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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

#251

Post by Uvix »

ahepp wrote: post #142
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…

Does this statement reflect any shift in policy? Haven’t depositors always been first on the list to get paid, even their uninsured deposits? I don’t know if charging a special assessment to member banks is standard operating procedure, but that doesn’t sound like government intervention. It just sounds like reasonable operation of the FDIC.

Not sure how "taxing depositors at other banks to pay for uninsured deposits" is "reasonable operation of the FDIC".

(And yes, it's taxing the depositors. Because even if it's "officially" a fee to the other banks, it will be trickled down to their customers through lower interest rates and higher fees rather than absorbed.)

If this was necessary to recover insured deposits, that would be reasonable. But instead, the people who made poor decisions aren't going to lose anything, because the extra money is coming out of the pockets of everybody else with money in banks.

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

#252

Post by poof131 »

The part that annoys me the most is the idea that all the depositors are mom and pop small businesses or early stage startups.

I’ve heard it said that Circle and USDC have an amazing business model: create a coin, call it a dollar, and deposit real dollars in the bank for interest while customers hold the coin. You don’t even have to offer a percent for the deposit like a normal bank. You can then make a couple percent on billions.

With this bailout the US Government just backstopped the business model with no haircut for a total lack of risk management. But sure, punish all banks (and thus customers / taxpayers) since the costs will be spread to others. Protecting us from systemic risks always seems to create more systemic risk. I’m sure were done though, they are putting protections in place this time.

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

#254

Post by lambic2 »

cragfar wrote: post #164

It's pretty embarrassing how many people thought depositors should be on the hook for this. A banking system where companies or people would actually lose money due to bank failures (especially one caused by a run on the bank) would just lead to people only using BOA, JPM, and some merged WF/Citi/whoever else.

I have a feeling a lot of these people are Bitcoin maximalist. They want depositors to suffer so that they feel vindicated for their faith in Bitcoin.

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

#255

Post by Uvix »

consumer451 wrote: post #84
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…

As mentioned in other threads here, Germany and the UK have operated like this in the past as well. If it's not a loss to the tax payers, then it seems like good governance to me.

But it is a loss to taxpayers. Anybody with money in an unaffected bank will end up footing the bill.

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

#257

Post by nabla9 »

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…

> FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.

I think you misunderstand. Unlike bailout, FDIC insurance means that

1. Shareholders owners are wiped out,

2. Senior management is removed.

3. Unsecured debtholders *will not be protected*. They are made whole only when it's possible using banks assets.

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

#258

Post by adastra22 »

patientplatypus wrote: post #193
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…

I was reading this and came across "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer." What does this "special assessment on banks" mean in practice? Do they just go to all the bulge bracket banks and demand that they buy the outdated Treasuries at a loss? How does this work?

Higher FDIC insurance rates, which get passed on to banking customers.

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

#259

Post by 323 »

fbdab103 wrote: post #246
323 wrote: post #135

All bank deposits should be guaranteed by the state. Just like tap water is guaranteed to be drinkable, ... Bank accounts are the basis of many things.

SVB was offering higher returns by taking on more risk than was required. Those customers now lost nothing. The rest of us who went with safer banks offering market rate returns not only received less over that duration, but we have to pickup their tab. Why should I or a bank ever do diligence again? I can just claim I misjudged the risk.

There are ways, fine the bank owners, claw back the bonuses, etc... Maybe even criminal law.

But the depositor has no fault. A depositor shouldn't have to do diligence, just like it shouldn't test the the food it's buying for toxicity.

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

#260

Post by JamisonM »

fwlr wrote: post #238

A lot of people are asking “how is this not a bailout?” right now. I would caution against dismissing them, it’s a legitimate question. Pointing to the “Taxpayers will not pick up the bill” line counts as dismissive: this is a press release, and it’s from the government, that’s two strong reasons for some skepticism. So, in earnest, how is it not a bailout? Feel free to offer your answer! Mine is: “Banks are required…

Agreed, not a bailout as this is the purpose of the insurance scheme.

If someone gave me 10-to-1 odds that actually there will be no shortfall associated with this action I would happily take that bet. Shareholders will be wiped out but SVB's assets will cover all of the deposits, the regulator is just being extra-conservative.

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