2023-04-10T17:27:00-04:00April 10th, 2023|2- Daily Briefing|

FRB-NY Study: When Franchise Value Flies Out the Window

In a timely Friday post ahead of earnings season, the Federal Reserve Bank of New York’s staff posted an assessment of the impact of higher interest rates on bank franchise value.  This is judged by both going concern valuations (i.e., the economic value of equity, known as EVE) and how much tangible common equity (TCE) is left after liquidating a gone concern.  Stylized models are developed of “traditional banks” – i.e., those where sticky core deposits constitute most liabilities and assets are principally adjustable-rate – versus “alternative banks” with large holdings of floating rate liabilities along with large books of fixed-rate assets.

Warren, AOC Challenge SVB’s Large Depositors

Following her request and that of Sen. Blumenthal (D-CT), Sen. Warren (D-MA) and Rep. Ocasio-Cortez (D-NY) yesterday sent a series of letters to fourteen of SVB’s largest corporate depositors seeking to get at any abuses that may have precipitated the $42 billion run the day before the bank failed on March 10.  The letters thus demand explanations for what they call a “mutual backscratching dynamic,” any actions related to deposit withdrawals, and the rationales behind large uninsured deposits.