How Big Banks Stack Up to Silicon Valley Bank - Are Big Unrealized Losses a Risk?
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- čas přidán 6. 04. 2023
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Some articles have raised concerns over big unrealized losses at America's big banks - let's talk about it.
DISCLAIMER: Richard does not hold a position in any of the companies mentioned in this video. This channel is for education purposes only and does not constitute financial advice - Richard is not responsible for investment actions taken by viewers. Please seek out a registered advisor if you require assistance (while Richard is a registered portfolio manager at WDS Investment Management, he does not provide advice through The Plain Bagel, which is not affiliated with his employer).
Happy Friday! This video is sponsored by Blinkist - get 25% off Blinkist premium (with 2 memberships for the price of 1) PLUS a 7-day free trial here: www.blinkist.com/theplainbagel
Yay! New Plain Bagel Vid!
@@JTTheDrummer Bagels are gross.
Dude I just bought my annual blinkist subscription last month T-T
Thanks for this video. I have thoughts on the BTFP allowing banks to value their long-term assets at par for a one year loan, especially MBS, but perhaps that could be a deeper dive for another time. Would love to see you cover CBDC and FedNow.
Still the best in the CZcams financial space. Real, clean information that is easily digestible.
I’m want him and Kyla Scanlon to do a collab
@@cooper1507 or Patrick Boyle
100% -- Richard's videos are very shareable in that way!
And most important, not click bait gloom and doom.
@@feketetv Already happened
As a former Prudential Banking Regulator, I approve this explainer. Great job as always Richard.
@@hannah60000 appeal to authority? Its youtube. As the former czar of all banks and president of the s&p 500 I disagree with you and recommend you remember the format we are on.
Well, this would be a false appeal to authority.
Just because you worked for the PRA (Prudential Regulation Authority - a UK banking sector regulator) does not mean your approval holds any weight.
Further to the above, we do not know what role you held or how long you worked at the PRA.
I agree that this video is clear with good information.
@@Theiliteritesbian Perhaps you need to re-read the original comment where the writer felt the needed to “approve” the Plain Bagel’s video/content based on where they claimed to work in a foreign jurisdiction. Just a thought!
@@hannah60000 1) There are prudential banking regulators all over the world. In Canada: OSFI. In the US: OCC. Prudential regulation does not mean that one only works for the PRA.
2) The only appeal to authority I’m making is to Richard. All hail the great Plain Bagel, the most trustworthy resource in CZcams Finance.
@@hannah60000 You can't understand context or common saying lmao
As a former banker - your video was excellent and rare to be found on CZcams. Another point you should have brought up is that the regulatory rules in the US are different from the global Basel rules that make comparing US/non-US banks. In the end the government will backstop all banks..
I think your second sentence is missing something in the end.
as an electrician, after the first 10 minutes, I was completely over my head. I am glad that you post these and most of the time , I get it. Seems like we don't have to worry, right?
With these 4 banks, everything is fine, even if they would experience a catastrophic event
As it should be. I have a degree in finance and I studied this stuff in college. I even did various evaluation presentations on banking and I still have to reference information because its a lot of technical data. To the last point, none of these matters now for the layman because the FDIC is backing all depositors.
Every now and then, I watch a video like this one and am reminded of just how far down the rabbit hole we really are. Imagine starting a conversation in any other context with the phrase: "You've probably seen one of these articles about the massive unrealised losses of US banks." I'd imagine it's the inverse of the time a friend tried to explain to me what a Vanderpump was.
What’s a vanderpump
What’s a vanderpump
What’s a vanderpump
I remember when LIBOR was found to be problematic and no one wanted to do anything because fixing the problem will impede underwriting profits… good times
Can you add more details about what you're referring to?
@@tomlxyz rewriting all the LIBOR based contracts to be based on something like SOPR would’ve taken months, slowing down loan origination, and origination volume was a key determinant for bonus payment from the entry level underwriter to the Chief Loan Officer
@MoneySins I agree with your breakdown but they may be asking what LIBOR is.
@@TheNaldiin Oh, it’s the rates banks charge to borrow money short term from each over, L stands for London, and as the city lost it’s “center of finance” status, the volume of interbank borrowings that made up LIBOR declined relative to global transactions; you ended up on a situation where trillions of dollars of lending were based on an interest rate derived from the lending ebbs and flow of few billion dollars. That opened it up to manipulation which is eventually what happened.
Years ago when I used to work for a major bank my team and I floated this issue to C-suite repeatedly, and even with the CEO’s blessing nothing could be done. The motivation to not interrupt the bonus train was just too entrenched.
@@moneysins im shocked, shocked that bankers who are famously the most altruistic people succumbed to greed. Never has this ever happened before
/s
As a finance major your videos are great for staying up to date in the industry
Thanks for all your insight, Richard. After watching your videos for nearly 3 years, I've finally managed to get somewhere compared to the big meme stock days 😂😊
This was a very fun video! I would love to see other videos featuring spreadsheets breaking down topical issues in the financial and business world
Yes it was simple and clear with total amount and %
@plainbagel
As a Canadian CZcamsr, can you give some insight on TD Bank and how it is the most shorted bank? And how does this affect the average investor who is not in Canada?
Glad I scrolled through the comments, I was going to ask him to do a similar video on the big Canadian banks, especially with what's been going on at TD
Excellent video!! I was just wondering about this very topic for these “too big to fail” banks. Thank you for being an amazing educator!!
Thanks for this excellent and informative video! By far the best explanation I have seen regarding the current banking situation. It would be great if you could delve further into the situation of the regional banks.
Love these more technical videos. Been a fan for ages, learned a lot from you, also really enjoy your goofier videos, but seeing analysis like this in practice is a different beast entirely and I'm so here for it
fav YT channel by far, thx for sharing your insights
Another amazing and interesting video dear sir . All these subjects are a black box for common people but you make them easier to understand.
I love this content! Please make more videos with spreadsheets, the educational value of this is insane!
I just prepared a report on the same thing for my bank. I must say you covered it really well. Top tier knowledge
Question, a lot of this is rating-based, how accurate is the rating? I'm just thinking of the '08 crisis where ratings were laughably and devastatingly deceiving. I know it's completely different rating but just wondering.
Depends on the debt itself. Auto loan securities ratings are largely a joke. Mortgage securities are pretty good post 08 mortgage changes. Basically if it's really easy to get a loan, meaning not much vetting the more useless the rating is.
The only things marked as risk free is government bonds and cash.
Why does Canada get "housing crash imminent" fear articles every other week since 2008? If they haven't been right since 2008, is it only a matter of time? What do you think of the most recent scary articles about TD? From what i see, its a bunch of shareholders on both sides of the TD/First Horizon that just don't like that deal.
This video was a hard throw back to intermediate accounting, lol. Great video!
Another great video. thank you richard for this amazing breakdown.
Easily the most informative media piece on the current banking situation ANYWHERE. Thanks for this awesome breakdown, Richard.
Quite technical one, thank you 👍
Awesome explanation Richard, backed with numbers to demonstrate. Thanks!
lovely video mr plain bagel, love the dd. This hits the heart. Curious to see FRC's CET1 Capital
Fantastic information, explained clearly. Great work, and thank you.
Great content, was really informative! Thank you!
Very helpful visuals and terms explained PB!
Excellent content, thanks Richard.
An excellent take on the issue Richard. Top notch content!
Excellent video. Glad I subscribed.
Great video, thank you.
Well said, thank you Richard!
Really solid video, Richard. Nice work.
Super informative! Thanks
Solid content
Nice explanation... clear and simple
Excellent video. I learned a lot about how banks work in 15 minutes.
Fantastic video ‼️
I remember when the pandemic started the big banks did a stress test to see if they were in sound shape, and only Wells Fargo had to change anything from this test. Doesn't mean banks are perfect, but big banks are definitely different.
in Fed stress tests, in the severe scenario, Citi is the only big bank still profitable. Yet the stock is the cheapest as ROE is lower... that should change as C should be priced as a utility = super safe boring (unlike 2008 Citi which included citi holdings they got rid off= which was the part trading crap woth hedge funds). citi is from far the best value, makes no sense it is the cheapest (less than 50pct tangible book) despite the most diversified balance sheet. Lower ROE than JPM but that is due to the nature of Citi's business: mostly shorter duration insanely sticky flows through TTS (treasury services: typically when Apple and the likes makes payments to or from subs aroubd the world). lower ROE but it is a FAR LOWER RISK BUSINESS! Due to 1) shorter duration trades and 2) the nature of counterparts. jpm trades with more hedge funds, asset managers while Citi's largest business is real flows from US and EU investment grade corporates and their subs (with credit garantee at parent level so the credit risk is Apple, LVMH, Nike etc. not the subsidiary).
The same Wells Fargo who keeps getting caught systematically stealing from their customers? Shocking.
Bigger is always safer since they become implicitly government backed - the government will always be there to bail out anybody deemed too big to fail. Plenty of downside to the consolidation though.
@@bubba99009 Wait until you learn about FDIC insurance.
@@wheatthicks the big guys have defacto unlimited depositor insurance unlike the small guys where depositors over 250k get stiffed
Great Video!
Hey Richard, great video as always. Do you have any theories as to why JPM chase is the only of the big four banks projected to lose money with a 100 bps hike? The only plausible explanation I could come up with is fewer IPOs in a high interest rate environment, and JPM oversees the most IPOs out of the big four.
Thank you Richard. I would like to see a comparison between what we are seeing today and 2008. I think ‘08 was far worse, but curious what you think.
Thank you!
Thanks for being level headed. We need more of that in this time of sensationalism.
Excelent vídeo for sleep on this vacation!
Thanks from Vancouver!!
Channel that im looking forward to for new vids ✨
Nice lighting in this video
Mr. B. Informative video as always. For a fictionalized read of bank runs (which are almost life-like) I would recommend Noble House by Clavell or The Count of Monte Cristo by Dumas. Nothing in the minds and banks of mankind is so new that it hasn't been done or thought of before. All the best. Thanks again.
wait there is a bank run story in Count of Monto Cristo?
@@Amir-jn5mo certainly you've never follow taleb..
finally a reasonable video on the topic 👍
A few comments / additions
(1) CET is really about measuring credit risk (and yes that is likely the biggest shortfall of bank regulation). The very design of that ratio encourages investment in govies given the 0% risk weighting (= no equity requirement). There is indeed no consideration for duration risk in equity capital rules at present. I think the idea was that deposit insurance would cover this, but that is a bit debatable, especially as there is no penalty for deposit conversion.
(2) svb is sort of an example of how the banking (and fund/insurance) sector is absorbing rate increases from the government debt stack.
(3) the real crux (in europe especially) that is still largely ignored are fixed rate mortgages / loans on the books where no mtm losses are taken. Especially mortgages in europe span 30+ years 9n fixed rates. Now European regulators say that these banks hold cet against these. While that is correct, the Cet is meant to cover credit losses on a PoD x LGD basis, not rate risk. Thus a combination of higher credit losses and deposit withdrawal would be quite critical
Great Video,
Do the Canadian Banks Next!
Loving the excel blackout for presentations! Thinking of using it myself if that's ok!
Of course!
At some point high rates will kill banks profits, if people just stops borrowing; pretty sure that will also bring down the economy but interesting thought experiment
The payday loan industry begs to differ
13:51 here. Banks actually make money when rates rise.🎉🎉🎉
Rates don't kill profit, they kill revenue. Less loans means money. Profits are significantly higher with higher rates unless they pull a SVB and buy tons of bonds before rates go way way up.
@@HH-le1vi funny how everybody was saying higher rates = higher revenues for banks and now it is the opposite 😂😂😂. Well here is the truth: medium to long term, higher rates = far far higher profits for banks. Short term= creates pressure in the economy and banks have a 6/12 months period to adapt. But overall higher rates = more money, not due to mortgages as banks (especially large ones) dont keep most mortgages in the books but mostly because spreads on everything OTC from rates, swaps, insurance, deposits, FX etc are a percentage of rates. When rates are at 5pct it is easy to take a 0,10pct margin from a client.. when rates are at zero 0,10 is a lot
Profits on loans will go up, though. There will be a bank, even if there are fewer bankers.
I am Impressed!! You beat Patrick Boyle with explaination of the issiue with SVB. Taking in the account that your video is late, there is a even. You both nailed it.
I really apreciate it.
Oh a little Hill Streets Blues reference at the end. Nice.
1st youtuber I have seen explain it properly ie. Gsib, hqla and basel 3. Nice!
Can you make a basics of interest rates and inflation video pleaseeeee, i want to understand how Interest rates work ukwim ? How they are determined and what affects them and everything…maybe there’s more but i can’t articulate it…would love to see you curate something around the lines of basics of economics ! xoxo
Hi! thanks for the explainer. What makes that JPM expects a loss by rising interest rates even tho that would generally be a positive thing for banks?
Great video Richard, I have yet to see anyone do this high level and in depth work on the uninsured deposit percentage/HTM issues of the major banks. Would you be able to share links to your sources as I have struggled to find some of this information on my own.
All the information came from 10K filings and Basel III disclosure documents. They can be found on each company’s investor relations website, or the Edgar database
The part that I’m wondering about now is how much of the interest hedging derivatives the banks are holding (if any) are centrally cleared. The counterparty risk of derivatives was considered to be a contributor to both the real and perceived risk of contagion in 2008. Any sort of large scale liquidity panic could be be up seeing that become relevant again. Is there any risk calculation based on that in the accounting of derivatives/hedging that were referenced?
Isn't another issue of being stuck in 2% yielding 10 year maturities the fact that savings accounts need to offer more than 2% at this point in time, paying out more than they receive for the 10 year bonds? Even if they don't have to sell the held to maturity bonds, this seems like a serious issue to me, since they are would be locking in losses for the next 10 years, unless they don't take on savings. Am I missing anything here? Is there any way to mitigate this issue for banks?
Savings accounts don’t need to offer more than 2% at this time. We know this because none of the firms above are providing that kind of return and they are not seeing massive amounts of deposits leave pursue yield. Until that is the case, they will ride out as long as they can without realizing those losses. A surprising amount of capital is stagnant in poor yield savings accounts no reason.
@@johnfoster9582 Well savings accounts for these banks are well below 2% so they are good there. CDs and things of that sort would be over but imagine they still make a good money off other products like credit cards, mortgages and loans at 5-6%+
As someone who's studying for the series 65 I love this content
So how do we square the value that regional banks provide in serving underbanked areas (e.g. regional banks were more efficient than national banks at covid relief fund distribution, per the Federal Reserve) with their relatively high susceptibility to bank runs? Does the FDIC cover this well enough that it's irrelevant in most cases and SVB is an outlier? It's pretty easy for the average person to use a "Big Bank" today through online banking; I use CITI for credit and checking and have never been to a physical branch. Are regional banks even necessary if they carry so much systemic risk?
I hope I can find a finance/investment advisor with Richard’s qualities. Richard, I know that you like to keep your Investment Advising/Analysis and CZcams profession separate (which I admire you for), but if you could recommend some Advisors in the US I would love to have a consultation meeting and see if they’re a good fit.
As someone who uses BAC I feel very uneasy after your video with their unrealized losses. I wish they did better management knowing their terrible past and their less than recommended services, apps, and phone assistance.
I like this type of videos!
Mooooooooooooore
after spending too much time on twitter im happy to an economics commenter who is not a hyperbolic doomsayer
Mr Bagel please do a video on the gold mafia from the aljazeera documentary
Dude, I love this video BUT I need a second video explaining in details what all those things mean.
I'm curious to know your take on TD bank with the recent news regarding how its the biggest bank being shorted in the US economy. I didn't know how big they are in the US.
Please do a video on Canadian banks 🇨🇦🙏🏼
Can you do one on the canadian banks?
What effect do you foresee this having on lending? I presume the banks will just hold until maturity and will end up fine. But they will be left in a more precarious position and with less capital available. Do you think this could have impacts on liquidity and the ability to raise capital in the wider economy?
US money markets are tremendously deep. There isn't ever an interest rate too high to suppress lending, however as interest rates rise, there are fewer clients who can reasonably afford the cost of those rates. The SEC will respond and increase the regulatory intensity on regional banks and other sizable deposit-taking banks.
The Evergrande style of levered growth where the ability to pay large loans meant you could get more loans is over. That said, if a business has healthy free cash flows and can demonstrate a reasonable expectation that costs will be manageable for the life of the loan, it's unlikely to have much impact on that business' access to credit at all.
A lot of businesses will straight up be denied refinancing and will enter bankruptcy but that's how the cookie crumbles. Hopefully a lot see the writing on the wall and can act in time to deleverage before refinancing and economic headwinds bring the whole operation undone.
Educated guess: Lending is probably down right now with higher interest rates, so that would reduce pressure on banks and alleviate the risk of having too little capital to lend out. If rates were to drop, those bonds would likely rise in value and provide greater available capital if lending demand were to increase.
Investors and other stakeholders of these banks just need to figure out what are the probabilities of these unrealised losses turning back into profits and the capacity of these banks to operate even if they have to book those losses.
What I don't get is how you can have govvies booked as HTM, but then they still feed HQLA? Seems contradictory if you would adamantly avoid selling the bonds at steep discounts were rates to rise? And then chuck the BTFP on top of that for HTMs, surely you can't still classify those as HQLA?
Hey, I just saw a TikTok about IUL investing/insurance. Can you please do a video about what it is and if it’s any good?
So is LCR ratio the Liquidity Coverage Ratio Ratio?
Where did you get this data from? I have a presentation to make for my class about the current banking crisis and need a source of reference. Thanks!
Most of it came from the companies' 10K filings or their Basel III disclosures, both of which can be found on the EDGAR website or pulled from each company's respective Investor Relations page
Quick question, where are these in the Financal statements?
If you compare those numbers with Canadian and European banks, are there big differences or are those comparable?
Weeks since major bank collapse: 0
Would you share the excel document?
"Yes, that UBS" 😂
Maybe you could do a video on the differences between money market fund and money market accounts (the later being FDIC insured and at a bank rather than a broker, etc...) A lot of the WSB folk seem to think everything is of the 'fund' class while returns aren't much (if any) lower for the the insured accounts. They also seem to be under the impression that you cannot easily get money out of a money market account, but you can, the money market account rules are very similar to those for savings accounts (only 6 transactions a month, but of any size via free ACH transfer is pretty liquid, though banks don't even need to enforce that limitation any longer with the schedule D changes).
What books do you recommend to start trading?
-Controlled Trading
-Trading in the Zone
You don't. Put your savings in an index fund
What do you think about the TD bank situation? Everyone is writing articles on it being the most shorted bank and even my parents are talking about it. Was just wondering if this panic is justified or just another situation of people click baiting titles for views.
how do you go about doing such research?
Just google it. Publicly traded companies are required to make their books public.
Epic to see a Canadian finance expert blow up on CZcams
“3 weeks without a bank collapse” epic 😂😂😂
You’re too honest. Made me sad😢
TD. Since you are Canadian, can you make one on TD quick?
Fresh bagels!
😂
Isn't it always just one?
Let's eat, Richard.
Saved by a comma...
I think the small/regional banks are going to be in trouble. Problems with liquidity plus exposure to CRE. I think there is a plausible bail-in risk with them.
Hank. Do you have a point with any of your LinkedIn posts?
How does Charles Schwab hold up with similar ratios?
What does this mean for small-to-medium size banks or credit unions? Should they be avoided?
Really depends if they correctly hedged. But obviously the situation favored big banks with dedicated risk management teams and near zero sector risk.
Good Video! Appreciate it, but I have a question: IF and lets say IF the majority of the people withdraw their money from their bank account, and the banks just have 10-12% available capital for this, they will go bust, won't they? Greetings :)