Joint statement by the Department of the Treasury, Federal Reserve, and FDIC • Hacker News Board

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

#281

Post by belter » Sun, Mar 12, 2023, 11:13 PM UTC

mixdup wrote: post #79

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…

Well, paying for it by a special assessment on banks means the banks aren't going to get a free ride. They, as a group, have to get their shit together otherwise they will pay dearly

Already proven not to work.

" I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms ... "

"Greenspan: I was wrong about the economy" - https://youtu.be/XQFq97ljy3k

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

#282

Post by seizethecheese » Sun, Mar 12, 2023, 11:13 PM UTC

bradleyjg wrote: post #160

So depositors at banks taking on big risks get elevated interest rates or other perks for years, and when the shit hits the fan depositors that put their money in prudent banks get to bail them out through higher fees. And people wonder why turnout is low. There’s no way to vote for non captured politicians.

Evidence that SVB paid higher interest than other banks? This doesn’t seem to be the root cause here. They had a huge volatility in deposit base.

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

#283

Post by jnwatson » Sun, Mar 12, 2023, 11:13 PM UTC

lambic2 wrote: post #254

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.

In defense of Bitcoin, it would have taken a decade to process the $40 billion of withdrawals from SVB on the blockchain, so a bank run couldn't have happened.

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

#284

Post by bradleyjg » Sun, Mar 12, 2023, 11:13 PM UTC

moose_is_loose wrote: post #266

bradleyjg wrote: post #160

So depositors at banks taking on big risks get elevated interest rates or other perks for years, and when the shit hits the fan depositors that put their money in prudent banks get to bail them out through higher fees. And people wonder why turnout is low. There’s no way to vote for non captured politicians.

Yeah, shit is gonna hit the fan over this in terms of domestic turmoil. All those people who took PPP loans and Silicon Valley VCs getting bailed out who railed against student debt relief, it's just mind boggling. Just wait until student borrowers start getting squeezed and the Supreme Court nixes the debt relief. This is not good for long term political stability.

PPP loans and Silicon Valley VCs getting bailed out now railed against student debt relief

Contemporary debates are over *who* gets free money from the government. I’m sure this is going to end well.

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

#285

Post by lmm » Sun, Mar 12, 2023, 11:13 PM UTC

radicaldreamer wrote: post #151

dehrmann wrote: post #123

Earlier quoted context omitted.

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.

This is going to put every regional bank on the map for short sellers as equity holders are being wiped out in these cases without depositors being affected. Why would anyone invest in any regional bank with the risk of a equity wipeout day to day?

Every business has the risk of an equity wipeout if it goes bankrupt. SVB was always going to have its equity zeroed, the only question was whether depositors were also going to lose out.

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

#286

Post by dragonwriter » Sun, Mar 12, 2023, 11:13 PM UTC

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.

> Does this statement reflect any shift in policy?

It’s a decision of how to apply existing policy to a specific situation, not a policy change. Existing policy is nonspecific enough that reasonable people could disagree on how best to apply it here without changing it.

> Haven’t depositors always been first on the list to get paid, even their uninsured deposits?

Yes.

> I don’t know if charging a special assessment to member banks is standard operating procedure

It isn’t routine, which is why it requires invoking the systemic risk exception.

> but that doesn’t sound like government intervention.

It’s a government decision to intervene in a particular way, so…

> It just sounds like reasonable operation of the FDIC.

It’s not just “reasonable operation of the FDIC”, since both Fed and Treasury actions are involved. And, even if it was, FDIC is a government corporation, so its actions are government intervention. Its reasonable operation is reasonable government intervention, but its still government intervention.

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

#287

Post by dev_tty01 » Sun, Mar 12, 2023, 11:14 PM UTC

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…

>At the same time, this is yet another example of changing the rules in the middle of the game. Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.

No, there are systemic risk exceptions within the rules. If a bank is large enough, then the systemic risk to the economy as a whole is large enough to warrant this step. "Too big to fail" is typically a derisive comment, but it is not without practical reason. Governments are supposed to act in the best interest of the governed. I hope it is clear to all of us that avoiding the economic disruption of a cascade of bank failures is in our interest.

Smaller bank failures do not pose systemic risk and so they will not be backstopped in the same way. Might seem like unfair treatment, but practical concerns often outweigh the theoretical. By the way, SVB is still a failure and as a company is now gone. Some other entity will take over its assets, debts, and customer services. All senior management has been removed.

>I understand part of this is human nature but I really wish we could plan for these entirely foreseeable events ahead of time so that it's not just cases of "selective justice" with regards to who gets bailed out.

We did. That is why we have the FDIC, the Federal Reserve, and the Treasury department. They did their job and did it quickly and effectively. SVB did not get bailed out, the depositors did.

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

#288

Post by 323 » Sun, Mar 12, 2023, 11:14 PM UTC

NotACop182 wrote: post #150

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.

Maybe banks shouldn't be able to place bets with depositor funds.

They aren't. The particular "bet" here, treasury bonds, are considered the safest form of US money, they are considered "risk-free".

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

#289

Post by ummonk » Sun, Mar 12, 2023, 11:14 PM UTC

gnicholas wrote: post #119

Interesting that they're announcing this for SVB and Signature. I infer from this that they will backstop the depositors at these two banks, and they assume that by doing so no other banks will be 'run' by depositors.

That and the Federal Reserve is offering extra capital to other banks to help them weather the runs currently happening.

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

#290

Post by cm2187 » Sun, Mar 12, 2023, 11:14 PM UTC

PaulHoule wrote: post #222

See... I told you this would be resolved quickly. Trouble is that Silicon Valley should have learned the lesson that dogpiling into the same bank is systemic risk.

Instead they learned that donating to the democratic party is a good insurance policy.