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naraburns  nihil supernum  1yr ago (text post)   34967 thread views

Culture War Roundup for the week of March 6, 2023

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SVB offered higher deposit rates than most big banks. They were paying 4.5% on money market deposits. Chase is paying 0.01% on everything account short of 48 month CDs which get a generous 1.49%.

This is the key detail I was looking for and it makes me a lot less sympathetic to the depositors now demanding a bail out.

In fairness, it's not good if the safe (because the government can't afford to let them fail) banks use their position to pay peanuts on their deposit rates but attract deposits because no one can bear the risk of banking elsewhere.

I think it's perfectly fine if lower-risk deposits pay substantially lower interest rates

It's one thing if JP Morgan/BoA/Wells were lower risk because of better management but they're lower risk mainly because the US Government can't afford to let them fail so if this happened to them the Fed would have swapped their bonds at par or launched a new round of QE.

I'm not a huge fan of the government picking winners and then those winners taking monopsony rents as a result.

The big banks are regulated in a way which reflects their too-big-to-fail status. As part of this, they are required to prove that they are not doing the specific thing that SVB did - i.e. taking non-mark-to-market interest rate risk by investing floating rate customer deposits in long-dated fixed-rate securities.

Medium-sized banks like SVB were exempted from these rules in 2019 - to quote from the SVB annual report,

In October 2019, the federal banking agencies issued rules that tailor the application of enhanced prudential standards to large bank holding companies and the capital and liquidity rules to large bank holding companies and depository institutions (the “Tailoring Rules”) to implement amendments to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) under the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “EGRRCPA”). Under the EGRRCPA, the threshold above which the Federal Reserve is required to apply enhanced prudential standards to bank holding companies

increased from $50 billion in average total consolidated assets to $250 billion. The Federal Reserve may also impose enhanced prudential standards on bank

holding companies with between $100 billion and $250 billion in average total consolidated assets.

(SVB had $211 billion in total assets)

SVB CEO Gregg Becker was personally involved in the campaign to relax the rules. He stood up in front of a Congressional Committee and said it was OK for banks like SVB to do this stuff because they were not too big to fail and wouldn't need a bailout.

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