2023-05-03 What Is Lars Thinking ("WILT")

Submitted by Lars.Toomre on Wed, 05/03/2023 - 14:00
First Republic Bank sign

The first two days in May have been spent in San Diego at the 2023 American Bankers Payments Forum. Hence, Lars was on the West Coast among commercial bankers the two days after the failure of First Republic, a west-coast-focused bank, that primarily failed due to its loan book of self-originated mortgages.

Jamie Diamond said yesterday that the banking crisis is largely over. There is absolutely no f**kin' way that statement is true. We are in the midst of a credit crisis largely caused by unrealized losses in the commercial banking sector.

Most of those losses are in the "held to maturity" bucket of a bank's assets. For a great number of banks, the number one asset in that bucket are residential home loans originated for the bank's customers. Those loans below the FNMA/FHLMC threshold are generally securities and sold. Those loans above the limits in 2020, 2021, and 2022 were retained. Commercial banks are stuffed with "jumbo" mortgages!!

This crisis is in no way over as those mortgages are down 15% or more!!