The other thread has received as good, bipartisan participatio/conversation as I’ve seen on the Bunker in a long, long time. Not sure why, but congrats Bunker. So…let’s press our luck…
A question that has plagued me about this situation: why was the Fed and OCC (the other bank regulator) caught so off-guard by the impact of rising rates on the banks ALCO portfolios? Hell, it was something I wondered about, but haven’t been in direct Bank work/consulting in years, so I dismissed those thoughts along the lines of “if my dumb ass is thinking about it, I KNOW the people who get paid to are, so I’m sure they’ve got it handled.” Yes, I realize I was saying this about Govt employees, but I always found most regulators to be very competent. How did they not “Pythagorean Theorem“ it (i.e. a+b=c) and say since I’m making banks to add “high value”** securities for safety & soundness and we‘re raising rates, then it stands to reason that their net asset bases will actually see deterioration? Yes, good ALCO ops will help manage this and should, for the most part eliminate it, but that’s if everything is perfectly run…and in what bank does that happen in? None.
Yes, run on deposits is impossible to predict, but someone piecing together the bank’s balance sheet challenges should have easily been foreseen. Or what am I missing? There has to be something.
PS - I think the Fed’s ”new” backstop facility that was announced Sunday/Monday was them basically saying “Whoops, we screwed up…and this is part of our make-up call.”
@JardelAU @warjags @WoSDWDE @Eagle @Wall Street Guy
Sorry to those guys/ladies I’m forgetting to tag…
** - High Value = fixed rate, investment grade bonds, whether in Corp or CMBS.
A question that has plagued me about this situation: why was the Fed and OCC (the other bank regulator) caught so off-guard by the impact of rising rates on the banks ALCO portfolios? Hell, it was something I wondered about, but haven’t been in direct Bank work/consulting in years, so I dismissed those thoughts along the lines of “if my dumb ass is thinking about it, I KNOW the people who get paid to are, so I’m sure they’ve got it handled.” Yes, I realize I was saying this about Govt employees, but I always found most regulators to be very competent. How did they not “Pythagorean Theorem“ it (i.e. a+b=c) and say since I’m making banks to add “high value”** securities for safety & soundness and we‘re raising rates, then it stands to reason that their net asset bases will actually see deterioration? Yes, good ALCO ops will help manage this and should, for the most part eliminate it, but that’s if everything is perfectly run…and in what bank does that happen in? None.
Yes, run on deposits is impossible to predict, but someone piecing together the bank’s balance sheet challenges should have easily been foreseen. Or what am I missing? There has to be something.
PS - I think the Fed’s ”new” backstop facility that was announced Sunday/Monday was them basically saying “Whoops, we screwed up…and this is part of our make-up call.”
@JardelAU @warjags @WoSDWDE @Eagle @Wall Street Guy
Sorry to those guys/ladies I’m forgetting to tag…
** - High Value = fixed rate, investment grade bonds, whether in Corp or CMBS.
