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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

#401

Post by madamelic »

nonethewiser wrote: post #193
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…

> Money to depositors for amounts greater than $250K is a bail out. They have no right to that money from the Feds. I’m surprised to hear this perspective. I think most people understand a bailout as cash injection. Not that you get more than what the government insures. If it were the latter then bailouts happen all the time without bank failures or FDIC takeovers (all transfer > 250k).

It's also a bad idea imo.

This situation isn't a handful of big individuals losing some of their money and the majority being insured under FDIC, the bank's customers is mostly small and medium businesses which have lost all of their money.

I hate bailouts and think we should allow more failure but it would be a horrendously bad idea to let a bunch of businesses fail under no fault of their own.

They'd likely be looking at multiple tens of thousands of unemployed individuals near instantaneously along with accelerated layoffs at unaffected businesses as clients disappear overnight / businesses get spooked.

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

#402

Post by softwaredoug »

bradleyjg wrote: post #316
softwaredoug wrote: post #243

There’s a theme of NEVER AGAIN comments in these SVB posts. Harkening back to 2008 financial crisis. Doing your best to make depositors whole (maybe not 100%, but as much as possible) is not a bailout ala 2008. It’s generally not very controversial financial policy that prevents a financial contagion like 1929. No 10 person company is going to split their 2.5 mil 10 ways to get insurance. And they’re not going to hav…

It’s generally not very controversial financial policy that prevents a financial contagion like 1929. A law was put in place in 1933 with a limit. If it didn’t have a limit, we wouldn’t be having this discussion. Where were all these billionaires and VCs any time prior to this calling for uncapped FDIC insurance? This is special pleading.

It’s not about “billionaires” (who don’t keep billions of cash sitting in one bank) but the company with a few million that needs to make payroll and pay vendors.

SVB is in receivership where depositors place very highly. Banking policy is not just about insurance. That’s just one tool.

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

#403

Post by newaccount2023 »

gerad wrote: post #199
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…

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…

> I just don’t understand why folks on the internet are so passionate about the depositors being hit by this

The rest of America hates Silicon Valley like they hate Wall Street

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

#404

Post by jmull »

tqi wrote: post #353
jmull wrote: post #260

Earlier quoted context omitted.

If you're volunteering to give or invest a few billion into the SVB receivership deal, then go right ahead. Please leave me and my tax dollars out of it. I'm not just hard-hearted, BTW. Unlimited depositor insurance is an awful idea.

ooc why is unlimited deposit insurance a bad idea? A quick Google search didn't have many results, except some brief articles about section 343 of Dodd Frank (which itself seemed limited in scope).

It’s called “moral hazard”.

Normally, depositors have to have confidence the bank they choosewill handle their money competently and responsibly.

With unlimited insurance, depositors will simply choose the bank that offers the best terms.

Banks need depositor, so they will respond to what depositors want. In the first case there is pressure to handle money competently and responsibility. In the second, there is pressure to take risks to be able to provide the best terms.

https://en.wikipedia.org/wiki/Moral_hazard

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

#405

Post by stanleydrew »

hanoz wrote: post #335
stanleydrew wrote: post #247

Earlier quoted context omitted.

It's a matter of differing expectations. When you purchase stock in a bank, there is a reasonable expectation that your investment could lose value. When you deposit money with a bank (in the United States in 2023), you basically never consider the possibility that you might not get it all back. You can certainly argue that the expectation isn't fair, but I'm pretty confident it's nearly universal.

In Britain the protected amount is £85k per person per banking group, and it's universal that anyone with more than that splits it over accounts with multiple banks, taking care to make sure the banks aren't part of the same banking group. Is it any different over there, albeit for the rather higher limit, in America?

The whole reason we're having this discussion is that it appears to not be universal for anyone with more than the insured limit to split deposits over multiple accounts.

But there's also a big distinction between the working capital required for a business and the size of e.g. a personal savings account, which is kind of getting lost here.

If your payroll is $1M every month then it may not really be practical to split deposits across many accounts.

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

#406

Post by dmix »

belter wrote: post #382
idopmstuff wrote: post #339

Earlier quoted context omitted.

I'm pretty baffled to see so much of this on HN. Like a whole lot of people here, I've worked at startups for my whole career. People here are effectively suggesting that I shouldn't get my paycheck and that the company I work for should lose most of its money because our CEO used a well-reputed bank? Absolutely wipe out the equityholders of SVB. They deserve nothing, because that's what you should end up with if you…

It's coming from the same system that probably led you to work at Startups your whole career. High risk for high reward on a lightly regulated capitalist system. If your CEO or CFO put all the money in one risky bank, it was bad financial management.

You think consumer banking is lightly regulated?

Or that VC should have their risk controls? Only conservative old school bankers should invest in startups? Or what exactly?

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

#407

Post by belter »

peter422 wrote: post #396
belter wrote: post #382

Earlier quoted context omitted.

It's coming from the same system that probably led you to work at Startups your whole career. High risk for high reward on a lightly regulated capitalist system. If your CEO or CFO put all the money in one risky bank, it was bad financial management.

What bank do you use? When was the last time you went over their deposit base and asset allocation?

> When was the last time you went over their deposit base and asset allocation?

A few times but only for a short time and a small percentage of the capital. Was already a full grown adult in 2008, have good memory, and are still licking many old lion financial battle scars...

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

#408

Post by ptero »

nightpool wrote: post #288
lotsofpulp wrote: post #146

Earlier quoted context omitted.

> “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? I think the common sentiment is depositors should not get any more than whatever the remaining assets are worth. And I think the prominent people asking the government to bailout depositors are worried about only getting 75% of…

Yes, but "worth" is a complicated concept here. What's probably going to happen is that a big bank like JPMorgan is going to buy the remaining assets at 100% book value, and the depositors are going to be made whole out of that. That's not their current market value if sold at fire-sale prices, but banks have the time horizons to hold those assets to maturity and not worry so much about their market value. The stabil…

I do not think there is reasonable pushback on this. If a private company like JPM wants to do it, great!

The issue is with using government money to repay depositors beyond what they would otherwise get from the FDIC floor plus liquidation of SVB assets. I am not saying it should not be done (it probably should to avoid forcefully consolidating all banking at the big three), but that it should be a subject of hard questions and a serious discussion. My 2c.

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

#409

Post by runeks »

nightpool wrote: post #288
lotsofpulp wrote: post #146

Earlier quoted context omitted.

> “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? I think the common sentiment is depositors should not get any more than whatever the remaining assets are worth. And I think the prominent people asking the government to bailout depositors are worried about only getting 75% of…

Yes, but "worth" is a complicated concept here. What's probably going to happen is that a big bank like JPMorgan is going to buy the remaining assets at 100% book value, and the depositors are going to be made whole out of that. That's not their current market value if sold at fire-sale prices, but banks have the time horizons to hold those assets to maturity and not worry so much about their market value. The stabil…

I highly doubt that JP Morgan will buy SVB's assets at above-market prices.

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

#410

Post by madamelic »

koolba wrote: post #213
nonethewiser wrote: post #193

Earlier quoted context omitted.

> Money to depositors for amounts greater than $250K is a bail out. They have no right to that money from the Feds. I’m surprised to hear this perspective. I think most people understand a bailout as cash injection. Not that you get more than what the government insures. If it were the latter then bailouts happen all the time without bank failures or FDIC takeovers (all transfer > 250k).

The $250K is the FDIC covered limit. Amounts greater than that are not insured by the Feds. If the bank fails, the Feds ensure that depositors get at least $250K per account. If SVB is insolvent than customer deposits are not worth their full value. The phrase “making all depositors whole” would be the Feds covering the difference. Anything beyond the $250K per account would be money that they are not entitled to per…

> Anything beyond the $250K per account would be money that they are not entitled to per US banking regulation.

It's my understanding that FDIC considers $250k the minimum they'll cover and they can (and have) cover(ed) higher through raised premiums to other banks.

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