Thomas Hoenig on bank asset growth as a red flag

When I was in supervision, we looked at accelerated growth.  That was a red flag.

~ Thomas Hoenig, former president of the Federal Reserve Bank of Kansas City

Judy Shelton on how the Fed's stress tests missed the Silicon Valley Bank failure

A: I will say the call for more stress tests overlooks the fact that the stress tests that became a part of the post-2008 regime were really oriented toward what will the bank do to survive if the Fed drops rates to zero again.  And it's uncanny, given that the Fed has over a trillion [dollars] in unrealized losses on its own portfolio that wasn't alert to this sort of dilemna in the valuation of bank assets.

Q: Yeah, theoretically the Federal Reserve is broke.

~ Judy Shelton, senior fellow, Independent Institute, "How Did Silicon Valley Bank Miss Its Ticking Time Bomb?," Fox Business, 1:30 mark, March 27, 2023

 

Barry Sternlicht on how the Fed encouraged banks to take on interest rate risk

There are 400 PhDs at the Federal Reserve.  Four hundred.  This weekend, me and two of my colleagues went through six regional banks and if you had to mark them to market, they're all insolvent.  Now why are they insolvent?  Actually it was the rule book set up by the government.  The government said that if you own 10-year fixed agencies and mortgage-backs or if you own Treasuries, it's one-fifth the capital requirement than if you bought floating rate notes, senior secured floating rate notes.

So you wound up with a situation, the banks were following the rules.  They were following the rules and they did not have to mark those securities to market.  We run the nation's largest mortgage REIT.  We have 2 billion dollars in securities, and 90 percent rate-hedged.  It couldn't have happened to us.  But because the banks face no consequences with the held-to-maturity category, they decide to save some money and not put any hedges in place.  That's irresponsible, but it is the rule book that the OCC [Office of the Comptroller of the Currency] and the government, the Treasury and the Fed oversaw, and they didn't even stress test these banks if rates rose.

~ Barry Sternlicht, CNBC interview, 1:25 mark, March 23, 2023

Maxine Waters on recent bank failures: "this is all about regulation"

This is all about regulation and this is all about the fact that at some point in time there was great advocacy for making sure that the regional banks and the smaller banks didn't have to comply with some of the rules that perhaps would not have allowed them to get into this situation because there would've been stress testing and more oversight and more watching of what was going on.  And I certainly think all of that needs to be tightened up.

~ Rep. Maxine Waters (Dem), Financial Services Committee, "SVB collapse leads to big payday for short sellers," Yahoo Finance, 0:15 mark, March 15, 2023