Tea at Trianon: On the Signature Bank Fiasco

John Wilson Croker on Marie-Antoinette

"We have followed the history of Marie Antoinette with the greatest diligence and scrupulosity. We have lived in those times. We have talked with some of her friends and some of her enemies; we have read, certainly not all, but hundreds of the libels written against her; and we have, in short, examined her life with– if we may be allowed to say so of ourselves– something of the accuracy of contemporaries, the diligence of inquirers, and the impartiality of historians, all combined; and we feel it our duty to declare, in as a solemn a manner as literature admits of, our well-matured opinion that every reproach against the morals of the queen was a gross calumny– that she was, as we have said, one of the purest of human beings."

~from History of the Guillotine by John Wilson Croker, 1844

Edmund Burke on Marie-Antoinette

"It is now sixteen or seventeen years since I saw the queen of France, then dauphiness, at Versailles; and surely there never lighted on this orb, which she hardly seemed to touch, a more delightful vision. I saw her just above the horizon, decorating and cheering the elevated sphere she had just begun to move in, glittering like a morning star full of life and splendor and joy. Oh, what a revolution....Little did I dream that I should have lived to see such disasters fall upon her, in a nation of gallant men, in a nation of men of honor and of cavaliers! I thought ten thousand swords must have leaped from their scabbards, to avenge even a look which threatened her with insult. But the age of chivalry is gone; that of sophisters, economists, and calculators has succeeded...."

~Edmund Burke, October 1790

Sunday, March 26, 2023

On the Signature Bank Fiasco

From The Post Millennial:

Regulators shut down New York City based Signature Bank on Sunday, a financial institution which had previously cut ties with President Donald Trump following the riot at the US Capitol on January 6, 2021. Signature Bank is the second financial institution shuttered by the Federal Deposit Insurance Corporation (FDIC) this week after Friday's collapse of Silicon Valley Bank. According to CNBC, "Signature is one of the main banks to the cryptocurrency industry. As of Dec. 31, Signature had $110.4 billion in total assets and $88.6 billion in total deposits, according to a securities filing."

On January 12, 2021, the bank told The New York Post that it had begun the process of closing Trump’s two personal accounts and “will not do business in the future with any members of Congress who voted to disregard the Electoral College.” According to the outlet, Signature also posted a “scathing statement” on its website slamming Trump stating, “We have never before commented on any political matter and hope to never do so again.” (Read more.)

From Brownstone Institute:

Indeed, notwithstanding all the Mickey Mouse aspects of the SIFI capital standards regime, it might well be wondered whether Signature and SVB would still be open today had they needed to adhere to JP Morgan levels of capital and liquidity, but one thing is certain: Getting the benefits of a posthumous SIFI designation that they were never required to adhere to while they were still among the living is a new low in Washington servility to the powerful. In this case, the billionaire overlords of Silicon Valley and the VC racket whose deposits were at risk until about 6PM Sunday night.

And yet, and yet. The grotesque bailout of the large depositors who wear the Big Boy Pants at these institutions is just the tip-of-the-iceberg of the outrage warranted by this weekend’s pitiful capitulation.

It apparently became evident even to the brain-dead zombies who run the triumvirate in Washington that bailing out all SVB and Signature Bank depositors would trigger a massive run on deposits at other “small” banks—and for that matter most any non-SIFI institution. So they extended the bailout to the entire $18 billion universe of US bank deposits, more than $9 trillion of which are not covered by the existing $250,000 FDIC insurance limit.

And pray tell what lighting enactment of a Congress which was not even in session over the weekend, or prior enactment that no one on earth ever heard of, was this sweeping commitment of taxpayer funds based on?

The true answer is essentially institutional arrogance. Technically, the new Bank Term Funding Program (BTFP) was invoked under the Fed’s emergency authorities to handle “unusual and exigent circumstances” by cranking up its printing presses. But this new addition to the alphabet soup of facilities first stood up during the 2008-2009 crisis is just plain over the top.

It will allow banks to borrow 100 cents on the dollar against the book or par value of trillions of UST and Agency debt on their balance sheets. Yet much of it is massively underwater owing to the fact that at long last the yields on fixed income securities are being allowed to normalize. And unlike normal free market practice, BTFP users won’t even have to over-collaterize their loans.

Accordingly, this is a huge gift to banks which were sitting on some $620 billion in unrealized losses on all securities (both Available for Sale and Held to Maturity) at the end of last year, according to the Federal Deposit Insurance Corp. It also means that just the Big 4 banks—as shown in the second chart below—are getting a $210 billion bailout. (Read more.)