The 2022-23 Economic Crisis Megathread

[Sheilbh]

Yeah - although I think there is a story about the Fed or regulators here.

I've seen this doing the rounds a lot about quite how unhedged their position was:


Obviously it's not that the Fed forced them to do anything. But when you've got an outlier like that and a bank with lots of uninsured deposits, that wasn't hedging its position - that feels like the sort of thing regulators should be noticing and getting ahead of. No idea if that's the Fed or another federal level regulator but I'm not fully sure how they let that happen.

[Josquius]

I am seeing retweets showing that people are trying and somewhat succeeding in spreading the panic around the Silicon Valley Bank collapse. In particular they are at it with First Republic and seemingly managing to make people queue up at done branches yesterday.

One incompetent bank made for tech bros shouldn't scare people into triggering widespread panic.

Needless to say the UK government is moving far quicker on this than nurses and teachers' pay and allegedly already heavily considering stepping in to bail out UK tech companies affected.

People are trying to spread panic?
Who?

[Tamas]

I am seeing retweets showing that people are trying and somewhat succeeding in spreading the panic around the Silicon Valley Bank collapse. In particular they are at it with First Republic and seemingly managing to make people queue up at done branches yesterday.

One incompetent bank made for tech bros shouldn't scare people into triggering widespread panic.

Needless to say the UK government is moving far quicker on this than nurses and teachers' pay and allegedly already heavily considering stepping in to bail out UK tech companies affected.

People are trying to spread panic?
Who?

Not in the UK. Here nothing is more important than Match of the Day.

[Tamas]

Yeah - although I think there is a story about the Fed or regulators here.

I've seen this doing the rounds a lot about quite how unhedged their position was:


Obviously it's not that the Fed forced them to do anything. But when you've got an outlier like that and a bank with lots of uninsured deposits, that wasn't hedging its position - that feels like the sort of thing regulators should be noticing and getting ahead of. No idea if that's the Fed or another federal level regulator but I'm not fully sure how they let that happen.

I mean, there are lots of areas where people are allowed to make stupid bets. If anyone other than SVB, I'd blame rating agencies, I think maybe it was in the podcast I linked where they claimed some of them were recommending SVB for investment just a week ago on some sort of A rating.

EDIT: actually if you listen to the podcast I linked, they explain how SVB -probably very deliberately- kept themselves under the regulatory limit, so they would not have to go through stress tests.

[DGuller]

It just occurred to me that now would be a really good time for Russia to deploy their Twitter bots to sow panic and encourage bank runs. 

[mongers]

It just occurred to me that now would be a really good time for Russia to deploy their Twitter bots to sow panic and encourage bank runs. 

So DG, have you had the order yet?

[Tamas]

Sounds like the Fed is creating a separate fund to bail out depositors of banks who have and will fail.

[DGuller]

To be fair, it doesn't sound like a taxpayer-funded or printing-funded bailout, it sounds like an assessment-funded guarantee.  These kinds of scheme are standard in insurance guarantee funds.  It seems like a sensible action if the biggest problem is panic.  If the problem is industry-wide solvency crisis, then of course it doesn't fix anything.

[Tamas]

Also if I understand correctly the Fed will effectively exchange the crappy old bonds of sturggling banks to shiny new ones for a fee of 4-5%.

This is how the Fed intends to backstop other liquidity issues: a new facility called Bank Funding Term Program

The idea is to provide banks with an alternative to liquidate their bond holdings when in need of raising liquidity to meet deposit outflows

Two important points:

Basically all HQLA bonds and not only Treasuries are eligible - banks can post them to the Fed to raise money.

And bonds will be valued at par (!), so all the negative mark-to-market from unhedged bonds is not considered with this facility.

What are the terms?

Excellent, in my opinion.

Funding is at 1-year OIS (basically 1-year market-implied Fed Funds) plus a meagre 10 bps spread on top.

1 year guaranteed liquidity at Fed Funds plus 10 bps posting collateral deep in the mud but valued at par.

Quite the deal.



Just some quick thoughts.

I was right on the package: no bailout for equity owners, uninsured depositors compensated as much as possible.

The new facility basically provides very reasonably priced funding to banks under stress if deposits go away.

Of course...
...these banks were paying basically nothing for these deposits and if they must access the BFTP they will end up paying 4-5% for their funding now.

But that is still a much better proposition than going belly up in a regional bank run.

[HVC]

America has too many banks. Canada is majorly uncompetitive from a consumers perspective,  but at least the banks are safe. How do euro countries handle banks?

[Richard Hakluyt]

There are loads and loads of banks in the UK. The retail sector is dominated by the confusingly-named "Big Four" (there are five of them    ) namely HSBC, Barclays, Lloyds Banking Group, NatWest Group and Santander.

Silicon valley bank had a UK unit, which is going to be taken over by HSBC apparently https://www.bbc.co.uk/news/business-64937251

A few weeks ago I concluded the banking sector had calmed down and bought some shares in HSBC...anyone want to subscribe to my share-tipping service    ?

[Sheilbh]

Thing I find striking about the SVB thing is that it's reminiscent of British pension funds' LDIs which interacted with Kwarteng's budget so disastrously.

The worry I have from a regulatory/system perspective is that there are these areas of the financial system that require bonds etc - many of which were purchased at a time of far lower interest rates (and expectations). It's not surprising that rising rates has an impact on those bits of the system. Both were dealt with relatively easily and relatively simply.

But I'm a little disconcerted by the fact that regulators seem to be a bit suprised/caught on the hop when this happens. It feels like with rates rising for the first time in about 15 years that should be a risk that regulators are very interested in and monitoring really tightly. I'm not sure about the Fed rate - but for the BofE I think it's been 10 rises in a row with clear expectation setting. I think the markets have been adjusting to that - I'm a little concerned that maybe the regulators (here that means another bit of the BofE) haven't?

[Grey Fox]

There are loads and loads of banks in the UK. The retail sector is dominated by the confusingly-named "Big Four" (there are five of them    ) namely HSBC, Barclays, Lloyds Banking Group, NatWest Group and Santander.

Like Canada but the inverse. We have a Big 5 but really there are 3.

[Jacob]

Obviously one of the big'uns moved from Canada to the UK.

[crazy canuck]

There are loads and loads of banks in the UK. The retail sector is dominated by the confusingly-named "Big Four" (there are five of them    ) namely HSBC, Barclays, Lloyds Banking Group, NatWest Group and Santander.

Like Canada but the inverse. We have a Big 5 but really there are 3.

Royal Bank, TD, Scotia, BMO and CIBC are the big 5.