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Bank failures come in waves

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Re: Bank failures come in waves

#11

Post by dragonwriter »

lapcat wrote: post #9
bubbleRefuge wrote: post #4

Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.

SVB had a ridiculously high uninsured deposits % of total liabilities, way above all of its peers: https://news.ycombinator.com/item?id=35241691

> SVB had a ridiculously high uninsured deposits % of total liabilities

They focused on businesses and HNW individuals and used exclusive banking agreements as preconditions for some deals, so, this is not surprising; had it been engineered to maximize uninsured deposits, it would have been hard to do better.

Re: Bank failures come in waves

#13

Post by acjohnson55 »

insaneirish wrote: post #7
bubbleRefuge wrote: post #4

Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.

> Pretty Simple fix. Backstops have a cost, and infinite backstop subsidizes risk taking activity of deposit taking institutions. I'm not even saying that what was done in the wake of SVB and Signature was wrong, per se, but making it formal policy that all deposits in a bank are insured is a fundamental change to the foundation of banking in the US. It may be "right" or it may be "wrong", but the one thing it is not…

I think that's not necessarily true. They can do what was done for SVB and backstop deposits, but take over the bank if the insurance kicks in, firing the managers and wiping out many of the investors. That's probably enough to prevent moral hazard.

The bigger issue is the concentration of deposits and potential suppression of investment.

Re: Bank failures come in waves

#14

Post by Lightbody »

bubbleRefuge wrote: post #4

Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.

You are mistaken.

The money behind the $250k isn’t magic and can’t just be multiplied like that. each FDIC-insured bank pays a premium for each qualified account. 10x the accounts means 10x the money into the pool. So it scales logically.

This is a separate issue from the recent trend of the US federal government helping ensure that all deposits, even those beyond the limit, get assumed/recovered.

Re: Bank failures come in waves

#15

Post by DoesntMatter22 »

bubbleRefuge wrote: post #4

Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.

Except it's really not that easy. The fed has 250billion and there are 19 trillion of deposits.

The fed has already been using a lot of that 250. And this is likely not over. Not to mention this seems like it spread overseas

Re: Bank failures come in waves

#16

Post by peyton »

ttul wrote: post #6
bubbleRefuge wrote: post #4

Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.

While it may be difficult to see things this way, when you put money into a bank, you’re choosing to not invest that money into something else that might generate a better return for you and for society. The small but real risk of losing your deposits in a bank encourages companies and people with money to invest it into other things. If there is no default risk, then money will be increasingly stored away inside ban…

That’s a ridiculous just-so. What happened when the FDIC raised insured deposit amount to 250k?

Re: Bank failures come in waves

#17

Post by acjohnson55 »

TechBro8615 wrote: post #8
bubbleRefuge wrote: post #4

Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.

Maybe we should stop paying taxes since the FED can just print new money when we need it.

Your comment seems pretty unserious, but modern monetary theory (https://en.wikipedia.org/wiki/Modern_Monetary_Theory) adherents assert that the point of taxes is not to "fund" anything, but to engineer incentives, redistribute wealth, and remove excess money. And that, yes, we should simply print money, to the extent that we need to, subject to the constraint that excess money causes inflation in specific circumstances.

Re: Bank failures come in waves

#18

Post by bee_rider »

TechBro8615 wrote: post #8
bubbleRefuge wrote: post #4

Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.

Maybe we should stop paying taxes since the FED can just print new money when we need it.

This is essentially a tax on wealth stored in the form of dollars, right? Which some folks would generally be in favor of, if not for the fact that the super-wealthy tend not to store their wealth in the form of dollars sitting in a bank account (or mattress). Seems rough of retirees and other folks on fixed incomes.

Re: Bank failures come in waves

#19

Post by bee_rider »

insaneirish wrote: post #7
bubbleRefuge wrote: post #4

Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.

> Pretty Simple fix. Backstops have a cost, and infinite backstop subsidizes risk taking activity of deposit taking institutions. I'm not even saying that what was done in the wake of SVB and Signature was wrong, per se, but making it formal policy that all deposits in a bank are insured is a fundamental change to the foundation of banking in the US. It may be "right" or it may be "wrong", but the one thing it is not…

Hmm.

Would it be easy nowadays to just have a software service that split up an account into n accounts of less than $250k, and then presented a single interface to all of them?

I guess individual purchases over $250k would be a problem, but I guess a short-term gather operation could be ok, as long as you aren’t too worried about a bank run while that transaction was occurring.

Re: Bank failures come in waves

#20

Post by acjohnson55 »

kneebonian wrote: post #10

A healthy economy has ups and downs, and if you have a bigger up there needs to be a corresponding down. In 2008 we made major decisions to prevent a needed correction down, it turns out all that did was kick the can down the road, and if we kick it down the road again we're just in for another problem.

You're applying proverbial thinking to an extremely complex, emergent system. The reality is that many aspects of the economy can be manipulated, but the consequences of doing (or not doing) anything never completely clear. People are constantly pointing to indicators that they feel are signs of the apocalypse, the excess of central bank activism, or the ineptitude of politicians to enact fiscal policy. Out of a million different assertions, some of them are going to eventually be right.
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