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How much fear is in the air about SVB and the greater implications?
To be honest @Sven, @Derf, I don't know. All I know is I purchased 2 3mo treasuries as soon as the market opened. One matures 6/27 the other 6/8. Both around 4.6ish %. Does it matter old-new?
One thing I am a little concerned about is the MM sell and the Treasury buy both settling today. I've made these sell-buy trades on the same day often, so I know that isn't a problem, unless for some reason so many people are doing the same that the MM sell is delayed. What-ever.
I bet the Sweep accounts at Fido are a lot stickier. If so, maybe this will encourage Schwab to eliminate requirement to buy MMF rather than Sweep.
That's problematic because non-sweep MMFs are prime funds. Quoting Schwab, "Per SEC guidelines, liquidity fees and redemption gates are required for prime and municipal money market funds." https://www.schwab.com/resource/schwab-purchased-money-funds
So there's a problem if you purchase a security relying upon funds from your MMF to cover it, and before settlement occurs a seven day hold is imposed on your MMF.
Fidelity appears to be unique in that it automatically uses money in your prime MMFs to cover transactions if you don't have enough in your core MMF. When the government first imposed gating requirements, I asked Fidelity how that would work for settlements. Fidelity effectively threw up its hands. I still don't know what would happen.
Reminder to ignore most public market prognostications from most 'big names' in finance:
Friday: Bill QUACKman makes headlines saying many banks are going to go under, gloom and doom, etc etc.
Monday: Bill QUACKman says there are 'incredible bargains' in the banking sector, but Bloomberg notes that "the Pershing Square CEO said Monday that he won’t invest long or short in banks so he could “continue to be part of this conversation”."
@MikeM, buying at auction may get your a tad higher yield than those from secondary market. Monday is messy. We bought 3 and 6 months T last week and 6 months yield 5.2%. Things are changing rapidly since last Friday.
I think your sweep MM should be safe and remains liquid. Your gold position is working and moving up +2% today. This board has been so useful to stay informed.
"when the #*&# hits the fan the government will step in and cover everyone."
@hank- It's important to be clear when we use "verbal shorthand". Yes, the FDIC is a government agency. No, the FDIC does not use "government money" to make depositors whole. The monetary resources of the FDIC are generated by surcharges on the FDIC covered banks.
My suggestion for special coverage over 250k would not in any way involve using "government money" to replace money lost by private banking institutions. It would simply provide safety for large deposits by spreading them over the entire FDIC system so that the banking stupidity of a few banks could not materially affect those deposits.
This was denigrated in one response as a "government takeover/nationalization", which is ridiculous, when for all practical purposes that is exactly what the government is now forced to do in any case, to save the rest of the system from self-destruction.
the FDIC does not use "government money" to make depositors whole. The monetary resources of the FDIC are generated by surcharges on the FDIC covered banks.
So long as those resources don't run out (they never have, so far). After that? The FDIC says that it is backed by the "full faith and credit" of the US government.
OK - I stand corrected. Apparently it’s the still healthy banks that will make the depositors in the failed banks whole. And the FDIC has never run out of money from member banks and shall not this time. It would seem like a more transparent and simpler approach just to have the FDIC cover any amount instead of the silly $250,000 limit. It’s that limit ISTM that has led to a run of sorts on some banks.
PS - Is it too dumb to ask by whom and how a decision is made to make whole those with deposits in excess of $250,000? Is it the President who makes the call? The Federal Reserve? Is it subject to review? How would you feel if investors over the $250,000 limit in one state were made whole, but not those in your own? I can envision some who might treat “red” states differently than “blue”. Or, am I missing something?
Since the banks pay the FDIC fees, it is us the customers who will eventually pay
A lot of the start ups etc used SVB for all oftheir money so their accounts were in the multi-millions
IT would be politically difficult for the FDIC, even if it does not use taxpayer money, to back accounts of that size routinely. The SPIC protects $500,000 from the banks own funds
The FDIC should have forced the SPIC to step in first , just to make the point that the industry had to do a better job.
I wonder if this will only increase the monopolization of the financial system. Even if the FDIC is willing to back any regional bank that gets into trouble, their stocks will be worthless as no on will believe them any more.
Thanks. Now that I am retired I spend far to much time reading about this craziness. But I did get my three mile hike on the beach in first
More ambitious than me. I have errands to run, is all. Walking involved, but involving not much exertion. Mostly waiting. And WAITING. For the damn bus. The schedule here is a bad joke, not a real schedule. If I wanted to waste half my day, I could just go and sit and wait for the number 5 to come by, at the bus stop that's closest. Lovely day to get outdoors, nevertheless.
It was my hope that the banks would have to pay to bail the depositors out rather than just eventually pass the increased costs off to their customers, which is what most of us think will happen.
At least the precedent of not making the CEOs etc whole has been established. I haven't bothered to look up what Becker (SVB CEO) had in SVB equity but I am sure it was substantial. I am sure he is still a multi-millionaire.
He has no sense of perspective, given his video address to employees, dressed in a fleece from Gleneagles, where the cheapest rooms start at $600 a night
NEW YORK (Reuters) -Greg Becker, the chief executive of SVB Financial Group, sent a video message to employees acknowledging the "incredibly difficult" 48 hours leading up to the collapse of its Silicon Valley Bank on Friday.
"It's with an incredibly heavy heart that I'm here to deliver this message," he said in a video seen by Reuters. "I can't imagine what was going through your head and wondering, you know, about your job, your future."
Becker wore a black zip-up jacket with a logo from Gleneagles, a luxury golf resort in Scotland, and spoke from a room framed by dark cabinets.
He asked employees to "hang around, try to support each other, try to support our clients, work together" to get a better outcome for the company.
Thanks. But I did get my three mile hike on the beach in first
+1
My hike today was on an ice & snow covered beach in balmy 27 degree temps with a 25 mph wind blowing. In a couple weeks I’ll be hiking on a much warmer beach, if only for a week.
Some things are much more important and rewarding than watching the markets.
Per CNBC: "Treasury Secretary Janet Yellen told senators that government refunds of uninsured deposits will not be extended to every bank that fails, only those that pose systemic risk to the financial system."
I think that's the right approach to help address the moral hazard question. Given news of the past week or so, if you still happen to have cash in accounts far above the FDIC/SIPC coverage limits, you should probably review your risk level and diversify into multiple banks and/or 'safer' government debt.
I remembering first hearing the term "disintermediation" when I was earning my MBA in New York City in 1970:
dis·in·ter·me·di·a·tion /disˌin(t)ərmēdēˈāSH(ə)n/ nounECONOMICS reduction in the use of intermediaries between producers and consumers, for example by investing directly in the securities market rather than through a bank.
That's exactly what rational consumers are doing today: withdrawing money from bank accounts paying 5/100 of a percent to earn 4 or 5% from short-term treasury bills or notes. The banks can no longer count on depositors not paying attention to the low rates they were paying. Obviously not the only problem but a part of the cause.
And a question for Yogi, who is on the list of "two dozen" banks who would have negative equity if all their bond portfolios were marked to market? Excellent discussion on this thread. Thanks.
Comments
One thing I am a little concerned about is the MM sell and the Treasury buy both settling today. I've made these sell-buy trades on the same day often, so I know that isn't a problem, unless for some reason so many people are doing the same that the MM sell is delayed. What-ever.
https://www.schwab.com/resource/schwab-purchased-money-funds
So there's a problem if you purchase a security relying upon funds from your MMF to cover it, and before settlement occurs a seven day hold is imposed on your MMF.
Fidelity appears to be unique in that it automatically uses money in your prime MMFs to cover transactions if you don't have enough in your core MMF. When the government first imposed gating requirements, I asked Fidelity how that would work for settlements. Fidelity effectively threw up its hands. I still don't know what would happen.
https://www.treasurydirect.gov/instit/annceresult/press/preanre/2023/R_20230313_2.pdf
Friday: Bill QUACKman makes headlines saying many banks are going to go under, gloom and doom, etc etc.
Monday: Bill QUACKman says there are 'incredible bargains' in the banking sector, but Bloomberg notes that "the Pershing Square CEO said Monday that he won’t invest long or short in banks so he could “continue to be part of this conversation”."
Give me a break.
I like that!
I think your sweep MM should be safe and remains liquid. Your gold position is working and moving up +2% today. This board has been so useful to stay informed.
@hank- It's important to be clear when we use "verbal shorthand". Yes, the FDIC is a government agency. No, the FDIC does not use "government money" to make depositors whole. The monetary resources of the FDIC are generated by surcharges on the FDIC covered banks.
My suggestion for special coverage over 250k would not in any way involve using "government money" to replace money lost by private banking institutions. It would simply provide safety for large deposits by spreading them over the entire FDIC system so that the banking stupidity of a few banks could not materially affect those deposits.
This was denigrated in one response as a "government takeover/nationalization", which is ridiculous, when for all practical purposes that is exactly what the government is now forced to do in any case, to save the rest of the system from self-destruction.
Silicon Valley Bank parent, CEO, CFO are sued by shareholders for fraud
So long as those resources don't run out (they never have, so far). After that? The FDIC says that it is backed by the "full faith and credit" of the US government.
PS - Is it too dumb to ask by whom and how a decision is made to make whole those with deposits in excess of $250,000? Is it the President who makes the call? The Federal Reserve? Is it subject to review? How would you feel if investors over the $250,000 limit in one state were made whole, but not those in your own? I can envision some who might treat “red” states differently than “blue”. Or, am I missing something?
A lot of the start ups etc used SVB for all oftheir money so their accounts were in the multi-millions
IT would be politically difficult for the FDIC, even if it does not use taxpayer money, to back accounts of that size routinely. The SPIC protects $500,000 from the banks own funds
The FDIC should have forced the SPIC to step in first , just to make the point that the industry had to do a better job.
I wonder if this will only increase the monopolization of the financial system. Even if the FDIC is willing to back any regional bank that gets into trouble, their stocks will be worthless as no on will believe them any more.
But I did get my three mile hike on the beach in first
Banks are the domain of the Treasury, Fed, FDIC, OCC, States. These are all government agencies/entities.
SIPC that insures brokerages is an industry-owned nonprofit, although federally charted and supervised. Its powers are also less vast.
https://slate.com/technology/2023/03/silicon-valley-bank-rescue-venture-capital-calacanis-sacks-ackman-tantrum.html
Thanks. You are correct as SPIC covers brokerages
It was my hope that the banks would have to pay to bail the depositors out rather than just eventually pass the increased costs off to their customers, which is what most of us think will happen.
At least the precedent of not making the CEOs etc whole has been established. I haven't bothered to look up what Becker (SVB CEO) had in SVB equity but I am sure it was substantial. I am sure he is still a multi-millionaire.
He has no sense of perspective, given his video address to employees, dressed in a fleece from Gleneagles, where the cheapest rooms start at $600 a night
NEW YORK (Reuters) -Greg Becker, the chief executive of SVB Financial Group, sent a video message to employees acknowledging the "incredibly difficult" 48 hours leading up to the collapse of its Silicon Valley Bank on Friday.
"It's with an incredibly heavy heart that I'm here to deliver this message," he said in a video seen by Reuters. "I can't imagine what was going through your head and wondering, you know, about your job, your future."
Becker wore a black zip-up jacket with a logo from Gleneagles, a luxury golf resort in Scotland, and spoke from a room framed by dark cabinets.
He asked employees to "hang around, try to support each other, try to support our clients, work together" to get a better outcome for the company.
"Thank you, and my heart is with you," he said.
My hike today was on an ice & snow covered beach in balmy 27 degree temps with a 25 mph wind blowing. In a couple weeks I’ll be hiking on a much warmer beach, if only for a week.
Some things are much more important and rewarding than watching the markets.
Pennies in front of a steamroller but you could probably make a few bucks in the next week!
Which also supplies the "why" re: the support of First Republic by JPMorgan, Citi, BAC and others by depositing $30B into the bank.
https://www.nytimes.com/2023/03/16/opinion/bank-bailout.html
I think that's the right approach to help address the moral hazard question. Given news of the past week or so, if you still happen to have cash in accounts far above the FDIC/SIPC coverage limits, you should probably review your risk level and diversify into multiple banks and/or 'safer' government debt.
https://www.cnbc.com/2023/03/16/svb-signature-bank-failures-yellen-says-us-banking-system-is-stable-and-deposits-remain-safe.html
dis·in·ter·me·di·a·tion
/disˌin(t)ərmēdēˈāSH(ə)n/
nounECONOMICS
reduction in the use of intermediaries between producers and consumers, for example by investing directly in the securities market rather than through a bank.
That's exactly what rational consumers are doing today: withdrawing money from bank accounts paying 5/100 of a percent to earn 4 or 5% from short-term treasury bills or notes. The banks can no longer count on depositors not paying attention to the low rates they were paying. Obviously not the only problem but a part of the cause.
And a question for Yogi, who is on the list of "two dozen" banks who would have negative equity if all their bond portfolios were marked to market?
Excellent discussion on this thread. Thanks.