Quote:
Originally Posted by Tyga11
Thank you for explaining. That actually makes sense. That article was poorly written.
I really think this is the first shoe to drop...I wonder which bank is next?
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1) Yes, it was poorly written; it also assumes a degree of familiarity with the banking business that most of us do not possess.
2) That's always possible in an environment of steadily increasing interest rates. However, SVB, and I don't know how many of them are out there (it can't be many), while a conventional bank in most respects, had a very distinct customer base and lending environment.
This time around, the best argument against a wider banking crisis is that the employment market continues to be strong and Americans continue to have over $1 trillion in so-called excess savings left over from the pandemic years. Most Americans will continue making their loan payments on time and without undue difficulty.
While that strength in the economy will lead the Fed to continue raising rates, I suspect the end is in sight on that front. Unemployment will have to rise, but it's so low now that even a modest but sustainable rise will lead the Fed to end raising its policy rate.
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That's a lot of speculation and, as always, just my 2¢ on a very complicated matter.
Quote:
Originally Posted by Tyga11
I was under the impression banks had to be able to cover all of the money invested...if that's not the case, I really have no idea how that's legal.
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The Fed has a reserve requirement for deposit-taking institutions. That requires those institutions to hold aside a Fed-mandated percentage of deposits so as to be able to defend the institution against all sorts of eventualities, including that which SVB has just experienced. This reserve is held in the bank's own vaults and/or in an account at the Fed.
What is the Fed's reserve requirement, you might ask. It's zero. Yes, the Fed has no reserve requirement at the present time. In order to deal with the extraordinary challenges presented by the pandemic, the Fed, in its wisdom, chose to permit banks, et al. to, at their discretion, lend and otherwise invest up to 100% of their deposits. Almost three years later now, the Fed has not changed its position. My expectation is that it will do so sometime after it's done raising interest rates.
While it's unlikely any institution has left itself with no reserve with which to honor withdrawal requests from its depositors, it has given them a remarkable degree of freedom in how they manage the last 10% or so of their deposits (10% being the Fed reserve requirement in force until March 15, 2020).
This page offers what I think is a useful explanation of the Fed's reserve requirement and its effects:
https://www.thebalancemoney.com/rese...rement-3305883.
Quote:
Originally Posted by dangerus_car
Paywall
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I don't think so. Last I checked, the New York Times allows you 10 free articles before it cuts you off. Blow away cookies, and you've got 10 more free articles available to you.
But maybe that's changed - I got tired of blowing away cookies and got a subscription for a small fraction of what my Wall Street Journal costs me. They do say you get what you pay for, though, don't they?
