I know they are gonna bust me on the sex toys.
No banks are safe (bail ins, FDIC limits, systemic risks)
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Deposit flight continues (9.5% last week).
www.cnbc.com
PacWest shares tumble 20% after regional bank says deposits fell 9.5% last week
PacWest's shares have now fallen more than 50% this month and nearly 80% for the year.
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From the link:
If you have been following the banking crisis, you have likely read at least a dozen times that on March 12 federal banking regulators, with the consent of the U.S. Treasury Secretary Janet Yellen, invoked the “systemic risk exception” in order to protect both insured and uninsured depositors at the two banks that failed in March – Silicon Valley Bank and Signature Bank.
That’s why there were gasps of shock on Saturday evening at around 5:30 p.m. when the Wall Street Journal (paywall) published the stunning news that depositors in the Cayman Islands’ branch of Silicon Valley Bank had their deposits seized by the Federal Deposit Insurance Corporation (FDIC), which they are unlikely to ever see again.
As Wall Street On Parade has previously reported, under statute, the FDIC cannot insure deposits held on foreign soil by U.S. banks. What it can do, however, is to sell those deposits to the bank that acquires the collapsed bank. In the case of Silicon Valley Bank, the acquiring bank was First Citizens Bancshares which, apparently, declined to purchase the foreign deposits in the secrecy jurisdiction of the Cayman Islands, a jurisdiction most notable recently for housing Sam Bankman-Fried’s crypto house of frauds.
If you have been following the banking crisis, you have likely read at least a dozen times that on March 12 federal banking regulators, with the consent of the U.S. Treasury Secretary Janet Yellen, invoked the “systemic risk exception” in order to protect both insured and uninsured depositors at the two banks that failed in March – Silicon Valley Bank and Signature Bank.
That’s why there were gasps of shock on Saturday evening at around 5:30 p.m. when the Wall Street Journal (paywall) published the stunning news that depositors in the Cayman Islands’ branch of Silicon Valley Bank had their deposits seized by the Federal Deposit Insurance Corporation (FDIC), which they are unlikely to ever see again.
As Wall Street On Parade has previously reported, under statute, the FDIC cannot insure deposits held on foreign soil by U.S. banks. What it can do, however, is to sell those deposits to the bank that acquires the collapsed bank. In the case of Silicon Valley Bank, the acquiring bank was First Citizens Bancshares which, apparently, declined to purchase the foreign deposits in the secrecy jurisdiction of the Cayman Islands, a jurisdiction most notable recently for housing Sam Bankman-Fried’s crypto house of frauds.
FDIC Seizure of Foreign Deposits at SVB Opens Pandora’s Box at JPMorgan Chase and Citi – Which Hold a Combined $1 Trillion in Foreign Deposits with No FDIC Insurance
By Pam Martens and Russ Martens: May 15, 2023 ~ If you have been following the banking crisis, you have likely read at least a dozen times that on March
wallstreetonparade.com
I've never seen truer words ever typed on the BBBY boards.
"No matter how this plays out, JPM needs to go straight to hell."
"No matter how this plays out, JPM needs to go straight to hell."
US regional bank stocks fall after Yellen says more bank mergers necessary
Shares of U.S. regional lenders fell on Friday after CNN reported that U.S. Treasury Secretary Janet Yellen told bank chief executives that more mergers may be necessary following a series of bank failures.
Regional bank problems forcing the Fed to pause rate hikes. Regional banks are still under stress.
PacWest found a patsy to take their CRE loans (I'm assuming they are commercial and not residential, but I could be wrong) and it's boosted regional banking stocks. lulz. What happens when Kennedy Wilson realizes the loans are high risk garbage and voids the deal?
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Apple customers struggle to get money out of Goldman Sachs-operated savings accounts
Apple launched a high-yield savings account with an APY of 4.15% in partnership with Goldman Sachs in April, but one month later some account holders are struggling to move their money out of the account.Georgia resident Nathan Thacker told The Wall Street Journal that he has been trying to transfer $1,700 form his Apple account to JPMorgan Chase since May 15.
Read the rest here:
Apple customers struggle to get money out of Goldman Sachs-operated savings accounts
Apple Savings accoun holders have reportedly been having issues transferring funds out the account, with some customers’ money completely disappearing for up to seven business days.
nypost.com
Sal's take:
PANIC At HUGE Bank As Customers Can't Access Funds!
Jun 6, 202313:55
Apple customers struggle to get money out of Goldman Sachs-operated savings accounts
Apple launched a high-yield savings account with an APY of 4.15% in partnership with Goldman Sachs in April, but one month later some account holders are struggling to move their money out of the account.
Georgia resident Nathan Thacker told The Wall Street Journal that he has been trying to transfer $1,700 form his Apple account to JPMorgan Chase since May 15.
Read the rest here:
Apple customers struggle to get money out of Goldman Sachs-operated savings accounts
Apple Savings accoun holders have reportedly been having issues transferring funds out the account, with some customers’ money completely disappearing for up to seven business days.
Sal's take:
PANIC At HUGE Bank As Customers Can't Access Funds!
Jun 6, 2023
13:55
Serves you right for giving Apple even more of your money. But still, time for this.
Kennedy-Wilson (NYSE:KW), a real estate investment firm, and certain affiliates of Fairfax Financial Holdings (OTCPK:FRFHF) have closed on the purchase of an initial tranche of loans as part of a $5.7B loan portfolio acquisition from Pacific Western Bank (NASDAQ
The first part of the transaction, totaling $3.25B in total commitments and $1.8B in current principal balance, was acquired for $1.6B. An additional 12 loans, totaling $800M in commitments, are expected to close on a rolling basis by no later than July 31, 2023.
...
PacWest Sells Another $1.2B in Loans
Cain International is purchasing PacWest’s New York construction debt portfolio, which includes 10 projects and $500 million.
therealdeal.com
Crisis averted?
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Senate panel to consider bill targeting executive pay at failed banks
WASHINGTON, June 16 (Reuters) - The U.S. Senate Banking Committee will consider a bill Wednesday that would allow regulators to claw back compensation for executives at failed banks.The measure, backed by committee Chairman Sherrod Brown and Senator Tim Scott, the panel's top Republican, would give regulators the ability to reclaim two years' worth of compensation paid out to executives after a bank failure, as well as strengthen their ability to assess civil penalties on executives who fail to adequately manage their banks.
More:
Senate panel to consider bill targeting executive pay at failed banks
The U.S. Senate Banking Committee will consider a bill Wednesday that would allow regulators to claw back compensation for executives at failed banks.
www.reuters.com
I guess it's not enough that the banksters are Woked up.
The hardcore old-school Left, of which Sherrod Brown is one...still thinks of anyone who has money from any source other than a Treasury check, the Enemy.
Good. Let them turn on their own...it always happens in tyrannical movements. I have no love for banksters.
The hardcore old-school Left, of which Sherrod Brown is one...still thinks of anyone who has money from any source other than a Treasury check, the Enemy.
Good. Let them turn on their own...it always happens in tyrannical movements. I have no love for banksters.
- Messages
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WASHINGTON, June 22 (Reuters) - U.S. banks are pushing to soften a major regulatory proposal to hike bank capital requirements, worried it could prove too onerous, especially for lenders still reeling from the March banking crisis, according to six people briefed on the matter.
Bank regulators led by the U.S. Federal Reserve are finalizing the proposal which would implement international capital standards agreed by the Basel Committee on Banking Supervision in the aftermath of the 2007-2009 financial crisis.
www.reuters.com
Bank regulators led by the U.S. Federal Reserve are finalizing the proposal which would implement international capital standards agreed by the Basel Committee on Banking Supervision in the aftermath of the 2007-2009 financial crisis.
US banks push back as regulators prepare international capital hikes
U.S. banks are pushing to soften a major regulatory proposal to hike bank capital requirements, worried it could prove too onerous, especially for lenders still reeling from the March banking crisis, according to six people briefed on the matter.
www.reuters.com
I've never seen truer words ever typed on the BBBY boards.
"No matter how this plays out, JPM needs to go straight to hell."
Speak of the devil.... oops we just deleted millions of emails.
BIS says central banks need to raise rates to tame inflation even if it means financial stress and bank failures:
The American banking landscape is on the cusp of a seismic shift. Expect more pain to come
What is coming will likely be the most significant shift in the American banking landscape since the 2008 financial crisis. Bank earnings kick off Friday.
Bank earnings due up shortly.
Shirley, you jest.
That was a different age; a different mission. Banks, back then, were to accept deposits, long; and lend, shorter. Attractive (relatively) interest rates on passbook savings deposits; lend out for real estate and residences; rake off the arbitrage.
And have toaster campaigns. Or maybe a desk lamp - I have one! Southwestern Savings & Loan (the southwest of Cleveland, that is) was giving away free desk lamps with new accounts. It just happened that there was some Christmas money coming from rich Uncle Hank (my mother's uncle; she was his favorite...his own daughter was a single alcoholic, so there was some of that I-wish-you-were-mine action going on there)...so us three kids got our own bank accounts, and three desk lamps.
One survived; and it's lighting up my computer desk right now.
But I digress...mind running off-topic is, I guess, either autism or the writer's gift. Don't know which. Banks today do NONE of that - today, a bank's private depositors are PESTS. A modern bank's job is to LAUNDER FEDERAL-RESERVE MONEY. Take the newly-created fiat as overnight ZIRP loans, plow them into house securities accounts; sell them a few days later, for higher money. Which is a given, because the handful of large banks are all doing this. They're making their own market; driving the price higher; churning to get transaction fees, buying and selling...AND, laundering the money-printing!
There's no room for you in that business model.
- Messages
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(*snork*) (*snigger*) (*snicker*)
Dow slides 400 points as Wall Street sell-off intensifies: Live updates
Stocks retreated Tuesday as a decline in bank shares dampened investor sentiment.
Banks hit with $549 million in fines for use of Signal, WhatsApp to evade regulators’ reach
Wells Fargo, a relatively small player on Wall Street, racked up the most fines Tuesday, with a total of $200 million in penalties.
From last week:
More:
www.cnbc.com
More:
Fitch warns it may be forced to downgrade dozens of banks, including JPMorgan Chase
Fitch Ratings warned that U.S. banks have inched closer to sweeping rating downgrades on dozens of lenders, including JPMorgan Chase and Bank of America.
- Messages
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This one is a bit different. It's a rant about banks in general. Thought it worth a listen.
14:01
Banks are being more aggressive against some businesses and individuals. Coin shops as well. This is the second one recently that got their account shut down. Check out this video:
• My Coin Shop Bank Accounts Were Close...
MAJOR ALERT! Banks Are CLOSING Coin Shop Accounts! This Is HUGE!
Aug 28, 202314:01
Banks are being more aggressive against some businesses and individuals. Coin shops as well. This is the second one recently that got their account shut down. Check out this video:
• My Coin Shop Bank Accounts Were Close...
Another FDIC-Insured Bank Is Teetering, Closing at 27-1/2 Cents Yesterday, Down 96 Percent in a Year
By Pam Martens and Russ Martens: September 14, 2023 ~ There may be a lesson here: don’t put the word “Republic” in the name of your bank; don’t
wallstreetonparade.com
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^^^^^^^
From the horse's mouth. Take it fwiw and dyodd.
Have an interest in this. Will be interesting to see how things play out.
From the horse's mouth. Take it fwiw and dyodd.
Have an interest in this. Will be interesting to see how things play out.
He's trying to avoid getting SVB'd.
I don't think he can help it. If they want you gone...you're gone.
I don't think he can help it. If they want you gone...you're gone.
- Messages
- 11,514
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- 2,522
- Points
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- Messages
- 9,950
- Reaction score
- 7,781
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- 238
This one is a bit different. It's a rant about banks in general. Thought it worth a listen.
MAJOR ALERT! Banks Are CLOSING Coin Shop Accounts! This Is HUGE!
Aug 28, 2023
14:01
Banks are being more aggressive against some businesses and individuals. Coin shops as well. This is the second one recently that got their account shut down. Check out this video:
UPDATE
- Messages
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- Reaction score
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- Points
- 238
- Messages
- 11,514
- Reaction score
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- Points
- 238
- Shares of Britain’s Metro Bank suspended trading Thursday after tanking more than 29%.
- It comes amid reports that it was trying to raise £600 million ($727 million) in debt and equity.
- The London Stock Exchange, which lists the stock, confirmed to CNBC that the brief suspensions were triggered by its circuit breaker mechanisms.
UK's Metro Bank shares suspended multiple times after plunging more than 25%
Shares of Britain's Metro Bank suspended trading Thursday after tanking more than 29% amid reports that it was trying to raise £600 million ($727 million) in debt and equity.
- Messages
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For anyone interested. Link to report at my link.
www.bis.org
Report on the 2023 banking turmoil
The banking turmoil that started in March 2023 is the most significant system-wide banking stress since the Great Financial Crisis (GFC) in terms of scale and scope. ..
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US Fed's top bank cop defends effort to hike bank capital
The U.S. Federal Reserve's top regulatory official defended a sweeping proposal to overhaul bank capital rules before the country's largest bank lobby on Monday, arguing the benefits of a bigger cushion outweigh any additional costs banks might face.
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They supposedly did that as a result of 2008 Crash, right? Right?US Fed's top bank cop defends effort to hike bank capital
The U.S. Federal Reserve's top regulatory official defended a sweeping proposal to overhaul bank capital rules before the country's largest bank lobby on Monday, arguing the benefits of a bigger cushion outweigh any additional costs banks might face.www.reuters.com
- Messages
- 800
- Reaction score
- 1,137
- Points
- 218
'Big Short' Michael Burry Sounds the Alarm on U.S. Banks
The legendary investor published a chart which quantifies the uninsured clients and unrealized capital losses for major regional banks.https://www.thestreet.com/banking/big-short-michael-burry-sounds-the-alarm-on-two-us-banks
FYI - that Michael Burry alarm is from March. Doesn't mean it's invalid, but the issue doesn't appear to be an imminent threat type of thing. The banking system definitely needs to work it out though. Good thing they are currently trying to lobby for more lax capital rules. 
Key takeaways from the IMF-World Bank meetings
30%? That seems like a low number if you consider each bank in a vacuum. But they are connected like dominoes stacked on a table. Cascading failures - contagion - looks to be a very real risk (again).
- Messages
- 800
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The latest from Simon Black...
Silicon Valley Bank part II starts tomorrow at 6:45am
October 16, 2023
It’s been seven months now since Silicon Valley Bank went bust. And so much has happened in the world since then that SVB’s collapse almost feels like ancient history.
But something is going to happen tomorrow-- at precisely 6:45am Eastern time-- that could rekindle anxiety in the banking system once again.
And it’s not hard to understand why; the problems in the banking system… the problems that brought down Silicon Valley Bank and others… didn’t go away. In fact they got worse. And now several other large US banks are getting dangerously close to the edge.
This is not hyperbole. I’ll explain:
Remember that Silicon Valley Bank failed because they suffered sudden, massive investment losses… losses that were so large that the bank’s entire capital was wiped out.
And yet Silicon Valley Bank’s hyper-destructive investment wasn’t toxic subprime loans, or some exotic derivative. SVB went bankrupt because they loaded up on US government bonds.
US government bonds are supposed to be THE safest asset class in the world. Yet even supposedly ‘safe’ assets can lose money. And government bonds have suffered enormous losses over the past two years.
The reason is pretty simple: interest rates. Back in the summer of 2020, interest rates were at historic lows. And if you don’t know anything else about bonds, just understand that whenever interest rates rise, bond prices fall.
Banks like SVB bought tons of US government bonds back in 2020 and 2021 when interest rates were at historic lows. So, put another way, banks paid record high prices to buy government bonds.
But starting in 2022, the Federal Reserve started to raise interest rates. And with each successive Fed interest rate hike, bonds became worth less and less.
Silicon Valley Bank’s bonds eventually lost so much money that the bank was wiped out.
The $500 billion dollar problem in the US banking system, of course, is that Silicon Valley Bank wasn’t alone. In fact MOST banks bought government bonds… which means that MOST banks have racked up enormous losses over the past few years.
And the bank that has racked up the worst losses of all… is Bank of America, which reports its quarterly earnings tomorrow morning at 6:45am.
Now, Bank of America has done its best to hide its losses. And they use a completely legal accounting scam to do it.
In short, banks have a quirky option in the way that they classify their bonds; one way is to classify their bonds as what’s called “Available for Sale”, or AFS.
This classification means that if the bank ever needs to come up with some quick cash, they can sell AFS bonds at any time. AFS bonds are literally available for sale, as the name suggests.
The other classification is called “Hold to Maturity”, or HTM. Bonds designed as HTM cannot be sold. Instead, the bank must hold its HTM bonds for their full duration.
So if a bank buys, say, a 30-year Treasury bond and classifies it as HTM, the bank has to hold that bond for the full thirty years. They cannot sell it.
While such accounting vagaries might not be especially thrilling, I assure you that the distinction between HTM and AFS is critical in understanding the scam that’s taking place.
Banks traditionally used to classify the vast majority of their bonds as AFS. And this made sense; AFS is the most flexible classification. AFS gives banks the option to either sell the bonds, or hold them. HTM bonds, on the other hand, cannot be sold and MUST be held to maturity.
And that’s why, back in 2015 for example, Bank of America classified a whopping 83% of its bonds as AFS, and only 17% as HTM. And that ratio was pretty typical of most big banks.
But the nuance of AFS is that, if the bonds lose value, banks have to report those losses… and the bond losses negatively impact their earnings.
In the past, this never really happened. Bond prices were exceptionally stable. And aside from minor fluctuations, banks never really had to report big losses on their bond portfolios. Until now.
Government bonds have lost 23% of their value since 2020 due to the Fed’s interest rate hikes, creating hundreds of billions of dollars of losses for big banks.
A 23% loss for US government bonds is unprecedented, and it’s never happened in modern financial history.
If banks were holding most of their bonds as AFS, like they traditionally used to do, they would have to report these huge losses. And that would be devastating for their earnings, for their stock prices, and for their executive bonuses.
So instead of reporting those losses, the banks have magically reclassified their bonds from AFS to HTM.
Unlike the AFS classification, banks don’t have to record any losses on their HTM bonds. So reclassifying bonds from AFS to HTM is like pretending that hundreds of billions in losses don’t exist.
Bank of America, for example, has at least $100 billion in bond losses, potentially much more. But because they’ve reclassified most of their bonds as HTM, those losses haven’t adversely affected their capital, or their earnings.
Remember when I said that Bank of America used to classify a standard 17% of its bonds as HTM? Well, today, 83% of their bonds are now HTM. It’s a HUGE difference.
And the ONLY reason why they would do this is to avoid recording $100+ billion in losses.
Bear in mind that Bank of America only has around $200 billion in total capital. So if they were honest in their accounting, they’d have to write down roughly HALF of their capital. Maybe more.
This is becoming eerily close to another Silicon Valley Bank problem.
Granted, the market happily ignored Silicon Valley Bank’s financial woes until it was too late. And I’m guessing that, tomorrow morning, the market might also choose to ignore Bank of America’s growing bond losses. For now.
But this problem cannot be ignored forever. And it’s a pretty clear example of what’s known in finance as a “Gray Rhino”.
You’re probably familiar with the famous “Black Swan” metaphor, which refers to a highly improbable, difficult-to-predict event that has a major, negative impact.
The COVID-19 pandemic was an obvious Black Swan event.
The metaphorical opposite of a Black Swan is known as a Gray Rhino-- an event that is fairly likely and should be easy to predict.
Gray Rhinos don’t sneak up on you; visible evidence builds until the risk becomes completely obvious.
And yet, Gray Rhinos are almost always ignored… typically because people have confidence in flawed systems, illogical axioms, or historical legends.
The world is full of Gray Rhinos that very intelligent people choose to ignore. America’s national debt crisis is a Gray Rhino. Social Security’s looming insolvency is a Gray Rhino. The US dollar’s loss of reserve status is a Gray Rhino.
These are all obvious risks that hardly anyone acknowledges. Instead, people have rejected simple arithmetic and clung to an irrational belief system based on the historical legend of America.
Major banks in the US have suffered more than $500 billion in bond losses, wiping out a substantial portion of their capital. Despite some banks’ attempts to cleverly hide those losses with accounting tricks, the problem is obvious.
By the way, this same problem has affected the FDIC-- whose Deposit Insurance Fund is invested primarily in US government bonds… and has hence also suffered massive losses.
It’s also affected the Federal Reserve, which now has roughly $1 TRILLION in losses from its bond portfolio.
(Ironically, many smaller banks are now MUCH safer; smaller banks are typically much more responsible with their depositors’ savings, and so they haven’t suffered the same types of losses.)
This is a Gray Rhino. But unlike other Gray Rhinos like the national debt, the US dollar, and Social Security which may still be a few years from erupting, this banking Gray Rhino might rear its head much, much sooner.
To your freedom,
Simon Black, Founder
Sovereign Man
Silicon Valley Bank part II starts tomorrow at 6:45am
October 16, 2023
It’s been seven months now since Silicon Valley Bank went bust. And so much has happened in the world since then that SVB’s collapse almost feels like ancient history.
But something is going to happen tomorrow-- at precisely 6:45am Eastern time-- that could rekindle anxiety in the banking system once again.
And it’s not hard to understand why; the problems in the banking system… the problems that brought down Silicon Valley Bank and others… didn’t go away. In fact they got worse. And now several other large US banks are getting dangerously close to the edge.
This is not hyperbole. I’ll explain:
Remember that Silicon Valley Bank failed because they suffered sudden, massive investment losses… losses that were so large that the bank’s entire capital was wiped out.
And yet Silicon Valley Bank’s hyper-destructive investment wasn’t toxic subprime loans, or some exotic derivative. SVB went bankrupt because they loaded up on US government bonds.
US government bonds are supposed to be THE safest asset class in the world. Yet even supposedly ‘safe’ assets can lose money. And government bonds have suffered enormous losses over the past two years.
The reason is pretty simple: interest rates. Back in the summer of 2020, interest rates were at historic lows. And if you don’t know anything else about bonds, just understand that whenever interest rates rise, bond prices fall.
Banks like SVB bought tons of US government bonds back in 2020 and 2021 when interest rates were at historic lows. So, put another way, banks paid record high prices to buy government bonds.
But starting in 2022, the Federal Reserve started to raise interest rates. And with each successive Fed interest rate hike, bonds became worth less and less.
Silicon Valley Bank’s bonds eventually lost so much money that the bank was wiped out.
The $500 billion dollar problem in the US banking system, of course, is that Silicon Valley Bank wasn’t alone. In fact MOST banks bought government bonds… which means that MOST banks have racked up enormous losses over the past few years.
And the bank that has racked up the worst losses of all… is Bank of America, which reports its quarterly earnings tomorrow morning at 6:45am.
Now, Bank of America has done its best to hide its losses. And they use a completely legal accounting scam to do it.
In short, banks have a quirky option in the way that they classify their bonds; one way is to classify their bonds as what’s called “Available for Sale”, or AFS.
This classification means that if the bank ever needs to come up with some quick cash, they can sell AFS bonds at any time. AFS bonds are literally available for sale, as the name suggests.
The other classification is called “Hold to Maturity”, or HTM. Bonds designed as HTM cannot be sold. Instead, the bank must hold its HTM bonds for their full duration.
So if a bank buys, say, a 30-year Treasury bond and classifies it as HTM, the bank has to hold that bond for the full thirty years. They cannot sell it.
While such accounting vagaries might not be especially thrilling, I assure you that the distinction between HTM and AFS is critical in understanding the scam that’s taking place.
Banks traditionally used to classify the vast majority of their bonds as AFS. And this made sense; AFS is the most flexible classification. AFS gives banks the option to either sell the bonds, or hold them. HTM bonds, on the other hand, cannot be sold and MUST be held to maturity.
And that’s why, back in 2015 for example, Bank of America classified a whopping 83% of its bonds as AFS, and only 17% as HTM. And that ratio was pretty typical of most big banks.
But the nuance of AFS is that, if the bonds lose value, banks have to report those losses… and the bond losses negatively impact their earnings.
In the past, this never really happened. Bond prices were exceptionally stable. And aside from minor fluctuations, banks never really had to report big losses on their bond portfolios. Until now.
Government bonds have lost 23% of their value since 2020 due to the Fed’s interest rate hikes, creating hundreds of billions of dollars of losses for big banks.
A 23% loss for US government bonds is unprecedented, and it’s never happened in modern financial history.
If banks were holding most of their bonds as AFS, like they traditionally used to do, they would have to report these huge losses. And that would be devastating for their earnings, for their stock prices, and for their executive bonuses.
So instead of reporting those losses, the banks have magically reclassified their bonds from AFS to HTM.
Unlike the AFS classification, banks don’t have to record any losses on their HTM bonds. So reclassifying bonds from AFS to HTM is like pretending that hundreds of billions in losses don’t exist.
Bank of America, for example, has at least $100 billion in bond losses, potentially much more. But because they’ve reclassified most of their bonds as HTM, those losses haven’t adversely affected their capital, or their earnings.
Remember when I said that Bank of America used to classify a standard 17% of its bonds as HTM? Well, today, 83% of their bonds are now HTM. It’s a HUGE difference.
And the ONLY reason why they would do this is to avoid recording $100+ billion in losses.
Bear in mind that Bank of America only has around $200 billion in total capital. So if they were honest in their accounting, they’d have to write down roughly HALF of their capital. Maybe more.
This is becoming eerily close to another Silicon Valley Bank problem.
Granted, the market happily ignored Silicon Valley Bank’s financial woes until it was too late. And I’m guessing that, tomorrow morning, the market might also choose to ignore Bank of America’s growing bond losses. For now.
But this problem cannot be ignored forever. And it’s a pretty clear example of what’s known in finance as a “Gray Rhino”.
You’re probably familiar with the famous “Black Swan” metaphor, which refers to a highly improbable, difficult-to-predict event that has a major, negative impact.
The COVID-19 pandemic was an obvious Black Swan event.
The metaphorical opposite of a Black Swan is known as a Gray Rhino-- an event that is fairly likely and should be easy to predict.
Gray Rhinos don’t sneak up on you; visible evidence builds until the risk becomes completely obvious.
And yet, Gray Rhinos are almost always ignored… typically because people have confidence in flawed systems, illogical axioms, or historical legends.
The world is full of Gray Rhinos that very intelligent people choose to ignore. America’s national debt crisis is a Gray Rhino. Social Security’s looming insolvency is a Gray Rhino. The US dollar’s loss of reserve status is a Gray Rhino.
These are all obvious risks that hardly anyone acknowledges. Instead, people have rejected simple arithmetic and clung to an irrational belief system based on the historical legend of America.
Major banks in the US have suffered more than $500 billion in bond losses, wiping out a substantial portion of their capital. Despite some banks’ attempts to cleverly hide those losses with accounting tricks, the problem is obvious.
By the way, this same problem has affected the FDIC-- whose Deposit Insurance Fund is invested primarily in US government bonds… and has hence also suffered massive losses.
It’s also affected the Federal Reserve, which now has roughly $1 TRILLION in losses from its bond portfolio.
(Ironically, many smaller banks are now MUCH safer; smaller banks are typically much more responsible with their depositors’ savings, and so they haven’t suffered the same types of losses.)
This is a Gray Rhino. But unlike other Gray Rhinos like the national debt, the US dollar, and Social Security which may still be a few years from erupting, this banking Gray Rhino might rear its head much, much sooner.
To your freedom,
Simon Black, Founder
Sovereign Man
BofA Reports Best Ever Q3 Earnings Even As Held-To-Maturity Losses Soar By $26 BIllion To Record HiIgh | ZeroHedge
ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zero
www.zerohedge.com
Crisis averted?
My basic understanding and math says they are holding almost 78% of their portfolio now as HTM. Seems bad but the market isn't paying attention if it doesn't flow to the bottom line yet.