Jeff Lubatkin, CFA

Bank stress tests are crucial as they evaluate the resilience of large banks under severe economic scenarios. The 2024 results show that major banks can withstand a severe recession, maintaining more than the minimum required capital levels despite significant hypothetical losses. This ensures they can continue lending to households and businesses, supporting economic stability. Stress tests impact bank operations by ensuring that banks can absorb significant losses while maintaining required capital levels. This helps banks remain stable and continue lending during economic downturns, supporting overall financial stability. The tests also identify potential vulnerabilities, allowing banks to address them proactively.

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"A court-appointed trustee in the bankruptcy case said last week that there is an $85 million shortfall between Synapse's partner banks and what depositors are owed." This is the biggest issue with fintechs and BAAS. How are you assured that the technology firms are keeping accurate ledgers? How assured are you that they have the financial standing to not fail and file bankruptcy to lock up your funds? This is a step towards pre-FDIC insurance environment, think 1800s-early 1900s when banks would fail and people would have to wait to see if they collected their funds. Liquidity was not guaranteed, nor was your principal. I am concerned about the tail risk here and the lack of disclosure by these technology firms about their financial standing, ledger auditing to accept deposits regardless of the support of the BAAS providers. This is a serious risk in an environment whereby it is harder to raise capital. https://lnkd.in/gaebyuHK

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Investors lose $221 million in U.S. bank failure.    Yesterday, Friday April 25th, 2024, shares of Republic First Bancorp fell 60%.  The market capitalization was less than $1 million. It had started the year with a market-cap of $221 million. It was already a “problem institution” at that time. Yesterday, U.S. regulators seized Republic First Bancorp.   Insured Depositors will not lose any money thanks to the FDIC insurance of $250’000 per depositor.   They estimated the failure will cost the Federal Deposit Insurance Corporation (FDIC) around $667 million. The bank and its depositors will be taken over by another bank, called Fulton Bank. The total assets of Republic were around $6 billion so it’s costing the FDIC around 10% of the bank’s assets.   How safe is your FDIC insured Deposit? The Federal Deposit Insurance Corporation (FDIC) was created in 1933 to assure Americans that insured deposits in insured banks are safe.  Since FDIC insurance began in 1934, no depositor has lost a single penny of insured funds due to bank failure.   To meet its guarantees to investors the FDIC holds a Deposit Insurance Fund (DIF).  As of December 31st, 2023, the DIF held $121.8 billion. Republic’s failure will make but a small dent in the DIF.   The total amount of insured deposits across all banks amounted to $10.62 trillion on December 31st 2023. The DIF is thus big enough to cover 1.15% of these deposits.   How many more banks are at risk?     On December 31st, 2023, there were 52 Institutions described by the FDIC as “Problem Institutions”. Collectively they held assets of $66 billion.    In conclusion, with total assets of $121.8 billion, that’s not a problem for the FDIC unless things get a lot worse.

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Republic Bank officially collapses and seized by regulators. Banking Crisis II begins… The Pennsylvania Department of Banking and Securities has taken control of Republic First Bancorp, with all assets and deposits being transitioned to Fulton Bank. This development comes after significant financial struggles within the regional banking sector. Key Figures: - Total Assets: $6 billion (as of Jan. 31, 2024) - Total Deposits: $4 billion - Estimated Cost to Deposit Insurance Fund: $667 million Republic Bank's operations across 32 branches will continue under Fulton Bank, marking a substantial shift in the regional banking landscape. This move aims to protect depositors and stabilize the bank’s operations following its challenges in improving profitability and managing higher costs.

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Congratulations to CleanFiber's CEO, Jonathan Strimling for earning the well-deserved 2024 Entrepreneur of the Year Award in New Hampshire! I have learned so much working alongside Jon in the past year to secure CleanFiber's Series B fundraising round, apply for various grants, and explore areas of strategic growth for the business. He is truly one of the most impressive entrepreneurs I have ever met. Drawing on my investment background, there are certain things investors typically look for in a founder/CEO - I look for some of the same things whether I'm looking to invest in, evaluate or join a company - tenacity, drive, grit, emotional intelligence, strategic vision, knowing when to get "in the weeds" and when to keep things high level. Jon has all of those. But working alongside him, I have come to really admire and appreciate the importance of two more traits in particular that a typical investor wouldn't see during a pitch -- two that are actually critical to running a successful business that's growing as rapidly as CleanFiber. 1) Mastery of context switching, and 2) the ability to build coalition. Jon is able to context switch extremely effectively - he is able to shift gears from an in-depth engineering discussion, to people management, to sales, to unit economics, to preparing for Board discussions faster than anyone else I've ever worked with. Most importantly, he is able to do this fully and presently, dealing with each new problem set anew, and without context hangover. As far as coalition-building goes, I believe this is an under-appreciated skill in an era where we idolize visionary founders who pay a social price for their genius (think Steve Jobs, Elon Musk). I've met many aspiring entrepreneurs who will never build great companies if they can't figure out how to get a team, a Board, and an investor base excited and on board. Not just on board, but actively rowing alongside in the same direction. If you are a founder or a CEO, it's not enough to create, think strategically or act massively. You must practice articulating your vision to others in a way that resonates. You must spark positivity and excitement in your team, provide clarity, and relentlessly confront and remove roadblocks. For this and so much more, Jon certainly has earned this award, and I'm honored to be learning alongside him! https://lnkd.in/gyG_rBwY

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Another one bites the dust as a regional bank falters under the weight of current economic pressures. While this may not be a repeat of the Global Financial Crisis, banks are still grappling with significant challenges, particularly in relation to their balance sheets. The situation is unlikely to ease until interest rates see a substantial decrease or all debt-dependent asset classes adapt to the new reality of high interest rates for longer. My prediction leans towards the latter scenario. In any case, we should brace ourselves for a turbulent 18 months ahead, especially for debt-dependent asset classes such as commercial real estate. These unprecedented times have left many commercial real estate owners indecisive, particularly as property values have plummeted rapidly over the past two years, primarily due to rate fluctuations rather than the performance of the assets themselves. We believe this situation, combined with trillions of dollars of loan maturities, will lead to numerous Special Situations in the equity side of commercial real estate, too. Analyzing data and understanding patterns has been central to our investment strategy since our inception, allowing us to navigate these scenarios effectively, identify emerging opportunities, assess risks and make informed decisions as the market evolves. Now more than ever, professional guidance is essential to make these critical decisions. The Wall Street Journal Peachtree Group Peachtree Group Credit Jared Schlosser Brian Waldman Jatin Desai Daniel Siegel Michael Ritz Michael Harper Brent LeBlanc Gina Heeb Lauren Thomas Justin Baer https://lnkd.in/gMCi8CWz

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I have been getting a lot of questions on the change of benchmark indexes from LIBOR to the new SOFR (Secured Overnight Funds Rate). Here is a quick description of that change. "The main difference between SOFR and LIBOR is how the rates are produced. While LIBOR was based on panel bank input, SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities in the repurchase agreement (repo) market." https://lnkd.in/gUN-gtHZ

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More penalties toll at this venerable bank in NYC. Noncompliance with regulations has consequences and when organizations operate on passing grades for their compliance responsibilities then the margin for slip-ups becomes zero. Far too often, compliance is viewed as an inconvenience that interferes with meeting profit goals. But time and time again, penalties wipe-out marginal savings, exponentially. Perhaps if bank compensation policies included clawback provisions, perhaps this recurring experience would vanish from future business experiences. Imagine practices that would clawback previous bonus payments when the banks is determined to be out of compliance and is required to pay penalties that wipes out previous years profit performance. The organization may no longer seek to simply seek passing grades when compliance is involved. #banks #regulatoractions #noncompliance

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At Alvarez & Marsal, we strive to deliver tangible outcomes. I put a lot of focus on action and accountability. Be the one who delivers results, not excuses. #Motivation #WhatInspiresMe #ResultsDriven #SuccessMindset

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Pennsylvania based Republic bank fails, in a first for the year. It will 'only' cost the FDIC 667 million USD or roughly 6.7 PCT of the bank's 10 bill USD holdings. Do not think this is the first and last for 2024. Banks hold a lot of their reserves in US treasuries which are falling in value as interest rates rise. And hence the banks' reserves accordingly fall in value. But in a deft accounting 'now you see and now you don't', the Financial Accounting Standards Board allows the banks to define the money losing bonds to full value. The magic incantation is HTM or spelled in full 'Held to Maturity'. And voilà, the bank bond losses disappear! All is fine unless...depositors actually need their money and then the flim goes flam and the money is...gone! https://lnkd.in/eQKtXz6m

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A group of banks and business groups are suing the Federal Reserve over the annual bank stress tests. The Bank Policy Institute, which represents big banks like JPMorgan, Citigroup and Goldman Sachs, is joining the American Bankers Association, the Ohio Bankers League, the Ohio Chamber of Commerce and the U.S. Chamber of Commerce to file the suit, which they said aims to “resolve longstanding legal violations by subjecting the stress test process to public input as required by federal law.” #banking #finance #bank #currentaffairs #business #money #banks #studentloan #loan #mortgage #borrower

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Bank of America take: markets faced turbulence and volatility today following a number of negative #macroeconomic data releases we saw last week (#joblessclaims, #ism Manufacturing, #unemployment, #payroll all coming in below expectations). Despite the selloff over the course of the trading day, equity #futures this evening are pointing to a recovery in tomorrow’s session (SPX futures up 1% and Nikkei recovering ~9% as of 9pm ET). The 4.3% Unemployment Rate triggered a greater than 0.5 reading in the “Sahm Rule” which has historically been a strong recessionary indicator. The 10/2 curve un-inverted briefly today after each plunged significantly last week amid the flight to safety. The #vix #volatilityindex rocketed to close up 65% at 38.6 today (highest level since October 2020), recovering over the trading day from an earlier high of 65.7. The Bank of Japan #boj surprised last week by raising its short term policy rate, which caused a #yen carry trade unwind resulting in investors rushing to close their Yen positions. The move in the #currency triggered a 12.4% selloff in the #nikkei as worries develop that the currency move may impact demand for the export heavy economy. That overnight move helped trigger a sell-off at market open in the U.S. The #s&p closed down 3%, a risk-off leg lower but not indicative of panic that one would think the VIX move would indicate. The VIX move was the largest one day spike in data going back to 1990. Traders had become accustomed to the VIX being rangebound at a suppressed level and crowded around short volatility trades which exacerbated the move. #geopolitical concerns still at the forefront as the market monitors the situation in the Middle East. #entreprnuer #growthcapital #venturecapital

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