Sign of things to come? SVB fails

[Jeepnokc]

Curiosity question. I would assume most businesses also have line of credits and/or other loans with their primary bank. Thus...If I have a 50k loan or LOC and have 300 k in the bank when it fails.....does the loss of the >250 k deposit balance that is lost negate the outstanding loan or LO (This is assuming not bailed out and loan not sold to third party before.)

[Teo9969]

Curiosity question. I would assume most businesses also have line of credits and/or other loans with their primary bank. Thus...If I have a 50k loan or LOC and have 300 k in the bank when it fails.....does the loss of the >250 k deposit balance that is lost negate the outstanding loan or LO (This is assuming not bailed out and loan not sold to third party before.)

I have no actual idea, but I would assume assets and liabilities are handled separately unless there was some specific link between the accounts beyond just that it shares a common owner.

[Just the facts]

I would certainly defer to an expert but I would say the answer is No. Your loan debt is an asset to the bank which has value and can be sold. Even if it was sold for 1/2 price that is still far better than losing 100%.

[okatty]

This is from FDIC’s website:

In the case of a delinquent loan, the FDIC will “set off” the loan against the borrower’s deposits (if any) before paying deposit insurance. In the case of a non-delinquent loan, the depositor might elect to “set off” the loan against his/her deposits in order to receive full value for any uninsured funds (i.e., funds in excess of the $250,000 insurance limit). In either case, no “offset” is possible unless the obligations are “mutual” – meaning that the borrower and the depositor must be the same person or legal entity acting in the same legal capacity.

[Just the facts]

Interesting - so the answer is actually Yes.

[Teo9969]

Interesting - so the answer is actually Yes.

Could be...looks like they could elect that option or not, which, depending on how insolvent the situation is, could make sense.

[Just the facts]

Inflation is up 6% in Feb. Keep in mind, that is 6% on top of the 8% from this time last year. We are now getting inflation on top of inflation.

https://www.cnbc.com/2023/03/14/cpi-...ary-2023-.html

[OKCRealtor]

In other news Moody's cut the outlook of US banking system to negative. Hard to disagree after the last weeks events. Fed really is in a catch 22 now on rates. It's as if we can't just jack up the rates and solve the 8 trillion dollars pumped into the economy. This may be the new economic reality for years to come.

[Teo9969]

It's not just rates. Boomers retirement is killing the economy.

[Just the facts]

I still maintain the Fed has no choice but to raise rates, even if it means crashing the economy into a mountain.

[OKCRealtor]

It's going to be real interesting to see what they do next week. I feel like we'll probably get a quarter point and then see what happens between now and May. That shouldn't have a dramatic effect on the markets one way or the other. I think people are going to need some assurances though that things are stable if they want to stay the course. They contained the systemic risk for now but it's imperative the public does not lose confidence in the FED and banking system or there's no way they can contain a larger run. I for one will pull out large sums without much thought, I did when Covid initially hit and things were very uncertain and wouldn't hesitate again. Confidence in our government & Fed is very low right now.

[Just the facts]

Not saying they won't do it, but a .25 increase would be the worst possible decision. Well, worst possible will be no increase but you get the point. They should have been going full 1% increases by now. They started late and they aren't going to catch up by going slower.

[OKCRealtor]

Agreed but a half point hike is totally out of the question now, we might get nothing or we might get a quarter. There's no doubt they should have started with larger increases - a .25 last March to kick things off was a joke. The markets can't handle any larger shocks now though, IMO. They also don't really know what they're doing and have been way behind this thing for nearly 2 years now.

[jn1780]

Fed will have to pick its poison:Let banks fail uncontrollably, big rate increases, or massive inflation.

There are no free lunches. We will pay for it in some form or another.

[Just the facts]

Now would be a good time for someone to create Mattress Bank. An online bank that only takes deposits, makes no loans, offers no interest rates on savings, and doesn't invest the deposits in anything. Doesn't sound exciting but chance of default is zero and depositors money will be there when they need it.

[BoulderSooner]

Now would be a good time for someone to create Mattress Bank. An online bank that only takes deposits, makes no loans, offers no interest rates on savings, and doesn't invest the deposits in anything. Doesn't sound exciting but chance of default is zero and depositors money will be there when they need it.

and how does this bank make money??

[Just the facts]

and how does this bank make money??

Monthly fees for deposits. Whole operation could be run by just a few people.

[jackirons]

I think I'll stick with an online savings account Getting 3.85% in Citi. I've seen some banks offering over 4% in online savings accounts.

[Edmond Hausfrau]

I think I'll stick with an online savings account Getting 3.85% in Citi. I've seen some banks offering over 4% in online savings accounts.

I'll stick with my numbered Swiss bank account.
*checks close of markets today* Damm you Credit Suisse!!

[Rover]

Now would be a good time for someone to create Mattress Bank. An online bank that only takes deposits, makes no loans, offers no interest rates on savings, and doesn't invest the deposits in anything. Doesn't sound exciting but chance of default is zero and depositors money will be there when they need it.

Guessing you don’t know anything about banking. Lol.

[Teo9969]

Ironically here, SVB failed for being *too* conservative.

[mugofbeer]

Ironically here, SVB failed for being *too* conservative.

Noooooot exactly. Their excess cash was put inlonger term bonds at a time interest rates were basically 0%. Rising interest rates results in lower bond prices - investment losses. Bad investment decisions regulators should have caught early-on. The bank's lack of risk control actually doing risk control contributed.

It will be interesting to see the fallout.

[Teo9969]

Noooooot exactly. Their excess cash was put inlonger term bonds at a time interest rates were basically 0%. Rising interest rates results in lower bond prices - investment losses. Bad investment decisions regulators should have caught early-on. The bank's lack of risk control actually doing risk control contributed.

It will be interesting to see the fallout.

That's pretty conservative investing. Buying bonds so that the money is "safe" is substantially more conservative than putting money in equities, mortgages, REITs, FOREX, real estate, metals, etc etc. Not conservative I guess from the liquidity perspective, but they weren't assuming they'd need to be liquid.

It just goes to show that conservative investing can be a poor choice as well.

[mugofbeer]

Theoretically completely safe but their capital requirements and limitations on types of investments may have dictated "cash or cash equivalents." US treasuries are basically cash-safe but if interest rates have moved against you, you just don't get as much cash if you're fire-sale forced to sell them.

[OKCRealtor]

Bonds aren't necessarily safe, they got clobbered last year and same happened in 2018 although not to the same degree. I lost money both times in "safe" investments. Edward Jones requires a certain percentage in fixed income, can't be all in equities in the program I'm in. The typical 80/20 or 60/40 portfolio with bonds is a crock, IMO. I am to the point I'm about to pull everything from Edward Jones and go with a more boutique approach. Fed is creating these boom & bust cycles within the markets with one extreme to the other on monetary policy and traditional investing probably needs to be reconsidered. Quite frankly real estate has held up by far the best of the asset classes during this current bear market. If you've got spare change throw it in a rental, value is tangible and can't disappear overnight. I