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

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

#31

Post by sidewndr46 »

dragontamer wrote: post #16
anonuser123456 wrote: post #11

Earlier quoted context omitted.

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…

So 15 years after 2008 and TARP, our solution is to reach for the most extreme tools available to us yet again? I thought "TARP" / equity injections into banks was a "never again" kinda deal. With Dodd-Frank regulations being passed back then to try to stop these things from being regular. We can't just buyout every bank that collapses. --------- At a minimum, I want to see major banks (similar to AIG) teetering on t…

It was in fact a "one time" thing done to save the banks. I have not even reached 40 years of age but have lived through somehow 4 "once in a lifetime" economic events. Perhaps economists believe that the human lifespan is only a few years?

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

#32

Post by ivalm »

comte7092 wrote: post #10
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?

> why should taxpayers cover their losses It doesn’t follow that there will be any losses to cover. The government can take ownership of the assets of the bank and won’t be stuck having to sell them at a loss.

If you mark to market the assets are less than liabilities. It’s unlikely government will keep to maturity a bunch of 30 year mortgages. At the same time, we should just make FDIC limit infinite and make depositors whole.

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

#33

Post by reducesuffering »

the-grump wrote: post #5
panarky wrote: post #3

I also lost money on the bonds in my portfolio, who will make me whole?

You took the risk buying those bonds. Depositing cash at a bank is a different matter. No bailout for SVB; no bailout for you.

Depositing cash at a bank is not a different matter. You are giving another organization your money. Everyone knows that the government, FDIC, only insures up to $250k. That organization is then lending it out to make enough profits to employ thousands of people to give you, the depositor, all the services you've come to expect. Only charlatans are dumping $5m into a single bank with the thought, "no worries, if anything goes wrong the government will pay me my $5m."

All of the interest SVB depositors were rewarded with was coming from MBS. Heads, I get extra interest, tails, government bails my deposit out.

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

#34

Post by swatcoder »

noelsusman wrote: post #25

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?

It’s hearsay, honestly, but I heard that participating in their venture loan program involved keeping your deposits exclusively with them as a form of collateral.

For hyperoptimistic founders and VC’s, the opportunity for loans where they aren’t otherwise available may have thrown responsible banking practices out the window.

It would fit the character of the startup industry, seems reasonable from a lending standpoint, and explains why VC’s are now acting like they got caught with their pants down, so I’m curious of there’s truth to it.

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

#35

Post by objclxt »

noelsusman wrote: post #25

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?

> Is this a corruption story? Are they all just that incompetent?

I have heard through the grapevine that some startups were locked into varying exclusivity deals with SVB.

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

#36

Post by postalrat »

bushbaba wrote: post #27
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.

That type of thinking didn't save svb and won't save other banks.

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

#37

Post by andygcook »

noelsusman wrote: post #25

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?

Anecdotally, most founders are extremely busy and much of their financial success is in finding product/market-fit to maximize equity value. Therefore, learning about maximizing interest and managing dozens of bank accounts to minimize insolvency risk didn’t seem like a good use of time. Parking cash in SVB, which had been around for 40 years (with some investors even requiring startups to bank with them), seemed like a safe, secure option. Obviously, hindsight is 20/20 here.

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

#38

Post by machina_ex_deus »

If this happens, banks have officially lost all their legitimacy and all banks should have their priviledges revoked.

There is absolutely no reason banks should be given the priviledge of being the only way to deposit money, while playing with those customers money and simultaneously having zero risk on that money.

These banks are getting 10 to 1 leverage, from me, captive customer. Break their monopoly. I want an account at the Fed, and I want zero banks to be able to take leverage with my money, unless and until these banks give me a worthwhile interest rates on deposits. Let them actually compete. Right now it's not a competition, there are too big to fail banks which actually hold deposits, and there are small banks which can fail arbitrarily and cannot possibly compete because they actually assume the risk themselves.

I want zero risk CBDC. At the Fed. With the Fed's current interest rates as they give to real banks.

All their privileges should be gone. They can stay as investment institutions and if you trust them as that you're free to put your money there.

They get all the priviledge with no responsibility. If they cover for them, this should be the end of banking. Nothing less. Digital coin with zero risk and connection to all standard paying systems. Same interest as banks. Demote banks to investment institutions and make their special priviledges obsolete. No bank except the Fed will be too big to fail then, when no one's forcing you to bank anywhere.

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

#39

Post by bedhead »

I literally can't dream up a worse policy choice than to highly incentivize the almost immediate withdrawal of every non-insured deposit in the country from the banking system just so the money can be parked in t-bills. Every bank intervention has some degree of being unpalatable for various reasons, but you know why we do it? Because it's better than the alternative. Sorry. Remember when that money market fund broke the buck in 08? You can't have these sorts of products not getting par, all hell will break loose.

Right now, the thing that worries me the most is idiot politicians (redundant) inserting themselves and focusing on tangential things like who got paid a bonus or whatever. These people will - R and D - manage to screw it up.

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

#40

Post by Vecr »

labrador wrote: post #26

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 ceilin…

Only the Jan 6 protest outside the in-use government buildings was constitutionally protected. As far as I know the congress does not have to allow random people to disturb them while in session and can enforce that. In general, it's safe for the police to do so, I think they should arrest all rioters on basic misdemeanor charges, do a bit of investigation, and then let those go who did not do anything. Obviously in this case if you went into the senate chamber you would get at least a misdemeanor trespassing charge.
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