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naraburns  nihil supernum  1yr ago (text post)   34909 thread views

Culture War Roundup for the week of March 13, 2023

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So I’m starting to just assume there’s zero reason for regional banks to exists. They don’t have proprietary advantages like the big banks. GS with complexity/cap markets, C with scale ability to do transactions anywhere etc.

I don’t see any reason for a person to keep deposits in no edge regional banks. They pay you barely anything. Seems like on the lending side they don’t have any market advantage to generate enough yield. Business models seem dependent on 0% deposits which no one should own.

Depending on deposits just seems like a bad business model to me going forward. And 0% deposits allowing you to make bad financial decisions.

So I’m starting to just assume there’s zero reason for regional banks to exists.

This whole affair has actually convinced me of the exact opposite - there's no reason for gigantic banks which can cause the entire economy and unrelated businesses to go under/suffer when placed under stress. There shouldn't be any banks which are systemically important and require bailouts in order to prevent the collapse of the entire economy. Beyond the incredible fragility induced by having corrupt financial institutions with broken incentives (note the people actually profiting off these issues and selling stock in SVB before the news broke), the sheer concentration of wealth and power that occurs in those banks gives them far more influence over the levers of national power than is healthy for society.

So then why have GSIBs losts. They have higher capital ratios. They’ve lost every regulatory fight for a decade. The shit SVB did would never be allowed at the mega banks.

Being that SVB was deemed systematic and got a full bailout it’s obvious banks like them were benefiting from easier regulations while still being systematic.

I guess the solution is the regionals are treated like the GSIBs. So they need to raise their tier one capital about 50-80% right now to fit the same standards as the GSIBs. And we just drop the asset cap down to 10 billion for regulatory reasons since these guys are claiming their depositors need protected.

GSIB

Could you please explain this acronym?

Global systematically-important bank.

“Too big to fail” (without bringing down everything else too)

I'm sorry but could you please reword your comment? I have no idea how to parse the sentence "So then why have GSIBs losts." and the grammar errors elsewhere leave me unwilling to talk in depth on a technical subject.

@sliders1234 appears to be arguing: if GSIBs are so powerful, we should expect them to have less regulation. Mid-sized banks like SVB are dodging regulations which (hopefully!) apply to full-size ones, but are still getting the benefits of bailouts. If we are giving them the benefits they should also be paying the costs.

I don’t know what the bit about “asset cap” means.

$250 billion in assets was trigger for tighter regs.

As a small business owner I couldn't imagine trying to deal with a bank like Citi or BoA. The general rule of thumb is that you want a bank big enough to offer the kind of products you need but no bigger. I use a regional (though I could probably use a small local) and if I have a problem I can call the girl who handles my account from the number in my Rolodex and usually get an in-person meeting scheduled for the same day. IF I'm dealing with some huge national I'm stuck calling a customer service line where I spend half the afternoon on hold and the other half trying to explain my problem to someone who has limited power to solve it and whose evaluations are based on how quickly they can get me to hang up.

Judging by how we prioritized fixing post-cutover bugs at the bank I worked for, the best bank is the one where your CFO can call their CEO at 6am (time zones!) and start the conversation with "What the flying fuck?"

Yeah, I'm only exposed to the small business's accountant's side of dealing with the banks when there's tech issues, but there's absolutely practical day-to-day benefits of smaller banks.

Regional banks do have proprietary advantage - domain specific knowledge of regional industry and real estate as well as local relationships. JPM or BofA need to have fairly uniform underwriting rules and these rules will not necessarily allow them to service some particular industry with weird cash flow patterns (such as startups). Rapidly scaling SAAS is a very good example of this.

Another great service SVB provided is a degree of self dealing/moral hazard - founders can get a mortgage backed by illiquid equity if they do corporate banking with SVB. This sort of self dealing is a problem for startups, but it is not really a problem and is a useful feature for family offices.

But how is that translating into good risks adjusted returns? They bought treasuries for size.

And the other business seems like a we give you good terms on loans so you deposit them with us. And then invest ??? For returns others can’t get. That all works if you can (1) get higher returns from relationships (2) have some real business diversification so your not overly exposed to one risks. Neither of these things seem true.

But the larger issue a deposit based bank which regionals seem to be heavily dependent on can’t function in this new world. Deposits move too fast. The whole business model seemed based on cheap loans (no edge here) to get deposits (no value anymore).

The market seems to agree with you

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