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Yellen says government will help SVB depositors but rules out bailout

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Re: Yellen says government will help SVB depositors but rules out bailout

#121

Post by bradleyjg »

walnutclosefarm wrote: post #98

I think Yellen is signalling the right approach, frankly. First, the balance between the bank's assets (its loans and the investments it made with depositors money, plus the bank's capital) and its liabilities, is such that SVB has enough holdings to cover nearly all of its deposits. The banks capital (that is its equity, and subordinated debt) should all go toward making depositors whole. That's what bank capital is…

Sure we taxpayers can toss in a few billion. In exchange, VCs can give up the carried interest loophole and founders can give up 83b elections.

Deal?

Re: Yellen says government will help SVB depositors but rules out bailout

#122

Post by belter »

gonzo41 wrote: post #99
belter wrote: post #82

Earlier quoted context omitted.

Paid out to the limit set up by FDIC rules you mean?

Yes you're correct. Another poster has detailed the process, but most of the depositors monies will be paid back in due time.

Just to be clear we are on the same page. The FDIC limit is 250K and most startups had more than that...

"FDIC - Deposit Insurance FAQs" https://www.fdic.gov/resources/deposit-insurance/faq/

Re: Yellen says government will help SVB depositors but rules out bailout

#123

Post by auntienomen »

SirensOfTitan wrote: post #28
NotACop182 wrote: post #13

Earlier quoted context omitted.

Did they help depositors that lost money in the last 500+ bank collapses? Why do they get special treatment? The government has laws and rules the depositors are insured up to 250k. Either they liquidate and everyone takes a hair cut. Or they wait till the bonds mature and can pay them out. But the government should not relieve anyone past what is legally available.

I’m inclined to agree, this kind of special treatment is fairly ridiculous, depositors in other bank failures with funds over FDIC limits have to wait for fire sales to recover, which can take years in some cases. I’m not sure exactly what Yellen is proposing (I only subscribe to print FT so no access), but it seems like special treatment for the well connected on Sandhill Road.

It's not particularly unusual. The FDIC has generally arranged things via sales and capital injections so that the bank owners get ruined while the depositors, insured and otherwise, get just about every back. If they did otherwise, no one would bank at local banks.

What is unusual is the Treasury secretary making public comment about it. But this is a unusually large bank failure and a rather critical moment.

Re: Yellen says government will help SVB depositors but rules out bailout

#124

Post by hanoz »

sithlord wrote: post #7

This actually makes a ton of sense, lets not forget that a bailout in this term is really pointing towards saving the bank itself, and its shareholders. There is inherent risk in equity investments, and it likely should have to suffer for its poor decisions. But when it comes to depositors, I think it makes a lot of sense to make them whole, especially in the case of SVB where the bank likely has pretty close to enou…

Bailing out the owners is obviously completely out of the question, but why bail out the depositors beyond the guarantees they knew they were getting at the time?

Funny how language is being used to frame all this. For depositors it's made whole, not bailed out, when of course it's no less a bail out.

Re: Yellen says government will help SVB depositors but rules out bailout

#125

Post by nightpool »

npalli wrote: post #80
marvin wrote: post #20

This is exactly the statement that's required, given the confusion and irresponsible politicization of deposit insurance. Shareholders lose 100%, depositors get 100% of their deposits back. It's a simple situation, and the former point (as opposed to the solution during the GFC) counteracts moral hazard.

I don't think she is saying (as of the article) that depositors will get 100% back. They will get help but could be with a haircut.

There will be a lot of political and financial pressure to value their HTM bonds at 100% because otherwise it will precipitate more runs on banks and more distrust in the financial system. And these are in fact the safest bonds in the world—they're going to get paid out, but the problem is that in 10 years, money isn't going to be worth as much as it's worth today. So banks don't necessarily want to buy them at full face value (because there are better things they could be buying), but in this situation, they're probably going to

Re: Yellen says government will help SVB depositors but rules out bailout

#126

Post by remote_phone »

belter wrote: post #82
gonzo41 wrote: post #66

Earlier quoted context omitted.

Yes, it's share holders who will realize the loss. Anyone owed money by the bank, ie depositors is now in a line to be paid as the FDIC sells everything and pays out the obligations.

Paid out to the limit set up by FDIC rules you mean?

Depositors will get a “special dividend” next week which is about 50% of their deposits. The other 50% will be coming as they sort out and sell the assets which would take a couple of months.

Re: Yellen says government will help SVB depositors but rules out bailout

#127

Post by belter »

auntienomen wrote: post #107
belter wrote: post #60

The first step would be to stop calling them Depositors. They are not and were never Depositors. That is what you have deposit boxes for...You do not have money at the Bank. You loaned money to the Bank. That is why they pay you interest on it...

For most of the past decade, banks haven't been paying interest on deposits, because rates were so low.

The value of the interest is not relevant to the truthiness of the concept. And zero is still a number, although some mathematicians might not agree...

Re: Yellen says government will help SVB depositors but rules out bailout

#128

Post by ericmay »

skwirl wrote: post #79
koolba wrote: post #59

Earlier quoted context omitted.

> But when it comes to depositors, I think it makes a lot of sense to make them whole, especially in the case of SVB where the bank likely has pretty close to enough assets to cover the liabilities (deposits), but its tied up in such long term investments that it could take a long time to get it out. If anybody gets an extra penny more than $250K from the Feds than that is by definition a bailout. > But moreso, when…

> FDIC insurance is not infinite. Not understanding that is no fault of the rest of society. I hope you realize FDIC insurance isn’t even guaranteed to be $250k. The FDIC is funded by member fees and can only cover a very small amount of “insured” losses. If it goes beyond that, depositors would need a bailout.

It’s practically infinite precisely because if a bank goes under and you lose your checking account the entire banking system immediately collapses and there is a real bank run 1920s style.

I look at the FDIC and its ability to either pay or be bailed out to pay as an existential function of the State (US specific) and the inability to do so threatens its existence.

Re: Yellen says government will help SVB depositors but rules out bailout

#129

Post by chewbacha »

bradleyjg wrote: post #61

Bailing out the depositors is still a bailout.

It’s an insurance payout, not a bailout. If someone totals my car the insurance doesn’t say “well, that’s the risk of owning a car” and pay nothing. Insurance exists for these scenarios.

Re: Yellen says government will help SVB depositors but rules out bailout

#130

Post by ellisv »

greatpostman wrote: post #32

It’s still not clear to me, are they making the depositors whole?

It sounds like they're trying to – and I think probably will – but it isn't a sure thing yet.

Resting in my armchair, I think they're trying to make deals with several other banks to absorb the SVB clientele. Maybe there's one bank that agrees to buy up a large chunk of the deposits and a couple smaller ones that participate as well. If there are multiple buyers, it spreads out risk and doesn't just give assets to a big big, and may help raise the price floor. The FDIC might cover the gap.

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