[fnordpiglet]

They could have hedged their rates risk with swaps and other instruments. They didn’t do that extremely basic risk management for a bank because they didn’t want to reduce deposit interest payments or reduce profits. They essentially left unhedged a tail risk that was fairly likely (interest rates wouldn’t stay in zero range forever and mean reversion will set in at some point), and predictably it ate their lunch. The confounding factor is they probably assumed rates would rise gradually. The Feds decision to rapidly raise rates without checking rates exposure across the banking and asset management world speaks to gross incompetence. SVB and others were relatively transparent about how poorly they were managing rates risk and even basic due diligence by any of the multitude of regulators for a bank would have revealed their risk exposure to rates and the jeopardy the feds whip saw policy put them in. The fact they didn’t check to see what stress sudden and rapid rate increases would have on banks outside the too big to fail class is unforgivable.

Jerome Powell is a polisci major. That’s a great degree for getting drunk daily and still graduating. He’s not the brightest bulb that has sat in his seat. Yellen at least was a PhD in economics from Yale who was famous for her meticulous attention to detail. Notice when the regional banks blew up the treasury and associated executive functions stepped in and shored up the Feds mess, and the fed just stood there saying “oops!” The fact he was picked by DJT, the Jerome Powell’s primary qualifications (given the cabinet selection process) were likely looking the part and flattering the boss.

[safog]

Why don't larger banks (who presumably have hedged properly) not pay a real interest on deposits at this point? I don't think it's just greed.

The current bank of america / chase interest rate on savings accounts is 0.01%. No rational buyer should accept that when a money market is yielding 5%. People are moving deposits to money markets. That should force the banks to bump up rates.

Maybe they lose more by bumping up rates than they do by keeping them the same and losing deposits but I struggle to see that.

[fnordpiglet]

Because they don’t have to. You deposit there because they’re too big to fail or have such an excellent retail experience or are so brand saturated you don’t make a choice. They are sitting on too much deposits as is, but even without that fact it is purely greed - or, to use another phrasing, it’s the right business decision for maximizing profits. They literally have no reason to improve returns on deposits.

Goldman is trying to buy their way into retail banking and offer very competitive rates. Other more established retail banks are leveraging their size and reputation to maximize profits as they don’t see any upside to increasing rates. They don’t need more deposits, and they won’t lose a meaningful deposit base.

[safog]

> They are sitting on too much deposits as is, but even without that fact it is purely greed - or, to use another phrasing, it’s the right business decision for maximizing profits. They literally have no reason to improve returns on deposits.

Can I look up deposit volume per bank somewhere? I assume even banks will care at some point. 1% probably not, 10% probably yes?

[fnordpiglet]

https://www.mx.com/blog/biggest-us-banks-by-deposits/