Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
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Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
#2Treasury Secretary Yellen was quite clear in an interview a few hours ago: "The problems of the tech sector aren't at the heart of the problems of this bank." https://youtu.be/vSZcPvp7NVU?t=292
Appears that leadership at the highest levels seems to be clearly aware that the problem at SVB had to do with bond prices/rates (rather than anything startup/tech/Silicon Valley specific), and that other banks may have the situation and be vulnerable to "contagion".
Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
#3I also lost money on the bonds in my portfolio, who will make me whole?
Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
#4If we have to back them on the downside I want profit on the upside. Private profits and public losses cannot be the rules of the game.
Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
#5I also lost money on the bonds in my portfolio, who will make me whole?
You took the risk buying those bonds. Depositing cash at a bank is a different matter.
No bailout for SVB; no bailout for you.
Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
#6If we have to back them on the downside I want profit on the upside. Private profits and public losses cannot be the rules of the game.
This is referring specifically to deposits not equity or corporate bond holders, management, etc. The depositors are not making a sizable returns, they’re just wanting to keep their money in a bank account.
Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
#7A.k.a. “moral hazard”.
When people take financial risks (such as holding more than $250K in FDIC insured bank account), why should taxpayers cover their losses?
Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
#8If we have to back them on the downside I want profit on the upside. Private profits and public losses cannot be the rules of the game.
This is referring specifically to deposits not equity or corporate bond holders, management, etc. The depositors are not making a sizable returns, they’re just wanting to keep their money in a bank account.
Why should it matter whether it's deposits or equity or bonds? The instrument is irrelevant to the logic - if I have to back it on the downside then I want a piece of the upside too.
Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
#9If we have to back them on the downside I want profit on the upside. Private profits and public losses cannot be the rules of the game.
This is referring specifically to deposits not equity or corporate bond holders, management, etc. The depositors are not making a sizable returns, they’re just wanting to keep their money in a bank account.
The problem is that continuing to bail out depositors means that they'll never do due diligence on their banks and therefore bank executives will keep trying risky strategies that increase their bonuses.
Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
#10A.k.a. “moral hazard”. When people take financial risks (such as holding more than $250K in FDIC insured bank account), why should taxpayers cover their losses?
> why should taxpayers cover their losses
It doesn’t follow that there will be any losses to cover. The government can take ownership of the assets of the bank and won’t be stuck having to sell them at a loss.