zeroptzero

^ that seems like a simplified overview of what happened, but three banks in one week have been taken over. Credit Suisse would have been bankrupted if their government didn't broker a quick deal to divert further damage. I think more info on the activities of CEO's and Board of Directors will be more revealing in coming weeks. Other banks may still be affected to come.

Credit Suisse wants to forget about 17 billion owed to bondholders, not so good.

fltsfshr

Here's a complicated view. Guess I should have paid more attention in economics class in college. Any interpreters in here?

Monetary Tightening and U.S. Bank Fragility in 2023:
Mark-to-Market Losses and Uninsured Depositor Runs?1

March 13, 2023
Erica Jiang, Gregor Matvos, Tomasz Piskorski, and Amit Seru
Abstract
We analyze U.S. banks’ asset exposure to a recent rise in the interest rates with implications for
financial stability. The U.S. banking system’s market value of assets is $2 trillion lower than
suggested by their book value of assets accounting for loan portfolios held to maturity.
Marked-to-market bank assets have declined by an average of 10% across all the banks, with the
bottom 5th percentile experiencing a decline of 20%. We illustrate that uninsured leverage (i.e.,
Uninsured Debt/Assets) is the key to understanding whether these losses would lead to some banks in
the U.S. becoming insolvent-- unlike insured depositors, uninsured depositors stand to lose a part
of their deposits if the bank fails, potentially giving them incentives to run. A case study of the
recently failed Silicon Valley Bank (SVB) is illustrative. 10 percent of banks have larger
unrecognized losses than those at SVB. Nor was SVB the worst capitalized bank, with 10 percent of
banks having lower capitalization than SVB. On the other hand, SVB had a disproportional share of
uninsured funding: only 1 percent of banks had higher uninsured leverage. Combined, losses and
uninsured leverage provide incentives for an SVB uninsured depositor run. We compute similar
incentives for the sample of all U.S. banks. Even if only half of uninsured depositors decide to
withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with
potentially $300 billion of insured deposits at risk. If uninsured deposit withdrawals cause even
small fire sales, substantially more banks are at risk. Overall, these calculations suggest that
recent declines in bank asset values very significantly increased the fragility of the US banking
system to uninsured depositor runs.
1 Jiang is at University of Southern California (erica.jiang@marshall.usc.edu), Matvos
is at Northwestern University and NBER (gregor.matvos@kellogg.northwestern.edu), Piskorski
is at Columbia and NBER (tp2252@gsb.columbia.edu), and Seru is at Stanford GSB, the
Hoover Institution, SIEPR and NBER
(aseru@stanford.edu).

Here's their paper https://papers.ssrn.com/sol3/papers....act_id=4387676 all 20 pages of detailed analysis

tof

Banks hold bonds, both governmental and corporate, as investments. Bond values have declined as interest rates have increased. This has caused some panic among customers who have uninsured accounts or accounts in excess of the $250k limit on FDIC insurance coverage. If enough such customers close their accounts, their banks could fail, like any other business that loses many of its largest customers.

I think executives at SVB and other failed banks are getting blamed unfairly for those failures which have more to do with the rapid increase in interest rates by the Federal Reserve. But some of those same executives have some explaining to do regarding their suspicious sales of their bank's stock.

dlq04

My bond funds are doing ok. Just hope it continues. Have a meeting tomorrow with an adviser. I probably will not follow his advice but I am open to listening.

tof

I guess not all bonds are created equal. Hope your funds continue to prosper, Dave.

dlq04

Thanks Mike, so do I.

cosmomiller

Some bonds are tax free by either/both state and federal taxes. However, Medicare could care less and uses muni bond income as income so you pay higher premiums.

zeroptzero

I find it odd that many markets and banking systems are still in panic mode over this, in the overall scheme of things it should not be that way unless more banks are teetering on failure too. There may be more to the story than we know.

Honda 367

As long as US government bails out depositors regardless of $250K FDIC limit as in case of Silicon Valley Bank, what's to prevent future catastrophic bank failures? As long as there exists two tier system of justice even in the arena of financial world, there will always be some who think they are smarter than the average bear and they will continue this practice. Thank the politicians and thanks to tax payers.

fltsfshr

250k is a small amount to guarantee for many individuals and small business. I heard one CPA say that you should limit the amount you have in any given bank to less than 250k. That sound like a nightmare to me. What do you think?