Big Banks Agree to Historic $30B Deposit Injection in First Republic | Hacker News Reader

Big Banks Agree to Historic $30B Deposit Injection in First Republic

citigroup.com

Since half the comments haven't read the article and are making knee-jerk responses:

"Bank of America, Citigroup, JPMorgan Chase and Wells Fargo announced today they are each making a $5 billion uninsured deposit into First Republic Bank. Goldman Sachs and Morgan Stanley are each making an uninsured deposit of $2.5 billion, and BNY-Mellon, PNC Bank, State Street, Truist and U.S. Bank are each making an uninsured deposit of $1 billion, for a total deposit from the eleven banks of $30 billion. This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities. Regional, midsize and small banks are critical to the health and functioning of our financial system."

Big highlighter on "deposit". No government or even FDIC money is involved in this.

It's significant that this is a private action. It's basically the exact opposite of the VCs telling each other to get their money out of SVB; it's a bunch of banks putting their own money into FRB. A "hold the line" move.

"We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not" is a rather powerful statement.

> Big highlighter on "deposit". No government or even FDIC money is involved in this. > > It's significant that this is a private action.

No evidence on my part of back this up, but assuming that the government _isn't_ implicitly involved in de-risking this for banks seems naïve. I don't think these organizations, not exactly known for their civic-mindedness or charity, would risk any of their own precious liquidity without assurances or incentives from the government.

On the contrary, they have a very strong incentive to do so: it shows the market that they not only trust their own long term position but that they are able to act in concert to take care of a competitor in trouble exactly without the government forcing them to do so, in effect doing an end run around those that are now asking for more regulation.

And that is all the incentive they need.

isn't this almost like a cartel move

Yes-ish.

Let's be real, banking is a public-private partnership. While it IS significant that the banks themselves are doing this, and not the Fed/FDIC, it would also seem quite possible (likely?) to be some nudging from the Fed/Treasury. Some form of "hey, we did our part (the new emergency backstop), you guys need to show you're worth this effort".

While the top-tier of banking is obviously in competition with each other, they're also bound together by their shared interest in the status quo, and then doubling bound together by the Fed/USG also being very interested in the status quo. So it's cartel-like, but it would be a mistake to only include the banks as members of the cartel.

Laws against cartels in the US say things like "in restraint of trade or commerce" and "monopolize any part of the trade or commerce".

Propping a competitor up in this nature is fairly hard to argue as "restraint of trade".

They are colluding to keep a repeatedly failing system alive.

This is like saying a bunch of nodes behind a load balancer are "colluding to keep a failing system alive" when one of them fails over; it's technically correct but .. you don't actually want the system to fail? Because people are using it?

But a possibly better and more optimized implementation can't be put in place until the current one fails, that's the core issue here. Many people want reforms to the banking system, bit the system is defended fiercely until it's un-ignorable. This is a defense of god awful ways of doing things so the general public can ignore it.

Banks directly acting to help their competition? Why? Isn't that how competition is supposed to work?

What we're seeing is yet another version of capital and capitalism in decline, and rich financiers are still claiming the empire is wearing a wonderful robe. News flash! he's wearing nothing at all.

> But a possibly better and more optimized implementation can't be put in place until the current one fails

That's like saying we can't implement renewable energy until the grid goes dark, and the best way to get reform is to go round blowing up some power stations. People are depending on this infrastructure to work! Advocating for bank failures without regard to the consequences to the users is the sort of accelerationism that you normally only hear from revolutionary Communists.

What is the acceptable level of collateral damage from bank failures to you?

So why didn't these same banks band together and buy out SVB / its assets instead of letting it file chapter 11? Wouldn't have preventing the 2nd and 3rd biggest bank failures in U.S. history happen within a few days of each other been a much better way of preventing future regulation?

SVB's fall happened in less than 48 hours and nobody actually thought they'd fail until they did - with FRB, people took the risk seriously because of the precedent.

SVB's liquidity problems were known for months because they were a function of interest rates and failure to manage interest rate risk on their part - besides, the CEO was on the board of the SF Fed. It's not like they weren't in communication with other banks about what's going on with the markets and the Fed itself.

But SVB was solvent and basically fine long-term. If VCs hadn't panicked at herd-mentality stampeded $40,000,000,000 out of the bank in a day, forcing it to sell 10 year treasuries at depressed market rates, it would have been fine.

SVB isn't like the 2008 banks that held mortgage-backed securities that turned out to be full of people who lied about their income and assets and would never get repaid. SVB had treasuries that absolutely would have been repaid.

SVB was trying to do an equity raise to solve their short-term liquidity issues. If they'd done so quietly, and gotten money from a big institution before going public, they'd probably have been fine. Instead, the public equity raise spooked people, caused a bank run, and made their liquidity go from "risky" to broken.

> If VCs hadn't panicked at herd-mentality stampeded $40,000,000,000 out of the bank in a day, forcing it to sell 10 year treasuries at depressed market rates, it would have been fine.

Is there any (publicly viewable) analysis of the extent to which this is - or isn't - true?

It certainly would have survived longer, and for all I know maybe they would have been fine for the 6-7 (iirc) years remaining on those 10yr assets.

But at the same time, with money no longer as cheap as it had been for a long time, it's likely that had they not had the immediate run they would have seen money gradually leaving the bank as less new money gets put into VC and as their startup customers gradually spent down their investment lump sums without raising any new money. Would that gradual trickle out have been strong enough to push them under in the following months or years even without a bank run?

SVB failed because of flighty deposits, not because of liquidity problems.

The liquidity problems seem to have lead to the bank run, but the immediate cause of the collapse was VCs panicking.

> not because of liquidity problems.

The liquidity problems caused the flight - why else would they take a $1.8b haircut on a securities portfolio and then try a bone-headed cap raise to cover the difference?

You can certainly draw that chain of events.

However, just because the link can be drawn, doesn’t mean it was the ultimate underlying cause. If the depositors weren’t so heavily coordinated and concentrated together, there’s no way the money would have come out that fast, if at all. Regardless of the loss on the bond sale.

Because it moved too fast I suspect. And FDIC wasn’t calling the banks boards and saying “you need to do this”.

As various Financial Twitter people have been arguing, why didn't the venture capitalists, who by definition have lots of capital, and often were banking with SVB and encouraging their invested companies to do so as well, buy out SVB?

That's a common misconception: because it is not their money to do so as they wish with. It comes with strings attached in the form of agreements tied to multiple LPs (Limited Partners) dictating own that money can, and cannot be invested.

> venture capitalists, who by definition have lots of capital

Actually VC funds don't have much capital. If I agree to put $10MM into a $50MM fund as an LP, I don't send them $10MM. What I agree to do is that when they make an investment in Startup X, they can call me and ask for a fifth of that investment.

LPs invest in venture firms on the theory that the firms can pick good startups. I want the use of my money until they ask for it.

(This explanation ignores the annual management fee and the fact that some VCs have made a lot of money in the past).

> I don't think these organizations, not exactly known for their civic-mindedness or charity, would risk any of their own precious liquidity without assurances or incentives from the government.

The spectre of more regulation given all of the recent failures from 2008 to today has them spooked I bet.

> The spectre of more regulation given all of the recent failures from 2008 to today has them spooked I bet.

Exactly. Also probably the fear of a wider contagion contained by a government response that leaves the shareholders and executives high and dry (rather than the comfortable 2008-style bailouts). It's not in anyone interest for this to blow up further, which could spur fundamentally selfish organizations into seemingly altruistic action.

"The US banks are so strong that this time they can just bail themselves out. We didn't think of that back in '08"

~ Government Officials, on the horrifically unpopular '08 bailouts that nobody lets them forget.

The odds are quite good that the lesson learned in the last crisis was not to tell people what is going on. The US government has consistently responded to every crisis in the last ... 10? 20? ... years by turning on the printing presses. It is a real leap to say this time will be different. Why will it be different? It is a crisis. They're going to print.

Ironically, the bank bailouts of 2008 were a wild success. The TARP program was paid back in under a year at a decent profit to the taxpayer. ("Through the Treasury, the US Government actually booked $15.3 billion in profit, as it earned $441.7 billion on the $426.4 billion invested."). That's basically the cost of funding NASA for that year, paid for by the return on the bailout investment.

I get that the optics of having the government loan money to banks is bad, but realistically, it was wildly successful.

Nobody profits when a bad loan is made. Money that represents a promise of future spending made to someone who saved instead spent is destroyed. The only question is who is going to pay the cost.

In 2008 the wizzes of the banking industry had made billions of bad loans. Who paid for it? Anybody who saved instead of spent and invested instead of speculated. In other words, almost all of us did. Once all the pluses and minuses are canceled out we’re all poorer for it. Saying anything else is putting lipstick on a pig.

15B profit on 420B investment amounts 3.5% return YoY. I wouldn't brag about that sort of return. Yes TARP worked to forestall an even greater collapse. People were less upset that the government acted as an emergency creditor than by the fact that the people who made the mess of 2008 got bonuses paid out of that federal backup (a bonus is given for good performance - which was obviously not happening in 2008).

That's if you ignore the secondary effects: "moral hazard," knowing that if you become big enough to create political waves in the event that you fail you can continue to gamble with depositor money, make your annual bonus, and safely be rescued by Federal depositor backstop / bailout in the event that you eventually go tits up. I wonder if that'll ever happen again after 2008...

The irony is that "moral hazard" was the excuse used for not bailing out the homeowners directly who were defaulting on mortgages 15 years ago.

What they did with SVB prevents this thinking. Make the depositors whole, wipe out shareholders, prosecute the executives.

Not really - rewriting the rules (FDIC insurance limits) midway through because SVB's own depositors yelled "bank run!" loud enough is still moral hazard. Do I need to make sure I bank with an institution that Jason Calcanis, Mark Cuban, et al use so I can insure my deposits with their political / popular leverage?

It's hardly a rewrite, everyone knows that your deposits with the big 5 are already 100% "too big too fail" anyway.

The only change is that some smaller organizations might also get the same unspoken benefit that the big 5 already enjoy.

This keeps them competitive, and as the US Gov and many folks noted, if they did not do this, everyone would flee to the Big 5 and regional/community banking would be wiped out.

Was it paid back? Or was it "paid back" in the same way that a father might let his deadbeat son roll a loan so he can lie to his golf buddies about it?

https://fred.stlouisfed.org/series/WALCL

It sure seems to me that at least $1T stayed printed. Of course, that amount seems positively quaint now.

That graph isn’t a graph of TARP assets…

That's my point. It's misleading to zoom in on TARP because TARP is only part of the story. Swapping one asset for another without reducing the net position is a dumb trick and it's embarrassing that so many people fall for it.

Looking at the Fed's balance sheet is a simple way to track the big picture.

Those were different program that frankly had nothing to do with each other policy wise.

In one instance, the fed took over assets to backstop troubled banks, in the other, it sought to increase the monetary base.

It’s not a “dumb trick” it’s basic monetary policy.

It stops being a dumb trick the moment the Fed manages to wind down the balance sheet (i.e. never). Until then, the Fed is just the bagholder of last resort, and talk of a money printer is more accurate than talk about backstops and the monetary base.

They’ve literally been winding down the balance sheet for the last ten months.

It is annoying that this is currently grey despite being entirely correct for the US. The banking rescue worked. A few crimes did get swept under the rug, like "robo-signing", but those weren't directly linked to TARP.

Other countries did less well out of the event. The UK still owns the emergency nationalised RBS. AIB blew up Ireland quite badly; Kaupthing even worse for Iceland, and so on down to Cyprus where the depositors were deemed to "dirty money" to get a bailout and actually took losses.

I also don't think people have considered what the alternative society of "contagion" would have looked like, where enough banks had failed that a significant fraction of companies could not make payroll and millions of Americans suddenly could not buy anything.

my problem with this, and I think others share it, is that nothing came out of the situation to fix the conditions that made it happen.

The best we got was the Volcker rule (RIP). and even that wasn't nearly enough. If you're "too big to fail" you're _too fucking big_.

> Ironically, the bank bailouts of 2008 were a wild success. The TARP program was paid back in under a year at a decent profit to the taxpayer.

I'm not sure that getting paid back by reinflating a bubble is the net positive you think.

Those are lies on the level of when the Russians do their tour talking about how they are defending themselves against Ukrainian aggression. If there was that much money to be made, it doesn't make any sense for the government to be involved sucking out all the profits.

Bank creditors aren't idiots, they can be persuaded to wait a few years for a $15.3 billion bumper profit if the alternative is losing all their money. The issue is someone is pulling out smoke and mirrors in a complex situation to pretend that everything is going ok. Probably involving, to stick to theme, money printing.

I don't think "the Russians" actually said that. Maybe you should use a different example, like when the US lied at the United Nations about WMDs in Iraq.

> I don’t think “the Russians” actually said that.

As well as the broader “NATO moving up to our doorstep” justification, the more specific (as to timing) “Ukraine shelling and moving troops to prepare to follow up the shelling with a massive ground offensive against the DPR/LPR” excuse is regularly used by both Russian official sources and Russian proxies.

Hmm... You are equating responding to a "massive ground offensive against the DPR/LPR" with Russians "defending themselves against Ukrainian aggression". Are you implying that DPR/LNR are Russian?

> Are you implying that DPR/LNR are Russian?

Russia has described them as Russian by identity and allegiance and responsibility of the R.F., even if not juridically (and has since purported to annex them juridically, as well.)

Putin also cited direct military threat by Ukraine to Russia generally (including nuclear threat), and invasion threat to “Russian” Crimea specifically, in his speech coinciding with the opening of the 2022 invasion.

Man, there is some heavy semantic distortion happening in this subthread. To make sense of the NATO narrative:

"Western" = "Ukrainian"

"DNR/LNR" = "Russia"

"Threat" = "aggression"

Next, we will be "warmongering" = "peacemaking". Oh wait, this is already a thing. Along with "ignorance" = "strength".

DNR/LNR isn't in Russia though, it's Ukraine according to treaties Russia agreed to. Same thing with Crimea.

Next thing I know you're going to tell me Autonomous Republic of Abkhazia is a real, sovereign country and totally not just Russia invading a neighbor.

>Next thing I know you're going to tell me Autonomous Republic of Abkhazia is a real, sovereign country and totally not just Russia invading a neighbor.

Well, I had to look this up on Wikipedia, but in a nutshell, that is roughly correct. To be precise, Abkhazia is a de facto independent state, and has been since the Georgian-Abkhaz war of 1992. Russia only recognised its independence in 2008, probably in response to Georgia's plans to join NATO.

>DNR/LNR isn't in Russia though

Not sure of you are agreeing with what I said above, or disagreeing. Can you re-read the thread carefully and clarify?

> Russian Foreign Minister Sergei Lavrov made headlines over the weekend when his claim the Ukraine war was “launched against” Russia provoked laughter from the audience during a forum in India. But I was in the room and can report he also received applause and indifference.

https://theconversation.com/russias-foreign-minister-got-lau...

Putin absolutely used language suggesting these actions were defensive against "fundamental threats" and in reaction to "the military machine is moving and, as I said, is approaching our very border". Putin puts the war against Ukraine as "a matter of life and death, a matter of our historical future as a nation" and a threat "to the very existence of our state and to its sovereignty." He even literally states "we are acting to defend ourselves."

Putin himself has absolutely, 100%, without question, very publicly stated they needed to go to war against Ukraine to defend themselves against Western aggression. He absolutely framed it as a completely defensive action. Those words aren't some misquote or mistranslation or taken out of context, they're hosted on the Kremlin's website.

I guess you don't consider Putin to be a Russian?

http://en.kremlin.ru/events/president/news/67843

https://www.atlanticcouncil.org/blogs/new-atlanticist/markup...

Please quit spreading lies.

You are implying that "Western aggression" is the same as "Ukrainian aggression". They are not.

Please quit gaslighting.

"The purpose of this operation is to protect people who, for eight years now, have been facing humiliation and genocide perpetrated by the Kyiv regime." - Putin, from the links above. Please read them before arguing what Putin has or has not said.

Who is the Kyiv regime? I guess to you they're not Ukrainians. Who's gaslighting, the person literally quoting what Putin says, or the one essentially arguing Putin isn't a Russian and the Kyiv regime isn't Ukranian?

The current Kyiv Regime == Western, to Putin. So "defending against Western aggression" is "defending against Kyiv regime" is "defending against Ukraine."

Please quit spreading lies.

>Who's gaslighting

You are.

You are continuing to imply that "Western" and "Ukrainian" are the same to Putin. While in your links, which I read, right near the top, there is a statement about "the fundamental threats which irresponsible Western politicians created for Russia consistently, rudely and unceremoniously from year to year. I am referring to the eastward expansion of NATO, which is moving its military infrastructure ever closer to the Russian border." Maybe read the whole thing again.

And please stop your gaslighting already.

So the regime in Kyiv isn't Ukrainian, it's "Western". Got it. Makes total sense.

And to defend against the Western world, they need to shell checks notes dozens of Ukrainian cities, which were controlled by the government in Kyiv. Right. Which isn't Ukrainian, it's "Western", which are definitely two different things. Huh.

I'm quite confused by how you've twisted things. Is they Kyiv regime Ukranian or not? Is Ukraine Western or not? Did they have to defend themselves from Western world? Did they have to defend themselves from Ukraine? Are those really separate? Isn't saying they had to defend against the Western world and the Kyiv regime acknowledging they're one in the same?

I'd love if you'd spell out what you really think about the topic.

What have I twisted? Look at my opening post, to which you replied "Please stop spreading lies". What was the lie again? You doubled down and had to twist like an eel to try and justify your statements.

As for what I think: I think that we, "the West", are playing a stupid and evil role in this conflict. Furthermore, we are spreading misinformation in order to manufacture consent among the public, often in an incredibly crude manner. I'm prepared to discuss this, but maybe one thing - you pick which - at a time.

What you've twisted is you're essentially arguing the Kyiv regime isn't Ukranian. Putin sees the Kyiv regime as Western and an expansion of NATO influence, he says so in the speech I linked above.

If the special operation is having to defend against Western influence, and the Kyiv regime isn't Western, why is he shelling the Kyiv regime?

Your lie is arguing Putin never said they had to defend against Ukranian aggression. In my quote above, he talked about needing to act because of aggressive actions from the Kyiv regime. So either the Kyiv regime isn't Ukranian to you, or Putin did say they needed to defend against Ukranian aggression.

Putin feels the Kyiv regime is an extension of Western NATO influence, and he stated he had to act in defense against their aggression in DNR/LNR/Crimea. This is all in the speech I linked, not twisting any of his words at all.

So yes, Putin has absolutely argued he had to defend against "the regime in Kyiv", which I think most of the world would take to mean Ukraine. So it's pretty fair to say Russia phrased this as "defend against Ukraine", unless you are arguing the regime in Kyiv isn't Ukranian or Putin and the Kremlin aren't Russian.

Could you answer if you believe the Kyiv regime is Ukranian?

>Kyiv regime isn't Ukranian

I'm not actually arguing that. However: Zelensky was elected largely by the voters in the eastern regions of Ukraine, and largely because he promised to bring peace to those regions. He has failed in that promise and betrayed his voters. Most likely because of Western influence.

>Putin sees the Kyiv regime as Western ... ... he says so in the speech I linked above.... etc.

I read the entire thing and I don't see it. Which paragraph are you talking about? Is it this one:

"...the leading NATO countries are supporting the far-right nationalists and neo-Nazis in Ukraine, those who will never forgive the people of Crimea and Sevastopol for freely making a choice to reunite with Russia. They will undoubtedly try to bring war to Crimea just as they have done in Donbass..."

because that's certainly not about "Ukrainians" in the sense that you keep on implying.

>Could you answer if you believe the Kyiv regime is Ukranian?

Let me try. The current Kiev regime is made up of Ukrainian nationals. However, it is no longer acting in the interests of Ukrainian people. It has become a sock puppet of the NATO countries. So I believe that it is "Ukrainian" in the same sense that the ruling party of China is "communist" or that Donald Trump is a "conservative". Hope that answers your question.

Putin sees the Kyiv regime as Westernized. He doesn't directly state this as a single line, but you don't need to look too deep in his statements to understand this. Unless you're thinking he's talking about someone else when talking about far-right nationalists and neo-Nazis here.

"Focused on their own goals, the leading NATO countries are supporting the far-right nationalists and neo-Nazis in Ukraine, those who will never forgive the people of Crimea and Sevastopol for freely making a choice to reunite with Russia."

"Any further expansion of the North Atlantic alliance’s infrastructure or the ongoing efforts to gain a military foothold of the Ukrainian territory are unacceptable for us." What foothold would he be talking about here if not a Westernization of the regime in Kyiv?

"...are supporting the far-right nationalists and neo-Nazis in Ukraine"

> because that's certainly not about "Ukrainians" in the sense that you keep on implying.

What nationality are those people who are those "far-right nationalists and neo-Nazis in Ukraine"? Isn't he referring to the regime in Kyiv and its supporters with this language? Is Zelenskyy not a Ukrainian? Are those people in the Ukrainian army with the Ukrainian flag on their uniforms not Ukrainian? What nationality are those nationalists supposedly fighting for? Talk about gaslighting.

>Putin sees the Kyiv regime as Westernized. He doesn't directly state this as a single line...

If you dismiss what he is saying directly, and look for some obscure meaning instead, with some help of semantic distortion you will find what you want to find.

>What foothold would he be talking about here

Very obviously NATO foothold, that's the "North Atlantic alliance".

>What nationality are those people who are those "far-right nationalists and neo-Nazis in Ukraine"?... etc.

They are Ukrainians. And Ku Klux Klan members are American. But you can't interchange the terms willy-nilly. Eg it is wrong to say "Americans advocate the use of violence against people of colour and Jews".

> And Ku Klux Klan members are American. But you can't interchange the terms willy-nilly. Eg it is wrong to say "Americans advocate the use of violence against people of colour and Jews".

Those leading NATO countries are supporting the regime in Kyiv, the government headed by Zelenskyy, which he also "will never forgive the people of Crimea and Sevastopol for freely making a choice to reunite with Russia." Ergo, by Putin's own words, Zelenskyy == a far right nationalist/neo-Nazi. If I say a rectangle is a four sided shape with all right angles, and describe a shape with four sides and all right angles, I just called it rectangle without actually using that word directly, right?

This is very different from your example with the KKK, as the leaders of the KKK aren't currently the leadership of the US government. If the leadership of the US government was composed of largely KKK members and they started instituting KKK policies, I would agree with that statement. Are you seriously suggesting that Putin explicitly wasn't connecting Zelenskyy to the "far-right nationalists and neo-Nazis" here?

Hello again!

>Those leading NATO countries are supporting the regime in Kyiv, the government headed by Zelenskyy

Unfortunately, this is a misleading half-truth.

The truth (this is my opinion, but based on literally hundreds of hours of scouring the internet for information) is that:

1) Zelensky was elected because Ukrainians, especially Eastern Ukrainians believed that he would work to bring peace to Donbas;

2) For a year or so after his election, he actually tried to do that. The West disapproved and pressured him to change course, while the far right nationalists basically told him to f@#k off and made public death threats against him. I don't know if you understand Ukrainian, but at least skim these videos https://www.youtube.com/watch?v=_KxLuDpP4_w / https://www.youtube.com/watch?v=d5RRDnF7lKM to get an idea. I think Putin called Ukraine a failed state at that point.

3) After a while, Zelensky basically folded and let foreign backed parties and interests dictate Ukrainian policy. Ultimately leading to where we are today.

So it is not so much that "leading NATO countries are supporting the regime in Kyiv". but rather "the regime in Kyiv is a NATO puppet regime".

>This is very different ... Are you seriously suggesting that Putin explicitly wasn't connecting Zelenskyy to the "far-right nationalists and neo-Nazis" here?

I'm certainly not suggesting that, quite the opposite. He was connecting the two, just not in the way you imply. He quite rightly IMO is saying that Zelensky is carrying out the agenda of far-right nationalists and neo-Nazis. But not "Ukrainians", meaning the people of Ukraine in general.

The only reason the banks were around to pay back TARP is because the US government declared them to be "too big to fail," essentially guaranteeing their debts. So the government put the taxpayer on the hook for all the liabilities of the banking system in exchange for a $15.3 billion profit. I would call that a lot of things, but a "wild success" isn't one of them.

In uk it wasn’t though. Taken from Wikipedia regarding uk bail out. As at October 2021, the UK Office for Budget Responsibility reported the cost of these interventions as £33 billion

Ireland took an even bigger hit from Anglo-Irish, although in that case Sean Quinn did actually go to jail.

Aside from the moral hazard, you are right. But most of the histrionics about bailouts, particularly the 2008 bailouts, are often based more on feelings than facts.

>are often based more on feelings than facts.

This is how it's being framed on many news networks as well. But I don't know if I quite buy it; maybe you can clarify.

The 2008 was considered "different" because it was essentially driven by a bunch of bad bets on sub-prime mortgages. In contrast, this current one is being framed as just ensuring depositors. But that assurance is needed because the banks made bad bets on the bond market. Are the two really fundamentally different?

Well, when SVB got its “bailout”, what happened to its shareholders? They got wiped out. The people that made the bad bets didn’t get rescued.

fascinating, where can I read more about that?

I realize you are not proponing printing, but wouldn’t the Fed realize that continuing to print now would be the opposite of what is needed?

Wasn’t it precisely allowing the insanely low interest rates allowed to sustain over an unprecedented years-long period, coupled with non-stop printing and spending, and with the Fed continuing that trend and turning a blind eye to obvious inflationary indicators from even two years ago, and doing nothing until the non-gradual knee-jerk rate hikes in a 6 month (with the speed of which has proven deleterious to the system) period—- that caused this specific situation?

For practical purposes they've had benchmark interest rates at 0% for a decade. They have a fig leaf over that because they made it to 2% in the late 2010s before they folded and went back to 0%.

Anyone who thinks 0% made sense for that long just thinks 0% makes sense. They probably aren't capable of spotting a situation where positive interest rates are sensible.

It’s completely insane that they did that..

I don't think this is civic-mindedness at all the great depression taught us that bank runs and failures are contagious. The very purpose of FDIC is to prevent this (and other countries have similar schemes), but it can only go so far.

Putting their own money in can be entirely in their own self interest if it stops problems from spreading. None of those banks want the kind of problems that come with SVB, Signature and First Republic (and whichever one is next).

Something I don't understand: The people withdrawing above FDIC insurance limits aren't just putting the millions they withdraw under a mattress. They have to put it somewhere. And the most logical place to put it seems to be one of these big banks. Don't these big banks stand to gain from the collapse of small banks, as people flee small banks and into big banks? What risk do the big banks have of experiencing a run? Where would people put all that money?

Take a look at what happened with SVB failed and needed to raise the cash to meet their deposits. It massively depressed the value of a lot of the investments they held in the markets. As other banks fail, similar kinds of movements can happen and potentially have other downstream effects causing a lot of instability and chaos into markets. Maybe the big banks will be able to capitalize on those, maybe they'll end up hurt as well. Keeping the market healthy can be a good thing.

Every bank failure sends the stock value of all banks downwards. As well as corroding political confidence in the system.

There are bigger considerations here for these banks than the gains they would make from the failure of small banks. They know that they are in a very nice position with the government guaranteeing all of their debt while at the same time leaving them free to make as much profit as they can. They know that the mass failure of regional banks while big banks gain would be a political event as much as a financial one. They know that they are some of the most widely hated organizations in the US, and that the political fallout from such an event would not go in their favor like last time, so they will pull out all the stops to prevent it from happening.

Game Theory. Will you be the last one standing?

Also, I imagine the "people flee[ing] small banks ... into big banks" makes this particular stabilizing action easier. The big banks just redirect all the new deposits they're getting back to the small banks where they came from to stabilize things.

He's not saying the government isn't involved he's saying no government money, or even FDIC money is involved in this.

If they get a tax write off for those $30B that's technically goverment money involved.

Please explain how you get a tax write off for depositing money in a bank.

Avoiding a crisis of trust and financial system meltdown is enough to get them to commit to this.

The banks have concluded that the public statement may be worth more than those government assurances anyway. And yes these banks are TBTF

>"We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not" is a rather powerful statement.

It seems to me that there is a considerable amount of risk to the participating banks if FRB fails. "Hold the line" is right - if more banks fail, these participating banks will lose a lot more than their $1B each.

I do wonder if there's something specific to FRB that made them pick this - is it the most likely to go next? Did it have published liquidity issues?

As I understand things, the problem at SVB was that they had customer deposits tied up in multi-year treasury notes which are among the most secure investments going but they couldn't withdraw the money fast enough to keep up with customers' instant-access accounts.

Having your money be secure but inaccessible for several months is obviously a problem if you're a business that needs to make payroll, or a crypto exchange that needs to allow customer withdrawals.

If the bank has plenty of cash but some of it's time-locked, then JPMorgan aren't at risk of losing their entire $5bn - they merely risk having it tied up for a year or two, perhaps getting an uncompetitive interest rate.

It’s also a problem if another bank is offering a higher interest rate. Customers will smartly ask for their deposits back to get interest elsewhere requiring that a bank sells its assets early, which isn’t possible to do so if they are locked into long dated underwater assets.

They would definitely have very carefully checked their books. I expect they wouldn’t do it if the combined amount was not such that it all but guarantees the bank won’t fail.

Obviously these big banks have a strong interest in maintaining confidence in the wider banking sector so want to make sure it doesn’t go under.

> It seems to me that there is a considerable amount of risk to the participating banks if FRB fails. "Hold the line" is right - if more banks fail, these participating banks will lose a lot more than their $1B each.

$5 billion each.

A 100% haircut would mean that their assets are effectively worthless. I highly doubt that the depositing banks would have done this if that were the case.

Even if their assets are things like Treasury notes? I'm assuming JPM would get first dibs on those types of assets if First Republic went under, no?

Yes, that‘s my point: Even in case of an unprecedented interest rate hike and 10-year treasuries, the haircut due to depreciating asset values would not be 100% but much less.

Sorry, I misinterpreted your first post but thank you for clarifying.

Up to $5bn. The actual likely value at risk is a lot smaller; would need a First Direct balance sheet to estimate it.

(Some are subscribed at $1bn and some at $5bn. That must have been an interesting meeting.)

It's been all over the news all week as the likeliest next failure, yes.

> "We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not"

Same sentences read to me completely differently:

"First Republic is in so deep shit that we must intervene immediately with funds we will miss dearly - we are troubled too - so it would not drag all of us down later. We also need to push pompous text in the attempt of covering how big our troubles are."

Sounds more believeable than "betting" for fun or being philantrophic all of the sudden.

>It's basically the exact opposite of the VCs telling each other to get their money out of SVB; it's a bunch of banks putting their own money into FRB. A "hold the line" move.

It's interesting to remember that banking, at least from the perspective of the commons (depositors), is an issue of trust.

The more the commons say to withdraw their deposits, the more deposits will be withdrawn and the more banks will collapse; and the more banks will collapse the more the commons will say to withdraw their deposits, the more deposits will be withdrawn and the more banks will collapse.

The opposite also holding true.

Objectively, there is simply no value in giving one's money to a bank other than the ostensible claim that they will keep your money safer than if you just stash it under your bed.

Given that, the FRB, FDIC, and banks et al. pulling out all the stops to reinforce depositor confidence is not surprising. It's a natural response to fear making the rounds in the commons.

Traditionally banks which needed cash to balance their books worked through the interbank market. Interbank lending was unsecured but short term so the risks were manageable. If a bank was known to be insolvent however lending would quickly dry up and banks would need to go hat-in-hand to the Federal Reserves discount window. That came with a high cost and invited regulatory scrutiny.

Now the FDIC has indicated that it will insure deposits in unlimited amounts doing a direct deposit maybe a more attractive option to banks? That $30B previously was sitting around at the Fed earning a risk free return at prevailing interest rates. I have to assume that there is special treatment here and the banks are earning above market returns and the banks didn’t put cash-at-risk sitting in zero interest accounts out of the goodness of their hearts.

If that is the case the Fed, FDIC and Yellen have effectively nerfed the interbank market.

>Now the FDIC has indicated that it will insure deposits in unlimited amounts

My understanding is that the FDIC does not have cash on hand to cover "unlimited" amounts. My (somewhat dated reference, 2010) said they have about $0.70 for every $100 insured, based on the idea that the number of depositors they would have to cover at any single time is relatively small. Similar to the idea that banks don't have to have enough reserves because depositors won't all request to pull their funds at the same time. Until they do.

FDIC has government guarantees for the $250k portion, and implicit guarantees beyond that. And with the SVB bailout of depositors it’s now signaled that FDIC is effectively insuring the full balance backed by the Treasury.

Right, but the issue is they may not have $250k on hand for everyone who is insured. (Essentially no different than the banks needing enough reserves to cover withdrawal amounts.) The "implicit" part essentially means Congress will act on their behalf if needed. Which means the mechanism is to sell Treasuries to the Fed, who pays for it by printing money. I don't know if that's great option in the context of the highest inflationary period in 40 years.

Or am I wrong on that understanding?

Technically FDIC can "levy an assessment" on all banks to cover deficiencies, or anything they want to.

In reality Congress would step in, but they did the above for SVB.

See 5-(c): https://www.law.cornell.edu/uscode/text/12/1817

> In addition to the other assessments imposed on insured depository institutions under this subsection, the Corporation may impose 1 or more special assessments on insured depository institutions in an amount determined by the Corporation if the amount of any such assessment is necessary—

Practically this means that FDIC can levy on the banks for some amount more that won't crash the banks; anything above that and they'll be going to Congress, or the Treasury will do some trickery.

Yeah, that aligns with my (limited) understanding. The assessments are a relatively small portion of the funds, I believe. My understanding is that the rate charged is the same regardless of the riskiness of the bank, which could become a moral hazard in its own right. (I.e., if the assessment rate is the same regardless of risk, it may incentivize riskier behavior)

> Big highlighter on "deposit". No government or even FDIC money is involved in this.

I have deposit accounts in several of the banks listed. So my money is involved in a potentially bad investment. At least the balances I have do not exceed the FDIC insurance limit per bank.

Once deposited it’s no longer your money. The bank has a liability to you equal to the deposited amount, but you have no more control of those (virtual) dollars. That’s an asset for you, but this action is not your “investment.”

> At least the balances I have do not exceed the FDIC insurance limit per bank.

That's is both the cure and the problem. All of your money is protected by the FDIC. So it's not "At least". Your deposits are protected.

But SME companies have just realized that they are not protected and are busy rearranging their finances, which is seeing a lot of outflows from smaller banks, both to distribute money under the $250K limit as well as a "run to quality" to the big banks.

All small banks with a mix of customers leaning towards SME will be impacted.

If JPM fails you probably will have bigger issues...

> "We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not" is a rather powerful statement.

It is. But perhaps less so than it appears.

First, there may be downside to JPMorgan if First Republic fails, and especially if dominoes continue to fall after that. So JPMorgan has the upside of avoiding the downside, at least.

Second, JPMorgan is officially recognized as a systemically-important bank. They will not be allowed to fail. So their risk from this move is the risk of some loss, but not the risk of collapse/destruction.

Still a bold move, and one that, as you said, talks quite loudly.

> "We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not" is a rather powerful statement.

Is it though? Although there's no upside, there's also little downside since deposits are at the top of the liquidation stack in the case of bankruptcy.

The further up the liquidation stack your capital goes, the least risk you're taking.

So, the biggest vote of confidence would be if big banks purchased First Republic equity. I would categorize offering FRC debt as a strong signal also (like JPM did). Offering FRC uninsured deposits is perhaps the weakest vote of confidence when it comes to transferring cash to FRC.

>> "We, JPMorgan, are willing to bet $5bn that First Direct does not fail, with no upside to us if they do not" is a rather powerful statement.

The upside is the contagion doesn't spread to them.

“ it's a bunch of banks putting their own money into FRB” - aren’t these their clients money? If so, isn’t the same situation when clients make “deposit” and expect their money held by bank, but bank start treating them as bank creditors?

I wonder what if First Republic collapses anyways? Will they be made whole anyways even though deposits are uninsured because they are deposits?

I wouldn't rule it out.

But you can see how this works: because the FDIC intervened and gave 100% on SVB where perhaps it might only have been 95% otherwise, the banks are now able to privately assemble an intervention into First Direct, which is even cheaper because now FDIC don't have to intervene!

Somehow I doubt this was planned entirely privately. For one thing, absent a government nod, this kind of coordination raises serious antitrust concerns.

It’s only antitrust if it’s anticompetitive.

> For one thing, absent a government nod, this kind of coordination raises serious antitrust concerns

What concern, exactly?

Suppose that (and this is not that wild a hypothetical under the circumstances) First Republic had been contemplating, barring significant new deposits, selling to an up-and-coming midsized bank, and the larger banks did not collectively desire that outcome.

Their CEOs can’t sit around a table and discuss joint billion-dollar strategic action. It’s the definition of a “conspiracy in constraint of trade”.

What constraint of trade results from this action?

If appetite for deposits is satisfied by some ingroup then the bank doesn't have to compete for deposits on the open market.

This would be an acquisition intention that's not been announced or registered already? Anything's possible, but it seems silly to worry about things like that.

In the event of a collapse of course the depositors will be made whole, especially after they've showed such courage.

So it's about as risky as bungee jumping 5cm high using a VR headset with 5 medics around you?

I agree. Either this will work, or the FED will step in and protect their member banks. Risk: zero.

Well it's non zero. If the banking system actually start collapsing the stock prices of these banks will also crash. I doubt their executives and other want that...

Yellen says otherwise

And there is the government bail out...

It's a liquidity injection. If there's a bank run, say, tomorrow, suddenly they have $30 billion of cash on hand to cover it.

Why are the big banks doing this?

They believe the books are sound, but people (depositors and investors) are a bit jumpy / skittish currently.

No bank - and that is no bank - can survive a majority of its depositors all withdrawing their funds rapidly. Even the big banks can't survive that.

The $250k backstop for the FDIC should prevent the regular depositors from doing a bank run, but when the depositors are more single sector business oriented then that is a more real fear.

By putting in $30B into the bank it provides a few things. First, it is $30B of money that the big banks aren't going to be moving out soon. It is liquid money that can be used so that First Federal doesn't have to sell securities at a loss to close out depositors accounts (this is what got SVB). Secondly, it is a statement from the banks that they trust (with their money where their mouth is) that the bank will not fail - because if it does, they're way about that $250k FDIC insurance number. Those deposits are very much like yours and mine - just with a few more zeros on the end. They are deposits - not bond sales or other financial instruments, but rather cash in the bank.

From yesterday: https://www.marketplace.org/2023/03/16/first-republic-bank-3...

From this morning: https://www.marketplace.org/shows/marketplace-morning-report...

The upside should be (and hopefully is) a good interest rate on that deposit. Let's say Fed Funds plus 5%.

I read in one news article that they got the same terms as all the other depositors at FRC, so the interest rate is negligible.

Obviously the real benefit to them is calming the panic in the banking sector, which is harmful to all of them.

.. does anyone have any evidence for this? It's not in the press release.

These banks that would've gotten a run could accept a loss here, as long as it's in the future and can be funded. It's better than a run.

Bro this is residual investment for these banks, wake up.

This money is NADA, is part of a fund every bank saves for things like this, they are literally just burning cash with this movement because 30 billion alone isn't enough to cover for any of them, even them "small" ones like First Republic.

This is a political movement, in a time where these banks should be investing said "actual" money (another misnomer) in literally unfucking federal government gridlocks on systemic reforms.

Banks make hundreds of billions every year, for them to take 2.5 or 1b to fund whatever is literally part of the business, not even computed as loss since it can be classified as net cost avoidance if this money actually ends up helping systemic chaos because these things are way pricier than 30bn.

LOL, your analysis is literally made for children books, I'm not even scratching the surface here.

This is quite funny right, people get scared of FR so they pull their money at and run to daddy (JPM) who then proceeds to take that money and... put $5Bn uninsured into FR. What I really don't understand though, is that not only is this a level of co-ordination any normal industry would be barred from doing, haven't we essentially moved to a point where any reasonably large bank is now being gauranteed because we're so scared of contagion? Doesn't this basically make Banking a utility? There's massively limited downside to running a bank now. Given that there's now a capped downside to banking, wouldn't it be logical at this point to cap upside? 100% taxation over some level of profits - since the obvious answer to a capped downside is to up your risk to increase profit?

> This is quite funny right, people get scared of FR so they pull their money at and run to daddy (JPM) who then proceeds to take that money and... put $5Bn uninsured into FR.

A $5B loss won't collapse JPM, so this works OK. (And it wouldn't be anywhere near $5B, either; they'd get a significant portion back even in the event of a FRB collapse.)

> is that not only is this a level of co-ordination any normal industry would be barred from doing

This seems the opposite of anti-competitive behavior that gets cartels/conspiracies in trouble.

Arguably basic transactional banking with payment rails should be a utility, but the US shut its postal banking system and people are paranoid about CBDCs.

As for the coordination, it's the mirror image of people telling each other to get their money out of SVB.

When the Fed finally gets FedNow fully up (July this year), basic transactional banking with rails will be a utility.

The equivalent of Mark Cuban is doing about basic pharmaceuticals in California will be able to be done for banking services.

Payroll services will be able to be instant, as well as bill paying.

That $5b is definitely "insured" - the FDIC has all but nationalized US Bank deposits so long as there's widespread liquidity issues under its "systemic risk exception."

Banking should be managed on the level of essential community elements such as legislation, governance and perhaps military, serving the society. Not a playground for competing profit chasing self focused reckless parties. So the rest of the economy could have a more reliable platform for free competition.

I would enjoy seeing how paranoid HN would get at the US State Military People's Banking Corporation.

Banking in the US is a public-private partnership and has been for over a hundred years. There are no secrets there, for anyone paying attention.

I’m curious how you can say there’s no downside a week out of a large bank’s shareholders going completely bust.

There's downside for shareholders, but not for the employees running the bank. As for the top executives, they may get pain when the bank fails, but payouts for top executives are genreally disproportionately in the good years. So a few good years of high yields are probably a financial incentive that overwhelms the risk of eventual ruin.

Coordination in industries is not legal, especially when its transparent like this. Not sure why you would think it was illegal.

Coordination between businesses isn't illegal unless it is for the purpose of removing competition or fixing prices, and this action clearly isn't either of these.

Hard to argue with your point that banking is basically a utility now b/c of the government guarantees point, though.

How is this not for the purposes of fixing prices? Isn't the intent here to prevent the competitor bank from needing to sell their assets and driving down prices, leading to contagion?

This is reminiscent of the Panic of 1907:

>Morgan and his associates examined the books of the Knickerbocker Trust and decided it was insolvent, so they did not intervene to stop the run. Its failure, however, triggered runs on even healthy trusts, prompting Morgan to take charge of the rescue operation.[0]

[0] https://en.wikipedia.org/wiki/Panic_of_1907#J._P._Morgan

My favorite part of that story is that Morgan was a rare book collector, his office was essentially a vault, and he locked the other bankers in with him.

> As discussion ensued, the bankers realized that Morgan had locked them in the library and pocketed the key to force a solution, the sort of strong-arm tactic he had been known to use in the past. Morgan then entered the talks and advised the trust companies that they must provide a loan of $25 million to save the weaker institutions. The trust presidents were still reluctant to act, but Morgan informed them that if they did not it would lead to a complete collapse of the banking system. Through his considerable influence, at about 4:45 a.m. he persuaded the unofficial leader of the trust companies to sign the agreement, and the remainder of the bankers followed. Having received these commitments, Morgan allowed the bankers to go home.

You can tour the exact room where it all happened at the Morgan Library Museum in New York.

> the bankers realized that Morgan had locked them in the library and pocketed the key to force a solution, the sort of strong-arm tactic he had been known to use in the past.

While that story is often repeated it sounds for sure apocryphal. A bunch of men from that day and age couldn't have figured out how to get out of that room? Or simply revolted and freaked out? Now maybe he feigned doing that or maybe he actually did 'lock the door' but so what? The story and legend value is just to much to ignore. It's almost certainly greatly exaggerated or not even close to being true. People can't even agree on news that happened in this day and age let alone the golden era of back in the day newspaper exaggeration.

In any case the 'lock' might have been some other leverage he used over the players that wouldn't make sense to the general public or make a good news story.

> A bunch of men from that day and age couldn't have figured out how to get out of that room? Or simply revolted and freaked out?

You're not thinking of this the right way. If a man had some health issue and needed to go to a hospital, or even if the men demanded to leave immediately, Morgan would have let them out. His locking the door was symbolic of his sense of urgency and determination to not leave the room without solving the crisis, something the others could tangibly see.

You misunderstand - He did nothing so he could take charge of the rescue operation ... Why pay $1 for something you can have for pennies?

Really feels special to be living through such a historical time.

But as a millennial, I've lived through numerous record-braking financial events, from the insane QE after the 2008 bailouts, to the numerous industries that get taxpayer cash over and over after cutting staff and spending profits on stock buybacks, to the CAREs Act which was maybe the greatest wealth transfer upward of my lifetime (yet). We never stop striving to break records.

Our generation gets to live through the best and worst times of human history!

This was not the month to start watching "Mr Robot" for the first time.

“I’m so confident that X is solvent that I’m giving X a bunch of money, for solvency” seems a bit odd to me.

If everything is fine, why would any of this be necessary?

Because it's not for solvency, but for liquidity.

The point stands - if everything is fine, as many banks seem to be saying, their intervention would not be necessary.

If someone decided I had to pay my entire mortgage tomorrow, I'd need an intervention of some kind. This doesn't mean I can't pay my mortgage. The banks have enough confidence the bank is solvent to risk losing at least part of $30B to prevent a bank run, which can be self-fulfilling prophesies.

We've seen stuff like this pretty recently in other venues; people were getting into fistfights over toilet paper in 2020. It didn't mean we'd always be short on toilet paper; it was a panic and short-term issue.

People in a panic can destroy perfectly good things because they're afraid. This move is an attempt to reduce uncertainty and panic.

"perfectly good" in this case reads a little like "fragile".

We over optimize when things are good and then wonder what happened when there's a pothole. of course people are fickle and of course rates are going to change. Not being prepared for this is irresponsible.

> perfectly good" in this case reads a little like "fragile".

All banks are vulnerable to a bank run, no matter how well they’re managed.

I agree with you though, SVB (and some others) failed in their risk management. Partly due to relaxed regulations I suspect.

However that doesn’t mean all the banks made the same mistakes. It’s easy to see why people are worried but a panic will only make things worse.

The banking crisis really hilights why It's a Wonderful Life gets shown every Christmas.

The bank doesn't have your money in the vault, it's been lent out to other customers. Their loans can be in good standing and the bank can be perfectly solvent - but they can still have a liquidity issue if everyone wants to take out their deposits at the same time.

The point doesn’t stand, unless you ignore the difference between solvency and liquidity, which is a grave mistake when reasoning about banks.

It’s the banks saying “as banks, we know everything is fine. As consumers/depositors/internet commenters, you might think - or even claim - that things are not fine. But you are wrong, things are fine. Oh, you still disagree? Where’s your 1-5 billion dollar bet? Yeah. Didn’t think so.”

They're trying to prevent a bank run. A lot of that involves managing perception.

If these big banks are so confident in First Republic not failing, why not just purchase First Republic stock (or acquire it outright for its current market cap of $5b)?

My hypothesis is that they don't actually believe in First Republic. They just want the contagion to not spread. And, sending uninsured deposits is actually the least risky way to do that since deposits are at the very top of the liquidation stack.

Probably even done with no reciprocity. The big banks are eager to show their strength during a meltdown to get in good with the regulators and the public. This is one of those times the bankers should feel warm and fuzzy inside.

And... cash deposited at another bank still counts as risk-free cash for your capital requirements even if it's uninsured (hah!).

Plus it’s “free” money. People have been fleeing from regional banks to the big banks, so they have all this sudden influx of deposits coming in. The interest they get from FRC is basically paid right back out to their new depositors and is a wash.

We have seen this before, when bad derivatives trades threatened Long-Term Capital Management, a few years before Glass Steagall was repealed and banks with FDIC deposits were also allowed to take part in these sorts of risky financial activities.

>NARRATOR: After four days, the Fed acted, but not directly. The Wall Street banks were pressured to bail out LTCM themselves.

MICHAEL GREENBERGER: The government said, "It is our belief that your financial stability is in jeopardy. And the way to solve this problem is for you each to pony up $400 million and buy the fund, prevent it from collapsing, and try and work the thing out."

ROGER LOWENSTEIN: Fourteen banks agree to put a few hundred million each, about $3.5 billion total.

http://www.shoppbs.pbs.org/wgbh/pages/frontline//warning/etc...

https://en.wikipedia.org/wiki/Long-Term_Capital_Management

The rational way I am looking at this. When rescuing SVB, the FDIC said they would make depositors whole by imposing some sort of tax on other FDIC members.

> Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

This kind of tax would probably be applied in proportion to deposits held. With the knowledge that they'd be on the hook to cover depositors, it makes sense for large banks to band together to stave that off.

Also, they have to cover this anyway -- either by losses on deposits if it ever came to that or via "special assessment". The leaders probably see it as preferable and less risky to shore up First Republic now vs. later.

This is them protecting themselves from being affected by a domino effect and them having to crawl back to the government asking for another bailout that will come with more regulation and scrutiny. They know it'll be an uphill battle and they'll have to spend the next 10-15 years trying to convince everyone that deregulation is GuD 4 BiZnEsS and slowly chipping away at regulation

This reminds me of the stories from the GFC where the treasury and fed brought together large banks and asked them to sign on to TARP.

The dividend was suspended that's why it's fallen overnight and premarket.

That was pretty obviously going to happen, so I’m doubting that’s the catalyst.

I'm not a finance guy, but should this equate to a big rebound in the stock price? It was trading at ~$130 a month ago, then significantly down in the last few days, and now it seems to be at ~$30 in pre-market.

It may rebound the price, but it doesn't mean it will big. The money will likely be used for helping out with cash flow and surviving the next months, until the bank is out of the red zone.

A stock price is representative of the value of expected future earnings. $30 may just already price in those. Since the stock didn't go to zero, it means agents on the market still expect the company to survive and operate at a profit in the future.

It's currently -13% pre-market, so the news definitely doesn't seem to be driving it up wildly though I wouldn't be surprised if at least some of that 13% is regained once the market opens (but that 13% is just the difference between 29.72 and 34.27 - it would then just need a little 280% increase to get back to $130!)

Does not look like it, still doing badly after hours: https://www.cnbc.com/quotes/FRC?qsearchterm=

I would stay out of bank stocks for a while.

https://www.cnbc.com/2023/03/17/credit-suisse-sheds-another-...

Just wait for the middle of the next Great Depression and invest your money then.

If you’re waiting for a dip at lows, it probably won’t come. Back in November when the stock market bottomed people constantly spread fear that we’d see even lower lows by this time of year. Except we haven’t, and even despite the bank worries the S&P 500 is still holding onto the 4000 line.

The news hit yesterday and got them +10% before close but it seems pre-market they are down currently -23%. Doesn't look like there is much reason to rebound to anywhere their previous levels in the short term.

I think it’ll probably rebound. I don’t want to speculate by how much though.

And what percentage of these funds were just withdrawn from FR by skittish depositors?

Is this the first time banks moved independently to stabilize the financial system?

Happened in the last crisis too when then treasury Secretary Paulson brokered some deals and JPM stepped up more than once to buy toxic assets nobody knew how to value.

Probably this deal was done with Yellen coordinating things although that’s not mentioned. Guesses are that when nobody wanted to step up and buy SVB at par they had to do something here or face the wrath of this administration and half senate.

Big depositors are moving their money out of small banks and into big banks because they see that big banks will get bailouts if they get into trouble whereas small banks will only get the 250k insurance.

Nice bit of consolidation. will make it easier for the gov to roll out central bank digital currency and obtain even more control over our lives.

Didn‘t we just literally see the government bail out all depositors of a small bank in trouble beyond the FDIC insurance limit?

Yep, I'd very angry at Yellen right now if I was a shareholder of a small bank.

Make one bank to rule them all. Call it The Bank.

I have a better idea. Let’s call it The Federal Reserve.

And then we can create an authoritarian uniparty to govern us all from behind a false appearance of a choice between two fake parties.

One of the facade parties we can make appeal to one half of society and the other we can make appeal to the other half of the society to make commoners think they are both choosing, having a say, and can feel virtuous about their fake choice opposed to the folks who chose the other faker party.

There can even be meaningless elections where the people can choose between the things the uniparty was going to do anyways like killing people.

Eventually we can just call it The Party and we can be at war with Eurasia, as we always have been.

> And then we can create an authoritarian uniparty to govern us all from behind a false appearance of a choice between two fake parties.

I thought we are there already. :)

Enjoy the 25% mortgage rates with no competition to drive efficiencies.

Why stop at banks? Make one that rules everything. Call it The.

Scifi authors call it The Corporation or The Empire. Historians call it The Communist Party.

Thats clearly what the people want... You get the government you deserve. etc...

Based on last weekend's fun the VCs just want their money insured. The only way to do that is to have the government / FED as the final backstop.

Why are these putting an uninsured deposit instead of buying equity?

No price risk. It's both a prop up of the bank and a one-way bet on its continuing existence.

If First Republic goes bankrupt, it's still the same, isn't it?

But if First Republic does not go bankrupt, this approach returns exactly their initial deposit, no more, no less. Whereas it's plenty possible for it to continue to exist but at a reduced equity value.

(Edited out "yes", because sibling comment is correct: if they made an equity investment, it could go to zero very much more easily than a deposit)

Plus interest mind you, but it’s negligible.

No - depositors get priority over creditors and creditors get priority over shareholders. So if it fails, depositors might get 75% or so back, and shareholders zero.

One factor may be the regulatory caps on the market share of the biggest banks: https://ilsr.org/rule/market-share-caps/

Its clear they are trying to prevent a bigger meltdown here. But this is probably not the end of it…

If there's an extended meltdown I think it has larger ramifications, since this isn't about solvency but instead about people fundamentally not understanding and/or trusting how banks do business.

> this isn't about solvency but instead about people fundamentally not understanding and/or trusting how banks do business.

No, solvency is exactly what this is about:

https://www.cnn.com/2023/03/15/investing/first-republic-down...

"First Republic Bank’s credit rating was downgraded on Wednesday by both Fitch Ratings and S&P Global Ratings on concerns that depositors could pull their cash despite the federal intervention. "

Solvency means you are able to pay your debts. Banks cannot pay their debts, ever. Banks are never solvent, they are always in debt. They make it appear they are solvent, on paper. They are only solvent in the future, not in the present.

This is they myth of banking that people do not understand or appreciate and that always puts the economy at risk. It was the FED raising rates that pushed their solvency further out into the future.

> They are only solvent in the future, not in the present.

That's what solvency means. You're mixing up solvency (long-term) and liquidity (short-term).

Oh, because solvents turn things to liquid over time! I get it now!

The GP did not use the term liquid, they used the term solvent.

I quoted you, not them.

I did not use the term liquidity.

But if you are not liquid you are insolvent. I mean, why is it banks get to use these terms to hide debt and the average person does not? If I have huge credit card debt that I cannot payoff in time the bank does not excuse me for my "liquidity", they say I am a risk and charge me higher interest rates.

> I did not use the term liquidity.

You showed a misunderstanding of the difference between solvency and liquidity.

> But if you are not liquid you are insolvent.

No, you're not. I am not liquid enough to pay off my mortgage. I remain solvent.

> If I have huge credit card debt that I cannot payoff in time the bank does not excuse me for my "liquidity", they say I am a risk and charge me higher interest rates.

Now you're confusing both solvency and liquidity for a third thing.

If you can't make your minimum credit card payment, you now have a liquidity crisis (which will result in a late payment fee and penalty APR), and potentially a solvency one (which may result in bankruptcy).

There's both cash insolvency and balance sheet insolvency.

> It was the FED raising rates that pushed their solvency further out into the future.

Not wholly on topic, but why do some people capitalize "Fed" as "FED"?

They are trying to prevent further regulation of the banking industry. The money involved is essentially small change compared to the price of regulation.

How is nobody mentioning crypto yet?

So will every struggling bank get a bailout from now on? How long is this sustainable?

It's pretty sustainable as long as it's banks having liquidity crises instead of solvency ones.

This is not a bailout. This is just what it says: deposits. An anti-bank-run by the other banks.

>>An anti-bank-run by the other banks

This is actually pretty terrifying when you think about it...

Its indicative of just how much a shell game fractional reserve banking truly is.

How is this a bailout?

A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of bankruptcy.

I know that's the Wikipedia top-line definition, but further in https://en.wikipedia.org/wiki/Bailout:

> However, the common use of the phrase occurs where government resources are used to support a failing company typically to prevent a greater problem or financial contagion to other parts of the economy.

This is not what's happening in this case.

This is a very technical definition that effectively makes the word meaningless. Under this definition, most early VC equity rounds are bailouts, initial stock purchases in new companies are bailouts, etc.

It is, technically, true. But it’s not very helpful in understanding why these things happen and which are good vs bad.

> not very helpful

Not very helpful to who? It is very helpful to the average Joe in explaining why they are getting screwed over.

In that case it isn't helpful to the average Joe, since the word's usage for them isn't the same as that of the technical definition. When someone says bailout in media, they mean a government funded action to get someone out of bankruptcy, not a private action to provide liquidity.

No average joe is getting screwed over by private companies investing money in other private companies, any more today than they were on any previous day where the same things happen. This is not news, and is only relevant because of the crisis. No public dollars are funding this.

it should be a loan(with highest interest rate their charged they customers) and then some kind of insurance/loan.

It is a loan! Well, a deposit.

And a high priced loan! And how will that loan eventually get paid back? Wait and see!

> And a high priced loan!

The statement describes it as a deposit, not a loan. Where are you getting this information?

As long as the money printer goes BRRRRRRRR

What's the problem when you can always print money out of thin air. The global currency can't be Fiat. No.

To the down voters - sarcasm!(I need to mention this explicitly:(..

No money printing involved here: this is just a whip-round to support a struggling colleague, admittedly with very large numbers involved. It's entirely private action, no government involved!

The problem when you print too much money out of thin air? Inflation.

If brute force isn’t working, then you are not using enough.

Why should First Republic get destroyed by a panic because they are headquartered in San Francisco? By all accounts they are a well run bank.

I hear this often, that this only happened because of "panic". But people panicked for a reason, and a good one. You know, the way the economy works is that the last one out is the sucker.

Well run banks are not downgraded by Fitch and the S&P (Wednesday) citing risks to its funding and liquidity.

Banking benefits society when it’s stable. We should be ensuring that regulation is in place to prevent irresponsible risks such as the behavior of SVB so that banks like First Republic, which if anything is super conservative, aren’t driven out of business for no reason.

A world where banking consists of Chase, BoA, etc is not a good one.

> To the down voters - sarcasm!(I need to mention this explicitly:(..

Or it just wasn’t funny.

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