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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

#181

Post by obventio56 »

fma wrote: post #117
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.

If depositors get 100% back (I assume the government pays the difference between selling SBV assets & the deposits)...then what's the purpose of saying "FDIC Insured up to $250k"? It's a moot then isn't it? I don't need to go through the hassle of distributing my money anymore? Edit: I read the article. Yellen says "“But we are concerned about depositors, and we’re focused on trying to meet their needs.” She says NOT…

The 250k is messaging to minimize moral hazard. You want banks and depositors invested in minimizing their own risk.

I'd guess hesitancy to immediately declare full guarantee of funds is also due to these concerns (although there may be other reasons as well). The sweet spot here maximizes the appearance of consequences while minimizing actual fallout.

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

#182

Post by [deleted] »

manuelabeledo wrote: post #132

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank asse…

[deleted]

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

#183

Post by sneak »

tempsy wrote: post #170
manuelabeledo wrote: post #132

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank asse…

can’t people buy private insurance for their deposits above the $250k threshold? if you buy an expensive house or car you generally pay a lot more to insure that asset. not sure why people don’t think of buying insurance on their bank deposits in the same way if you find yourself in a situation where you need to hold much more than $250k in one account for whatever reason. But even if you’re an individual holding mil…

I am fairly sure that the FDIC does not want people to need private insurance for bank deposits. This is a big sign your banking system sucks and is expected to fail badly at least some of the time, the avoidance of which is why the FDIC exists.

And, yes, opening ten checking accounts is difficult and inconvenient.

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

#184

Post by londons_explore »

I think the 'help' isn't financial help...

It's technical help and the ability to temporarily ignore certain laws to expedite the process of migrating customers to a new banking platform.

For example, KYC laws might require a signature from every director of a company to open a bank account... But when migrating an account from SVB to another bank, the government might allow that requirement be ignored for 30 days.

Or the government might allow existing SVB computer software and technical systems to continue to operate in certain cases where migration to a new bank is technically a long process.

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

#185

Post by bob1029 »

gitfan86 wrote: post #89
remote_phone wrote: post #54

The truth is VCs are terrified their investments in their startups are going to go to 0. That’s why the biggest most vocal people are VCs talking about this. So they are framing the “we need to make depositors whole” as if they care about small business when really they are just talking their own book. The real solution is that VCs should give a loan to all their startups so that they can make payroll. Isn’t that the…

Exactly, none of them are pointing out what percentage of the money that is currently tied up was going to be sent out as payroll for people making under 100k/year over the next 30 days. If the Fed came out and said "We have reviewed all the depositors and their situations and we are funding 100% of payroll and basic operating costs needs for the next 90 days" The VCs would immediately come up with another reason why…

> The VCs would immediately come up with another reason why ALL depositors need to be made whole immediately.

What do we think the end-goal of these VCs is?

Hypothetically, why would someone want to see a run on SVB? How could you benefit from all of this?

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

#186

Post by rafael09ed »

a13n wrote: post #176
koolba wrote: post #153

Earlier quoted context omitted.

> Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? Easy, pay out $250K per account, then distribute the rest pro rata based upon closing balance from when the fed's took over. If they have to wait because assets need to be liquidated then sucks to be them. I'm sure they can get their money faster if they agree to a haircut. > “This is a bail…

This is short sighted. If the government doesn’t make depositors whole then people and companies all over the world lose trust in US banks and eventually US dollars. This is a federal problem. It makes sense to make depositors whole, they’re innocent here. It doesn’t make sense to make SVB whole for managing their risk poorly.

Maybe we should have a public banking option if the government's going to give everyone their money anyway

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

#187

Post by nodemaker »

rib3ye wrote: post #111
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…

Don’t you think there is a huge difference between the bank shareholders getting bailed out and depositors getting bailed out? Let’s think about the risk of “morale hazard” in these case: Bail out the shareholders: we can throw more money into the stock and never lose money! Risk free returns, I better pump this bubble up! Bail out depositors: I feel safe having my money in a reputable bank! I can operate my business…

There is not much difference if you look at it from the point of view that one of those parties was just underestimating the risk they were taking (which is true of all bad decisions in life). I see no reason to bail out depositors over 250k

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

#188

Post by avianlyric »

Edmond wrote: post #152
manuelabeledo wrote: post #132

I see a lot of unexpected saltiness and clear misconceptions in any thread about SVB. “Depositors shouldn’t get anything beyond the insured $250,000”. Then what do we do with the billions in remaining assets? Appropriate them, and leave small and mid businesses hanged to dry? “This is a bailout”. It would be if shareholders were to get their money back, which doesn’t seem likely. The government will use the bank asse…

>The government will use the bank assets to make customers, not owners, whole. The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole. Any scenario where uninsured depositors end up with all their money back is likely to be a bailout.

> The reason SVB is in receivership is because they don't actually have the ability to make all their depositors whole.

No, SVB is in receivership because they can make their depositors whole right now. They have most of the assets, it’s just that liquidating them immediately would result in losses far greater than SVB can afford, but that’s what a bank run demands.

The feds can take over, make depositors whole now by funding deposits from federal funds, while taking on SVBs assets and liquidating them on a timeline that maximises the value, ideally a value that covers all depositor funds.

In effect the feds provide a loan to SVB depositors, backed by SVB assets. Which is far better than either forcing the FDIC to actually payout the insured amount, because depositors get their funds, and the fed avoid having to handover cash to SVB to keep them afloat. Meanwhile shareholders take a bath, because their shareholding value drops to zero.

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

#189

Post by stephen_g »

belter wrote: post #100
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 the downvoters... "International Monetary Fund - What Is a Bank?" - https://www.imf.org/external/pubs/ft/fandd/2012/03/basics.ht... ".... Banks are intermediaries between depositors (who lend money to the bank) and borrowers (to whom the bank lends money)..."

Amazing the IMF has a misconception of how banks work in their “basics” explanation!

From the Bank of England: “[…] Where the stock of bank deposits comes from is often misunderstood. One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them.”

1. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

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

#190

Post by randmeerkat »

gonzo41 wrote: post #18
nntwozz wrote: post #11

I like it, let capitalism work as intended by culling out the weak. They should have done the same with GM and Chrysler instead of bailing them out, we'd have a faster transition to electric today.

There's strategic reasons to have those companies beyond they employ a stack of people. The US sees the big auto makers through they eyes of a country that needed at one point to start manufacturing around 100,000 bombers to fight in a war. Government sees industry with a different lens to the markets.

> The US sees the big auto makers through they eyes of a country that needed at one point to start manufacturing around 100,000 bombers to fight in a war.

The same companies that said they couldn’t make ventilators at scale when asked to? Bailing those companies out based on an old reference to WW2 was just good marketing, not some deep insight only the government is capable of.

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