Breach of Trust: Decoding the 2023 Banking Crisis

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Breach of Trust: Decoding the 2023 Banking Crisis

Рет қаралды 36,100

Жыл бұрын

It has been an eventful year for banking, with large banks (SVB, Signature and First Republic) all falling like dominos, leaving investors unsettled and regulators off balance. That said, markets have been remarkably resilient through this crisis, suggesting that markets are either in denial or that they have concluded that this is a crisis with relatively small systemic risks. I am a dabbler in banking, and as a novice, I start with basics by looking at the structure of the banking business, with the intent of not only finding the value drivers but also the risk exposure. I use that structure to evaluate how the unprecedented rise in rates in 2022 affected banks, both in good ways (by making their low or no interest deposit base more valuable) and bad ways (by reducing the values of their loans and investment securities). I also look across the bank failures of the year, looking for patterns, and conclude that it is deposit stickiness that seems to be the prime factor. I close by looking at some of the determinants of this stickiness and why bank regulators will have to incorporate these measures into future regulations.
Slides: pages.stern.nyu.edu/~adamodar...

Пікірлер: 62

@roym1444 Жыл бұрын

It would be great to have a mini series of videos where Aswath breaks down industries, and what the key drivers of the sector are. This one was really helpful

@vikaskapoor321 Жыл бұрын

Agree

@shaunsensei6948 Жыл бұрын

WOULD LOVE IF THIS HAPPENED!!

@theblooder599 Жыл бұрын

Absolutely! Please!

@ibonnan58 Жыл бұрын

Would love to watch that!

@erkanb.4611 Жыл бұрын

❤

@David.Marquez Жыл бұрын

Been waiting for a video on this ever since SVB failed! Thank you professor!

@DennisFinancialDoctor Жыл бұрын

The beginning is such a critical point. Our news channels and some big KZfaqrs want to make daily videos just to get paid. Meanwhile the real OG’s are saying, “nothing has changed. There’s no reason to freak out.”

@me0101001000 Жыл бұрын

This whole situation reminds me of an anecdote from Hong Kong in the late 1980s or early 1990s. It was a rainy day, so a family stands under a shaded area just outside the bank, waiting for a bus. Eventually, someone saw, assumed they were in line, waiting to withdraw money from the bank, and they got in line to withdraw their money. Other people saw, and started to panic as well, thinking a bank run was about to happen. They, too, rushed to pull their money out. Before long, the perceived bank run became a real bank run. Sometimes these things happen for no reason beyond transient fears . And of course, because how connected everyone and everything is now, just the slightest panic at the right time can cause mayhem. I should add that this is, to my knowledge, just a story, and a good one in my opinion. But like most stories, there is usually a grain of truth.

@jimjackson4256 11 ай бұрын

As soon as I see Mr Damodaran has a post I want to hear what he has to say.

@Rachelschneider03 Жыл бұрын

This recession is most likely the result of an external factor. For the first time in decades, the United States is losing its clout as a federal reserve currency. They don't have any more economies to use to control inflation, and less money is being spent on stock and oil trading than in the past. They all lend support to the idea that a new multilateral world order is in the works.

@ReidCoffman1 Жыл бұрын

Keep this in the back of your mind. There are good days and bad days. It's a zero-sum game, but keep this advice in mind: spend wisely, invest wisely, and diversify your holdings so that when one performs poorly, the others do as well. This can be accomplished by hiring a knowledgeable specialist whose platform provides a wide range of investment options. By doing so, you leave little room for regrets and may even gain more.

@AshtonGrace Жыл бұрын

With the assistance of an investment advisor, I was able to diversify my $401k portfolio across multiple markets, earning over $980k in net profit from high dividend yielding stocks, ETFs, and bonds in just a few short months.

@MariusNatt Жыл бұрын

@@AshtonGrace Would you mind recommending a specialist with a variety of investment options? This is extremely rare, and I eagerly await your response.

@AshtonGrace Жыл бұрын

@@MariusNatt My trustworthy advisor, Maria Teresa Tyler, works for a fee only. She actually offers free consultations and always has the interests of her clients at heart. She and I have been colleagues ever since I turned 40. She is a busy woman, but if you can catch her attention, she might be able to help.

@phizzhead53 Жыл бұрын

3:11 banks can lend out more than they have in deposits as banks create money when they make a loan, so banks need the deposits to satisfy a reserve requirment. Banks actualy create money which is why fedral reserve intresest rate effects the money supply

@joao.stigliani Жыл бұрын

What a great class.. thank you for sharing this precious wisdown

@wm6549 Жыл бұрын

Thank you, Professor!

@pauljones9150 Жыл бұрын

The man, the myth the legend🎉

@AbhijitGuptamjj Жыл бұрын

Thanks Prof. for such a lucid explanation!

@pedroguedes278 Жыл бұрын

Thanks very much, Professor!

@faizannezami7696 Жыл бұрын

This is quite insightful and helpful

@Pawankpandey Жыл бұрын

Professor ! Awesome work !

@dilipvangal Жыл бұрын

Awesome insights!

@gouthamreddy2371 Жыл бұрын

Thank you professor. Apple inc anounced higher interest rate, how this going to effect the banking industry if at all this crisis is all about unsticky deposits. The company with highest mobile phones sales introducing high yield savings account is a game changer or disaster.

@Aniket_solanki Жыл бұрын

Thank you

@arjuniyer5610 Жыл бұрын

Thank you professor

@jerikhowijaya8844 Жыл бұрын

Hi Professor, in the same vein that a bank’s loan to customers and investment securities become less valuable as interest rates rise, won’t the same principle apply to the bank’s interest bearing deposits and debt?

@danihellz Жыл бұрын

This = 🔥

@manuvns Жыл бұрын

Good ! we need a video on emerging markets equties valuation in current times

@fabiopompeo9095 Жыл бұрын

Thanks

@fkklkomvocl1234gv Жыл бұрын

Sick burn!

@aniket2812 Жыл бұрын

What should have SVB done to avoid the crisis?

@basamnath2883 Жыл бұрын

What is difference between regional bank vs regular bank like bank of America

@greenspot1123 Жыл бұрын

In a scenario where central banks raise interest rates rapidly, they should allow a larger HTM proportion in investment portfolio. The crisis ridden banks should have gone to central banks for a credit line against those HTM securities.

@AgapeEstate Жыл бұрын

Is Softbank Vision Fund on the way to get risk as well as SVB? Because the business model is similar

@ramakrishnanj3472 Жыл бұрын

thoughts on the role of the Federal Reserve, have they been a net positive for the US economy and citizens? 06:18 it is 1913 not 2013

@waitresstipwell Жыл бұрын

Federal Reserve Act was in 1913, not 2013.

@tastypymp1287 Жыл бұрын

Yeah, we get that....

@hvglaser Жыл бұрын

The opposite to “sticky” deposits should be “slippery” deposits.

@tastypymp1287 Жыл бұрын

Or liquid, even....

@ericheydemann9556 Жыл бұрын

Aswath, I do so enjoy drinking from your fountain of knowledge and wisdom . Good work out of you 👍 Eagerly awaiting the next

@DennisFinancialDoctor Жыл бұрын

Bruh

@rnm935 Жыл бұрын

Slurp

@tastypymp1287 Жыл бұрын

There's more to the story with SVB which still makes little sense. Generally, retail depositors are far less sensitive to interest rates than commercial depositors. It seems SVB attracted very large deposits from business and commercial type clients and high net worth individuals. The first mystery is why such sophisticated clients chose to deposit their capital with a bank, rather than invest the wealth which is how HNWI and business/financial investors operate. That's seems unusual.... As they're more sensitive to interest rates, it is not unusual or unexpected that they will quickly move money where they can get a better rate (money market funds for example). However, it is highly unusual that this would happen simultaneously. This smacks of being coordinated....

@obviouslymatt6452 Жыл бұрын

It's well known that it was coordinated. Not intentionally to bring the bank down, but iirc some big character in silicon valley found out about their massive unrealised losses and basically told everyone they knew to get their money out the bank.

@tastypymp1287 Жыл бұрын

@@obviouslymatt6452 Be interesting to know if the short interest changed prior to the bank run, including any inside c-suite sales.

@tastypymp1287 Жыл бұрын

@@obviouslymatt6452 Because the unrealised losses are not relevant where the assets are being held to maturity. That doesn't seem justification for the bank run.

@BigHenFor Жыл бұрын

Be careful what stories you tell yourself. The money deposited by the tech companies were reserves, derived as investment from their investors. Those deposits were made to allow SVB account holders to enjoy the services they offered such as really cheap mortgages, and other benefits the bank marketed to attract custom. These type of deposits aren't sticky, so to invest those deposits into illiquid assets was stupid. Moreover, SVB ran for 7 months without a Chief Risk Officer in place, the previous incumbent having resigned in Summer 2022. They weren't replaced until January 2023. When those deposits were invested in bonds is uncertain, but it must have been before 2023. Finally, the board members were aware that there were problems, as they quietly liquidated their holdings of SVB shares before their crisis became widely known. That alone should condemn them, but right now, it is unclear whether the decision to invest their deposits in bonds was informed by risk management insights or not. At best, it was a rookie mistake. At worse, it was done expecting some kind of rescue to be available. It certainly wasn't done with a consideration that their Depositors would move their funds immediately at the first sniff of trouble. So the conclusion made by the Professor is reasonable: in an age where Depositors can move their money almost instantaneously, the assumption of depositor stickiness is false. SVB's customers were tech firms. It's kind of obvious that their deposits would tend not to be sticky, as they come and go like autumn leaves. They're run by people who think of themselves as savvy futurists. They tend not to little old ladies who have banked with the same bank forever. Arguably, the Board bought about the demise of their bank by abandoning it. So many shares hitting the markets at the same time could not be ignored. If they had held on, they might have had some chance of getting respite, or a merger. But instead, they scuttled their own ship. Just proves being rich gives no immunity to folly.

@tastypymp1287 Жыл бұрын

@@BigHenFor I have not told myself a story, I've asked a pertinent question which you've entirely ignored. All you've done is repeat the official narrative. Why did you bother?

@marcwhite6267 Жыл бұрын

History fact : The 1907 banking crisis - the one JP Morgan famously stopped - gave rise to the Federal Reserve in 2013. 5:40

@raanadisa472 Жыл бұрын

Fed was created in 1913 instead of 2013

@marcwhite6267 Жыл бұрын

@@raanadisa472 Indeed it was.

@fulminating90210 10 ай бұрын

Wealthy people with big money in the bank don't need FDIC. Government will raise taxes and use those tax dollars to "bail out" the wealthy. They always do.