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Bank failures come in waves

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Re: Bank failures come in waves

#21

Post by acjohnson55 »

bee_rider wrote: post #19
insaneirish wrote: post #7

Earlier quoted context omitted.

> 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.

This exists, many times over. It's called a cash sweep. See one example here: https://www.wellsfargo.com/investing/cash-sweep/

Re: Bank failures come in waves

#22

Post by bubbleRefuge »

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 make no sense. I don't spend money on things because I'm afraid of loosing my deposit in the bank. My point is if I have 1M I want to deposit safely, then I have to make 5 FDIC accounts instead of just 1.

Re: Bank failures come in waves

#23

Post by bubbleRefuge »

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…

One prediction : no more bank runs.

Re: Bank failures come in waves

#24

Post by bubbleRefuge »

acjohnson55 wrote: post #13
insaneirish wrote: post #7

Earlier quoted context omitted.

> 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.

agree with all except your last sentence . whats the issue ?

Re: Bank failures come in waves

#25

Post by bubbleRefuge »

Lightbody wrote: post #14
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.

what ? explain.

Re: Bank failures come in waves

#26

Post by bubbleRefuge »

klipt wrote: post #5
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.

Well not exactly, the limit encourages diversification which always reduces risk.

risk = 0 with unlimited deposit insurance. what am I missing.

Re: Bank failures come in waves

#27

Post by kmeisthax »

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…

Low levels of inflation already do what you think insolvency risk does. 2% loss of value per year hurts way more than a 0.001% chance of being completely wiped out.

Re: Bank failures come in waves

#28

Post by bubbleRefuge »

DoesntMatter22 wrote: post #15
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

The fed has a spreadsheet for which it can enter infinite amounts.

Re: Bank failures come in waves

#30

Post by bubbleRefuge »

acjohnson55 wrote: post #17
TechBro8615 wrote: post #8

Earlier quoted context omitted.

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 circumst…

upvote! MMT founders think we can eliminate income taxes and get by with state taxes. One has said a national real estate tax would be fair in leu of income taxes. But they all agree taxing is necessary to maitain demand/need for the currency and to slow down the economy if needed.
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