Yellen says government will help SVB depositors but rules out bailout

Not people. Businesses.

SVB, to my knowledge, mostly consisted of businesses with some well-off individuals mixed in.

If we want to punish rich people for the crime of being rich, SVB is likely a bad battlefield because zero-ing out its customers will almost entirely hurt employees who are generally not wealthy.

1. There should be no bailout.

2. The bank had a ton of assets and those assets still belong to the depositors.

3. The depositors shouldn't necessarily be made whole beyond their $250,000 insured amount, but denying them the bank deposits is also wrong. Getting 80 cents on the dollar for their deposits seems completely fine for example, or whatever that number turns out to be based on remaining assets.

4. Nothing is deserved to the bank owners/shareholders. If there happens to be more assets than there was deposits, then this money can go to owners/shareholders.

AFAIK this isn’t a bail-in as there is no attempt to save the bank. As the bank is in receivership the depositors get a receivership certificate and by FDIC law depositors get paid first before lenders and equity. I think possibly before secured lenders but I’m not sure. In liquidation preference is everything. Given the assets, even at fire sale prices, depositors should get most and possibly all of their money back. That would mean any bail-out would be to help the banks other lenders. I don’t know for sure but I assume those would be other banks, so I guess it would be sold as an idea to limit contagion. I’m anti-bail-out. Depositors can borrow against receivership certificates to get some liquidity. Obviously they’d pay a time and risk premium for that but better than going insolvent. I don’t have cash in bank account above FDIC limits yet I still have multiple accounts in different countries. Basically applying backup rules to banking to avoid a single point of failure. If a bank freezes my funds for whatever reason I would need money to be able to pay a lawyer to get them unfrozen. I heard SVB would punish customers (with higher fees I guess) who banked with multiple banks so not only did SVB have a very high percentage of uninsured deposits the depositors they did tended not to spread the risk around.

Now bail-ins are a totally different matter. Deposits above insurance unsecured liabilities and depending on the jurisdiction can be anywhere in the preference line from in the front to near the back (still in-front of equity which will always get hosed). This is very different to most people’s perceptions as they believe the bank is holding their money in trust which would put them first in line. Effectively (afaik) uninsured deposit amounts are insuring the insured deposit amounts as their deposits contributed to pool of assets that get paid out in liquidation. One of the reasons for a bail in is continuity of operation, new equity is issued (the old ones are deleted) and instead of receivership certificates which holders can use to get loans on a case by case basis the equity can be traded making it easier and cheaper to free up liquidity. Since the new bank will be solvent the assets won’t need to sold at fire sale prices. But the other aspect is the mingling of uninsured depositors with other lenders really has the potential to drastically increase the size of the haircut depositors can expect. While many of bail-in legislations seem to have loop-holes allowing this (some countries state it more explicitly) it seems unfathomable that such a thing would be done as that would destroy the false trust that people have in the financial system. Unless of course all off-ramps from banks are closed and people are stuck choosing between a bad deal from one bank and a bad deal from another bank.