futures up +1.8%
Looks like he doesn’t sit on the board anymore.
I’m not sure how true it is, but First Republic pitches itself as a bank for rich people. At least that’s how I see it on the East Coast. Don’t know if they’re more inclusive in San Fran.
ETA from WSJ:
First Republic caters to wealthy clients with big balances in excess of the FDIC insurance cap. Investors worried that the bank could be vulnerable to a run like the one that claimed Silicon Valley Bank. First Republic’s shares had fallen about 30% since Wednesday.
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I guess this is the bigger banking news
A senior Treasury official said the steps didn’t constitute a bailout because stock and bondholders in SVB and Signature wouldn’t be protected.
Officials took the extraordinary step of designating SVB and Signature Bank as a systemic risk to the financial system, which gives regulators flexibility to guarantee uninsured deposits.
Officials said that depositors at SVB will have access to all of their money on Monday.
The central bank said it would make additional funding available to banks through a new “Bank Term Funding Program,” which will offer loans of up to one year to banks that pledge U.S. Treasury securities, mortgage-backed securities and other collateral. Up to $25 billion from the Treasury’s exchange-stabilization fund will backstop the Fed lending program.
Many of those securities have fallen in value as the Fed has raised interest rates. The terms would allow banks to borrow at 100 cents on the dollar for securities trading potentially well below that value, potentially putting the government at risk of losses incurred by banks. Critics said the move would essentially offer a backdoor subsidy to bank investors and management for failing to properly manage interest-rate risks.
“We learned today that a $200 billion bank was too big to fail—or at least too big to be allowed to fail with losses borne by large depositors, as the bank resolution system assumes,” said Daniel Tarullo, a former Fed governor who was the central bank’s point person on regulation following the financial crisis. “While I understand the government’s concern about economic fallout, today’s actions strike me as having major implications for financial regulation.”
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The 10 year treasury is down 60 basis points. I’m not sure I buy the assumption these bank failures will prevent the Fed from continuing to hike.
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Maybe the Feds should figure out what largest bank failure is that wouldn’t require bailing out of depositors to allay systemic risks, and then break up all banks bigger than that. It’ll never happen of course, but it should.
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That sounds like a flight to safety thing. When the private banking market starts to crumble all of a sudden people aren’t concerned about the debt ceiling and default, lol.
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Hot take: people with cash should not have to become experts in bank financials to know where to park their money. Just insure cash deposits, otherwise the biggest banks will just keep getting bigger and borrowing costs will materially increase with less competition.
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Which attorney do I contact to join the class-action lawsuit against the Biden admin for this clear overreach in executive power?
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Big banks are part of the problem and make bank runs more severe. And maybe more likely: if 200 dipshit founders on the same group text don’t all bank at the same bank then they wouldn’t all panic at the exact same time. The Feds have vast power over the banking system and could forbid mergers and keep banks small and more numerous. This would encourage competition and keep the size of any bank runs manageable and low impact.
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or maybe the US could regulate their banking like Canada does. Otherwise they can just let all their banks be taken over by Canadian ones.
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FYP
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What do the Canadians do differently?
Wow I really thought there would be a flight to safety and treasuries would rise across the board
We do SOCIALISM! All of our banks are regulated by a central Federal regulator. The regulatory regime is very focused on institutional soundness. The US system is more decentralized from a regulatory perspective. Our market is dominated by 5 big banks.
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Treasury yields being down means everybody is buying them, i.e. a flight to safety. Ironic thing is that banks like SVB buying treasuries, albeit 30yr ones, in 2021 as safe assets is a big part of what eventually did them in.
Nevermind then, I misread the post and thought the value of treasuries had declined.
The good thing is, this helps the value of SVB and similar bank’s assets and eventually the liquidation value that the FDIC will get for them.
Cramer saying this is deflationary but are we sure that’s true? More rate hikes are very bad for banks because their borrowers are more likely to default but I don’t see an obvious connection between bank struggles and reducing inflation. Maybe loans get more expensive but does that really move the needle?
its always fun to see the brokerage where the majority of your life savings are held hit a circuit breaker
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