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Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion

cnbc.com

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Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion

#21

Post by louloulou »

anonuser123456 wrote: post #11
jimt222 wrote: post #7

A.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?

There is a legitimate issue beyond “but Capitalism” here. Banks that may be otherwise solvent may become insolvent because of a domino risk of bank runs. Probably the right thing to do is forced equity dilution of a bank experiencing a run. That is, the Fed buys senior equity in the bank and the injection pays for short term losses. The equity injection guarantee alone would likely be enough to stop the contagion and…

> Banks that may be otherwise solvent may become insolvent because of a domino risk of bank runs.

That to me implies the bank was never solvent in the first place. You could have easily created a bank that is always solvent, see the case of The Narrow Bank, but the Fed wouldn't allow it.

Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion

#22

Post by AmVess »

sidewndr46 wrote: post #19

Why does the government & media get away with using words like "contagion"? If a single bank failure were to precipitate the collapse of the US banking system as a whole, this isn't a contagion. It is the reality of the insanely fragile nature of US banking.

They are calling it such because contagions spread. Tomorrow is going to be a bloodbath.

Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion

#23

Post by paxys »

paulpauper wrote: post #18

No one know what is going happen. If I had to guess, there will be no lifeline. Populist pressure too strong.

Yup the government isn't spending tens of billions to bail out a bank with "Silicon Valley" in its title. Supporting it is an instant election loss for any politician on either side of the aisle.

Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion

#24

Post by grogenaut »

tome wrote: post #9
hanklazard wrote: post #6

Earlier quoted context omitted.

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.

what kind of due diligence are you imagining that I, a depositor with under 250k should / am doing on a bank? What do you believe, I, as a single depositor of 250k CAN DO to audit a bank or otherwise make sure it's safe for my deposit?

Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion

#25

Post by noelsusman »

Has there been any good reporting on why so many tech startups had large amounts of uninsured cash deposits? This has been a solved problem for a long time.

https://www.intrafi.com/solutions/depositors/

https://americandeposits.com/how-it-works/

There's no reason for a small business to have any uninsured cash deposits. Is this a corruption story? Are they all just that incompetent?

Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion

#26

Post by labrador »

As a Independent non-aligned American voter, I have to ask myself did Peter Thiel deliberately cause a run on SVB? Did Elon Musk buy Twitter to destroy it as an effective platform for Democratic organizing? Is Musk coordinating with Tucker Carlson to push propaganda that Jan 6 was merely constitutionally protected protest? And are House Republicans coordinating with Thiel, Musk and Tucker Carlson over the debt ceiling limit to cause a financial crisis to bring down the Federal government to accrue power to themselves? Like Carlson, I'm just asking questions.

Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion

#27

Post by bushbaba »

compumike wrote: post #2

Treasury 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 si…

If SVB depositors aren’t made whole. We will see a bank run come Monday. And there will be contagion as most banks likely also bought bonds/treasuries with reduced face value from the fast rate hikes.

Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion

#28

Post by sidewndr46 »

AmVess wrote: post #22
sidewndr46 wrote: post #19

Why does the government & media get away with using words like "contagion"? If a single bank failure were to precipitate the collapse of the US banking system as a whole, this isn't a contagion. It is the reality of the insanely fragile nature of US banking.

They are calling it such because contagions spread. Tomorrow is going to be a bloodbath.

As it ought to be. Idiots gave some idiots money who banked said money with idiots. The answer is not for the government to step in and rescue the idiots. The idiocy will only proliferate when that happens.

Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion

#29

Post by icegreentea2 »

frgtpsswrdlame wrote: post #4

If 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.

The upsides are:

* Customers (both individuals and companies) get to generally continue to view banking as a high confidence, high trust activity. Consider the existing cost and friction of KYC and other due diligence measures which are imposed asymmetrically. Reduction to a low-trust environment would seem to double up the friction.

* SBV bought a shit load of longer-term US debt (which is apparently what did them in). Based on current fiscal habits, the US government needs to keep this debt attractive, especially to domestic buyers. There's nothing it can do about the risk of interest rates changing, but the last thing it wants is for depositors to put pressure on banks to avoid long-term US debt.

Re: Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion

#30

Post by paxys »

hanklazard wrote: post #6
frgtpsswrdlame wrote: post #4

If 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 does it matter? These depositors trusted someone they shouldn't have with their money knowing fully well that the government only insures 250k worth of it. Any other consumer or company in this situation wouldn't be made whole by taxpayers. Why is this cohort special?
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