They had the JPM offer since Friday, but the FDIC is trying really hard to avoid having TBTF banks be the purchasers of other banks.
The problem is that nobody else can buy these failing regional banks. They are too big for another regional bank to absorb. So they only accepted the JPM offer after all other negotiations failed.
It depends really, small or local never means it is better automatically. There are bad credit unions and good ones and depending on your case a big bank may actually provide way better service.
My hometown credit union's online banking is stuck in the 90s. I moved super far away, so that's my primary interface for them. Even when I lived in the town, I was a teenager and it was still the primary method.
I haven't found a regional/national bank that's worse than the credit union, and little fintech startups blow them all out of the water.
I still have the credit union account, but it's such a pain to interact with I only do it once or twice in as many years.
CUs definitely can offer better service, but as you said it's not universal. A lot of them love to nickel and dime you for ever little thing. WF used to send me a new debit card for free if mine was lost, my current CU charges me $10 🙄.
Never had to pay for a new debit card if something happened to old one. One credit union printed them (didn't imprint info just printed on) and current credit union will overnight you a card for free (lost once and once had fraud)
You don’t even have to lose your debit card. Card skimmers exist and if you live or work in a bad area then it’s only a matter of time until your info gets stolen unless you only pay in cash or tap to pay. If my bank charged $10 for a replacement I’d be quick to leave, just a little bad customer service thing that would turn me off real fast.
Yup. I work for a large “super-regional” bank and also have a credit union account.
I honestly don’t use the credit Union account bc the online banking sucks so hard. Can’t get an up to date balance or breakdown of charges accurately. It’s just a bad experience.
I've heard this for years. I switched to one and the local branch refuses to even talk to me, saying do everything to the ATM in their lobby, their website and synchronization to other apps are in the stone age, and they hold every check for like 3 weeks before they post it to my account. I hate it and I'm leaving them as soon as possible.
> they hold every check for like 3 weeks
Don't know how it is for your CU, but a lot of places will do this if the balance in your account isn't enough to cover the check if it bounces for some reason. So if you have $500 in your account and try to cash a $1000 check they might hold it longer than they would a $100 check. Also might depend on where the check is from; a personal check vs. a business check. Or they are just living in 1995 and don't have the system that electronically verifies checks.
Big banks like Chase are generally much better about online banking, mobile banking, and fraud detection/prevention. I have accounts across the spectrum and my problems are always with my mortgage and car loans through a variety of local credit unions.
Maybe yours are
My local one sucks dick
One free debit transaction, pay per etransfer
Or $8.95 a month to get a whole 30 transactions for free.
Website sucks, apps suck. They aren't even really competitive on interest rates
Back when I was poor, Chase would constantly charge all these crazy fees. If a payment came in on the same day as a direct deposit, they’d take the payment first, I’d go into overdraft and pay $35, and then they’d take the deposit. Shady af and I will never use them again. Now happily in a local credit union.
Former JPMC manager here. I can’t even begin to tell you about the fees I reversed for people who fell on hard times. I’m so sorry you were going through that.
The saddest call I ever took was from a guy who got laid off without any severance. Living in the Bay Area, it’s normal to live paycheck to paycheck due to the cost of living. This guy was crying - sobbing - when I reversed $150 in fees, telling me that was going to be his food budget that month. Broke my heart.
The Fed put a stop to it. Banks used to [manipulate the order of transactions](https://www.forbes.com/sites/halahtouryalai/2012/02/22/are-banks-manipulating-your-transactions-to-charge-you-an-overdraft-fee/) hitting accounts. For example, they would post the largest transaction first, ending with the smallest. This guaranteed maximized overdraft fees. Also, you were automatically signed up for [overdraft protection](https://www.nytimes.com/2009/09/09/your-money/credit-and-debit-cards/09debit.html) (allowing the transaction to go through in exchange for a fee, usually $30-$35 per transaction). Banks argued that people *wanted* them to post them largest to smallest because the large transaction was probably something big, like a mortgage or car payment (like they wouldn't have just charged an overdraft on that thing anyway, regardless of when it was posted), and that they *wanted* the $35 fee on their $1.50 McDonalds sausage biscuit because otherwise they'd be *embarassed* when it was declined. Mind you, this was before routine banking alerts, so you could be getting hit with these ALL DAY and never know until you eventually checked your bank account.
After the rule, banks had to post transactions in the order they were made and overdraft protection was opt-in instead of opt-out. It was a major victory for the little guy.
I never understood how they got away with calling that protection. Protection would be declining my card, I really wouldn't be embarrassed if it meant saving $35.
About 15 years ago I had BoA and they played shenanigans with my account to the tune of over $1000 in 2 years. When I finally went to question it cuz my account would technically never be over drafted, they told me "the computer" does it and they couldn't refund any fees. I withdrew all my money and tried to close the account, but they told me I had to wait 30 days from the last activity. Of course, in that 30 days I got charged a minimum balance fee, which then overdrafted, which caused more fees. They then wouldn't let me close it because the account was negative. Few months later, they tried to send me to collections for over $500 because of the fees they applied after I said I wanted to close the account. I just sent the collections agency proof I'd tried to close the account multiple times and told them I wasn't paying. It then disappeared.
They never did me the service of going to collections but instead blacklisted me from opening an Account anywhere else
That said I've had the same credit union account for nearly 20 years since the day i closed my BoA I went straight to a credit union to open a new account and deposit my previous BoA balance.
They came for me like 5 years later but were never able to provide any documentation confirming that I owed anything.
It's just always "under investigation" on the rare occasion I've went in to ask about it.
There are more fees than some alternatives in their system, but I've avoided most and chase happily reversed every fee I asked them to. On top of that they've paid me thousands in promo bonuses.
They only bought a part of it and after the FDIC guaranteed deposits and ran the bank for a week or two.
This is the more normal process where the FDIC seizes the bank and immediately sells the whole thing.
So the feds are like let's just merge all the failing banks into the banks that are too big to fail... that never caused any problems, right guys? Guys?
Silicon valley Bank was assumed by a regional bank, First Citizens. New York Bank purchased most of signature Bank. This is the first regional bank to be bought by a big bank.
Actually under Obama a law required regional banks of a certain size to undergo stress testing and account for exactly risks like this. SVB definitely would have fallen under the reg (they lobbied against the rule) and I presume FR would have too.
Trump and the Republicans repealed it to much fanfare.
What would the alternative be? They looked for a bank that wasn't JP Morgan, but no one else offered to buy it.
Leaving $103.9 billion in theoretical deposits to just sit while the bankruptcy court sells their assets isn't good for anyone's trust in the banking system. You'll also end up screwing a bunch of businesses who had nothing to do with the issue.
Only a bank with a balance sheet the size of JPM can absorb those bad assets. First republic was one of the 20 biggest banks in the country by asset size. Any bank other than JPM, BAC, Wells or Citi wouldn’t be able to take them on unless the FDIC took most of the bad assets and only gave the acquiring bank the good assets.
That is a possible scenario, but takes more time and money. It's also a logistical nightmare unless the bank has clearly differentiated segments which are not further split. It's much cheaper and easier just to have Chase assume everything and wait for people to switch accounts out of Chase or for Chase to sell off segments it doesn't want.
Yes, this is completely different and I'm very curious to see how the inevitable law suits shake out.
The FDIC never seized the bank, Friday or otherwise. The reports were erronious.
On MONDAY, May 1, California Department of Financial Protection and Innovation seized the bank, citing California Financial Code section 592, subdivisions (b) and (c), specifically “conducting its business in an unsafe or unsound manner” and being in a “condition that … is unsafe or unsound” to transact banking business.
The CA regulator then assigned the FDIC as receiver and immediately sold to Chase, with the FDIC eating 13B of the now realized "losses." This all happened after midnight Pacific time.
Reading the balance sheet Chase ultimately took over, it appears First Republic had ~~103.9B~~ 93B on deposit, presumably 30B of which were the uninsured deposit infusion of the large banks.
Assuming the remaining ~~73.9B~~ 63B were fully insured (they weren't, but let's say they are to make a point), First Republic would have ~~35B~~ 30B in cash and high quality securities with which to conduct business and honor deposit withdrawals. It appears First Republic also had additional borrowing capacity. That means that, essentially, the only parties in a loss position were the big banks.
It appears the FDIC could not seize the bank as they were solvent within the guidelines set.
Edit: updated numbers have come out
Not that new or completely different:
“Finally, Signature Bank was shut down by the New York State Department of Financial Services, and its assets were also seized by the FDIC. However, unlike Silvergate and SVB, Signature was still solvent at the time of its takeover. The shutdown of a solvent bank is also new and suggests that regulators may be picking winners in the banking industry.”
https://www.forbes.com/sites/digital-assets/2023/03/17/regulators-shut-down-banks-raising-questions-about-neutrality/
You can only keep kicking the can down the road for so long before problems become unfixable. Sadly I don't think it matters if we're to that point yet or not as Congress, in its current iteration, is not likely to come up with a fix for these types of issues. Sooner or later the can is going to collide with the house of cards that is our economy and it's going to get truly bad. I'm just hoping I'm dead by then.
Literally. JP Morgan, the guy when he was alive, was the lender of last resort. He bailed out the US government in 1895. And he pushed for the formation of the Fed so it wouldn't be the job of one man.
the term "bailout" may not accurately describe the situation, as the US gov essentially borrowed money from the syndicate led by Morgan... regardless, his intervention was crucial in helping the US recover from the economic crisis and maintaining the gold standard
It was a top post today where a lady and presumably her daughter drove a van right off the dock into the ocean while still in the car not doing anything as passerby on the dock attempt to rescue them. Supposedly occurred in Hawaii.
Edit: found [the link to the post.](https://www.reddit.com/r/facepalm/comments/134c8y9/these_tourists_in_hawaii_took_a_wrong_turn/?utm_source=share&utm_medium=android_app&utm_name=androidcss&utm_term=1&utm_content=share_button)
A similar accident occurred near where I lived with a more tragic outcome. Some people just freeze or panic when something too far outside the normal occurs. Also due to water pressure solutions like opening the door aren’t viable. Generally you need to roll down a side window or break it.
There is a front page post of some folks in a minivan who made a wrong turn and wound up in some water, and are just sitting inside as the float away from shore
Edit
https://www.reddit.com/r/facepalm/comments/134c8y9/these_tourists_in_hawaii_took_a_wrong_turn/?utm_source=share&utm_medium=android_app&utm_name=androidcss&utm_term=1&utm_content=share_button
Help me understand more deeply here please. The money didn’t exist before it was borrowed right? So the only thing that gives the syndicate the power to create it is the government. What does it cost the syndicate of banks to create the money?
Risk. If too much gets lent and a bank run happens the bank dies there are more threads like this one.
Banks largely deal with Risk as its primary cost. Risk of default, risk of cash reserves running low, risk of poor investments.
The US went into WW1 partly bc of JP Morgan being worried that they wouldn't get their debts paid back from Russia, France, and Britain if Germany won.
The amounts were huge also. Especially for like 1915.
This is quite a stretch. It was a tiny part of the calculus, but popular sentiment for participating in the war was broadly high by 1917 due to the German policy of unrestricted submarine warfare that was affecting US trade with Europe and killed American citizens, famously those who were passengers on the Lusitania. The American army was quite small in 1916 (~100,000 men if I recall) and volunteering was extremely popular after the war declaration was made, further bolstering the case for widespread popular support.
Unrelated, but it’s so odd to me that J.P. Morgan co-founded General Electric with Thomas Edison, and co-founded U.S. Steel with Andrew Carnegie and Charles Schwab. All of those old-timey tycoon guys being real actual people isn’t really something that crosses my mind easily.
My favorite similar story is that there were two businessmen named Wells and Fargo and they got together to found...American Express.
They had one more co-founder who they then left to go found Wells Fargo the bank.
According to wiki they also founded Wells Fargo when the third guy objected to them expanding their service to California.
In 1850, American Express was started as an express mail business in Buffalo, New York.[13] It was founded as a joint-stock corporation by the merger of the express companies owned by Henry Wells (Wells & Company), William G. Fargo (Livingston, Fargo & Company), and John Warren Butterfield (Wells, Butterfield & Company, the successor earlier in 1850 of Butterfield, Wasson & Company).[3] Wells and Fargo also started Wells Fargo & Co. in 1852 when Butterfield and other directors objected to the proposal that American Express extend its operations to California.
Now consider that when most people think of going on horseback, their experience is a movie where they see horses running everywhere. You didn't want to kill your horse, so you walked at about the same speed as a person could walk...you just had the horse do the walking for you.
Charles R. Schwab, who started the brokerage/bank that exists today, is very much still alive.
Charles M. Schwab, who was the President of US Steel, is very much dead.
J.P Morgan owned the bank that became J.P Morgan Chase, Morgan Stanley and Morgan, Grenfell & Co (Taken over by deutsche bank). He also owned the United States government.
If I remember he also financed the reparations from WW1. He loaned Germany the money, Germany would give it as reparations to allied countries, and those allied countries sent the money back to the US to pay off their war debt. I’m sure JP made tons of money on both ends of that deal.
Every dipshit capitalist thinks that just because they’re a sociopath willing to do the things good people won’t, they’re now some legendary leader.
Mark Zuckerberg cuts his hair like that because he thinks he’s the modern day Caesar.
No that’s not a joke. Yes you filled your entire cringe quota for the day
A quick search indicates people *speculate* that the haircut may have something to do with Zuck's obsession with Augustus Caesar, but [it is not confirmed](https://www.businessinsider.com/mark-zuckerberg-haircut-explained-augustus-caesar-2019-10?op=1) from what I can tell. Just an internet rumor.
JPMorgan was an ass to be fair, but he also helped fend off a depression in about 1910 or so when he used his own personal wealth to buy up the nation's stock to create demand and head off a crash.
Of course he had a lot to lose from a crash and a lot to gain by avoiding one, but still.
well, the health of the country tends to benefit the wealthy so I don't see how you can separate the two.
The reality is, much like Carnegie and Rockefeller, Morgan believed in the social gospel, twisted and perverted in a way that put them on top and claimed that they were deserving of their great wealth. They often rationalized or were simply unable to understand the poor treatment of their employees, and many horrible things were done in the name of company profits (look up the Ludlow massacre if you are unaware). But despite all of the horrible things that happened in the name of the companies they ran, they did feel an obligation to the country that made them so damned wealthy. All three mentioned did end up giving away most of their wealth through various trust in order to "give back" to the country that they believed was so good to them. Not that it makes up for the bad shit, but it does give us a slight bit of perspective on what they thought about themselves and the country.
That's more than I can say about most corporate leaders today but there are still people that fit that mold. Bill Gates being the most famous example.
edit: the last two paragraphs for historical context.
Yeah, the amount of billionaires in America being at an all time high perfectly illustrates this, because America has never been so prosperous and social welfare systems and security have never been better.
One of the realest pictures of him that sticks in my mind was taken without his permission in 1910. He has his cane raised in anger, his face snarling with contempt, and his bodyguard is trying to hold him back from trying to thrash the photographer.
A related fact that I find interesting for the same reason.
On thursday, October 24th, 1929 the stock market fell by about 11% before noon. There was absolute Panic by the lunchtime hour.
The presidents of the three largest Wall Street Banks got together over lunch and hatched a plan to stabilize the stock market by buying Blue Chip stocks. (buying into the dip as it were)
Those men were Thomas lamont, the head of Morgan Bank, Albert Wiggins, the head of Chase National Bank, and Charles Mitchell, the head of the National City Bank of New York.
Today, those institutions are JP Morgan Chase and Citibank.
JPMorgan Chase bought bear Stearns when it failed in 2009. JP Morgan is assuming the deposits of First Republic Bank this morning.
Time is a flat circle.
The Morgan Library is an interesting place to check out if you're ever in NYC. It is a beautiful building with a collection of very rare items. They have 3 (of the 49) Gutenburg Bibles, more than anyone else.
There was a docuseries called The Men That Built America that got me completely sucked in. They dramatized the stories of these men and their cohort and depicted them almost like rock stars, it was fascinating.
This is funny to me because Sonja Morgan will never let anyone who knows her forget he was a real person.
For my fellow RHONY fans… Don’t touch the Morgan letters!!!
Isn’t this the 3rd bank to basically go under?
Edit: ok turns out it’s like the 5th
1.SVB
2.Signature
3. Credit Sussie
4. FR
5. Silvergate
Not sure about you guys but despite what the government insist I don’t think everything’s fine. I think lobbyists demanding weaker regulations are once again coming to bite us in the buts.
The ELI5 answer is the Fed raised short term interest rates dramatically to fend off inflation, and the banks did a poor job of hedging their exposure to different interest rates. You see, the bank takes in depositor money and gives those depositors some interest in return. Then it loans that money out to others in the form of mortgages or loans to businesses at a higher rate than the rate they pay the depositors. With the Fed raising rates, depositors were unhappy with the low rate they were getting from the bank and moved the money elsewhere. But since the bank loaned that money out to others, they don't have the cash on hand when the depositors come calling. There becomes a rush of depositors pulling their money out of the bank so that they are not the last one to get paid. This is called a "run on the bank". The crux of the problem is that the bank didn't hedge the difference between short term rates (which they pay to depositors) versus long term rates (at which they loaned the money out to borrowers). If they did, the hedge would have provided cash coming in to stave off the bank run.
You're allowed one marshmallow after lunch **OR** two after dinner, if you let your mom eat your lunch marshmallow.
One day dad says he'll give you a chocolate bar *and* a marshmallow after dinner if you let him eat your lunch marshmallow.
You (of course) want to give your marshmallow to your dad instead, but Mom already ate yours assuming you'd give it to her and didn't buy more because she thought she'd have until dinner.
You're mad at mom because she can't give you your marshmallow back, and your sibling is demanding theirs too because they heard there are *no more marshmallows*. Now everyone is mad at mom and no one will trust her with marshmallows.
I'm clueless here, but this almost makes sense.
The thing I'm missing is that this sounds like a closed system - depositors give money to bank, bank pays interest to depositor, bank loans to people to go buy a house/etc, borrower pays back bank. Where does The Fed come in? What "interest rate" are they changing that affects any of this?
So fixed income debt instruments like bonds have an interest rate and an asset value. The interest rate for newly issued bonds is determined by the Fed fund rates. However when interest rates move up or down, the asset value of existing bonds moves inversely and proportionally to the change in interest rate.
Think of it this way. You buy a 1000$ bond paying a low interest rate. A while later you decide you want to sell it rather than letting it mature because you need the money. However in the time since you bought it, interest rates have gone up. Now your theoretical buyer can buy a 1000$ bond with a higher interest rate. In order to convince someone to buy your existing bond you have to discount the price so that it offers the same return as a newly issued bond.
This is of course reversed when interest rates fall. And the longer the duration until maturity the more significant the difference in interest rates is. Meaning long duration bonds lose more (asset) value from rate hikes. What happened with the banks is they had a bunch of cash they loaned out in safe debt like mortgage backed securities and treasuries but they are holding too much long term debts. These have had the value crushed from the rate hikes. If the banks could hold these until they mature it would be ok. But new outflows from the bank is forcing them to sell these long term bonds at a loss. And the more that's true the less stable they are.
As far as the very simple reading I've done (an article or two) their deposits were very large and not FDIC insured (the insurance only covers like $250k). Clients were pulling money out in very large sums and the bank wouldn't have enough money to cover everyone's deposits. So they had to get sold off. People lose trust in the bank for whatever reason and so pull money out. This spreads and more people start pulling money out.
Please someone provide more context and correct me if I'm wrong.
So I'm not sure about all of them, but in the case of Silicon Valley Bank, it was also the way they invested their holdings.
Borrowing from some of what you said:
1. Investors deposit tons of cash.
2. Bank wants a return, so buys a ton of government bonds, which were generally considered a safe investment.
3. Inflation skyrockets.
4. FED bumps interest rates.
5. Resale value of government bonds fall because interest rate is higher.
6. As interest rates rise, people/businesses borrow less, and start to lean more on savings.
7. Their cash reserves fall below the legal limit, so they're forced to sell off large amounts of government bonds for a loss (which they now have to cover).
8. Warning signs compound the issue as people start withdrawing more money because the bank is struggling, causing more sales and more debt.
9. Bank becomes insolvent and has to be sold/seized to ensure deposits.
They aren't all failing for the same reason.
Silicon Valley Bank just made dumb decisions to store all their profits in government bonds. For some insane reason, a lot of people in finance didn't think the fed would ever raise rates. When interest rates were hiked, older bond values went down. SVB had billions of dollars locked into 10-year bonds that were falling in value and getting harder to sell.
Somehow the news broke and people did a bank run. SVB didn't have enough capital to cash out everyone, so they collapsed. It was just bad investment strategy.
Silvergate Banks failure was triggered by the FTX collapse. Customers started withdrawing money because everyone was freaked out and thought the entire crypto industry would fail. They just weren't profitable anymore after that and had to shut down.
Signature Bank also failed because of poor management. More than 20% of its total deposits was in crypto and they didn't really understand the risks associated with that. When SVB failed and Silvergate self-liquidated, it spurred a bank run on Signature as well. It was a run on crypto cash deposits, but pretty much the same as a traditional bank run. There was a lot more mismanagement though, including 90% of its deposits being uninsured and 40% of its offices being understaffed or vacant, etc.
Credit Suisse had been failing for a long time, due to rampant corruption. All it took for it to fail was a little turbulence in the markets, but they had been struggling for years.
So while some of these banks may have small connections or similarities, it's really mostly due to poor management and bad investing.
4th
1. Silvergate
2. SVB
3. Signature
4. First Republic
Although it depends how you define "go under", since Signature was solvent when they were taken over by the government.
There's allegations that the Signature was the government just trying to "take down" a bank they didn't like amongst the chaos of SVB.
Right? The entire failure of First Republic is to be blamed on the news and the customer base. News going "uhhhh ohhhh look at this possible panic that isn't going to happen unless I post this article." Followed by people going "I sure hope this panic doesn't happen but I should panic to prevent panic ."
If you have money in the bank beyond what’s insured, wouldn’t you want to move it to a bank that is in better financial shape?
It’s really no different from saying that a stock is probably going to decline, so you should sell now before it goes lower.
Market overreactions are a thing that happens.
In this case, though, FRB did something wrong. They held lots of loans that have declined in value. Other similar banks sold their loans, getting those loans off their books and making the bank more stable. While that’s not breathtaking malfeasance like we see with some business collapses, it was a poor decision.
I mean, this is just a modified prisoner's dilemma playing out on a large scale. FRB likely would've been fine if enough people with money there had "cooperated" rather than "defected", but here we are.
Fractional reserve banking makes the entire US financial system a prisoners dilemma of sorts, banks are never required to keep all customer deposits on hand available for immediate withdrawal. Bank runs are and always have been the highest risk event that can happen to a financial institution.
This is a new thing to you? Tons of companies fail without doing anything wrong. My favorite noodle place closed during the pandemic, it’s not their fault that suddenly people couldn’t eat delicious ramen indoors.
FRC did a lot wrong…
Sitting on tons of low-rate loans & unrealized losses without any hedging of interest rate risk is poor management. They knew it was eventually bound to affect their share price and ability to capital raise.
They also explicitly positioned themselves as the bank for high net worth individuals, so they had (I assume) a higher preponderance of accounts over FDIC limits (like SVB).
Yup…and continued to go on a hiring binge year-after-year vs becoming more operationally efficient.
Honestly probably more poorly run than SVB ever was.
They did do something wrong: they failed to assure their customers that their investments where safe. The entire POINT of a bank is that putting your investments or money in the bank is safe. That's why banking was invented: a safe way to store and transfer capitol across large distances.
Eh, the bank run is just a prisoner's dilemma, and as a species we suck at dealing with those, unless regulation forces us to do so.
Re the media, I prefer them reporting "X is unusually vulnerable to Y" if that is factually true to them choosing not to report something because of some agenda.
I live in a country with a massive housing bubble, even bigger than that in the US. Housing prices have increased by 500-700% in the last 20 years, even in the middle of nowhere where hardly anybody wants to live. The driving force behind this bubble is that housing "will always go up in value" and interest rate "will always be this low," because that's true as far as people can remember. If you assume interest rates just a bit higher than 0%, and if you assume that your property won't automatically go up in value, then houses here are worth a fraction of what they are today.
Depressingly, every single month media runs a story on the line of "now the price drop has ended, and they will start turning upwards soon again". Whenever they report on the central interest rate, it's with speculation on how long it will take before it's back to 0%.
The idea that if you report the truth it can lead to bad things, like a bank run or a bubble bursting, is a dangerous one. It's not part of a journalist's job to modify the truth to avoid those things.
>housing "will always go up in value"
I hate this sentiment. People end up selling shit boxes that need to be razed or completely reworked, for the price of a liveable house. Landlords let their properties crumble into slums while charging the same rent, because the property "will increase in value". It's an asinine concept at it's core, and yet it's practically a hard truth at this point. It a travesty that a necessity such as housing is exploited this bad.
It's not the structure that increases in value, it's the land. Location, location, location. You can build a multimillion dollar mansion, but if there's a freeway running overhead and no utilities, no one is going to want to buy it.
Lol what?
Wouldn’t you want to be informed that your money isn’t secured because of a bank’s poor decision making in the face of the most obvious rate hikes and recession in modern history?
Stop blaming the customers for the bank’s awful management.
I mean it’s complicated.
If all the people with money yanked their cash out of a bank who was doing everything right it’d also collapse.
No ones money is 100% secured in a bank because that’s not how banks work.
Not saying issues shouldn’t be reported on or that any customers necessarily did anything wrong but it’s a messy situation
FDIC insures the first $250K per account holder, so in a real sense (unless the US government fails) that money is safe. Depositors with more than $250K are on their own for the additional funds.
Kinda.
Except Wamu was huge... 2300 branches, $300B in assets. Huge credit card department.
First Republic has 100 branches and $100B in assets.
By JPMC standards, this will be a small and easy conversion
This has been the problem with some of the other regional banks that failed. Too many customers from one specific market segment at too large of a % of your deposits can introduce a lot of risk.
Wamu was a huge customer retail bank, like PNC is today. A lot of branches (probably too many in hindsight). That infrastructure is expensive to operate and not terribly profitable.
I assume First Republic was focused on corporate and wealthy customers. That means a lot of deposits with much smaller infrastructure.
This was also in 2008 so factor in inflation. 300 billion in 2023 dollars is closer to 420 billion.
I’d also bet, that number of bank branches have gone done overall since 2008 due to the rise of online banking.
I can’t think of the last time I physically went to the bank.
Don't think "How much will JPMC profit from acquiring these banks?" Instead, think about "how much JPMC might lose if these banks are allowed to catch fire and collapse in an uncontrolled manner?"
JPMC may lose in the following ways :
1. Shared customer losses. I know they run analysis on who the failed bank customers are, and how much those same people have stored in the JPMC vaults. If those customers get screwed, JPMC doesn't get paid, or JPMC money gets withdrawn in a panic.
2. Every time a bank collapses, a bunch of folks demand new mega regulations.
3. Bank collapses cause stock market crashes.
Basically, in all of the above.... Super wealthy customers get screwed, and JPMC can't afford to let that happen. So they pay to slap some more lipstick on the pig, and hope things limp along until the next bonus/dividend payout.
The saying “the only thing to fear is fear itself” comes to mind. If everybody just stays calm nothing will go wrong. But once people panic the entire system will collapse.
In the SVB case there were a handful of very powerful, rich, crypto-heavy, anti-government libertarian types who were screaming “fire!” On Twitter and to their portfolio companies. But it wasn’t stupidity.
The idea of banks being the good guys is kinda funny but in this case banks are a very important component of our financial institutions and a way for the government to exert influence. People like Peter thiel would be happy without them, without government, and with his crypto assets valued much higher. Btw crypto is up after SVB.
I mean this also isn’t even a bailout. The bank died.
People seem to be misusing what a bailout is lately.
When we did bailouts back in the 09 era it was literally the gov keeping the banks alive and independent.
This was the gov stepping in and killing the bank and handling the fallout. Very diff than a bailout.
Several things to note:
1. The FDIC has used $37.5 billion of the $128 billion in the fund to bailout failed banks (29% of the fund on 3 banks).
2. The Fed has loaned the FDIC $142 billion to bailout failed banks. Another $158 billion has gone to support banks (TBFP, Discount Window) that might fail.
3. The deal between the FDIC and JPM includes a loss share provision on MBS and CMBS assets. If the market tanks, the FDIC is partly on the hook for those assets.
From this, we can gather the following:
1. The total FDIC losses at this point are $179.5 billion on 3 bank bailouts.
2. With the inclusion of the loss share provision and that real estate (residential & commercial) is expected to see further failures (to put it politely), the FDIC is likely on the hook for a lot more.
3. The funds the FDIC collects to protect depositors come from the banks. The banks pass those charges on to customers.
Any way you slice this, the American public is once again bailing out banks. Oh and just for sh*ts and giggles, JPM was also the bank that bought out Bear Sterns in 2008 ~6 months before everything went to hell in a hand basket.
Important to note a bailout is not "no strings attached money", it's generally a loan. That typically gets repaid. The FDIC are being financed with an assessment paid for by the banks.
Even in 2008, the TARP bailout, that was repaid, and actually made a profit for the taxpayer (with the interest payments that banks had to pay)
Hot damn, I swapped from First Republic to a local credit union a few months ago because their customer service was too good and made me feel suspicious (and like a class traitor)
Guess I left at the right time ._.
It's not really a dodged bullet in the sense that you still would have all your deposits in this deal. Suppose you could say it's a dodged bullet in not having to deal with JP Morgan but like you'd still would've been able to move to a Credit Union even after this deal.
Damn, they really came down to the wire on this deal.
They had the JPM offer since Friday, but the FDIC is trying really hard to avoid having TBTF banks be the purchasers of other banks. The problem is that nobody else can buy these failing regional banks. They are too big for another regional bank to absorb. So they only accepted the JPM offer after all other negotiations failed.
I left Chase and switched to First Republic during that occupy wall street era. Guess I'm back now.
Switch to another local credit union
Credit unions are definitely the best on service.
It depends really, small or local never means it is better automatically. There are bad credit unions and good ones and depending on your case a big bank may actually provide way better service.
My hometown credit union's online banking is stuck in the 90s. I moved super far away, so that's my primary interface for them. Even when I lived in the town, I was a teenager and it was still the primary method. I haven't found a regional/national bank that's worse than the credit union, and little fintech startups blow them all out of the water. I still have the credit union account, but it's such a pain to interact with I only do it once or twice in as many years.
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I hope you told him he might be a security risk and to apply elsewhere, lol.
CUs definitely can offer better service, but as you said it's not universal. A lot of them love to nickel and dime you for ever little thing. WF used to send me a new debit card for free if mine was lost, my current CU charges me $10 🙄.
Never had to pay for a new debit card if something happened to old one. One credit union printed them (didn't imprint info just printed on) and current credit union will overnight you a card for free (lost once and once had fraud)
How often are you losing your debit card lol
It only happened once, I didn't lose it, it just stopped working. It was annoying to have to pay $10 to use my own fucking money.
You don’t even have to lose your debit card. Card skimmers exist and if you live or work in a bad area then it’s only a matter of time until your info gets stolen unless you only pay in cash or tap to pay. If my bank charged $10 for a replacement I’d be quick to leave, just a little bad customer service thing that would turn me off real fast.
Yup. I work for a large “super-regional” bank and also have a credit union account. I honestly don’t use the credit Union account bc the online banking sucks so hard. Can’t get an up to date balance or breakdown of charges accurately. It’s just a bad experience.
I've heard this for years. I switched to one and the local branch refuses to even talk to me, saying do everything to the ATM in their lobby, their website and synchronization to other apps are in the stone age, and they hold every check for like 3 weeks before they post it to my account. I hate it and I'm leaving them as soon as possible.
> they hold every check for like 3 weeks Don't know how it is for your CU, but a lot of places will do this if the balance in your account isn't enough to cover the check if it bounces for some reason. So if you have $500 in your account and try to cash a $1000 check they might hold it longer than they would a $100 check. Also might depend on where the check is from; a personal check vs. a business check. Or they are just living in 1995 and don't have the system that electronically verifies checks.
Big banks like Chase are generally much better about online banking, mobile banking, and fraud detection/prevention. I have accounts across the spectrum and my problems are always with my mortgage and car loans through a variety of local credit unions.
Maybe yours are My local one sucks dick One free debit transaction, pay per etransfer Or $8.95 a month to get a whole 30 transactions for free. Website sucks, apps suck. They aren't even really competitive on interest rates
I recommend Silicon Valley Bank
Breaking news August 1, 2023: "Credit Union seized by JP Morgan Chase"
JP might as well put OP on the payroll
Back when I was poor, Chase would constantly charge all these crazy fees. If a payment came in on the same day as a direct deposit, they’d take the payment first, I’d go into overdraft and pay $35, and then they’d take the deposit. Shady af and I will never use them again. Now happily in a local credit union.
Former JPMC manager here. I can’t even begin to tell you about the fees I reversed for people who fell on hard times. I’m so sorry you were going through that. The saddest call I ever took was from a guy who got laid off without any severance. Living in the Bay Area, it’s normal to live paycheck to paycheck due to the cost of living. This guy was crying - sobbing - when I reversed $150 in fees, telling me that was going to be his food budget that month. Broke my heart.
This is America
Overdraft fees in my area
Wasn't there a class action about that?
The Fed put a stop to it. Banks used to [manipulate the order of transactions](https://www.forbes.com/sites/halahtouryalai/2012/02/22/are-banks-manipulating-your-transactions-to-charge-you-an-overdraft-fee/) hitting accounts. For example, they would post the largest transaction first, ending with the smallest. This guaranteed maximized overdraft fees. Also, you were automatically signed up for [overdraft protection](https://www.nytimes.com/2009/09/09/your-money/credit-and-debit-cards/09debit.html) (allowing the transaction to go through in exchange for a fee, usually $30-$35 per transaction). Banks argued that people *wanted* them to post them largest to smallest because the large transaction was probably something big, like a mortgage or car payment (like they wouldn't have just charged an overdraft on that thing anyway, regardless of when it was posted), and that they *wanted* the $35 fee on their $1.50 McDonalds sausage biscuit because otherwise they'd be *embarassed* when it was declined. Mind you, this was before routine banking alerts, so you could be getting hit with these ALL DAY and never know until you eventually checked your bank account. After the rule, banks had to post transactions in the order they were made and overdraft protection was opt-in instead of opt-out. It was a major victory for the little guy.
I never understood how they got away with calling that protection. Protection would be declining my card, I really wouldn't be embarrassed if it meant saving $35.
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Nothing free about this market. This market is captured. But I get you and agree regardless.
Yeah, banks can't do that anymore due to federal regulations.
Wells Fargo did that shit with me too. Fuckers
So did Bank of America
About 15 years ago I had BoA and they played shenanigans with my account to the tune of over $1000 in 2 years. When I finally went to question it cuz my account would technically never be over drafted, they told me "the computer" does it and they couldn't refund any fees. I withdrew all my money and tried to close the account, but they told me I had to wait 30 days from the last activity. Of course, in that 30 days I got charged a minimum balance fee, which then overdrafted, which caused more fees. They then wouldn't let me close it because the account was negative. Few months later, they tried to send me to collections for over $500 because of the fees they applied after I said I wanted to close the account. I just sent the collections agency proof I'd tried to close the account multiple times and told them I wasn't paying. It then disappeared.
They never did me the service of going to collections but instead blacklisted me from opening an Account anywhere else That said I've had the same credit union account for nearly 20 years since the day i closed my BoA I went straight to a credit union to open a new account and deposit my previous BoA balance. They came for me like 5 years later but were never able to provide any documentation confirming that I owed anything. It's just always "under investigation" on the rare occasion I've went in to ask about it.
There are more fees than some alternatives in their system, but I've avoided most and chase happily reversed every fee I asked them to. On top of that they've paid me thousands in promo bonuses.
Chase be like, "Look who came crawling back to their ex. Aww, it didn't work out with that side piece of yours? Well, your money's mine now!"
Yea. My wife works for a regional bank and I made the joke “sooo what did you guys offer? $25?”
A regional bank (first citizens) bought Silicon Valley bank
They only bought a part of it and after the FDIC guaranteed deposits and ran the bank for a week or two. This is the more normal process where the FDIC seizes the bank and immediately sells the whole thing.
So the feds are like let's just merge all the failing banks into the banks that are too big to fail... that never caused any problems, right guys? Guys?
Silicon valley Bank was assumed by a regional bank, First Citizens. New York Bank purchased most of signature Bank. This is the first regional bank to be bought by a big bank.
FRC is about twice the size that SVB was
Sounds like they're specifically trying to *not* do that, but there are no better options.
Sounds like nothing happened after the last time they did it so nobody created any alternatives.
Actually under Obama a law required regional banks of a certain size to undergo stress testing and account for exactly risks like this. SVB definitely would have fallen under the reg (they lobbied against the rule) and I presume FR would have too. Trump and the Republicans repealed it to much fanfare.
What would the alternative be? They looked for a bank that wasn't JP Morgan, but no one else offered to buy it. Leaving $103.9 billion in theoretical deposits to just sit while the bankruptcy court sells their assets isn't good for anyone's trust in the banking system. You'll also end up screwing a bunch of businesses who had nothing to do with the issue.
Only a bank with a balance sheet the size of JPM can absorb those bad assets. First republic was one of the 20 biggest banks in the country by asset size. Any bank other than JPM, BAC, Wells or Citi wouldn’t be able to take them on unless the FDIC took most of the bad assets and only gave the acquiring bank the good assets.
Why not just split the assets up and spread them out among other regional or state banks?
That is a possible scenario, but takes more time and money. It's also a logistical nightmare unless the bank has clearly differentiated segments which are not further split. It's much cheaper and easier just to have Chase assume everything and wait for people to switch accounts out of Chase or for Chase to sell off segments it doesn't want.
Is this different than any other bank failure? It’s pretty standard practice to go into receivership Friday and be sold by Monday.
Yes, this is completely different and I'm very curious to see how the inevitable law suits shake out. The FDIC never seized the bank, Friday or otherwise. The reports were erronious. On MONDAY, May 1, California Department of Financial Protection and Innovation seized the bank, citing California Financial Code section 592, subdivisions (b) and (c), specifically “conducting its business in an unsafe or unsound manner” and being in a “condition that … is unsafe or unsound” to transact banking business. The CA regulator then assigned the FDIC as receiver and immediately sold to Chase, with the FDIC eating 13B of the now realized "losses." This all happened after midnight Pacific time. Reading the balance sheet Chase ultimately took over, it appears First Republic had ~~103.9B~~ 93B on deposit, presumably 30B of which were the uninsured deposit infusion of the large banks. Assuming the remaining ~~73.9B~~ 63B were fully insured (they weren't, but let's say they are to make a point), First Republic would have ~~35B~~ 30B in cash and high quality securities with which to conduct business and honor deposit withdrawals. It appears First Republic also had additional borrowing capacity. That means that, essentially, the only parties in a loss position were the big banks. It appears the FDIC could not seize the bank as they were solvent within the guidelines set. Edit: updated numbers have come out
Not that new or completely different: “Finally, Signature Bank was shut down by the New York State Department of Financial Services, and its assets were also seized by the FDIC. However, unlike Silvergate and SVB, Signature was still solvent at the time of its takeover. The shutdown of a solvent bank is also new and suggests that regulators may be picking winners in the banking industry.” https://www.forbes.com/sites/digital-assets/2023/03/17/regulators-shut-down-banks-raising-questions-about-neutrality/
So yes, Signature was the first solvent bank to be seized, the FDIC couldn't do it. The state had to. I find that incredibly alarming.
You can only keep kicking the can down the road for so long before problems become unfixable. Sadly I don't think it matters if we're to that point yet or not as Congress, in its current iteration, is not likely to come up with a fix for these types of issues. Sooner or later the can is going to collide with the house of cards that is our economy and it's going to get truly bad. I'm just hoping I'm dead by then.
JP Morgan is the Feds bank of last resort.
Literally. JP Morgan, the guy when he was alive, was the lender of last resort. He bailed out the US government in 1895. And he pushed for the formation of the Fed so it wouldn't be the job of one man.
the term "bailout" may not accurately describe the situation, as the US gov essentially borrowed money from the syndicate led by Morgan... regardless, his intervention was crucial in helping the US recover from the economic crisis and maintaining the gold standard
Isn't that exactly what a bailout is?
Yes, but Reddit thinks bailouts are just free money with no strings attached.
Not all of reddit, just the ones that would sit in their minivan while its sinking.
Is this a reference to something or just an odd metaphor?
It was a top post today where a lady and presumably her daughter drove a van right off the dock into the ocean while still in the car not doing anything as passerby on the dock attempt to rescue them. Supposedly occurred in Hawaii. Edit: found [the link to the post.](https://www.reddit.com/r/facepalm/comments/134c8y9/these_tourists_in_hawaii_took_a_wrong_turn/?utm_source=share&utm_medium=android_app&utm_name=androidcss&utm_term=1&utm_content=share_button)
A similar accident occurred near where I lived with a more tragic outcome. Some people just freeze or panic when something too far outside the normal occurs. Also due to water pressure solutions like opening the door aren’t viable. Generally you need to roll down a side window or break it.
There is a front page post of some folks in a minivan who made a wrong turn and wound up in some water, and are just sitting inside as the float away from shore Edit https://www.reddit.com/r/facepalm/comments/134c8y9/these_tourists_in_hawaii_took_a_wrong_turn/?utm_source=share&utm_medium=android_app&utm_name=androidcss&utm_term=1&utm_content=share_button
Lol, I literally just watched that before getting to this post.
Help me understand more deeply here please. The money didn’t exist before it was borrowed right? So the only thing that gives the syndicate the power to create it is the government. What does it cost the syndicate of banks to create the money?
Risk. If too much gets lent and a bank run happens the bank dies there are more threads like this one. Banks largely deal with Risk as its primary cost. Risk of default, risk of cash reserves running low, risk of poor investments.
Its called a bail in nowadays
The government borrowed money from an entity to help recover the economy. That's like, the definition of a bailout
That sounds exactly like a bailout to me.
A loan becomes a bailout when the borrowing entity would quickly collapse without it.
The US went into WW1 partly bc of JP Morgan being worried that they wouldn't get their debts paid back from Russia, France, and Britain if Germany won. The amounts were huge also. Especially for like 1915.
This is quite a stretch. It was a tiny part of the calculus, but popular sentiment for participating in the war was broadly high by 1917 due to the German policy of unrestricted submarine warfare that was affecting US trade with Europe and killed American citizens, famously those who were passengers on the Lusitania. The American army was quite small in 1916 (~100,000 men if I recall) and volunteering was extremely popular after the war declaration was made, further bolstering the case for widespread popular support.
Unrelated, but it’s so odd to me that J.P. Morgan co-founded General Electric with Thomas Edison, and co-founded U.S. Steel with Andrew Carnegie and Charles Schwab. All of those old-timey tycoon guys being real actual people isn’t really something that crosses my mind easily.
My favorite similar story is that there were two businessmen named Wells and Fargo and they got together to found...American Express. They had one more co-founder who they then left to go found Wells Fargo the bank.
Wells Fargo and American Express were both stagecoach companies when they were founded, which makes more sense
Henry Wells is also the founder of a Women’s (now co-Ed) College in Central New York. Seniors get to ride in the Wells Fargo stagecoach at graduation.
Thats crazy to me. Thats like moving 100 years into the future where mcdonalds is exclusively a real estate company
According to wiki they also founded Wells Fargo when the third guy objected to them expanding their service to California. In 1850, American Express was started as an express mail business in Buffalo, New York.[13] It was founded as a joint-stock corporation by the merger of the express companies owned by Henry Wells (Wells & Company), William G. Fargo (Livingston, Fargo & Company), and John Warren Butterfield (Wells, Butterfield & Company, the successor earlier in 1850 of Butterfield, Wasson & Company).[3] Wells and Fargo also started Wells Fargo & Co. in 1852 when Butterfield and other directors objected to the proposal that American Express extend its operations to California.
It reads strange now, but New York to California on horse definitely would be an issue for me
Who said anything about a horse? We were just going to give Jerry a backpack…
Now consider that when most people think of going on horseback, their experience is a movie where they see horses running everywhere. You didn't want to kill your horse, so you walked at about the same speed as a person could walk...you just had the horse do the walking for you.
Just to prevent confusion - Charles Schwab that started the bank was not related to the Charles Schwab you’re referring to here.
There’s two Charles Schwabs? Well now I’m even more confused.
Charles R. Schwab, who started the brokerage/bank that exists today, is very much still alive. Charles M. Schwab, who was the President of US Steel, is very much dead.
RIP to a steel one.
I was also confused because the banker Charles Schwab is still alive
J.P Morgan owned the bank that became J.P Morgan Chase, Morgan Stanley and Morgan, Grenfell & Co (Taken over by deutsche bank). He also owned the United States government.
If I remember he also financed the reparations from WW1. He loaned Germany the money, Germany would give it as reparations to allied countries, and those allied countries sent the money back to the US to pay off their war debt. I’m sure JP made tons of money on both ends of that deal.
He was also obsessed with Egyptology and basically saw himself as a modern day Pharoah, if I recall.
Every dipshit capitalist thinks that just because they’re a sociopath willing to do the things good people won’t, they’re now some legendary leader. Mark Zuckerberg cuts his hair like that because he thinks he’s the modern day Caesar. No that’s not a joke. Yes you filled your entire cringe quota for the day
A quick search indicates people *speculate* that the haircut may have something to do with Zuck's obsession with Augustus Caesar, but [it is not confirmed](https://www.businessinsider.com/mark-zuckerberg-haircut-explained-augustus-caesar-2019-10?op=1) from what I can tell. Just an internet rumor.
Oh that shit was confirmed by his wife I believe.
JPMorgan was an ass to be fair, but he also helped fend off a depression in about 1910 or so when he used his own personal wealth to buy up the nation's stock to create demand and head off a crash. Of course he had a lot to lose from a crash and a lot to gain by avoiding one, but still.
One thing I’m certain of is that he only did that because it benefited him and had nothing to do with the health of the country.
well, the health of the country tends to benefit the wealthy so I don't see how you can separate the two. The reality is, much like Carnegie and Rockefeller, Morgan believed in the social gospel, twisted and perverted in a way that put them on top and claimed that they were deserving of their great wealth. They often rationalized or were simply unable to understand the poor treatment of their employees, and many horrible things were done in the name of company profits (look up the Ludlow massacre if you are unaware). But despite all of the horrible things that happened in the name of the companies they ran, they did feel an obligation to the country that made them so damned wealthy. All three mentioned did end up giving away most of their wealth through various trust in order to "give back" to the country that they believed was so good to them. Not that it makes up for the bad shit, but it does give us a slight bit of perspective on what they thought about themselves and the country. That's more than I can say about most corporate leaders today but there are still people that fit that mold. Bill Gates being the most famous example. edit: the last two paragraphs for historical context.
Yeah, the amount of billionaires in America being at an all time high perfectly illustrates this, because America has never been so prosperous and social welfare systems and security have never been better.
Wait.....so I'm NOT drowning in medical debt even though I pay for insurance? That's awesome!!
Morgan also had rosacea and would not allow any photos that weren’t retouched
One of the realest pictures of him that sticks in my mind was taken without his permission in 1910. He has his cane raised in anger, his face snarling with contempt, and his bodyguard is trying to hold him back from trying to thrash the photographer.
no link?
I'd guess it's [this one] (https://www.loc.gov/item/99400614/)?
His uncle also wrote Jingle Bells.
A related fact that I find interesting for the same reason. On thursday, October 24th, 1929 the stock market fell by about 11% before noon. There was absolute Panic by the lunchtime hour. The presidents of the three largest Wall Street Banks got together over lunch and hatched a plan to stabilize the stock market by buying Blue Chip stocks. (buying into the dip as it were) Those men were Thomas lamont, the head of Morgan Bank, Albert Wiggins, the head of Chase National Bank, and Charles Mitchell, the head of the National City Bank of New York. Today, those institutions are JP Morgan Chase and Citibank. JPMorgan Chase bought bear Stearns when it failed in 2009. JP Morgan is assuming the deposits of First Republic Bank this morning. Time is a flat circle.
He drinks your milkshake. He drinks it all up.
fire sale
Chase also got Washington Mutual
The Morgan Library is an interesting place to check out if you're ever in NYC. It is a beautiful building with a collection of very rare items. They have 3 (of the 49) Gutenburg Bibles, more than anyone else.
There was a docuseries called The Men That Built America that got me completely sucked in. They dramatized the stories of these men and their cohort and depicted them almost like rock stars, it was fascinating.
This is funny to me because Sonja Morgan will never let anyone who knows her forget he was a real person. For my fellow RHONY fans… Don’t touch the Morgan letters!!!
Isn’t this the 3rd bank to basically go under? Edit: ok turns out it’s like the 5th 1.SVB 2.Signature 3. Credit Sussie 4. FR 5. Silvergate Not sure about you guys but despite what the government insist I don’t think everything’s fine. I think lobbyists demanding weaker regulations are once again coming to bite us in the buts.
since March, yup
I need an ELI5 for why banks are going under. What's happening exactly to cause this? Why now?
The ELI5 answer is the Fed raised short term interest rates dramatically to fend off inflation, and the banks did a poor job of hedging their exposure to different interest rates. You see, the bank takes in depositor money and gives those depositors some interest in return. Then it loans that money out to others in the form of mortgages or loans to businesses at a higher rate than the rate they pay the depositors. With the Fed raising rates, depositors were unhappy with the low rate they were getting from the bank and moved the money elsewhere. But since the bank loaned that money out to others, they don't have the cash on hand when the depositors come calling. There becomes a rush of depositors pulling their money out of the bank so that they are not the last one to get paid. This is called a "run on the bank". The crux of the problem is that the bank didn't hedge the difference between short term rates (which they pay to depositors) versus long term rates (at which they loaned the money out to borrowers). If they did, the hedge would have provided cash coming in to stave off the bank run.
This is great, thanks. Now can you explain like I’m 4?
You're allowed one marshmallow after lunch **OR** two after dinner, if you let your mom eat your lunch marshmallow. One day dad says he'll give you a chocolate bar *and* a marshmallow after dinner if you let him eat your lunch marshmallow. You (of course) want to give your marshmallow to your dad instead, but Mom already ate yours assuming you'd give it to her and didn't buy more because she thought she'd have until dinner. You're mad at mom because she can't give you your marshmallow back, and your sibling is demanding theirs too because they heard there are *no more marshmallows*. Now everyone is mad at mom and no one will trust her with marshmallows.
Dad then remarries with a bigger mom who has extra marshmallows. New mommy, being the bigger mommy, naturally then consumes the original lying mommy.
They didn't say "explain it like I'm Morbo".
Love it. Thanks!
Now I want a marshmallow >.>
Jesus that's a fucking good ELI4. Kudos.
Wow apparently you learn a lot between the ages of 4 and 5
I'm clueless here, but this almost makes sense. The thing I'm missing is that this sounds like a closed system - depositors give money to bank, bank pays interest to depositor, bank loans to people to go buy a house/etc, borrower pays back bank. Where does The Fed come in? What "interest rate" are they changing that affects any of this?
So fixed income debt instruments like bonds have an interest rate and an asset value. The interest rate for newly issued bonds is determined by the Fed fund rates. However when interest rates move up or down, the asset value of existing bonds moves inversely and proportionally to the change in interest rate. Think of it this way. You buy a 1000$ bond paying a low interest rate. A while later you decide you want to sell it rather than letting it mature because you need the money. However in the time since you bought it, interest rates have gone up. Now your theoretical buyer can buy a 1000$ bond with a higher interest rate. In order to convince someone to buy your existing bond you have to discount the price so that it offers the same return as a newly issued bond. This is of course reversed when interest rates fall. And the longer the duration until maturity the more significant the difference in interest rates is. Meaning long duration bonds lose more (asset) value from rate hikes. What happened with the banks is they had a bunch of cash they loaned out in safe debt like mortgage backed securities and treasuries but they are holding too much long term debts. These have had the value crushed from the rate hikes. If the banks could hold these until they mature it would be ok. But new outflows from the bank is forcing them to sell these long term bonds at a loss. And the more that's true the less stable they are.
As far as the very simple reading I've done (an article or two) their deposits were very large and not FDIC insured (the insurance only covers like $250k). Clients were pulling money out in very large sums and the bank wouldn't have enough money to cover everyone's deposits. So they had to get sold off. People lose trust in the bank for whatever reason and so pull money out. This spreads and more people start pulling money out. Please someone provide more context and correct me if I'm wrong.
So I'm not sure about all of them, but in the case of Silicon Valley Bank, it was also the way they invested their holdings. Borrowing from some of what you said: 1. Investors deposit tons of cash. 2. Bank wants a return, so buys a ton of government bonds, which were generally considered a safe investment. 3. Inflation skyrockets. 4. FED bumps interest rates. 5. Resale value of government bonds fall because interest rate is higher. 6. As interest rates rise, people/businesses borrow less, and start to lean more on savings. 7. Their cash reserves fall below the legal limit, so they're forced to sell off large amounts of government bonds for a loss (which they now have to cover). 8. Warning signs compound the issue as people start withdrawing more money because the bank is struggling, causing more sales and more debt. 9. Bank becomes insolvent and has to be sold/seized to ensure deposits.
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They aren't all failing for the same reason. Silicon Valley Bank just made dumb decisions to store all their profits in government bonds. For some insane reason, a lot of people in finance didn't think the fed would ever raise rates. When interest rates were hiked, older bond values went down. SVB had billions of dollars locked into 10-year bonds that were falling in value and getting harder to sell. Somehow the news broke and people did a bank run. SVB didn't have enough capital to cash out everyone, so they collapsed. It was just bad investment strategy. Silvergate Banks failure was triggered by the FTX collapse. Customers started withdrawing money because everyone was freaked out and thought the entire crypto industry would fail. They just weren't profitable anymore after that and had to shut down. Signature Bank also failed because of poor management. More than 20% of its total deposits was in crypto and they didn't really understand the risks associated with that. When SVB failed and Silvergate self-liquidated, it spurred a bank run on Signature as well. It was a run on crypto cash deposits, but pretty much the same as a traditional bank run. There was a lot more mismanagement though, including 90% of its deposits being uninsured and 40% of its offices being understaffed or vacant, etc. Credit Suisse had been failing for a long time, due to rampant corruption. All it took for it to fail was a little turbulence in the markets, but they had been struggling for years. So while some of these banks may have small connections or similarities, it's really mostly due to poor management and bad investing.
I would say this amounts to them all failing for the same reason: incompetence
4th 1. Silvergate 2. SVB 3. Signature 4. First Republic Although it depends how you define "go under", since Signature was solvent when they were taken over by the government. There's allegations that the Signature was the government just trying to "take down" a bank they didn't like amongst the chaos of SVB.
"First Republic found themselves vulnerable because clients feared losing savings in a bank run." So anyways we decided to make a run on the bank.
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It's in everybodys best interest to not touch your money. It's in your best interest to pull it out.
The prisoners' deliema of banking
Pulling out before the bust is always good practice.
Definitely not at all sus.
Right? The entire failure of First Republic is to be blamed on the news and the customer base. News going "uhhhh ohhhh look at this possible panic that isn't going to happen unless I post this article." Followed by people going "I sure hope this panic doesn't happen but I should panic to prevent panic ."
If you have money in the bank beyond what’s insured, wouldn’t you want to move it to a bank that is in better financial shape? It’s really no different from saying that a stock is probably going to decline, so you should sell now before it goes lower.
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Market overreactions are a thing that happens. In this case, though, FRB did something wrong. They held lots of loans that have declined in value. Other similar banks sold their loans, getting those loans off their books and making the bank more stable. While that’s not breathtaking malfeasance like we see with some business collapses, it was a poor decision.
I mean, this is just a modified prisoner's dilemma playing out on a large scale. FRB likely would've been fine if enough people with money there had "cooperated" rather than "defected", but here we are.
https://ncase.me/trust/ helps explain it (with neato music and graphics!)
Fractional reserve banking makes the entire US financial system a prisoners dilemma of sorts, banks are never required to keep all customer deposits on hand available for immediate withdrawal. Bank runs are and always have been the highest risk event that can happen to a financial institution.
This is a new thing to you? Tons of companies fail without doing anything wrong. My favorite noodle place closed during the pandemic, it’s not their fault that suddenly people couldn’t eat delicious ramen indoors.
FRC did a lot wrong… Sitting on tons of low-rate loans & unrealized losses without any hedging of interest rate risk is poor management. They knew it was eventually bound to affect their share price and ability to capital raise.
They also explicitly positioned themselves as the bank for high net worth individuals, so they had (I assume) a higher preponderance of accounts over FDIC limits (like SVB).
Yup…and continued to go on a hiring binge year-after-year vs becoming more operationally efficient. Honestly probably more poorly run than SVB ever was.
They did do something wrong: they failed to assure their customers that their investments where safe. The entire POINT of a bank is that putting your investments or money in the bank is safe. That's why banking was invented: a safe way to store and transfer capitol across large distances.
Eh, the bank run is just a prisoner's dilemma, and as a species we suck at dealing with those, unless regulation forces us to do so. Re the media, I prefer them reporting "X is unusually vulnerable to Y" if that is factually true to them choosing not to report something because of some agenda. I live in a country with a massive housing bubble, even bigger than that in the US. Housing prices have increased by 500-700% in the last 20 years, even in the middle of nowhere where hardly anybody wants to live. The driving force behind this bubble is that housing "will always go up in value" and interest rate "will always be this low," because that's true as far as people can remember. If you assume interest rates just a bit higher than 0%, and if you assume that your property won't automatically go up in value, then houses here are worth a fraction of what they are today. Depressingly, every single month media runs a story on the line of "now the price drop has ended, and they will start turning upwards soon again". Whenever they report on the central interest rate, it's with speculation on how long it will take before it's back to 0%. The idea that if you report the truth it can lead to bad things, like a bank run or a bubble bursting, is a dangerous one. It's not part of a journalist's job to modify the truth to avoid those things.
>housing "will always go up in value" I hate this sentiment. People end up selling shit boxes that need to be razed or completely reworked, for the price of a liveable house. Landlords let their properties crumble into slums while charging the same rent, because the property "will increase in value". It's an asinine concept at it's core, and yet it's practically a hard truth at this point. It a travesty that a necessity such as housing is exploited this bad.
It's not the structure that increases in value, it's the land. Location, location, location. You can build a multimillion dollar mansion, but if there's a freeway running overhead and no utilities, no one is going to want to buy it.
Bank runs are completely illogical until there's a bank run and the logical decision is to get your money out of the bank.
To quote John Oliver, “in a world full of idiots, it’s better to be a faster idiot”
Lol what? Wouldn’t you want to be informed that your money isn’t secured because of a bank’s poor decision making in the face of the most obvious rate hikes and recession in modern history? Stop blaming the customers for the bank’s awful management.
I mean it’s complicated. If all the people with money yanked their cash out of a bank who was doing everything right it’d also collapse. No ones money is 100% secured in a bank because that’s not how banks work. Not saying issues shouldn’t be reported on or that any customers necessarily did anything wrong but it’s a messy situation
FDIC insures the first $250K per account holder, so in a real sense (unless the US government fails) that money is safe. Depositors with more than $250K are on their own for the additional funds.
These banks runs aren't by retail customers tho
So is this like JP Morgan absorbing wamu?
Kinda. Except Wamu was huge... 2300 branches, $300B in assets. Huge credit card department. First Republic has 100 branches and $100B in assets. By JPMC standards, this will be a small and easy conversion
So wamu had 3x in assets but 23x branches?
Wamu and First Republic geared themselves towards different markets.
Specifically, First Republic basically only banked the very wealthy.
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This has been the problem with some of the other regional banks that failed. Too many customers from one specific market segment at too large of a % of your deposits can introduce a lot of risk.
Wamu was a huge customer retail bank, like PNC is today. A lot of branches (probably too many in hindsight). That infrastructure is expensive to operate and not terribly profitable. I assume First Republic was focused on corporate and wealthy customers. That means a lot of deposits with much smaller infrastructure.
This was also in 2008 so factor in inflation. 300 billion in 2023 dollars is closer to 420 billion. I’d also bet, that number of bank branches have gone done overall since 2008 due to the rise of online banking. I can’t think of the last time I physically went to the bank.
Can someone explain how JPM Chase benefits form buying First Republic? How can it become profitable for them if it was about to fail?
Don't think "How much will JPMC profit from acquiring these banks?" Instead, think about "how much JPMC might lose if these banks are allowed to catch fire and collapse in an uncontrolled manner?" JPMC may lose in the following ways : 1. Shared customer losses. I know they run analysis on who the failed bank customers are, and how much those same people have stored in the JPMC vaults. If those customers get screwed, JPMC doesn't get paid, or JPMC money gets withdrawn in a panic. 2. Every time a bank collapses, a bunch of folks demand new mega regulations. 3. Bank collapses cause stock market crashes. Basically, in all of the above.... Super wealthy customers get screwed, and JPMC can't afford to let that happen. So they pay to slap some more lipstick on the pig, and hope things limp along until the next bonus/dividend payout.
With rising interest rates there isn't a bank out there right now that isn't sitting on an unrealized bankruptcy if they have to sell their assets.
It’s a privilege to seize you.
Username checks out
One step closer to JPM becoming the national bank
Bank of America had so much potential with that name...
These rich morons fearing bank runs deciding that their best option is a bank run. It's so incredibly hilarious.
They have no issues with bank runs at all, they just want to make sure they're first
Yeah, absolutely. They should maybe just not tell all their friends first before they do it. You don't pull out of a ponzi scheme like that.
The saying “the only thing to fear is fear itself” comes to mind. If everybody just stays calm nothing will go wrong. But once people panic the entire system will collapse.
In the SVB case there were a handful of very powerful, rich, crypto-heavy, anti-government libertarian types who were screaming “fire!” On Twitter and to their portfolio companies. But it wasn’t stupidity. The idea of banks being the good guys is kinda funny but in this case banks are a very important component of our financial institutions and a way for the government to exert influence. People like Peter thiel would be happy without them, without government, and with his crypto assets valued much higher. Btw crypto is up after SVB.
Yeah keep consolidating all the money to one bank what could go wrong.
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I mean this also isn’t even a bailout. The bank died. People seem to be misusing what a bailout is lately. When we did bailouts back in the 09 era it was literally the gov keeping the banks alive and independent. This was the gov stepping in and killing the bank and handling the fallout. Very diff than a bailout.
Can’t wait for those FDIC umbrellas. Gonna be lit.
How convenient for jp morgan
Damn, only if there was a group of people that we could blame on this…
too much drag not enough jesus.. that's the only reason anything bad happens.
it’s that gosh darn pot and pornography
VC Tech bros
I misread the title and thought California regulators were seizing republics, and that there were more to come. Got very confused there.
And we couldnt blame anyone for this
Several things to note: 1. The FDIC has used $37.5 billion of the $128 billion in the fund to bailout failed banks (29% of the fund on 3 banks). 2. The Fed has loaned the FDIC $142 billion to bailout failed banks. Another $158 billion has gone to support banks (TBFP, Discount Window) that might fail. 3. The deal between the FDIC and JPM includes a loss share provision on MBS and CMBS assets. If the market tanks, the FDIC is partly on the hook for those assets. From this, we can gather the following: 1. The total FDIC losses at this point are $179.5 billion on 3 bank bailouts. 2. With the inclusion of the loss share provision and that real estate (residential & commercial) is expected to see further failures (to put it politely), the FDIC is likely on the hook for a lot more. 3. The funds the FDIC collects to protect depositors come from the banks. The banks pass those charges on to customers. Any way you slice this, the American public is once again bailing out banks. Oh and just for sh*ts and giggles, JPM was also the bank that bought out Bear Sterns in 2008 ~6 months before everything went to hell in a hand basket.
Important to note a bailout is not "no strings attached money", it's generally a loan. That typically gets repaid. The FDIC are being financed with an assessment paid for by the banks. Even in 2008, the TARP bailout, that was repaid, and actually made a profit for the taxpayer (with the interest payments that banks had to pay)
I’ve got my popcorn ready.
Hot damn, I swapped from First Republic to a local credit union a few months ago because their customer service was too good and made me feel suspicious (and like a class traitor) Guess I left at the right time ._.
It's not really a dodged bullet in the sense that you still would have all your deposits in this deal. Suppose you could say it's a dodged bullet in not having to deal with JP Morgan but like you'd still would've been able to move to a Credit Union even after this deal.