US Banking Crisis Explained

[Anonymous No.54139238]

1st and foremost, definitions and history. Banks operate like this: the general public deposit money into the bank. The bank says "Thank you for depositing with us, we will give you 0.01% in interest annually on your money, if you would like a higher return, purchase one of our Certified Deposits and we will give you a much higher interest rate." These CDs are your cash, locked up from withdrawal for a set period of time. With these deposits, banks loan out 90% traditionally, but as of the covid crash, its closer to 99%. If a depositor wants their cash back, the bank happily obliges, but if too many try to withdraw, there is no longer enough cash for them all. The bank is in a minor crisis, but still has assets to cover the depositors requests, those assets have to be turned to cash first. If there is a large chunk of depositors requesting cash too quickly, the bank has a liquidity problem, where assets must be sold to cover the withdrawals. If the bank still has no money after liquidating assets, well, the bank is bust, and depositors panic wondering if they can get their money at all. The Federal Deposit Insurance Corporation was created during the Great Depression to assure the public that if a bank went under, some of their deposits would be returned thanks to the Federal Government. The limit is currently $250,000 per account, and $500,000 for a joint account with a spouse. If your assets in a bank is less than $250,000, do not worry about the bank running out of money and going under, since it is insured and you are getting your money regardless.

[Anonymous No.54139252]

>>54139238
As for the current situation.
Silicon Valley Bank was the bank all the tech and crypto companies used for their day to day operations. SVB had lots of cash from their depositors, but had few depositors. In other words, rich few customers using the service. SVB used this huge pile of cash to invest in a multitude of assets, from stocks, to bonds, to tech companies, to crypto, and most important to the current crisis, Treasury Bills. A sizeable portion of SVBs investments were in risky assets, and the rest in Tbills, and that is the start of the collapse. With people losing faith in crypto and the tech industry going down, SVB had lost some money on its investments and loans. People, seeing that SVB was close with industries that were collapsing, started withdrawing their deposits. SVB began to sell its Tbills to cover its obligations to its depositors. All would be fine and SVB would take a loss, but there was one big problem. The Tbills SVB invested in were worth massively less than a few years ago since the Federal Reserve raised interest rates. The raising of interest rates caused the Tbills SVB to go down. Who would want an old bond that's paying out less than a new bond paying more? So, in short, SVB made bad investments, people started withdrawing, SVB faced a liquidity crunch, SVB began selling off assets to cover the depositors requests, SVB ran out of assets to sell, the FDIC took over operations to liquidate EVERYTHING in the company to pay off depositors, and that's where we are today.

[Anonymous No.54139286]

>>54139252
The current situation cont.
A bank failure of this size and scale has not happened in the US since 2008, and people got scared that their bank was next, so they began withdrawing from theirs as well. Silvergate, a regional bank in New York also could not meet its obligations and went under in a similar manner to SVB. Now everyone is afraid and bank stocks are tanking, even the ones who are not exposed to the same risks that SVB or even Silvergate was under.

[Anonymous No.54139305]

>>54139286
What I'm doing to profit and what you can do too.
I see banks, like Zion if you want more risk, Chase/Bank of America if you want less risk, and almost all other banks who have sustainable balance sheets as being on discount. These banks are cheap to buy right now, and even though I cannot predict the exact bottom, will be worth WAY more in one years time. Implied Volatility is also through the roof, so consider not buying options, but selling them instead. In chaos there is opportunity. Don't panic, the Federal Reserve has already taken action to prevent this from happening again. Hold strong, and if you can, buy banks. If it all goes to shit, your money will be worthless anyways and you won't have to worry, because at that point, you'll be dead!

[Anonymous No.54139457]

>>54139238
>>54139252
>>54139286
>>54139305
You say there's unironically no happening actually happening?

[Anonymous No.54139461]

>>54139238
>Rational and factual take
>Reasonable action taken & advice given
Have a (You) for your efforts

[Anonymous No.54139653]

>>54139457
Yes I say most people are afraid, and when there is fear or greed, there is opportunity.

[Anonymous No.54139684]

>>54139461
Yup.
>>54139238
>>54139252
>>54139286
>>54139305
Have a (you) good sir.

[Anonymous No.54139694]

>>54139238
>If your assets in a bank is less than $250,000, do not worry about the bank running out of money and going under, since it is insured and you are getting your money regardless.
What happens when FDIC runs out of money to insure deposits?

[Anonymous No.54139698]

>>54139457
?
Some of the biggest bank in the world is about to collapse. The fallout is going to be monumental. And they will once again print their way out of this.

[Anonymous No.54139760]

>>54139694
If the FDIC runs out of money there are two outcomes

1) the FDIC is given emergency funds from other departments in the Federal Government (likely)
2) the fed prints boat loads of cash (more likely)
2) the world ends and like I said, at that point, you'll be dead! (not likely)

[Anonymous No.54139780]

>>54139653
Market makers are Russian nesting sentiment dolls though.
So much fear after Stearns went down, and things actually did indeed, go down.
I understand buying and selling volatility at this point, but doesn't it make sense to just hold cash medium term and just buy when things are unironically down?
You also suggest buying the volatility buy look what happened with SVB, the stock is dissolved at this point.
People are buying FRC and CS thinking it'll ramp back up big time, and that may be true, but they could become a worthless valuation that receives liquidation funds later in time (oh and now inflation has actually eroded them even more)
>>54139698
In some ways this is more complex than simply up or down and OP is more or less implying to to play volatility in the smedium term.

[Anonymous No.54139788]

>>54139760
3 outcomes*

[Anonymous No.54139872]

>>54139780
>I understand buying and selling volatility at this point, but doesn't it make sense to just hold cash medium term and just buy when things are unironically down?

Like I said, it is not possible to know when things are at rock bottom, but assuming the world does not end, most banks are still on discount right now. Definitely a medium term play, over the course of 1 or 2 years.
SVB is dissolved at this point so I definitely wouldn't touch that one, but while all banks are retarded, they aren't as retarded as SVB.

[Anonymous No.54139963]

Thanks op for high quality post.
However, i disagree with the bank loans out 90%.
The bank probably loans out 900% of your money.
Yes they can loan out more money than they have from all customers combined.

[Anonymous No.54140027]

>>54139963
While that was potentially true in the past, banks are now highly regulated with the one massive exception of the FED itself. That being said, banks that loan out much much more than their deposits will crash and burn considerably faster than banks that have more restraint. Banks that have restraint have lasted for centuries in Europe, and a very long time in the US. Basically, private banks are a no go, public banks with healthy balance sheets are on discount.

[Anonymous No.54140491]

Effort post, thanks OP. Your explanation was great

[Anonymous No.54141316]

Blah blah too much words, didnt read. Whats gonna happen preferably in haiku format

[Anonymous No.54141416]

>>54139238
>If your assets in a bank is less than $250,000, do not worry about the bank running out of money and going under, since it is insured and you are getting your money regardless

Theres only one tincy wincy problem with this. The fdic only has a fraction of a percent in cash to cover all qualified deposits.

[Anonymous No.54141424]

>>54141316
S V B is dumb,
People scared of a bank run,
Don't fret fren, okay?

[Anonymous No.54141463]

>>54139252
Fuckers threatened Armageddon if they didn't get their precious "backstop."

If the FDIC doesn't charge deposit premiums equal to the "bond hole" they had, then it is truly a bailout.

[Anonymous No.54141467]

>>54141416
Other departments in the US federal government will give FDIC all the cash it needs.

[Anonymous No.54141532]

>>54141467
This is implied "100% reserve banking ratio."
This CANNOT go on for more than a year.

There is no need for a "100%" coverage of any insurance, that's simply insane.

[Anonymous No.54141595]

>>54141416
You're assuming every single bank is holding only junk bonds.

[Anonymous No.54141768]

>>54139457
>>54139653
does this also mean the fed won't pivot? since the threat is apparently contained?

[Anonymous No.54142567]

Thank you for this quality post OP.