YouSaid · the spoken record

Steven Kelly

lines on the record: 95
first: 2023-07-11
most recent: 2023-07-11
sittings or episodes: 1
sources: podcast

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“What didn't. That's sort of our main public output. We have a huge database of financial crisis resources, past interviews we've done. And so we're always working on that. We're doing a lot of stuff, policy stuff on 2023 these days. And so, you know, we're trying to really make sure we're ready and hopefully can avoid this systemic risk exception next time around and focus on how we fight these things when they show up without warning, I guess.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“DL probably want financial stability, we are sort of uniquely focused on fighting financial crises, so we're sort of built on the delightful premise that prevention is going to fail at some point and it pays to have a non-political body that can really focus on what are the tools when a financial crisis is already here. So we have something called a new badge project, which is our main output named for Walter Badgett, who has the original badges dictum. You know, lend freely at a penalty rate against good collateral. And that's a great story, and it's still accurate, but it doesn't really tell you how to end a crisis. And it's rarely enough, as we saw just recently with Crowd Swiss. You could put $200 billion in the window and you still sort of bleed clients and funding. So we have an online platform of historical interventions and what worked.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“No, there's not actually, but it does kind of sound like that. So that was kind of the other reason. I was just like, it sounds like financial risky. So it kind of fits. There's also a few hip-hop references, and I'm a big fan. So it sort of fits in there too.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“So, I don't know what the next piece on without warning is going to be. Part of the name has two sort of two Genesis. One is that I never know when I'm going to write something again, so I don't have like a once-a-week, you know, twice a week. It could be five times a month. It could be zero times a month. And the other sort of reason for the name is that I don't really write intro type. Like I don't say, oh, in March 2020, COVID, there's enough of that in more formal writing. So I sort of spare the reader. You know, it's really targeted at a financially aware audience. So I sort of skipped the intros and get right into the meat of it.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“We'd have to see some sort of precipitating event, like we saw in March or a massive change in depositor behavior. Like I said, you take rates to 10%, people aren't going to be as happy with 0%. Maybe they live. So again, I can't give you a fixed number, but certainly things always get more fragile. The longer and higher rates go. You sort of see what structures got built around that earlier world and you see how sustainable they are.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“It. What if the economy remains gangbusters, credit losses remain near zero or for risky stuff like autos and credit cards, they remain within the models and lower than 2019, for example, what how high can the Fed go, is there some point at which the funding costs and the interest rate risk within the banking system that itself is a risk? And it's not just bad economy and credit losses.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Relative to interest rates. So if the economy weakens and the Fed keeps rates at 6%, things are going to get more and more fragile. And again, that's where it becomes a monetary policy issue.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Of the story, right, is how's the economy doing? So interest rates don't exist in a vacuum. So where is the interest rate relative to the economy? And again, there's a difference between what you can call a credit crunch or a recession versus a financial crisis. And maybe rates can go to 15% and not have a financial crisis. I don't know. We didn't really see 5% triggering SVB because again, there was all these other factors at play specific to its business model. So again, something can come overnight where all of a sudden you need the systemic risk exception and the Fed and the FDIC, the Treasury, like happened in March. But then you look at since then and things are calm and rates are still going up, right? So something can sort of come out of the shadows, but also the economy is strong and that, I mean, that really can't be overstated how beneficial that is.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Right, right. And that's exactly right. And we saw a little bit of debt get written off in the SVB and First Republic and signature cases, but there's a question of what happens if we had asked them to raise a bunch more debt that was bail-innable, that would have been good, you know, quote unquote good, but also then it's like, okay, if you're talking about a significant chunk of debt, is there more contagion there? What does that portend for other banks because you'll see the spreads go up and then they got their own set of problems that they might not have had before? So, you know, we'll see. Bank equity is scarce. So I get the incentive to try to source bail-inable capital where you can. But to a certain extent, sometimes you just need more equity. It's just more straightforward.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Sometimes can appear like a little too clever by half. It's sort of a way to trick bond investors into buying equity to a certain extent. And it's just hard to be able because equity, you don't have to actually bail in. Like when there's a crisis, you don't have to say, okay, we're writing the equity down. The equity just goes down. And so there's all sorts of contagion that can happen when you say, okay, we're going to write these bonds down or we're going to convert them to equity holders. Credit Swiss was its own kind of mess, but obviously there was sort of a brew haha over their credit write downs.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“So, Basel III Endgame is really a continuation of Basel III, which was like the post-2008 international accord, basically for bank regulation. So they're calling it Basel III endgame because pieces of it still have not been implemented. Internationally, the details were worked out in like 2017. So you can build in a couple legs there. But this really, again, goes back to some of that stuff I said earlier about standardization and how banks are allowed to use model risk. When it comes to this issuance of long-term debt, yeah, this is something that the bank regulators in the US have, the current, you know, the current crop has been interested in. I'm not super convinced of its utility relative to equity. To me, it's...”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“So, real quick, two things I don't think we've mentioned yet, or only briefly is that this will also require some banks to issue more long-term debt, debt that can absorb losses and reduce the cost of the FDIC in potential bank failures. And then also they talk about the Basel III endgame. So what is the Basel III endgame?”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“For banks to really talk about that, as well as any color we can get on mergers and how strong the appetite is, particularly among GSIVs and what they're hearing on mergers, because mergers are really stabilizing during financial instability, but they're also really unpopular because the big banks get bigger. And so there's sort of been mixed signals out of DC. And I'm sure analysts will be asking the CEOs on the calls, you know, what do you like out there? Are you looking at possible acquisitions? And I'll be interested to hear responses to that.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“So I'll have my eye on discussion of deposit costs because there really has been two parts to the story and we've sort of minimized the second part to some degree in this conversation. And I think usefully, but part of it is like you start hiking rates five percent and more. There is some consumer awareness and deposits aren't infinitely sticky. Like you said, if rates go to 10%, that deposit franchise is even harder to maintain. You have to have good enough, like if you want to keep rates at zero, which deposits don't need to, but you've got to have 10 percentage points worth of good service on your deposits. I mean, that is really good service. That's more than a free toaster when you open the account, right? So, you know, there is sort of a second phase to this crisis, which is, you know, increased awareness among depositors of higher rate options. And so I'll be watching.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“I mean, I'm sure there's some cases where banks have secured credit against commercial real estate loans, but it's just, I mean, well, for one, the asset-backed commercial paper market really doesn't exist in the way it did before. But yeah, you don't see like this sort of triple A private credit stuff backing money markets, basically. And so it's harder to draw a line until you have a bank failure. It's hard to draw a line from commercial real estate to money markets. So, you know, whereas in past episodes, the story was commercial real estate, money markets, bank failure. Now you'd have to go, you know, get a bank failure from commercial real estate and then draw the line to money markets. And, you know, is Bank of America going to fail because of their commercial real estate portfolio? No.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Come in too late to. But again, it's just not tied to money markets in the way it was in 2008. I mean, so much of the real estate story of 2008 wasn't just house prices go down. It was, okay, house prices go down. And now all of a sudden we're worried about the entire repo market and the entire commercial paper market, asset-backed commercial paper market. And then you get the bank blowups. And that story really, really isn't there at this point. So again, that's why it's more of a slow moving credit crunch type risk than an overnight financial crisis risk.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, that's exactly right. The moment it becomes a toxic asset, the Fed's too late. I mean, to the extent that they can cut rates and ease people's repayment burden, ease valuations in the credit real estate or the commercial real estate market, that's helpful. But exactly to your point, once you're in the 2008 scenario, cutting interest rates is not going to do you any good on subprime. Once you're in COVID, cutting interest rates doesn't do you any good. So it's a hard market to intervene in the way the Fed does, which is kind of why I made that earlier point. It's hard for the Fed to go, you know, they can't really go up and buy up commercial real estate. They have facilities in the past that have sort of tried to include commercial real estate to very limited success. And he's still sort of involved private balance sheets. And so it's a difficult thing to.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Would cutting rates help banks with commercial real estate exposure to commercial real estate loans that are defaulting or people not paying back, if people aren't going to pay you back, you know, it doesn't matter what interest rates are.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“A certain point this becomes a monetary policy issue, and they need to think about how they would be cutting rates in response to what manifests as a credit crunch as opposed to a financial crisis. So they definitely need to start thinking about, I mean, they are thinking about it. They may need to start talking about it more and clarify when some of these more credit side risks become a monetary policy issue.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“I think they need to start being more clear about this because they really have talked about what they call separation principle that like we have the tools to respond to finish stability fires as they come up in our tightening cycle and that's true and if we get a hedge fund blow up or something they can certainly do that and they did that in March responding to the banks But like I said, it's a little tougher when you're talking about the complicated and heterogeneous world of commercial real estate and you're talking about a lot of small banks at once.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“But I think this is probably more likely going to be a monetary policy issue where the Fed has to think about what's it going to do to cut rates to respond to commercial real estate or sort of general credit crunchiness versus financial stability crisis.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Corporate bond market or something is different than how it could sort of solve a commercial real estate sort of slow burn, right? So to me, that's sort of the main risk. But again, there's just not that line of contagion to the core of the system. And this is another thing that's gotten a lot of airtime postically is we have a lot of banks in the US. And it's not clear we need all of them. Almost 5,000 banks, almost 5,000 credit unions. If we lose some, you know, it's not clear that rights the crisis story. So again, we continue to see really no line of contagion to the core of the system, which I think is most important. But yeah, we could see more closures of small banks in the interim. And of course, something can always blow up that we don't see somebody can always file an emergency 8K or whatever.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Right. So as that sort of softens, you know, there's a lot of concern now over commercial real estate. And we can think about how that works its way through the banking system. But that's sort of the starting place of where we are. I would say the most likely risk, again, this is not like base case, but most likely risk is really sort of more in this credit crunchy space of we're going to have smaller banks that really do get squeezed on interest rates and maybe close you know maybe we see more bank closures sort of at the small end and you know less access to credit at the margin we see commercial real estate really squeeze some banks and to me you know the risk here is really more of a monetary policy issue like it's it's just it's hard to solve that with a financial stability intervention with you know with a with a rent you know the way the fed goes into the”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I would say, I mean, first principles are things are stable now but more fragile than in February. And part of it goes back to, you know, banks are paying up a little bit for deposits. They've lost a little bit more on the deposit side. You know, they're using more market-based funding, et cetera, et cetera. And there's questions about the economy. I mean, that's another thing that really holds the banking system up is the economy has still been really strong, really low unemployment,”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Right, they're not choosing the amount in the way they choose the amount for QE and QT, right? They say $95 billion a month or whatever. The Fed is not doing that, but they are incentivizing it with an interest rate and they're raising the limits, which have effectively not been a limit. So, yeah, they are allowing it more so than choosing that number, like you said.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Just in terms of the language, the Fed is not taking money out of the banking system. People, customers, businesses are withdrawing money from the banking system and putting it into money market funds, which own treasuries but also invest in the reverse repo facility at the Fed. So the Federal Reserve is not doing it willfully. It's just kind of happening because people are doing it.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Out of the banking system every night. So it was sort of weird when the Fed was still doing QE because they sort of are pumping in reserves at one side and sucking them up at the short end.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so this was certainly making people nervous because there was been a sort of a rebuild of the Treasury's checking account post debt ceiling that being resolved the Treasury has sort of rebuilt its checking account at the Fed. So to some extent this is not really in the banking system yet. It's sort of been a transfer from the reverse repo facility to the Treasury. But it was making people nervous that this money was going to come out of the banking system as opposed to the reverse repo facility. And you'd get imagine that $400 billion came out of banks and went to Treasury instead of out of the Feds reverse repo facility and went to Treasury. And then you start worrying about, okay, is there enough liquidity? Is it in the right place at the right time? So far, I think people are more relaxed seeing it come out of the reverse repo facility, which is essentially dead money. It's just an amount that sits at the Fed. The Fed is taking that.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“So the reverse repro facility, it's now, quote, only $1.8 trillion and that's down about $300 billion just over the past month or so. So how or $400 billion, how do you think the decline in the reverse repo facility is that money going back into the banking system, the bank reserves?”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“The case, you know, as recently as a few years ago, and for a while, the reverse repo was a real had a cap on it of much smaller amounts. The Fed has raised and raised and raised. I think it's $160 billion right now. But point being, these are actually funds that can leave the banking system in a way they couldn't. Usually reserves are going somewhere among banks. And now they can really park at the Fed. And so this has been making people nervous that to the extent you can take reserves out of the banking system. You know, there's a risk that they're not in the right place at the right time and someone needs to make a payment and they don't have the money or they need to meet a collateral call. But I think that's a big question mark right now of it's one, how much more deposited attrition can banks take? The levels seem to be leveling out a little bit. And two, how low can reserve?”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“When there were concerns over the safety of certain banks in March, you sort of see a sharp strike, a sharp jump, a few hundred billion dollars in money market funds. A lot of that money can find its way back to the banking system via repo, via money market funds investing in repos, commercial paper. But again, you've taken what was a deposit and turned it into a repo or commercial paper at 5%. So things got a lot more fragile when that happened in March. And some of the money can leave the banking system by going to the Fed. And this is a new thing. I mean, historically speaking, this is new. The reverse repo facility money market funds can take over $100 billion there every day. And we're talking about each fund. And so really funds can exit the banking system. This was not.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“That system, there's been a lot of commentary from the Fed and others lately about this sort of bar idea of a barbell banking system. We can talk about that. But really, we sort of seen a continued march down in deposits. And it's sort of awkward, right? Because it was only a couple years ago we were talking about banks having too many deposits. And it goes back to this issue of deposits basically creating leverage for banks. And so during COVID, a lot of banks were pushing depositors away and said, look, we offer money market funds. Why don't you go buy one of those? We don't have a use for your deposit. And it cranks on our leverage ratio in a way that we don't want right now. So we sort of seen that natural attrition. So point is some of the deposits have just straight up disappeared. Some of it has been transfers into money market funds as yields have gone up.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so what we've seen is basically, I mean, deposit attrition across the board since the Fed has really started tightening policy in 2022. And this makes sense mechanically for a few reasons. I mean, the Fed is literally destroying reserves with QT, letting its portfolio run off. Banks are letting loans basically mature. And like we talked about, you sort of destroy the deposit when you destroy the loan balance. And so we sort of saw a general downward trend across banks that basically sharpened in March. And in those fateful couple weeks, we saw certain inflows into the largest banks. We kind of sort of saw flatness among community banks and obviously sharp withdrawals and sort of that mid-tier banks. And we could talk about...”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“And okay, it's like, is that really held to maturity if you have to take them to market and borrow against them, which again would be at that 5% rate? You're sort of realizing that interest rate risk. If you're running out of deposits and having to go borrow against them at the Fed, is that really held to maturity? I mean, technically you're holding them, but you're getting squeezed on your interest rates. So we can probably do better at those classifications. But, you know, just forcing it all through the same accounting lens is not going to solve the problem. And investors will just ignore it most of the time because if you're reading Citigroup's 10K, it just doesn't make sense for you to read through that far.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so it becomes a question of how do you mark the assets to market because right now we go, okay, you have observable treasury price. So let's say your Bank of America, you have some treasury. You know, you have a 20% loss. That's observable on the Bloomberg screen. And that's what you have to report. So yes, we're saying here, like, okay, but really paying the 5%. So that's what gets so wonky about this is if you want them to mark their assets to market, the marking really comes from”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Stephen, they could include the losses on the unrealized securities in the Held to Maturity portfolio, but then also book a gain on the spread between Deposit costs and the risk free rate. In other words, you know what I'm saying? Like, with the fact that their net interest income increases, they could say, oh, actually, our equity is worth more or we were broking this gain because we're making so much money in the future.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Mark their assets to 5% and include that all in their capital. Do we really want Bank of America to go out and raise $10 billion, $20 billion in more capital just because of accounting losses?”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“So you go fine, but why? Because you look at a crisis and you look at SBB's case and you go, how the heck are they allowed to just exclude $17 million from their capital? Like what an accounting fiction, right? But it goes back to that discussion we had before of let's say your citigroup, why should you have to include those unrealized losses, which are based on marking your assets to essentially the treasury yield curve, you know, marking them to 5% yields when you're paying 1%? Shouldn't you have to mark them to your deposit curve or not at all? So that's again the question of like the accounting that made sense for SVB obviously in hindsight, like, okay, they should have had way more capital SVB because they were running this really risky business that was really sensitive to interest rates and the tech economy wouldn't have made sense for Bank of America because of exactly what we were saying before. They're still paying zero. Why should they have to?”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“So, I mean, there's two things. Like you said, health to maturity capital is not even included in gap accounting. Those gains, the unrealized losses are not even included in gap accounting. Banks can totally ignore them.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“In the cases we saw, for all intents and purposes, the whole banking system has unrealized losses unavailable for sale security. So if you make the banks who have currently opted out, they were given sort of an opt-out option from available for sale. Securities, gains, and losses, including that in their regulatory capital. It's still in their gap capital, but in their regulatory capital, some were allowed to opt out, which has its downsides when you have a bunch of gains because you don't get to include it in your capital, but it has its upsides when you have a bunch of losses because you don't have to include those losses in your capital. So certainly, if we said you have to include that, that makes the banking system better capitalized at the margin. And yeah, there's been a lot of discussion now too of, well, let's include held to maturity securities and let's make them hold regulatory capital against that.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“You're exactly right, Jack. I mean, the way we do capital ratios now is really, like we're discussing before, it's how much capital do you have against risk-weighted assets or assets in general? It's not, let's think about your business model. And is it sustainable in this environment? Or let's think about your governance if we want to talk about credit suis like, you know, problem after problem after problem in the headlines, Does that force the bank to raise more capital? No, it's capital ratios look great. It's liquidity ratios look great. It's capital ratios were more or less identical to UBS's. I mean, that should tell you how, you know, how not fully informative these capital ratios are. And it really can't be fully offset with the accounting. Certainly in the case...”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Isn't it really all about the deposits? I mean, you said, let's say that Bank of America's equity was entirely wiped out by the unrealized losses on their securities books. The reality is that it would be wiped out in reality, but in accounting land, held maturity doesn't matter at all, right? Isn't it true that even for the largest banks, the G-SIBs, held maturity losses don't matter for bank capital? And that's why Silicon Valley Bank could put out a chart saying that their capital ratio and it's in the Fed bar's report, which I think came out in May well at the end of the report. And we could put it on screen that they were in compliance with capital laws.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“I know they had sold a lot of their available for sale securities at a loss. I may speculate now, and I can go up and check, that they did that to raise cash so they could, you know, replace their cash. But as they sold that at a loss, they realized those losses. So that was damaged their capital, which maybe that's why. But Steve, so that's a great transition to this new potential regulation. I think for banks, 100 billion and above, it would require them to include available for sale losses in capital not held to maturity, interestingly, but available for sale in losses. And my question for you is.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“If you tie the health of a bank's deposits to the equity market, you can see how they're the first to go when rates start moving up, right? I mean,”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Right. They're dependent on the equity market. I mean, this is venture equity and new inflows were based on equity investors putting in new money”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“And all the, not all, but a lot of the companies who are venture funded because they're early companies are not profitable companies. So they have a natural burn rate. So the money is going down unless they're in new inflows, which inflow inflows were very hard to come by.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so it was new equity because they're facing this cash burn. I mean, so they were selling, they were going to sell their portfolio. They're available for sale portfolio. They were going to raise new equity. And this was prompted by basically a runoff in their liabilities and sort of the need for new funding. And you're right. I mean, the unrealized bond losses don't help if they were sitting on a hundred billion dollar gain, a $20 billion gain instead of a $18 billion loss, whatever, $17 billion, equity investors might have been more enticed. You have a slightly better looking balance sheet. But again, it's, you know, do you want to be the marginal equity investor in a bank that's exclusively banking Silicon Valley in a world where Fed is taking a straight 6%, cash is running down the payoff in this bank, you know.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Right, the Silicon Valley Bank's huge unrealized losses did not directly cause its failure. The bank run on Silicon Valley Bank directly caused its failure. However, I would say that the bank run was caused, I think it was a Wednesday when Goldman Sachs, its advisor, put out a thing. We're trying to raise new equity because we have all these, you know, losses. And then that's when the fear.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“Expected well, signature has a big crypto book. That's probably been running off since FTX. First Republic has a lot of the same clients, Silicon Valley. That's not good in a world where the Fed takes interest rates to 5%. And that's sort of the crisis that we saw, which really never spread to Wall Street. We were never talking about Morgan Stanley, Goldman, JP War.”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT
“No one wants to do business with the bank and the bank is over. And that's really the story of SVB. And then you look, you know, you can draw the line from SVB to banks that had similar problems on the liability side, namely signature and then First Republic, which had a lot of the same clientele as SVB. And then you start to worry about PacWest, all these other West Coast banks. But signature had next to nothing with respect to Unrealized Losses. So you really can't just tell the story of looking at the balance sheet after the fact and going, oh, it was these unrealized losses, which were bad, but they were widely known. But the business still looks solid. And if the business is still solid, you can raise new equity. And it wasn't until SBB came out and said, look, our business is worse than we expected that the crisis gets set off. And then investors go, okay, what other businesses are worse than...”
2023-07-11 · Forward Guidance · The Basel III Endgame: Bank Regulation In A Post-SVB World | Steven Kelly · IDENTIFIED FROM THE TRANSCRIPT