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

So whilst there may be some superficial appearance of a bailout (and we don't yet know how much that is, as we don't actually know the value of the assets that are recoverable), it is inaccurate to say that this is "100% a bailout".

Also, the speed with which this is happening going from SVB insolvency late last week to an asset auction today and depositor fund access tomorrow is astounding.

Most of this protection comes as a result of the Dodd-Frank Act passed in 2010 in the wake of the GFC. Senate and House Republicans largely voted against the bill. Remember that.

It's also worth remembering that this is a huge example of how ridiculous libertarianism and deregulation is.

Another takeaway is how central authority is a feature not a bug in the financial system. Just compar ethis to FTX or any other crypto collapse.

Although this problem was caused by bank malfeasance and yes this does imply de facto unlimited insurance, unlimited depositor insurance is kinda the whole point and is not itself a bad thing.

Yes, moral hazard is a huge consideration, but I don’t see depositor protection as encouraging future failures of this type, by encouraging bad risk taking by mgmt.

Rather, if banks bet their customers money unhedged on endless zero rate policy, as SVB did, there should be regulations that prevent it. Trace back to lobbying to exclude SVB from dodd frank regulations also at the heart of the crisis.

So, in earnest, how is it not a bailout? Feel free to offer your answer! Mine is:

“Banks are required by law to pay for insurance on deposits they take. FDIC stands for Federal Deposit Insurance Corp, and they are the ones that manage the Deposit Insurance Fund, which is where that insurance money goes. The FDIC is going to take from that fund to pay out all the depositors in SVB in one go on Monday morning, and then over the next few weeks and months it is going to sell off SVB’s assets and put the proceeds back into the fund. SVB has plenty of assets, so the FDIC expects to recover 99% of the money. If there’s a shortfall they will charge the banks a little extra in their next insurance payment, but keep in mind we’re talking about at most a few billion dollars spread over every bank; they are unlikely to pass on a small cost like that, but even if they do pass on the cost to the taxpayer it will be something like $10 per person maximum.”

Edit: if we take things like https://twitter.com/josephjacks_/status/1634569997266870272 at their word, the FDIC will likely see asset sales produce >100% of deposits, so absolutely no bailout of any kind. A good reminder that SBV didn’t die because they lied about their value or invested in financial instruments that exploded; they died because they didn’t have the cash on hand on the one day it mattered.