals of more than 110 billion Swiss francs in the fourth quarter, as a string of scandals, legacy risk and compliance failures continued to plague it.
Another update on Credit Suisse. Five-year default chance is at 47% and wildly fluctuating, mostly going up. Shit, a lot of rich people are panicking and I wouldn't be surprised to see a liquidity test at this rate
If you want to follow along with the potential collapse of Credit Suisse, here's Bloomberg's live reporting of it. At one point during the day, the 1y CDS level went to 2700bps
EPT
