Honest Question - How Many of You Knew About FDIC Insurance?
- Thread starter SamSwimmer
- Start date
Last thing. I said I originally agreed with most everything you posted except for this. Do the math on what you just said. $1 in deposits = $8 in loans. That calculates out to a loan to deposit ratio of 800%. Do you rally believe that and if not, why did you repeat it, and then defend it?
Hyperbole? Maybe. But there is a lot of concern with the public and disinformation and confusion going around.
The Fed has pretty much calculated this. Here are the 25 largest US banks compared to other banks. As expected there is a spread, though nowhere near as drastic as you indicated.
I posted the following earlier which says the same thing - the industry LTD was 63% in 2021 with smaller banks being at 74%. That is the spread you referred to and I concurred, though again I believe, and this information seems to support, the spread and large bank bias isn't as large as you believe.
Move on to move up. Commercial Banker - Real Estate Team Lead - Regional Head of Commercial Banking - Market President and Head of Commercial Banking for 3 states. Never worked at any bank where I wasn’t promoted. Just not patient enough to wait for people to retire or die.
I like you, but you’re out of your depth. Why do so many people on the internet think they are experts on everything even if they have never experienced it? Don’t be Extra trying to think he could school me on the mortgage crisis when I lived the mortgage crisis from the inside and he didn’t. When you have sat in asset allocation committee meetings at several regional and community banks we can discuss things further.
And what you are missing in all your reading - the market was flooded with cash in 2020 and 2021. Vast amounts of government printing of dollars, handed out like candy on Halloween. Those dollars were hoarded and have temporarily thrown the market out of historic norms.
For example, the “little” bank I was working for at that time made over 9,000 PPP loans. At least 60% of those weren’t really needed. I had one customer qualify for $3,000,000, never used a penny on it, didn’t have to pay it back, so his deposits simply grew by $3,000,000 overnight. You didn’t have to prove your business was impacted for round one PPP, you just had to prove you used it for payroll. So you paid your payroll with those dollars and kept the dollars that would have normally made payroll.
Multiply that single example by tens of thousands and you have hundreds of billions of deposit growth at a time when nobody was borrowing money.
So reality is looking back at 2019 on your graphs where “small banks” were averaging 90%. Then you have to understand that “small” to the Fed is generally considered banks under $100 billion in assets. Then you have to realize that 90% of those small banks are under $10 billion in assets, but 80% of small bank assets are held by the top 10% of those small banks. There are 2,250 banks in the US under $10 billion in assets.
So if you break down “small banks” and look at the 90% average, which is weighted based on assets, and understand as I said earlier, that smaller means a higher reliance on loans, you will understand that to get the 90% average the vast majority of small banks will have a loan to deposit ratio that exceeds 1:1.
If you have 1 bank with $100 billion in asset at a .7 ratio, you need 20 $5 billion banks at a 1.1 ratio to get a .9 average.
So again - most banks, in normal times, will have a ratio over 1. Just like in normal times meth heads don’t get mailed extra checks to not work.
Again, posting a link and understanding it are not the same thing.
For example, the “little” bank I was working for at that time made over 9,000 PPP loans. At least 60% of those weren’t really needed. I had one customer qualify for $3,000,000, never used a penny on it, didn’t have to pay it back, so his deposits simply grew by $3,000,000 overnight. You didn’t have to prove your business was impacted for round one PPP, you just had to prove you used it for payroll. So you paid your payroll with those dollars and kept the dollars that would have normally made payroll.
Multiply that single example by tens of thousands and you have hundreds of billions of deposit growth at a time when nobody was borrowing money.
So reality is looking back at 2019 on your graphs where “small banks” were averaging 90%. Then you have to understand that “small” to the Fed is generally considered banks under $100 billion in assets. Then you have to realize that 90% of those small banks are under $10 billion in assets, but 80% of small bank assets are held by the top 10% of those small banks. There are 2,250 banks in the US under $10 billion in assets.
So if you break down “small banks” and look at the 90% average, which is weighted based on assets, and understand as I said earlier, that smaller means a higher reliance on loans, you will understand that to get the 90% average the vast majority of small banks will have a loan to deposit ratio that exceeds 1:1.
If you have 1 bank with $100 billion in asset at a .7 ratio, you need 20 $5 billion banks at a 1.1 ratio to get a .9 average.
So again - most banks, in normal times, will have a ratio over 1. Just like in normal times meth heads don’t get mailed extra checks to not work.
Again, posting a link and understanding it are not the same thing.
You were exposed as the liar you are when you attempted to convince everyone that the "the govt forced financial institutions to not verify income of loan applicants" and that "JP Morgan didn't own the companies they are being fined over". You were schooled on both those statements.
After reading this thread. I have decided that bankers’ conferences must be the most boring social events on the planet.
Someone asked a very basic question about FDIC limits and I tried to give a very elementary definition and example to try to explain it and how loan to deposits work. You made a statement about $1 in deposits equalling $8 in loans which isn't the case and only muddied the waters for the person asking the question.
There is a potential for a liquidity crisis in the US banking industry which could affect even banks with a low LTD ratio (see SVB at 41% or whatever it was).
With all the focus on FDIC limits I've heard very little mention of impairment of held to maturity bonds on a lot of balance sheets. If a bank makes $40 million a year and has $160 million in impairment, that's 4 years of earnings and liquidity that just isn't there. And why is there an impairment???
Well, if you do your diligence, you call your bank and ask them what their tier 1 ratio would be once full impairment of held-to-maturity securities were factored in. In the case of People’s, their ratio is 11.92 before and would be 8.2 fully loaded. Anything over 6.5 is considered “well capitalized”.
Try that Control+C again, brother.
Speaking of banks, someone tried to make a withdrawal today at one of the local banks I use.
Looks more like a deposit
And SVB's was even higher at 15.26 at Q4 2022...
Tier 1 Capital | SIVB
U.S. Bank Performance: Liquidity, Total Equitiy Captital, Tier 1 Capital
www.bankregdata.com
We once had a poster (Plusfan ?) that would manually type out links because he was not aware one could copy./paste text.
Damn shame I wasn't quoting him.
Greed is the only one that can handle using it this way. Damn
The more that comes out about the SVB bailout, the more infuriating it gets.
https://www.newsweek.com/janet-yell...ality-americans-money-amid-bank-panic-1788353
https://www.newsweek.com/janet-yell...ality-americans-money-amid-bank-panic-1788353
Maybe. I’m not necessarily against big banks but SVB certainly makes a strong case for it. I think the Fed should be on the chopping block as well. The Intercept is doing some pretty good reporting on their failures - along with politicians like Newsome & Franke who are clearly acting in extremely shady ways.
It’s hard to stomach our Fed is going to reimburse Chinese depositors.
They have to leverage to make money, I get that. In an alternate reality where the FDIC weren’t out here deciding who is too important to fail I think you might see some businesses willing to pay a fee to do their banking at a bank that doesn’t leverage as much and is less prone to being wiped out by a run.
Or maybe human greed simply knows no bounds.
It’s how banks make money. It’s called fractional reserve banking for a reason.
they have to leverage to pay interest to depositors. They have to leverage to counter the amount of deposits they are holding. Deposits are a “liability” on the balance sheet. It’s simple accounting.
It’s actually more than that when you look at how that leveraged amount is also leveraged on across the financial system.
Yes. I was oversimplifying and using absolutes, both of which aren't good things to do. I could and should have phrased that differently.
The thing that we all should be able to agree on is this is a complex situation that defies conventional wisdom in many aspects. One thing for sure is the Fed raising rates, and quickly, hasn't done anything to help banks' liquidity.
We all look at things differently and I come from an accounting, finance and operational background and not a banking background. That said I look at SVB's 12/2022 balance sheet and see $16 billion in impaired held to maturities and also see a 2022 net income of $1.5 billion. That's 10 years of profits sitting as a disclosure that would effectively wipe out 90% of the balance sheet equity, the basis for the leverage you referenced.
Seriously though I welcome your comments and analysis of what I have posted in this reply.
The major mistake is SVB didn’t hedge their hold to maturity bond position. Had they hedged appropriately they would have been fine despite the interest rate increases.
I like you too but I have professionally analyzed dozens of banks over the last 15 years and do look at things a little differently from those actually in the banking industry. These have all been community banks ranging from $150 million in deposits to $5 billion. One thing I have seen in many of the smaller banks has been loan to deposits in the 30% - 40% range. When told they need to improve, they struggle to get out of their comfort zones and seem to plateau in the mid to high 60's.
The highest LTD ratios I have personally seen are high 80's to low 90's.
With LTD ratios over 100% how much discretion in asset allocation do you have? Honest question - not a gotcha. Obviously with SVB's 40% there was plenty of discretion. What could or should they have done differently.
See my comment about SVB's $15 billion in impaired held to maturities with $16 billion in equity. That and the $1.6 billion in realized losses. How much of an effect did that have on depositor confidence?
I agree 100%.
I know banks do, mainly well capitalized, but I have never personally seen it. And the averages since 1984 just don't seem to support that assertion.
U.S. Banks: The Haves And Have Nots Part 1
Rising rates is a game-changer for many U.S. banks. See why I always prefer banks with sticky, low-cost
seekingalpha.com
1984 - 2022
"The first chart shows the industry's aggregate loan-to-deposit ratio by quarter from 1984 to Q2 2022."
- Historic average: 81%
Was it too large of a percentage to total assets to effectively hedge?
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Well isn't this just the forum full of bankers. I knew we had a few didn't realize so many. InterestingI like you too but I have professionally analyzed dozens of banks over the last 15 years and do look at things a little differently from those actually in the banking industry. These have all been community banks ranging from $150 million in deposits to $5 billion. One thing I have seen in many of the smaller banks has been loan to deposits in the 30% - 40% range. When told they need to improve, they struggle to get out of their comfort zones and seem to plateau in the mid to high 60's.
The highest LTD ratios I have personally seen are high 80's to low 90's.
With LTD ratios over 100% how much discretion in asset allocation do you have? Honest question - not a gotcha. Obviously with SVB's 40% there was plenty of discretion. What could or should they have done differently.
See my comment about SVB's $15 billion in impaired held to maturities with $16 billion in equity. That and the $1.6 billion in realized losses. How much of an effect did that have on depositor confidence?
I agree 100%.
I know banks do, mainly well capitalized, but I have never personally seen it. And the averages since 1984 just don't seem to support that assertion.
U.S. Banks: The Haves And Have Nots Part 1
Rising rates is a game-changer for many U.S. banks. See why I always prefer banks with sticky, low-cost
1984 - 2022
"The first chart shows the industry's aggregate loan-to-deposit ratio by quarter from 1984 to Q2 2022."
- Historic average: 81%
I'm definitely an outsider and a late starter to the game. I've always been a little unconventional for my profession and get thrust into new situations as a result. I've made some recommendations to banks over the years and done some projections that were spot one - probably more lucky than good - that opened some doors for me.
I truly am interested in the perspectives and opinions of others on this. In the weeks leading up to SVB I've had several discussions on bank liquidity. I've had a major investor say you can't have too many loans (as like Rock98Dog) and a market president say anything over 90% is asking for trouble. The smartest business man I know has stayed away from investing in banks for some time because he felt a liquidity crisis and market adjustment were coming.
