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Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

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Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#121

Post by akavi »

mskec wrote: post #76
ZachPruckowski wrote: post #17

> "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Very curious to see who ends up paying this special assessment. Are we all going to pay in lower deposit/investment interest from banks? Are bank shareholders/profits gonna eat it?

> Shareholders and certain unsecured debtholders will not be protected. Shareholders and bondholders will likely lose everything as nothing will be left after selling off assets.

My reading is that the "assessment" (tax) will be borne by all banks, not just the bank that fails.

My gut says that the incidence will fall primarily on deposit holders (likely in the form of marginally lower interest rates), and not significantly on bank equity holders, but I suspect it'd take an econ phd to fully parse that out.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#122

Post by hn_throwaway_99 »

belter wrote: post #73
hn_throwaway_99 wrote: post #40

Yellen and the FDIC is in a tough spot. This is the important line, "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Thus, on one hand, I'm glad they're doing this, as it should help prevent wider bank runs, and it ensures that banks are the ones that are actually paying for it. At the same time, this is yet another exam…

"...recovered by a special assessment on banks, as required by law..." - Would love to know what law/regulatory framework she is referring to. Janet Yellen is ready to become a US based Liz Truss... Now expect a contagion effect next week, if SVB liabilities are shown worst than currently known, and made to bare on other banks capital requirements... "US banks sitting on unrealized losses of $620 billion" - https://e…

> Would love to know what law/regulatory framework she is referring to.

This is not some conspiratorial secret. Banks pay premiums to the FDIC for their insurance, and it's a requirement of all chartered banks. The FDIC has the right to backstop deposits in excess of the deposit limit by invoking a "systemic risk" clause (I'm not sure exactly which law this comes under, whether it's some of the original laws that created the FDIC, or more recent post-financial crisis updates). When the FDIC fund gets depleted, they have the right to invoke a special assessment against banks.

> Now expect a contagion effect it next week

The whole point of doing this is to prevent a contagion. The reason there was a bank run against SVB was a mix not just that their asset values had deteriorated (that was well known for some time), it's that their non-diversified deposit base of VC-funded start ups have gradually needed to up their withdrawals since early 2022. SVB would have survived if there wasn't a run on the bank, and the whole purpose of this action was to prevent further runs by saying that deposits will be protected.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#123

Post by dehrmann »

hn_throwaway_99 wrote: post #40

Yellen and the FDIC is in a tough spot. This is the important line, "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Thus, on one hand, I'm glad they're doing this, as it should help prevent wider bank runs, and it ensures that banks are the ones that are actually paying for it. At the same time, this is yet another exam…

This probably sealed the deal:

> We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority.

Two closures in three days is a sign that you have to take this very seriously.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#124

Post by christkv »

jmclnx wrote: post #53
FormerBandmate wrote: post #2

It was announced as a footnote in this Treasury announcement , which also guarantees 100% deposits for both SVB and Signature Bank above 250k

So we have a bailout. In case you missed it, SVB successfully lobbied Congress to weaken dodds regulations. So in a way, similar to 2008, Main Street pays so the rich will not loose their funds. https://www.theguardian.com/business/2023/mar/11/silicon-val... https://fortune.com/2023/03/11/silicon-valley-bank-svb-ceo-g... https://www.dailymail.co.uk/news/article-11847295/CEO-collap...

It's not a bailout it's a backstop. All shareholders of SVB are done for.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#125

Post by jen20 »

optimalsolver wrote: post #80

How long until the usual crowd are back to full Ayn Rand/rugged individualist mode after getting their asses saved by the Fedora Reserve?

Seeing how quickly David Sacks turned from anti government to practically begging the government to save him was one of the highlights of this weekend for me.

It’s almost a shame they couldn’t carve out a few exceptions for those who don’t believe in regulation.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#126

Post by dathinab »

serf wrote: post #8

> No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer. i'm out of touch with how much of this works, can someone explain how this is paid without burden to the taxpayer?

Because SVB lacks the liquidity to pay out the bank run but doesn't lack the assets, at least as long as you only pay out deposits (which is what they are doing i.e. "Shareholders and certain unsecured debtholders will not be protected.").

The thing is that without this decision there would be two problems:

1. deposits would only re-accessable much later, too late for most small Companies to survive

2. depending on law/regulation aspects I don't know much about it also may have been a possibility that Stockholder get payed out first and similar

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#127

Post by mitthrowaway2 »

mgraczyk wrote: post #61
hn_throwaway_99 wrote: post #40

Yellen and the FDIC is in a tough spot. This is the important line, "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Thus, on one hand, I'm glad they're doing this, as it should help prevent wider bank runs, and it ensures that banks are the ones that are actually paying for it. At the same time, this is yet another exam…

In cases where you can't predict the future appropriately, sometimes it's better to make prudent decisions that help everyone instead of attempting to punish the sinful. Keep in mind that bank shareholders and senior management are going to get wiped out and fired.

"Punishing the sinful" isn't about morals, it's about incentives, and ensuring a level playing field where sinning doesn't improve your long-term competitiveness.

Will senior management have to return their 2021 performance bonuses? If not, successful sinning is just a matter of ensuring you cash out early.

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#128

Post by kgwgk »

mightybyte wrote: post #39
azundo wrote: post #3

Sort of burying the lede - also states that all SVB depositors will be made whole along with Signature depositors.

I'm not quite sure of that interpretation of the text. Here's the quote: > We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer. To me, that last sentence about SVB is distinct…

The "also announcing a similar" bit is a subtle hint that one may also want to read the previous paragraph :-)

"After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."

Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC

#130

Post by loeg »

avidphantasm wrote: post #96

What if the Federal Reserve offered retail banking. Would it stabilize the banking sector? They wouldn’t be forced to try to find loans to pay interest on deposits. Where do private banks add value over what the Fed could do. ELI5.

Banks use deposits to extend loans to other customers. A narrow bank wouldn't do that.
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