Banking crisis??

[MichaelB]

All the banking data can be found at the FDIC website, here. People can look at the current status of every bank in the US that is covered by FDIC. It’s a real gold mine of data for the nerdier types.

Banks are not failing and there is no looming solvency crisis, and regulators don’t apply bandages or give banks temporary fixes, and definitely don’t help them hide their weaknesses. Regulators will demand adherence to standards and step in to take over banks when they fail.

The financial industry - banks and insurance companies - is facing a real challenge right now because they tied up too much of their assets in low yielding long term treasuries and now they’re stuck for the next decade. The Fed is well aware of this, as the Fed is keeping money market rates at their current level through its reverse repo facility. If the Fed wants all that money in money market accounts to return to the banks all it needs to do is lower the rate it pays in the RRF.

This is a decade long challenge for the banks.

 

[Chuckanut]

The 'little people' have spent over a decade earning very low interest rates that still left them losing buying power in real terms. People are slowly waking up to a world where three, four and five percent CDs are more normal. And if we do see a return to only a 4% inflation or less those 5% bonds and CDs will offer the possibility of breaking even with inflation for the first time in years.

Today's rates are far more normal than the sub 1% rates on short term CD's of just a few years ago. The rates on longer term bonds and CDs (over 5 years) are still a bit too low, IMO, considering the increased risk of long term investments over 5 years.

Not everybody has woke up yet. One of the biggest credit unions in my area is now offering 5+ year CDs at a "whopping" 2.58% if you have $100,000 or more deposited otherwise you get a bit less. I longer do business with them.

 

[pb4uski]

Does why lots of folks are transferring their money where it gets a better return.


We seem to be on 4-5% world at this moment.

Your first sentence is unintelligible, but I think you are saying that people with demand deposits paying low interest rates will transfer their money to get a better return. I agree with that, but there are a lot of demand deposits that are very sticky... people who are unconcerned or uninterested in what interest they are earning. The bank's challenge is to pay as little as possible but just enought to retain those demand deposits.

 

[JessWokaway]

I think there are several things at play here. First, the confidence in the banking establishment has been shaken by the recent failures and the amount of media attention they garnered.

Next is the threat of BRICs establishing the Yuan as an alternate reserve currency, which would be very bad for the US Dollar, reducing its buying power and leading to further inflation. While there is a large exodus into money markets, there may be a lot of cash moving into tangible assets like land and precious metals as a means of value retention.

 

[marko]

The 'little people' have spent over a decade earning very low interest rates that still left them losing buying power in real terms. People are slowly waking up to a world where three, four and five percent CDs are more normal.

I just woke up! I had been using a T Bill fund to hold my dividends until I needed them.

Never paid much attention to what it paid, because it was never anything much until I recently 'discovered' an $800 interest payment last month (4.77%). Just shoveled $100K more over into it. Easy (and safe) money!

I also got into a Floating Bank Rate fund last year which has almost doubled its monthly dividend over the past 10 months that I've owned it. Now, about 6% but my yield is more like 8%.

It does change your mindset. It's a new world.

 

[Gumby]

I just did! I had been using a T Bill fund to hold my dividends until I needed them.

Never paid much attention to what it paid, because it was never anything much until I recently saw an $800 interest payment last month (4.77%). Just shoveled $100K more over into it. Easy (and safe) money!

It does change your mindset. It's a new world.

I had a similar epiphany in the late fall of 2021. For years, I had kept well over $100k in my checking account earning 0.1% interest. Then, I learned about I-Bonds (from this board) just as they rolled to a 7.12% rate, so I jumped on the opportunity and, over 5 months, bought $100k worth of them. I've become much more attuned to the interest earned on the various dribs and drabs of cash that I have scattered about my portfolio.

 

[MichaelB]

I suspect the 2023 tax year close is going to be a surprise for many when they see the 1099-int with some significant interest income.

 

[marko]

I suspect the 2023 tax year close is going to be a surprise for many when they see the 1099-int with some significant interest income.

I'll take all I can get! C'mon! Surprise me! YMMV

We live exclusively on dividends/interest and MF cap gains (and SS), so mo' is betta. I'll pay the taxes.

 

[marko]

Anyone remember the 15% CDs from the early 80s?

 

[Car-Guy]

^^^^^
Yes! Unfortunately I probably only had a $100 to invest back in those days. Maybe.

 

[Dream Weaver]

I suspect the 2023 tax year close is going to be a surprise for many when they see the 1099-int with some significant interest income.

Then the realization hits that they are paying taxes on interest income that still didn't allow their savings to keep up with inflation and even less so after those taxes are subtracted from their "gains". Purchasing power of their savings well in the red YOY.

If ever their was a need for a law it would be for true YOY inflation to be calculated before interest income above that % can be taxed. What we have now is more like a yearly personal property tax targeted at savers who had the audacity to try (unsuccessfully) to keep up with the wild money printing and fiscal irresponsibility of our lawmakers.

 

[MichaelB]

Then the realization hits that they are paying taxes on interest income that still didn't allow their savings to keep up with inflation and even less so after those taxes are subtracted from their "gains". Purchasing power of their savings well in the red YOY.

If ever their was a need for a law it would be for true YOY inflation to be calculated before interest income above that % can be taxed. What we have now is more like a yearly personal property tax targeted at savers who had the audacity to try (unsuccessfully) to keep up with the wild money printing and fiscal irresponsibility of our lawmakers.

The tax tables are adjusted for inflation.

 

[pb4uski]

And have been adjusted annually for many years now. Ditto for the standard deduction.

 

[jollystomper]

I suspect the 2023 tax year close is going to be a surprise for many when they see the 1099-int with some significant interest income.

First world problem, for sure...

 

[Helen]

Then, I learned about I-Bonds (from this board) just as they rolled to a 7.12% rate, so I jumped on the opportunity and, over 5 months, bought $100k worth of them.

How were you able to buy so much within 5 months, were you gifting between you and your spouse?

 

[Dtail]

I suspect the 2023 tax year close is going to be a surprise for many when they see the 1099-int with some significant interest income.

Keep track of it monthly, so I am up to date on how much Roth conversion can take place.

 

[OldShooter]

I dunno. This kerfuffle is not in the box of things I worry about. The government is guaranteeing deposits and, since they are denominated in dollars, there is an infinite supply available. The number of banks left standing is not something that I have any control over nor is it likely to affect me.

Posts here seem to be focused on retail investors with small amounts of money. From cursory reading IIRC the problem deposits were things like payrolls, which were well above FDIC limits and not amenable to games like chasing CD rates. Probably some VC funds, too. I doubt that retail investors' money amounted to a significant fraction of totals.

 

[pb4uski]

How were you able to buy so much within 5 months, were you gifting between you and your spouse?

Not Gumby but I think they did the same as us... $10k in late 2021, $10k in early 2022 and $30k of gift box purchases for 2023, 2024 and 2025... times 2 for a married couple (young wife in his case).

We did that plus $5k for 2021 tax refund and $30k in early 2022 for his, her and joint trusts.

 

[MarieIG]

I suspect the 2023 tax year close is going to be a surprise for many when they see the 1099-int with some significant interest income.

I'm watching it. That's why I would like to buy some one year T Bills - spread it out.

 

[copyright1997reloaded]

From what I read, bank borrowing from the Fed's discount window is down over the past week, which means the pressure from depositors withdrawing the cash is actually abating. In any event, I wouldn't assume people know anything special; they are just easily spooked sheep sometimes.

Shifting to Bank Term Funding Program.
110.2B to 88.2B on discount window loans
10B to 64B on BTFP

Easier terms and longer terms w/BTFP vs. discount window loans.

I will withhold further comment regarding whether that is abating.

 

[copyright1997reloaded]

FDIC Insurance Fund.
As of the end of 2022, the FDIC Deposit Insurance Fund had $128.2 billion. This is about 1.27% of the insured deposits. Source: https://www.fdic.gov/analysis/quarterly-banking-profile/fdic-quarterly/index.html. This would make the total insured deposits at around 11 Trillion. (I believe this reflects the 250K limit on insured deposits, not total bank deposits.)

I believe I read (can't find it off hand) that the two failures (SVB, Silicon Bank) will result in about 20 Billion in losses, but somewhat depends on eventual asset sale prices.

As another poster mentioned, the FDIC has a $500 billion "credit line" from the government.

I believe OldShooter's post succinctly sums this up:

The government is guaranteeing deposits and, since they are denominated in dollars, there is an infinite supply available.

So personally, I don't lose sleep over the FIC's ability to backstop (my favorite word of the year) losses, as somehow somewhere money will magically be made available to pay off the accounts. Our real concern should be in terms of how much those dollars will buy if such an event occurs...but party on while the party is good.

[I have 7 figures invested in US $ denominated fixed rate instruments, so hopefully my comment above isn't thought of tin-foil-hat'ish. OTOH, I have about 7% of my assets invested in PM's/commodities/related securities.]

 

[pb4uski]

FDIC Insurance Fund.
As of the end of 2022, the FDIC Deposit Insurance Fund had $128.2 billion. This is about 1.27% of the insured deposits. Source: https://www.fdic.gov/analysis/quarterly-banking-profile/fdic-quarterly/index.html. This would make the total insured deposits at around 11 Trillion. (I believe this reflects the 250K limit on insured deposits, not total bank deposits.)

I believe I read (can't find it off hand) that the two failures (SVB, Silicon Bank) will result in about 20 Billion in losses, but somewhat depends on eventual asset sale prices.

As another poster mentioned, the FDIC has a $500 billion "credit line" from the government.

I believe OldShooter's post succinctly sums this up:


So personally, I don't lose sleep over the FIC's ability to backstop (my favorite word of the year) losses, as somehow somewhere money will magically be made available to pay off the accounts. Our real concern should be in terms of how much those dollars will buy if such an event occurs...but party on while the party is good.

[I have 7 figures invested in US $ denominated fixed rate instruments, so hopefully my comment above isn't thought of tin-foil-hat'ish. OTOH, I have about 7% of my assets invested in PM's/commodities/related securities.]

Did you mean SVB and Signature Bank rather than Silicon Bank? Just remember, there are also trillions in assets backing deposits as well as uninsured deposits, bondholder and shareholder funds. IOW, if a bank gets taken over and liquidated, insured depositors are at the head of the line, followed by uninsured depositors, bondholders, preferred shareholders and lastly, common shareholders.

 

[Gumby]

Not Gumby but I think they did the same as us... $10k in late 2021, $10k in early 2022 and $30k of gift box purchases for 2023, 2024 and 2025... times 2 for a married couple (young wife in his case).

We did that plus $5k for 2021 tax refund and $30k in early 2022 for his, her and joint trusts.

Precisely so.

 

[copyright1997reloaded]

Did you mean SVB and Signature Bank rather than Silicon Bank? Just remember, there are also trillions in assets backing deposits as well as uninsured deposits, bondholder and shareholder funds. IOW, if a bank gets taken over and liquidated, insured depositors are at the head of the line, followed by uninsured depositors, bondholders, preferred shareholders and lastly, common shareholders.

Yes, sorry, I meant Signature Bank. Too many s-things.

Yes, I am aware the assets would be sold as part of the FDIC liquidation (if necessary). In the case of SVB, it took a couple weeks to entice an institution. In the end, the haircut was quite substantial as Citizens got $72 billion of SVB's assets (i.e. their loan book) at a $16.5 billion discount. That's 23% off, i.e. the FDIC was on the hook for a 23% write-down on the assets Citizens took over. (They also go some warrants on Citizens but not super-substantial, estimated at maybe $500 million.) Even more telling (in terms of how underwater SVB's book was), the FDIC kept $90 billion of SVB's loan book. You can be sure that part of the book was WORSE than what Citizen's was willing to pick up. Citizens also got (took over) $56 billion of SVB' depositors $ (i.e. the liabilities) [72B -16B = 56B] and some branches.

Here's the thing: If things really started to go south (I was going to use the phrase "in the sh*tter) it would also very likely mean that assets (i.e. loans) that banks have would also be going south.

But I go back to my underlying thesis (which OldShooter stated better than I can) that the federal government will do everything it can to keep things from collapsing, and that includes printing money like crazy to "make good" on failing bank debt. We might not like what "make good" ends up meaning in terms of inflation or the ability to trade with fiat paper (the $).

I certainly don't hope that will happen -I'm at 65% fixed plus a non-cola'd pension.

 

[harley]

You may be right but some people a lot smarter than I are predicting that before this bank crisis is over we will be left with only 6 large banks.

They're only smarter than you if you believe what they say.

Anyone remember the 15% CDs from the early 80s?

Yes, That was the beginning of my path to FIRE. I loaded up on those after a job change that brought in a lot more money. I didn't even realize at the time I was being "smart".

Of course, I also remember the 17.25% mortgage I had on my first condo. Luckily when we moved rates had dropped significantly. For some reason nobody wanted to assume my mortgage.

Personally, I think there could be issues with banks, but I doubt it will be catastrophic. The only reason I say that is that I never seem to recognize the next disaster before it comes. No matter what, all you can do is keep on trucking and hope thing get better soon. The only time I forecast a major problem (2000 dot com bust) I got out in time, but then didn't get back in until I had missed the run up that would have locked in my winnings. If you (Lawman) have better luck, you'll prove you were smarter than those prognosticators you've been watching/reading.