Ok so this article is claiming that those non-FDIC entities partnered with FDIC member institutions were not being treated equally in the bidding process? I am a little confused with the article and your previous comment. I mean if those non-FDIC member partnered with FDIC member were bidding to take over SVB and run it like a bank and if that's allowed then they should've received equal treatments and shouldn't have been treated differently in the bidding process. If they weren't allowed to bid then they shouldn't have been invited to bid in the first place.
How the FDIC Rigged the SVB Auction
- Thread starter ETJ
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Ok so this article is claiming that those non-FDIC entities partnered with FDIC member institutions were not being treated equally in the bidding process? I am a little confused with the article and your previous comment. I mean if those non-FDIC member partnered with FDIC member were bidding to take over SVB and run it like a bank and if that's allowed then they should've received equal treatments and shouldn't have been treated differently in the bidding process. If they weren't allowed to bid then they shouldn't have been invited to bid in the first place.
- WSJ NEWS EXCLUSIVE
- FINANCIAL REGULATION
Potential change would reverse 2019 decision to loosen rules for midsize banks
By Andrew Ackerman
and Rachel Louise Ensign
Updated April 21, 2023 2:07 pm ET
279
The Fed’s vice chair for supervision Michael Barr is among regulators considering an increase in oversight of midsize banks. Photo: Anna Rose Layden/Bloomberg News
WASHINGTON—The Federal Reserve is actively considering closing a loophole that allows some midsize banks to effectively mask losses on securities they hold, a contributing factor in the collapse of Silicon Valley Bank.
Led by vice chair for supervision Michael Barr, the Fed is considering ending an exemption that allows some banks to boost the amount of capital they report for regulatory purposes, according to people familiar with the matter. Capital is the buffer banks are required to hold to absorb potential losses.
Regulators are weighing the change after the sudden collapses last month of SVB and Signature Bank rattled the financial system. If adopted, it would reverse a loosening of rules by the Fed in 2019 and heighten oversight of midsize banks by extending restrictions that currently only apply to the largest, most complex firms.
All told, regulators are considering extending toughened restrictions to about 30 companies with between $100 billion and $700 billion in assets, the people said. A proposal could come as soon as this summer, and any changes would be phased in, potentially over a couple of years.
Regional banks such as U.S. Bancorp, PNC Financial Services Group Inc., Truist Financial Corp. and Capital One Financial Corp. could be affected, and could be made to bolster capital. That could prompt steps such as trimming buybacks, retaining more earnings or raising new capital from investors. Banks are planning to fight rule changes.
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Mr. Barr has hinted at a series of tougher rules to come after SVB’s failure, changes he said would boost the resilience of the financial system. For example, he noted SVB’s capital levels didn’t have to reflect unrealized losses on certain securities.
What Does SVB’s Collapse Mean for the Banking Sector? We'll Explain.
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The collapse of Silicon Valley Bank, which held $200 billion in assets, has sent shock waves through Wall Street and Main Street. WSJ’s Dion Rabouin explains what this means for investors and everyday Americans worried about a broader, systemic problem in the U.S. banking system. Illustration: Preston Jessee
“We are evaluating whether application of more stringent standards would have prompted the bank to better manage the risks that led to its failure,” he told lawmakers.
The potential change he mentioned relates to how banks in regulatory capital measures reflect unrealized gains and losses for securities labeled “available for sale.” Banks have the option of selling such securities or holding them to maturity.
Under post-financial crisis rules, banks with more than $250 billion in assets were directed to include unrealized gains and losses on such securities in their capital ratios. Smaller regional banks, however, were allowed to skip this requirement based on the argument that it would introduce too much volatility into their capital metrics. In 2019, the largest U.S. regional banks earned an exemption, too.
The changes under consideration would likely reverse that reprieve, meaning unrealized losses would dent capital levels.
“Available for sale” securities played a role in the downfall of SVB, which had availed itself of the exemption. In March, SVB announced that it had sold a chunk of securities at a nearly $2 billion loss and said it would sell stock to raise capital.
That raised fears of dilution for existing shareholders and highlighted for investors the risk of unrealized losses on SVB’s books. SVB shares plunged, and customers pulled $42 billion in deposits the following day, prompting regulators to seize the bank.
SVB was sitting on even bigger unrealized losses in a separate bucket of securities that the bank said it would hold to maturity. Those losses aren’t recognized either in the bank’s financial statements or in regulatory capital.
Silicon Valley Bank’s collapse was the second biggest bank failure in U.S. history after a run on deposits doomed its plans to raise fresh capital. Photo: BRITTANY HOSEA-SMALL/REUTERS
The changes currently under consideration by the Fed wouldn’t apply to the treatment of losses for those securities, but may be addressed later.
Supporters of a change to capital rules for unrealized losses on banks’ “available for sale” securities say this would have forced SVB to address the issue far earlier as interest rates began rising and the value of its holdings declined.
Banks, however, say the change could lead to higher government borrowing costs and mortgage rates. They say having to hold more capital, coupled potentially with limitations around securities they plan to hold to maturity, could instead prompt lenders to pull back from buying long-term Treasury debt and mortgage-backed securities.
Rising interest rates have left many banks sitting on big unrealized losses, meaning the prospective rule change would hit their capital ratios harder than it would have in the low-rate world. For instance, a key balance sheet metric that includes unrealized losses on “available for sale” securities at Pittsburgh-based PNC Financial Services Group Inc. was negative $9.1 billion at the end of the first quarter, compared with negative $5.7 billion a year earlier.
Tougher rules were already on the way for the biggest banks, as the Fed, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency moved toward imposing new regulations crafted by regulators around the world after the 2007-2009 financial crisis.
The latest step in that overhaul is expected to be proposed in June, in conjunction with a proposal to close or narrow the “available for sale” exemption.
“One way of making banks safer for the whole economy is to ensure a larger capital buffer,” said David Kass, a finance professor at the University of Maryland’s Robert H. Smith School of Business.
Even without any rule change, U.S. Bank has said it expects to be subject to more stringent rules soon. The Minneapolis-based firm is growing and is likely to cross an existing threshold for lenders with more than $700 billion in assets. Executives on Wednesday said on an earnings call with analysts that change would happen “no earlier than the end of 2024.”
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Chief executive Andy Cecere said he didn’t think the bank would have to raise capital to boost its ratios but could instead rely on higher earnings and other measures. He called increasing the capital ratios “priority one.”
HoldCo Asset Management, an investment firm with a short position in U.S. Bank stock, on Monday released a presentation raising concerns about the lender’s capital levels. Using data from the bank’s fourth-quarter earnings, the firm estimated a key capital ratio would fall to 6.1% from 8.4% if it had to account for its securities losses.
Very simple really, I am not a conspiracist.
BX is too smart to partner with Valley National Bancorp to get into the door, and wants to carve out SVB's best assets and put a floor on SVB's underwater assets. In a bidding situation like a weekend, one doens't have time and enough information to analyse the securities block and block. The best solution is to take everything at a reasonable price and work out the assets in the later days, with implicit FDIC and FED backing.
%%
And for the same reason I talked to more than one bank on some real estate, even though on that business, I only planned on using one@ end of day . Worked well usually.
Fed found 4 things [@ least]notably wrong with SVB. Fed Reserve's vice Chair M Barr's findings include;
[1]Three finding related to ineffective board oversight, risk management flaws, ineffective internal audits.
[2]SVB management was rated ''deficient-1'' in summer of 2022.
[3]The Fed expressed concern about SVB interest rate risk in OCT, NOV.
Since SVB was doing public woke =broke stuff; may not be a big shock to some when that finally caught up with them.[Got 3 of the 4 points thru Fox Business 4-26-23]
