Tag: FDIC

Is Ed Kane’s “Gathering Crisis” Still Gathering Steam?

Mary Pat Campbell

Link: https://govmoneynews.com/bills-blog/f/is-ed-kanes-gathering-crisis-still-gathering-steam

Excerpt:

Back in 1985, Ed Kane penned a prophetic volume identifying a blooming mess in financial markets. His book, The Gathering Crisis in Federal Deposit Insurance, reliably warned of taxpayer exposure to losses ultimately unleashed in the savings and loan crisis. 

Cycles of ensuing regulatory reforms, crises and scandals have only reinforced the timeliness of the lessons that Kane offered us decades ago. Those lessons became particularly poignant in light of the failure of Silicon Valley Bank and several other large banks earlier this year. 

Kane’s 1980s warnings remain worthy of scrutiny and reflection, and underscore questions whether industry and regulatory reforms have simply left us on the edge of another precipice. The financial conditions of the FDIC and the Federal Reserve – and their implications for the U.S. Treasury and American taxpayers – deserve close scrutiny, as well as recommendations for fundamental reform.

….

“In an economic environment in which deposit institutions are highly levered and entering new businesses every day and in which interest rates are highly volatile, systematically mispricing deposit insurance guarantees encourages deposit institution managers to position their firms on the edge of financial disaster. Metaphorically, deposit-insurance authorities are paying deposit-institution managers to overload the deposit-insurance jalopy, to drive it too fast, and even to break dance on its hood as it careens through interest rate mountains and over back-country roads. Reformers’ ultimate goals must be to confront institutions whose risk-taking imposes socially unacceptable risks on its federal guarantors with a combination of reduced coverages and increased fees sufficient to move them to adopt safer modes of operation.” (p. 147)

“Of course, just how safe, reliable, and comfortable a ride the nation enjoys depends also on the macroeconomic policies that the government follows. If Congress could bring government spending under long-run control, monetary policy would not have to push interest rates over so wide a cycle. Reducing the volatility of interest rates would relieve the car’s drivers of the need to take it over quite so dangerous a set of roads.” (p. 165)

Author(s): Bill Bergman

Publication Date: 20 Dec 2023

Publication Site: Bill’s Blog at GovMoneyNews

Ranked: The U.S. Banks With the Most Uninsured Deposits

Mary Pat Campbell

Link: https://elements.visualcapitalist.com/ranked-the-u-s-banks-with-the-most-uninsured-deposits/

Graphic:

Excerpt:

Today, there is at least $7 trillion in uninsured bank deposits in America.

This dollar value is roughly three times that of Apple’s market capitalization, or about equal to 30% of U.S. GDP. Uninsured deposits are ones that exceed the $250,000 limit insured by the Federal Deposit Insurance Corporation (FDIC), which was actually increased from $100,000 after the Global Financial Crisis. They account for roughly 40% of all bank deposits.

In the wake of the Silicon Valley Bank (SVB) fallout, we look at the 30 U.S. banks with the highest percentage of uninsured deposits, using data from S&P Global.

Author(s): Dorothy Neufeld, Sabrina Lam

Publication Date: 4 April 2023

Publication Site: Visual Capitalist

The Banking Sector Turmoil in Charts

Mary Pat Campbell

Link: https://www.wsj.com/articles/the-banking-sector-turmoil-in-charts-52bb6095?mod=e2twg

Graphic:

Excerpt:

It has been a wild ride for banks. Silicon Valley Bank, which catered to venture capitalists and startups, collapsed March 10 after a run on deposits that was preceded by a plunging share price and a money-losing bond sale as the bank tried to raise capital. Two days later, Signature Bank SBNY -22.87%decrease; red down pointing triangle was closed by federal regulators following a run. Then, First Republic Bank FRC 29.47%increase; green up pointing triangle, at risk of a run as its share price plummeted, was flooded with cash in an extraordinary action by some of the largest U.S. banks—but its shares resumed their plunge a day later. 

Here is how some banks ended up in the market’s crosshairs.

Author(s): Nate Rattner, Alana Pipe

Publication Date: 18 Mar 2023

Publication Site: WSJ

The Silicon Valley Bank Bailout

Mary Pat Campbell

Link: https://www.wsj.com/articles/the-silicon-valley-bank-bailout-chorus-yellen-treasury-fed-fdic-deposit-limit-dodd-frank-run-cc80761e?st=vt2heieydvfhixo&reflink=desktopwebshare_permalink

Excerpt:

The Treasury and Federal Reserve stepped in late Sunday to contain the financial damage from Friday’s closure of Silicon Valley Bank, guaranteeing even uninsured deposits and offering loans to other banks so they don’t have to take losses on their fixed-income assets.

This is a de facto bailout of the banking system, even as regulators and Biden officials have been telling us that the economy is great and there was nothing to worry about. The unpleasant truth—which Washington will never admit—is that SVB’s failure is the bill coming due for years of monetary and regulatory mistakes.

Wall Street and Silicon Valley were in full panic over the weekend demanding that the Treasury and Fed intervene to save the day. It’s revealing to see who can keep a cool head in a crisis—and it wasn’t billionaire hedge-fund operator Bill Ackman or venture investor David Sacks, both frantic panic spreaders.

The Federal Deposit Insurance Corp. closed SVB, and the cleanest solution would be for the agency to find a private buyer for the bank. This has been the first resort in most previous financial panics, and the FDIC was holding an auction that closed Sunday afternoon.

….

But there is political risk from a bailout too. If the Administration acts to guarantee deposits without Congressional approval, it will face legitimate legal questions. The White House may choose to jam House Speaker Kevin McCarthy if markets aren’t mollified. But Mr. McCarthy has a restive GOP caucus as it is, and a bailout for rich depositors will feed populist anger against Washington.

The critics have a point. For the second time in 15 years (excluding the brief Covid-caused panic), regulators will have encouraged a credit mania, and then failed to foresee the financial panic when the easy money stopped. Democrats and the press corps may try to pin the problem on bankers or the Trump Administration, but these are political diversions.

Author(s): WSJ Editorial Board

Publication Date: 12 Mar 2023

Publication Site: WSJ

Yellen Said “No Bailout” But It’s a Huge Bailout of the Banking System

Mary Pat Campbell

Link: https://mishtalk.com/economics/yellen-said-no-bailout-but-its-a-huge-bailout-of-the-banking-system

Excerpt:

It won’t matter but I am pleased the Journal blasted Bill Ackman and venture investor David Sacks,  as “frantic panic spreaders“.

There’s more in the article about how Rohit Chopra, an Elizabeth Warren acolyte on the FDIC board, is hostile to bank mergers on ideological grounds, perhaps preventing a merger.

The Journal speculates how Biden might illegally act to guarantee all deposits or pressure House Speaker Kevin McCarthy.

….

Once again, the Fed kept interest rates too low, too long, encouraged speculation, then bailed out the banks.

Spare me the sap about this was a depositor bailout not a bank bailout. 

When you value assets at par so that banks don’t have losses, what the hell is it.

Author(s): Mike Shedlock

Publication Date: 12 Mar 2023

Publication Site: Mish Talk