It just sounds like the feds are putting regional out of banks out of business and transferring the assets to favoured banks.
The WaMu smash and grab is the new model.
Yes
As near as I can tell someone came up with the bright idea of these banks buying long term treasuries. That under the accounting rules this would still count toward the amount of money they need to keep on hand. It gave them a small extra amount of profit somehow and everything seemed OK. This spread as a common practice at the regional banks.
Then when inflation hit and interest rates climbed those long term treasuries were worth half of what they were originally purchased for. Now if the customers don't need their money back, no big deal, you just wait out the 10 years and get all your money back. But if enough money starts leaving the bank and now you are forced to sell off those 10 year treasuries at present value you go bankrupt rather quickly.
Had these banks kept their reserves in a ladder of short term treasuries there wouldn't have been a problem. You can likely set up the cash flow to maximize getting your full amount of money out of the short terms.
I have never seen an article as to why this practice was so wide spread in the industry. I suspect the Fed needed buyers of the long term and convinced the regionals they would have their back.
The fed for a while was floating many of these regional banks by covering their long term exposure under the Bank Term Funding Program but that ended back in March 2024.
The kicker on this from what I have read is the FDIC doesn't have enough money to cover all the regional banks that will fail. That's why they are working out sales of assets to kick the can down the road so to speak. But as we saw with the deal the FDIC put together for Signature bank last year, New York Community Bank (the new owner of Signature's assets) is now having trouble.
corralling the sheep into banks working with the government that will eventually tell you one day we are going digital