Yes, tax attorneys/acccountants work within tax rules/laws to “optimize” company’s tax positions, and accountants do the same to “optimize” company’s accounting positions within accounting rules. They’re paid for providing these services to the company.
The problem is with the rules themselves. Just like in college admissions, insiders would almost always prefer rules that increase opacity and reduce potential scrutiny by outsiders (in this case, scrutiny of the interest rate risks by investors and regulators).
I don’t think it’s necessarily bad to have representatives of banks on Fed boards, as long as they aren’t the ones controlling the board. It’s good to have a diversity of perspectives on the board, and that includes the perspectives of those being regulated.
Disagree. “Diversity of perspectives” can be obtained by hiring former bankers into the regulatory apparatus. And/or by having banker advisory sub-committees for input. But, putting the Foxes in charge (on the Board) of auditing the Hen House makes no sense whatsoever.
To make banks safe against bank runs, banks would have to invest only in money market assets to the level needed to cover deposits that can be withdrawn at any time (including CDs where penalties only apply to the interest accrued), and longer term loans to businesses, houses, etc. need to be funded with non-callable deposits or borrowing, or equity.
But that would mean that banking services for most deposit accounts would no longer be subsidized by the interest rate spread gained from borrowing short and lending long, so expect banking costs and fees charged to customers to be higher.
An intermediate step between the current situation and the above banks-as-money-market-fund concept would be for banks to use only adjustable rate loans and bonds to the level needed to cover deposits, so that they can be more easily sold in the financial markets without as much loss if a bank run occurs after an increase in interest rates.
Your local and regional banks are supposed to be boring. They take your deposits and make loans to local businesses and consumers. Other than the fixed rate (and hybrid) mortgages, their loan book is supposed to consist of mostly floating rate products. For those fixed rate loans and mortgages, they can purchase hedges and pass on the cost to the borrowers. These banks aren’t supposed to be run like investment managers who buy other financial products.
Even people who used to be bankers will be accused of doing the bidding of the banking industry. You see this kind of thing all the time with the president’s Cabinet, where secretaries that used to work in particular industries get accused of favoring their former employer or industry over the public good, even when there’s no evidence of that.
It was Congress and the President that in 2018 that passed the law that reduced regulatory requirements for medium-sized banks like Silicon Valley Bank, not the Fed. Bernie’s shtick is to always look for a reason to demonize big business. Blaming the Fed for bad banking laws is like blaming the IRS for bad tax laws. Blame Congress and the President.
Of course, but that is much different than putting a current CEO on a regulated entity on the board of the regulator. That CEO is representing their individual bank first and foremost, and the banking industry tangentially.
“Blaming the Fed for bad banking laws is like blaming the IRS for bad tax laws.”
This was a failure of the regulator, not the existing banking law.’
SVB didn’t really have much bad debt, bad loans. They were underwater on their investments vs. interest paid. It should have been an easy thing for any outside junior auditor to analyze. Bond durations of Treasuries is simple math. Perhaps the Fed just missed it due to incompetence. Regardless, putting the CEO on the board of the Regulator where they can wine and dine them, just gives the appearance that the auditors didn’t look too hard.
Before the 2018 law, there were strict financial regulations for banks that had over $50 billion in assets. The 2018 law changed that threshold from $50 billion to $250 billion. Silicon Valley Bank and Signature Bank, which both had assets that fell between those two numbers, benefitted from that.
I seriously doubt auditors felt any pressure from a Board of Directors. Most of those auditors probably didn’t even know who sat on the Fed boards.
We all know about the interest risks in the SVB’s bond portfolio, but what has been overlooked in the SVB collapse is the risks in its loan portfolio. Not only First Citizens got a deep discount (23%) when it purchased SVB’s loan portfolio along with all the deposits, but it also got FDIC to share future losses on these loans. Lending to startups is a risky business to begin with, and in a rising interest rate and difficult funding environment, the credit risks in these loans are likely multiplying.
Not sure if it’s been mentioned, but looks like one of those is buying SVB, First Citizens Bank. Very conservative, 100+ year old North Carolina bank.
Although it’s local we have a lot of local banks that became big time in NC. I think First Citizens is the 20th largest bank in the country. Bank of America used to be NCNB (North Carolina National Bank) and anyone over a certain age can sing the NCNB theme song since they used to run ads during ACC basketball games.
