a little SCHW and BAC

Days after one of the largest bank failures in U.S. history, the fallout continues. Some of the country's top banking and financial regulators appeared before the Senate Banking Committee on Tuesday to testify about what led to the downfall of Silicon Valley Bank. Policymakers will be debating whether new laws, rules or attitudes are needed to keep other banks from going under.

Five takeaways from Tuesday's hearing:
• Silicon Valley Bank's management messed up
• Regulators issued warnings, but the problems were not fixed
• Modern bank runs can happen really fast
• Other banks will pay for the failure, but maybe not all banks
• Bank executives could pay

• Silicon Valley Bank's management messed up-
Regulators had some tough words about SVB's management at the hearing. Silicon Valley Bank more than tripled in size in the last three years, but its financial controls didn't keep pace.
The government bonds it was buying with depositors' money tumbled in value as interest rates rose, but the bank seemed unconcerned by that. "The [bank's] risk model was not at all aligned with reality," said Michael Barr, the Federal Reserve's vice chair for supervision. "This is a textbook case of bank mismanagement."
• Regulators issued warnings, but the problems were not fixed-
How much blame should be laid at regulators feet? That was a question that cropped up repeatedly during the hearing.
Barr stressed that federal regulators had repeatedly warned the bank's managers about the risks it was facing, at least as far back as October 2021. The bank was served with formal notices documenting "matters requiring attention" and "matters requiring immediate attention." But the risks remained and the Fed stopped short of ordering changes, which frustrated some of the senators in the Senate Banking Committee from both sides of the aisle.
The problems developed during a time when the Fed was generally pursuing a light touch in bank regulation. In 2021, for example, the Fed issued a rule — at the urging of bank lobbyists — noting that guidance from bank supervisors does not carry the force of law. That led some senators to call out colleagues who pushed for lighter rules, only to turn around and blame a lack of regulatory muscle for the bank's failure.
• Modern bank runs can happen really fast-
In their testimony, regulators also stressed the speed at which the banks collapsed. When big depositors got wind of the problems at Silicon Valley Bank, they raced to pull their money out, withdrawing $42 billion in a single day. The bank scrambled to borrow more money overnight, but it couldn't keep up. By the following morning, depositors had signaled plans to withdraw another $100 billion — more than the bank could get its hands on.
• Other banks will pay for the failure, but maybe not all banks-
Also under scrutiny throughout the testimony, was the federal regulators' decision to backstop all deposits at SVB as well as Signature Bank. Silicon Valley bank was taken over by the FDIC on March 10, but fears of a more widespread bank run led regulators to announce days later they would guarantee all the deposits at both SVB and Signature Bank, not just the $250,000 per account that's typically insured.
By law, that money will come from a special assessment on other banks — and that's left many senators unhappy. The FDIC has some discretion in how those insurance costs are divided up among different categories of banks. A recommended formula will be announced in early May.
• Bank executives could pay-
The role of SVB's top executives came under scrutiny as well during the hearing. Lawmakers expressed frustration at reports that executives at Silicon Valley Bank sold stock and received bonuses shortly before the bank's collapse.
Although the government doesn't have explicit authority to claw back compensation, it does have the power to levy fines, order restitution and prohibit those executives from working at other banks, if wrongdoing is found. Sen. Chris Van Hollen, D-Md, said "Almost every American would agree it's simply wrong for the CEO and top executives to profit from their own mismanagement and then leave FDIC holding the bag,"

Thanks for those ideas @rforno. CGGO looks promising. I have not replaced the global growth funds that swooned in 2022, i.e., Kristian Heugh and MS funds. Do you know if the managers of CGGO run an equivalent MF strategy?

a bet on a long-term CD at a high interest rate has it's own risks for the issuing credit union or bank, and that risk is sort of the opposite from what took down Silicon Valley Bank recently. If the Fed's interest rates come down in a year or two that issuer will be stuck paying out at a high rate but itself having to invest for income at a lower rate.

BIAWX and POAGX although the last 2 years of performance are giving me pause.

Some banks and credit unions have language in their CD disclosures that allows them to refuse an early withdrawal request. Although CD early withdrawal refusal by a bank or credit union is rare, it is possible. Review the CD disclosure for this type of wording.

I have to ask since this tropic comes up often. Why does a Schwab or Fidelity person, which I think a majority of us are, care about M*? There are pretty good tools in each brokerage. And for fund analysis, MFO is "really" good. Maybe the best if you have Premium. I haven't used M* directly in years. Am I missing something?
You get what you pay for.

I have to ask since this tropic comes up often. Why does a Schwab or Fidelity person, which I think a majority of us are, care about M*? There are pretty good tools in each brokerage. And for fund analysis, MFO is "really" good. Maybe the best if you have Premium. I haven't used M* directly in years. Am I missing something?
You get what you pay for.

WASHINGTON (AP) — The Federal Reserve extended its year-long fight against high inflation Wednesday by raising its key interest rate by a quarter-point despite concerns that higher borrowing rates could worsen the turmoil that has gripped the banking system.
“The U.S. banking system is sound and resilient,” the Fed said in a statement after its latest policy meeting ended. At the same time, the Fed warned that the financial upheaval stemming from the collapse of two major banks is “likely to result in tighter credit conditions” and “weigh on economic activity, hiring and inflation.”
The central bank also signaled that it’s likely nearing the end of its aggressive streak of rate hikes. In its statement, it removed language that had previously said it would keep raising rates at upcoming meetings. The statement now says “some additional policy firming may be appropriate” — a weaker commitment to future hikes.
The Fed included some language that indicated its inflation fight remains far from complete. It noted that hiring is “running at a robust pace” and “inflation remains elevated.” It removed a phrase, “inflation has eased somewhat,” that it had included in its statement in February.
Speaking at a news conference Wednesday, Chair Jerome Powell said, “The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy.”
The latest rate hike suggests that Powell is confident that the Fed can manage a dual challenge: Cool still-high inflation through higher loan rates while defusing turmoil in the banking sector through emergency lending programs and the Biden administration’s decision to cover uninsured deposits at the two failed banks.
The central bank’s benchmark short-term rate has now reached its highest level in 16 years. The new level will likely lead to higher costs for many loans, from mortgages and auto purchases to credit cards and corporate borrowing. The succession of Fed rate hikes have also heightened the risk of a recession.
The troubles that suddenly erupted in the banking sector two weeks ago likely led to the Fed’s decision to raise its benchmark rate by a quarter-point rather than a half-point. Some economists have cautioned that even a modest quarter-point rise in the Fed’s key rate, on top of its previous hikes, could imperil weaker banks whose nervous customers may decide to withdraw significant deposits.