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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

#321

Post by grey-area »

bentlegen wrote: post #278
gerad wrote: post #199

Earlier quoted context omitted.

I just don’t understand why folks on the internet are so passionate about the depositors being hit by this. In terms of avoiding moral hazard they are about as far down the list as possible, and bankruptcy law supports that. First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of…

The C-suite paid themselves millions of dollars via bonuses and stock sales right before insolvency. Executives got paid. What’s to stop future bankers from running the same playbook? (We can debate that this the stock sale was premeditated/signaled months in advance, but the stock had already declined 80% from its 2021 peak and they surely knew about the tough liquidity position months ago — external observers drew…

So to punish them, we need to punish depositors?!?

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

#322

Post by ouid »

yeahsure22 wrote: post #304
gerad wrote: post #199

Earlier quoted context omitted.

I just don’t understand why folks on the internet are so passionate about the depositors being hit by this. In terms of avoiding moral hazard they are about as far down the list as possible, and bankruptcy law supports that. First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of…

Why do the rules keep changing after the game has been played? And why does it seem to always favor people who are already wealthy beyond imagination? The rules were 250k insured. If you had excess deposits, additional coverage could easily be purchased.

Deposits in a bank are not assets that you can pay out to shareholders in bankruptcy. it doesnt matter how you've organized your balance sheet internally, those liabilities come first or you arent a bank.

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

#323

Post by fallingknife »

bentlegen wrote: post #278
gerad wrote: post #199

Earlier quoted context omitted.

I just don’t understand why folks on the internet are so passionate about the depositors being hit by this. In terms of avoiding moral hazard they are about as far down the list as possible, and bankruptcy law supports that. First stock holders get wiped out (common then preferred), then debt holders (folks who have lent money to SVB won’t get their money back), only then would it hit depositors - and in the case of…

The C-suite paid themselves millions of dollars via bonuses and stock sales right before insolvency. Executives got paid. What’s to stop future bankers from running the same playbook? (We can debate that this the stock sale was premeditated/signaled months in advance, but the stock had already declined 80% from its 2021 peak and they surely knew about the tough liquidity position months ago — external observers drew…

Fake news. The largest bonuses paid were $140,000 to managing directors, which is just bankerese for VP. Bonuses were already scheduled to be paid and earned for work done in 2022.

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

#324

Post by walthamstow »

api wrote: post #102

I’m hopeful that a lesson was actually learned in 2008. The damage that did to our whole society was really dramatic.

I thought most of the issues in 2008 stemmed from lessons learnt in the aftermath of 1929 which were either forgotten or were forcibly unlearnt (repealed) after decades of lobbying.

So, even if we do learn lessons, don't expect them to last very long.

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

#325

Post by stanleydrew »

Cyph0n wrote: post #172
fullshark wrote: post #164

Earlier quoted context omitted.

The reason is because there are countless scenarios in the US economic system, where people/businesses fail cause of no fault of their own, but they are told tough luck that's the free market at work cause these people are simply unconnected or their failure is deemed unimportant. It's why the finanical bailouts left a bitter taste for anyone paying attention, and why gov't action here is immediately scoffed at.

Exactly. Rules for thee but not for me.

The problem is that we don't yet know what the "rules" will be in this case, and a lot of commenters are getting out over their skis assuming that tax money is going to go into the bank accounts of SVB depositors or something similar.

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

#326

Post by rib3ye »

nodemaker wrote: post #187
rib3ye wrote: post #111

Earlier quoted context omitted.

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

When you capitalize a bank with deposits, are you really an “investor” with expected risk/reward?

I am not for totally punishing someone who expects a near-zero return on a loan, especially when they made the loan with the expectation the borrower would help other businesses be productive.

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

#327

Post by ianai »

harles wrote: post #252
fullshark wrote: post #164

Earlier quoted context omitted.

The reason is because there are countless scenarios in the US economic system, where people/businesses fail cause of no fault of their own, but they are told tough luck that's the free market at work cause these people are simply unconnected or their failure is deemed unimportant. It's why the finanical bailouts left a bitter taste for anyone paying attention, and why gov't action here is immediately scoffed at.

I don’t understand this debate. The article says nothing about whether or not depositors will be bailed out.

It says exactly that:

“ Janet Yellen said on Sunday that the US government was working closely with banking regulators to help depositors at Silicon Valley Bank but dismissed the idea of a bailout. […] “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said. “But we are concerned about depositors, and we’re focused on trying to meet their needs.”“

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

#328

Post by HoyaSaxa »

The good news is that even in a worst case scenario of a fire sale, we are talking about a small percentage of uninsured deposits at risk (likely around 5% depending on how many deposits were successfully pulled over the last couple of weeks).

However, a fire sale is definitely not needed for all assets, and it seems likely given Yellen's comments that the government will provide some short term liquidity so that the fire sale of illiquid assets is not necessary (e.g. portions of their loan portfolio; their $7bn municipal bond portfolio; their $3.5bn of unmarketable securities (largely affordable housing projects...).

Honestly, in many ways the regulation worked. What our regulation didn't account for is that bank runs at the non-top 4 banks have become more likely in a interconnected world with "too big to fail" alternatives.

The $120bn FDIC Insurance Fund (self-funded by the banks and not the government) will definitively not even take a penny loss from this failure. That to me is the actual problem.

We are not protecting enough of the banking system with insurance. Should it be 100% of all deposits, probably not. Should it be up to $1mm or even $10mm per depositor, probably! Why should someone who sold their $750k family home yesterday be out any money just because they decided to deposit the money at their non systematically important bank? Or why should a non-profit that just completed their annual fundraising push for $1mm be out some of that money?

SVB "Fire Sale" Scenario Napkin Math

Note: Uses 12/31 numbers, but that should be largely inconsequential for determining the net liquidated cash value of a fire sale

$209bn assets

- $15.5bn HTM MTM + Slippage

- $7.5bn Loan Impairment + Slippage

- $2bn AFS Impairment + Slippage

- $1.5bn Non-Marketable Securities Impairment + Slippage

- $0.5bn Goodwill + Intangibles

- $0.5bn Property, Equipment, Lease & Other Asset Write Downs

- $0.5bn Wind Down Administration

$181bn Liquidated Cash

- $15bn FHLB "Super Lien"

$166bn Liquidated Cash Available to Depositors

- $7.6 Insured Domestic Deposits

- $151.5 Uninsured Domestic Deposits

- $13.9bn Foreign Deposits

$7.5bn Liquidated Cash Shortfall

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

#329

Post by koolba »

rullelito wrote: post #318
jliptzin wrote: post #285

Earlier quoted context omitted.

It is completely insane to allow innocent depositors to lose their money especially when the government clearly would have no problem coming up with the funds to backstop depositors since this is an isolated incident. This bank being located in a tech hotspot is incidental and I am sure some non-techies are swept up in this as well. Imagine a 70 year old woman who just lost her husband and sold her house to downsize…

It's 250,000 per institution. Just don't hold more than that much in a non-system critical bank, spread it out. If you do that you're 100% safe.

Per account type, per person, per institution.

So separate checking and savings are insured for $250K each.

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

#330

Post by [deleted] »

fwlr wrote: post #148

Eh, the depositors aren’t totally blameless here. On Thursday they conspired to perform a huge bank run on SVB, on Friday they succeeded, and on Saturday they were demanding the government and taxpayers make them whole by Monday. They deserve to get their money back and they eventually will once SVB’s assets are liquidated. But that’s not good enough, they want it now , and they won’t hesitate to make you pay for the…

[deleted]
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