YouSaid · the spoken record

John Maxfield

lines on the record: 119
first: 2023-04-04
most recent: 2023-04-04
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Just want to say, Jack, real quick before you turn off, you do an excellent job, you do an excellent job. I appreciate that.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I would be shocked if a top 10 banker, yeah, that would be like my brain didn't even go there. I mean, like, although Citigroup, I mean, I feel like it's always on the verge of failure. Yeah”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“That was the final hurrah. We were like 2009, we were there. We were there. Like there wasn't that much liquidity. So things, but we are sitting under this giant mountain of money still. And like it's looking for places to go, you know, and so like I think that that's what that doesn't mean there won't be failures. It doesn't mean there'll be a little recession. That's normal stuff. That's normal stuff. You know what I mean? But I would be shocked as somebody like I study this stuff more than anybody in this country and like I would be shocked and maybe that's famous last words also and this is the other thing you learn you know what I mean I would I'd be shocked if this wasn't good if we weren't through the cute period you'd be shocked”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Here, here's why there's just too much money out there. There's just too much money out there still. So 2009 was the end of that liquidity cycle. It was like the final. Then you had the European debt crisis. That was the final hurrah.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Was the risk that led to the pie not being done in terms of it failing that you don't see now? Because there are things, oh, the unrealized losses, commercial real estate, which some of which is speculation, whereas in 2009, with the benefit of high sight, we know that there were lots of issues that led to the problems continuing.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“I mean, it's because when you study this stuff and you see it over and over and over and over and over, it's like baking a pie. Like my mom can look at that and she's like, the pie's done or the pie's not done. I'll look in there and be like, ah, I have no idea if that pie's done. I just, it's the oven on. You know what I mean? Like the pie is done, in my opinion. I could be wrong, but the pie seems to be done.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“And it's kind of funny, ironic, sad that the one sector of the S&P 500, everyone gets hurts by raising rates, cost of capital, blah, blah, blah. But the one sector that benefits is banks. And then you had this whole thing. So it's pretty funny. What's next? Who knows? You are sounds like much more optimistic. You said the banking crisis probably already over. There could be failures, but this won't be systemic. You gave us many reasons to have this interview. But just to summarize, this is the final question, I promise. Summarize, what is sort of the main reason if you had to pick one about why you think everything's going to be all right?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“That's what I would think. If I was running a bank, that's where my head would be. I'd think like we need to make sure that doesn't happen to us.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Always a learning. There's always a learning, right? And I would be more general about the learning in this case. And I would say that if you fail, you could like. May not be fair that you fail, right? Like there could be rumors and gossips. There's a study done of all these banks that failed in their 20s and they just looked at why they failed and like 50% of them failed because of just like idol gossip rumors. Okay. Like you can fail for unfair reasons. But if you fail, it's on you. It's on you. Like you are a highly leveraged institution. You use fractional reserve banking. Like you have got to be prepared for everything. It is your duty to protect that money. And so like you like all of these things you got to be prepared for. You know what I mean? And what does that mean? The biggest risk is the risk you don't know, right? So that's somewhat of a possibility. But like the biggest thing is that you got to go out on the extreme of the spectrum and say what is the least fair way we can fail? Like they start all these horrible things none of them which are true. And like people believe it. Like how do we survive that? And so that's what.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Two things. Like, first, that's just wrong. You know what I mean? That's just wrong. It's just, it's unethical, in my opinion. But the second is that you've all these people who think, like who look back on history and they degrade history and like, oh, these people were back in the day were all just like bad money grabbers and stuff like that. Like that's not true. To a certain extent, the commitment to fiduciary duty in the banking industry at least, and I think it's this case throughout corporate America has eroded. It's eroded. And there was a time when our executives took a much more seriously.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, just so it gets a better name, right? The nation says, like, yeah. So, but the Bank of America we think of thinks that's not Bank of America, that's nation's bank. You know what I mean? Like, that's what that is, but it's like so, Dave Coulter, he monetized APG Nini's life work. When APGNI wanted to do the right thing and not monetize it. And so you think like,”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“He could have had Vanderbilt wealth. He could have had Rockefeller wealth. And he started a separate company that was also a huge today is still Trans America. Really? Another separate company that he spun that thing off. I mean, like the guy was amazing. And then you go to 1998. And a guy by name of Dave Coulter becomes the CEO of Bank of America. This is when he was still in California. He was CEO for two years, two years. That's it He sells that bank to Humicol, a nation's bank out from Charlotte. So Coulter sells that bank to Humacall. Coulter takes a $100 million golden parachute. Hundred million dollar golden parachute.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“The best way to capsulate this whole thing is that you think about it like this in 1949, a guy by the name of APG Nini died. He was the guy who in 1904 founded a bank called Bank of Italy that eventually became Bank of America that by 1949 was the biggest bank, not in America, it was the biggest bank in the world. Okay, this guy built from zero in less than 50 years to the biggest bank in the world. When he died, his estate was worth $550,000. Just that for inflation, that's about six and a half million dollars today or something like that. There's a lot of”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Is there something to this? Is there something to this? And I think there is, and this is what it is, banking is not rocket science. This is not complicated. It's not like you don't have to be a genius to do it. But you cannot be too ambitious. You cannot be too ambitious. You cannot be going after all the money you can make as quickly as you can make it. And so what does that, how does that translate into the corporate speak? It translates into corporate speak through the fiduciary duty against self-dealing. And what that requires you to do is you have to put yourself in the shoes of the principal, you're the agent, like in the shoes of your employer, not in your own shoes. They go before you do. They are more important than you are. They get the priority, right? And that's what all these CEOs want their people to do, but yet they won't do it themselves where it matters the most and it's in conversation. And so that.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“We're making like four million dollars, and Mick blew them away. I mean, these guys weren't even in the same universe as Mick in terms of the performance and how Rich and shareholders got. And it was the same thing with Bob Wilmers. You look at his lowest paid in his peer group. And you think like,”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“You look at you take every single publicly traded bank in America and you rank it by all time total shareholder return. The amount of value this thing has created since it went public. Just put on a chart and there, what you'll see is that there are two that are way out, way above all the rest. There's like two that go like up here and all the others, even the second or the third, fourth, fifth, third down here. What are those two? Glacier Bancor, open Callispe, Montana, and Mity Bank up in Buffalo, New York. And then you say, well, God, those guys must have made a ton of money. You know what I mean? CEOs. The CEOs must have made a ton of money. And they did. They did. But you look on a year-to-year basis Mick Blonik, the guy who's responsible for that performance at Glacier, he earned the, you take, you look at his peer group, he was the lowest paid in his peer group, not just the lowest paid, all right. He earned a third of as much as the second lowest paid, a third. This guy was making like $260,000 a year. There were other clowns in his peer group.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“It would be forbearance on the part of the society forbearance on the part of regulators because that's in the 80s, it was forbearance on the part of regulators. They're like, well, I mean, theoretically, y'all are. Know insolvent, but like, we're not gonna come in to seize all of you, you know what I mean? Like. So it's kind of forbearance in the broadest possible sense. But the other point about the, let me, so remember, the 80s were a total shit show, okay? In banking, all right. And the big ones in particular And I swear to God, every single one of their banks either failed or was insolvent for a significant period during that decade. And you say, like, what are we compensating here? What are we compensating? Like, what is this all about? So then let's take it up to more modern times.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, forbearance is when a bank, or so let's say you are delinquent on your loan, as opposed to the bank coming in and just foreclosing on you, they'll give you some time, try to work it out with you, you know, like make it possible to like maybe you want to foreclose, you know what I mean? That's what the experience is.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Your point about the 80s and all those banks being insolvent sitting insolvent, like I'd never connected that in my head, Jack. And like I'm like, when you're saying that, I'm like, oh my God, it's like, that's such a good point. Like the forbearance was the way to deal with that. There's appropriate way to deal with that. Otherwise, you go into like the dark ages. What is forbearance?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“John, it sounds like a really bad fact that you just said that so many banks, you said all the banks were marked mark insolvent, but that actually can perhaps allay some fears right now that just because on some bank balance sheets and perhaps a lot of bank balance sheets, the unrealized loss of social securities mark-to-market insolvent, that doesn't mean that people are going to pull their money. And that doesn't mean that they should. And if they're insured, they definitely should not pull their money. Oh, you talked about community banks and I was going to ask you about, wasn't Secretary Yellen before Congress asked by some senator from the middle of the country who said, my community banks are struggling, are you going to bail out them? And she basically said no. But then she hinted maybe it's yes, maybe it's no. And so this is the question of will the help extended by the FDIC and the Treasury to Silicon Valley Bank depositors, uninsured depositors over a quarter million dollars and signature bank.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, return on equity. So that would be 1.2% on assets, assuming the typical bank is leveraged by 10 So that's what your cost of capital”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Right. So you're a capital provider. You have $100 million that you have to allocate, right? Where are you going to allocate it? You're going to allocate on a risk adjusted basis to the place that gives you a respectable return, right? That's basically your cost of capital. The amount that allows you to be competitive to attract capital, right? as a bank, right? So you got to earn whatever it is. I think the general rule is a bank needs to earn around 12% to earn its cost capital. That's the general rule. Although like each bank is slightly unique, but that's the general rule.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Do you mean by that? And also, how do you square that with your prior comment that banks, it's always going to go back to normal, but banks, NIMs will be restored? How can both of those things be true?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“I mean, Jamie Diamond is a savant. Brian Moynihan, he deserves to be highly paid. Those guys do exceptional. But the problem is you go throughout these regional banks of the country. And so keep in mind a couple things. General rule is failure, not success. Number one, number two, even the banks that don't fail, it's a minority of them that earn their cost of capital.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Brings up actually an even bigger point is that if there's something to be pissed about in banking, okay, if you want to be pissed about banking something in banking, what you should be pissed about is the fact that we let these little banks fail all the time. Yet, we let these big banks get away with this stuff, stupid stuff, harmful stuff to the economy. And when they get in trouble, we bail them out. And like, we should bail them out, okay? But then we need to do something on the little bank side too. Like there can't be that disparate treatment. And I think it all reduces to compensation. I think if you go through the full analysis of banking, like what makes an exceptional bank, what leads to stupid excesses at bad banks, I think you can draw it all down to compensation.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Emerging markets Mexico, Brazil, Argentina. And what you had there was these so you had all that money, right, that was sitting in the coffers, Saudi Arabia, and stuff like that needed to go somewhere. So some of it went to mortgage-backed securities, right? For the subprime, but some of it went to like, it was then brought and made into government loans, right? And so then you have, but then you have the interest rates go up on those government loans. And what happens then? The governments start to faulting. So Mexico was the first to go and it defaulted. I think it was August 82. And they basically came up and said, we're not going to pay. We're not going to bear net. And so those loans had gone through American banks. And so all of those loans had to be basically in your head, just written down to zero. So there was for years in the 1980s, every single one of the biggest banks in this country were underwater. They were all insolvent for all intents and purposes. And so that.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Real estate. So, you have all this money flooded into commercial real estate, and the second half of that decade is a commercial real estate crisis and into 91 and 92. That is a huge commercial real estate crisis. Like you go down to Dallas, I don't know if you've been to Dallas, but like you look at the skyline, all those buildings were built in the 80s. They all were. And like you see that Oklahoma City and like over and over and over again. And so like that you had two, you had these fallen crises. And then in the middle of this crisis, in the middle of those two, you had the LDC crisis, the less developed loan crisis.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, they got rid of regulation cube because regulation Q said you can only charge this much for your deposit, or you can only pay this much for deposits. They lifted that ceiling. So then the thrifts were, then they had to pay huge amounts to borrow money to service their portfolios that were earning half as much. So then what did they do? Then the policymakers are like, oh, well, we need to deregulate the asset side of the balance sheet too and let them go out and basically buy whatever they want on the asset side so they can earn higher yields so they can pay for that money that they're borrowing, right? So they deregulate that. So what do they do? They go into commercial real estate. Okay. So now you have the surge of money into commercial real estate. You also had a tax law change early in that decade where it promoted more money coming into real estate and you also have the energy crisis, right? So then you start taking these banks start taking and companies start taking losses on energy. So they need to make those up. So then that money goes into”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“So there's a series of events. So it starts with the interest rates. So the interest rates jack up. You have a mismatch crisis. So where the thrifts is primarily thrifts who are getting hit right there because thrifts can't have variable rate mortgages or variable rate loans. Commercial banks could. And so like the thrifts got hit, right? So then what happens? Then there's deregulation. And so they deregulate the liability side of the balance sheet. So what they tell, because is that regular?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“It's original content. I've really enjoyed reading the work filled with banking history. One of the final questions for you, John, is take us to the savings and loans crisis. Volcker jacked up interest rates way more than Powell has and probably ever will probably. That was very bad for banks. But how bad was it for the economy? I think there was a”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“And there was, I mean, I read from 1790 to 2020 contemporary materials all the way through in the course of like three months. And I did it twice, back to back. And so you're sitting on all of this knowledge. And you feel a duty to like to share it. And it is valuable, valuable knowledge. I mean, these are insights that other people just don't have because they have jobs. They have responsibilities. I'm just kind of a clown who had all this time, you know. And so I'm going to use it and you'll see, I mean, you've started reading some of it, Jack. Like the quality of the content is very high and like its original stuff. This is not stuff that you will read anywhere else about banking. And so it's the vehicle that I'm going to use to share all of that, all that stuff. And just Maxfield on banks at Substack.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“That had made it interfered with my ability to distill it all the way down. And it had to do with this concept of periodization where you break an industry down into a history of an industry down into eras, which seems academic, but it's actually incredibly important because there's too much stuff there that's unorganized. You have to have a way to organize it to understand how it works. So I saw where it was flawed and I went back to the beginning, started all over again, then figured out how to fix it. And then once I figured out how to fix it, then it put me in a position where like I'd done enormous amount of research and very little writing, very little sharing.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“So I study banking. I just try to figure out ways to get paid to study banking, and I love it. I'm fascinated by it. It's like a subject matter that I really have been working to crack the nut and to reduce it to its essence, distill it kind of distill it all the way down to its essence. And I've been working on that for, I don't know, a dozen years something like that. And so at 12 years in, I couldn't, I wasn't able to distill it down to that thing. I'm like, what is going on? So at the beginning of last year, I was like, I'm just going to give everything I got to this. And I spent the entire, I'm like 18 hour days every single day, Monday through Sunday. Holidays, everything, every single thing. Only thing I did is I gave myself an hour a day where I could play past my boys, I have two 10-year-old sons. I guess they're 11 now. But they just turned 11. So and I started in 1790, I just read contemporary materials all the way through to today. And I was making my way through that and I realized the mistake.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“If there's one thing about banks, it's there's a herd mentality, and that there's a lot of reasons for that. They're understandable. But yeah.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Right, it's a Warren Buffett in his 1990 shareholder letter, and he's talking about he's explaining why he bought 10% of Wells Fargo. And it's like, I don't know how many words that section of the letter is, but it can't be more than 800 words. But it is like, it's like, I mean, like, it's the fundament is the mother root of sophisticated modern banking philosophy, how he articulate, articulates it there. And it's all based around this idea that like, look, you know, banks get all this leverage, you know, so they're vulnerable to mistakes. Mistakes are the rule, not the exception. I mean, the reason mistakes are the rule are not the exception is because this concept of institutional imperative. And that is that basically the way Keynes defines institutional imperatives, that it's better to die a conventional death than it is to live a non-conventional life.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“And I'm just picking JP Morgan as an example of the long term bank that by my examination and other people have corroborated this manager interest rate quite well in terms of their size. They didn't take much duration risk, had like shorter term durations, and they did a lot of hedging. If in an opposite world interest rates were still at zero, JPAL sort of kept to his word of not even thinking about thinking. I'm not saying he broke his word. He did give sort of ample evidence to people paying attention. But if interest rates were still at zero, people would simply be saying, oh my God, Jamie Diamond, he put on all these rate hedges. Jamie, why not take a little extension risk? I mean, you got Silicon Valley Bank. They're buying all these 20-year mortgages and you're buying this four-year piece of garbage. What's going on, Jamie? I thought you were a good banker.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“You can't just like wake up in the morning and be like, What are we gonna do today? You know what I mean? You have a plan. And so like models kind of, that's where they, that's kind of the role that they play.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so My guess, I don't know for sure what the answer is, but my guess is that what happened did not match up with the models because then that wouldn't have happened because the models would have associated care of it. So my guess is that the duration at First Republic, I'm sure they were like, maybe there's not as long a duration as we thought they were, obviously. You still need to Like modeling is like It's kind of like a monkey game yeah, you know what I mean like let's just be honest like modeling anything is kind of monkeyish because it's like nobody knows what's gonna happen in the future But at the same time, if you run an institution with like 40,000 employees or 200,000 employees like”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Right. Do you think that the expected duration of deposits a year ago from banks, not just Silicon Valley Bank? Compared to the sort of realized duration that we've seen right now, and I guess duration interest rate sensitivity, but also just how many people withdrawing their money, because I think it was on Friday that, and I can pull the statistics up. I mean, people are withdrawing their money from banks. And so does that rate of withdrawal match or exceed the rate of withdrawal that was anticipated by banks maybe, let's say a year ago, given the sort of asset liability management that you just talked about? And so like, for example, sorry, yeah. Commercial bank deposits dropped by $125 billion in the week ended March 22nd, the ninth straight period of declines. That's just the data point, sor”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“The short term interest rate went up to like 18, 19%. So they're paying, I don't know how far they got up, but like 14, 15, 16% to borrow money that then they're lending out at 8% doesn't work. So that's when everybody's like, okay, we need to like put some discipline around this duration risk, you know what I mean? And so that's when asset liability management came out. And so the answer to your question is, yeah, every bank does it. Every single bank does it. Now, the question is how formalized is the process. Your smaller banks is going to be less formalized, right? The bigger banks like JV Morgan is going to be really, really, really sophisticated. But yeah, I mean, you want your banks doing that. They need to do it or else what happened to Silicon Valley Bank, what happened to them.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“So it's called asset liability management is like what that whole thing is that it's about matching the duration. And so that came about really in the 80s when you had that first surge. It's basically similar to today, but it happened 40 some years ago. And so that's when people are like, whoa, we need to match because that caused the savings and loan crisis. Savings and loan crisis was that all these three”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Is the treating of deposits assigning a duration to them that is longer than just very short-term duration? Is that something that's widespread without the industry, not just Silicon Valley Bank? Because I and I presume many people watching this who say they think of demand as borrowing short. You can get it at any time. But is it widespread among professional bankers and banks to say, oh, our deposit base has a duration of five or of two or of ten”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“So, this is the, yeah, yeah. So, like, this is a nuance, but it's an important nuance in that there's a difference between taking a directional bet on interest rates. Earning a spread on the money, on the difference between what you're borrowing and what you're selling that money at. It's a fundamental spread or difference. And it doesn't see, it seems like a nuance. It doesn't matter. But when you think about how that impacts the decision making, each incremental decision, it's really significant, right? And so it's a series of incremental decisions that lead to everything, you know what I mean? And so like that in an environment where there's basically no margin for error, the quality of those decisions matters. And they've got to be made for the right reasons. So if you're making them for the wrong reasons because you want to do directional bets on interest rates or anything, like you're just, because we know you can't see the future. So we know that's a crapshoot. Maybe that'll work, but maybe they don't. You know what I mean? And so like that's the difference.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“It true that banks really should manage their interest rate risk, in other words, so that the risk is zero and the duration of your liabilities is the same as duration of your assets. Isn't the whole thing about banking short and lending long? And oh, okay, we want to hedge our rate. So we're going to do a swap or we're going to issue some long-term bonds, maybe buy some like mortgage servicing rates or something like that. Isn't banking borrowing short and london long at its”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. And because the other thing is that, like, you know, Renee and M&T, like they manage it masterfully, but they had, there was nothing like the surge the Silicon Valley had. I mean, Silicon Valley was like, it was so far out on the spectrum in terms of, I mean, it was like eight standard deviations. I mean, like, yeah. So much liquidity came into that. Like, none of these other banks that have been criticizing it, none of them, none of them dealt with that quantity. None of them tripled in size with just cash dumped on their head. None of them came close to that. And so Silicon Valley, it is peculiar in the quantity that came in. And again, banking fundamentally is about managing abundance and the hardest time to run a bank is in times of prosperity. And that's what liquidity, that's what liquidity brings about.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“I mean I wouldn't say any mistake that was made here was egregious. I would say all the mistakes you can, if you're willing to give, if you're willing to be honest with yourself, I think all of us would say, I could see myself making the same damn mistake. I mean, but the...”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“So deposits can be called overnight, demand deposits, but that doesn't mean they have a duration of one day because many instances stay there for lifetime. It's about the optionality. So you said the Silicon Valley was assigning a duration of about seven years to its deposits. And I assume that's based on historical patterns, based on, oh, from 2013 to 2023, the average withdrawal rate was X. So the maturity was Y, the duration is Z. And probably accurate. But is the mistake to assume that historical patterns would continue? And is that mistake my word? It's not yours, egregious, given that the money came in last year. I mean, you can't say money came in, the money that came in last year is going to have a duration. It's been there for one year, you know?”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Like, it may last for two years and then get spent down to zero. So you have a surge deposit scenario. And in those scenarios, what you do is you adjust the duration on those. And so if there's, you use a coefficient to adjust the duration. And so, you know, if there is an error of the errors that were committed, that was probably the principal one. They didn't adjust it for the surge. It doesn't seem like they did.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“They still had a lot of cash, so they were there like, oh, well, now inflation is going up. So, what does that mean? Remember what the argument was then? Transitory. Inflation is transitory, transitory, transitory, transitory, right? Everybody thought inflation was transitory. So if you think it's transitory, you don't continue on lower for longer, right? Transform means it's just going to go back to what it was before is lower for longer. So you can see how that was made. And then the other mistake really that if there was one quote unquote mistake that they made that like maybe maybe would have been caught by others it was that not all deposits should be treated equally in terms of duration and so you have like you have somebody who goes out somebody who grew up with no money and they won the lottery and they put 10 million dollars in the in the bank should the bank assume that that 10 million dollars is going to stay in there for like 30 years probably not”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT
“Not even thinking about thinking about exactly, and then oh, then we saw what happens then, and you see inflation go boom, shoot up in 2021, right? And I think it's April, like kind of close to the middle of 2021, inflation shoots up. So you think like, okay.”
2023-04-04 · Forward Guidance · The Bank Panic Is Already Over (Here’s Why) | John Maxfield · IDENTIFIED FROM THE TRANSCRIPT