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Bank failures come in waves

yarn.pranshum.com

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Re: Bank failures come in waves

#31

Post by dalyons »

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.

I don’t know why you’re being downvoted - it’s the only thing that makes sense. If the fed doesn’t, then we’ll just see a huge boom in middlemen offering accounts that automatically spread across 250k chunks behind the scenes. They already exist as a niche product, but would become mainstream with more failures. Either way the fdic is insuring the same total amount of money, so may as well cut out that inefficiency and overhead of forcing everyone to have spreaders.

Re: Bank failures come in waves

#32

Post by astura »

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.

See, for example, Fidelity's FDIC-Insured Deposit Sweep Program.

https://accountopening.fidelity.com/ftgw/aong/aongapp/fdicBa...

>To provide you with the benefit of FDIC insurance eligibility, the cash balance in your account will be automatically swept into an interest-bearing FDIC-Insured Deposit Sweep position. Since FDIC insurance coverage is currently limited to $250,000 per qualified customer account per banking institution, Fidelity may use several banks, rather than just one, to maximize your FDIC coverage.

Re: Bank failures come in waves

#33

Post by mikepurvis »

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…

Most people aren't thinking they're losing their money because the bank sets itself on fire; they're thinking they're losing their money because a savings account interest rate is well below inflation.

Re: Bank failures come in waves

#34

Post by dalyons »

kneebonian wrote: post #10

A healthy economy has ups and downs, and if you have a bigger up there needs to be a corresponding down. In 2008 we made major decisions to prevent a needed correction down, it turns out all that did was kick the can down the road, and if we kick it down the road again we're just in for another problem.

Overly simplistic and just not true. There is nothing in observed or theoretical economics that says every “up” has to be exactly balanced by a same sized “down”. We would never get anywhere in aggregate if that was the case - net zero is clearly not what has happened over the last 100+ years.

Re: Bank failures come in waves

#36

Post by maxilevi »

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.

Managers might have been fired and equity wiped out but they still have all the rent and bonuses that were extracted during the high risk high reward activities.

That’s why it’s a morale hazard and the fed taking over it doesn’t solve it.

Re: Bank failures come in waves

#37

Post by twelve40 »

personjerry wrote: post #29

It's awfully easy to say this and make your analysis after the fact. But past results aren't indicative of the future. See also: Taleb's The Black Swan

What was the black swan event here, exactly? sounds like simply a bunch of slopiness? Also, why are you so sure we are after the fact and not in the middle/beginning of it?

Re: Bank failures come in waves

#38

Post by brightball »

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…

In all circumstances. It’s a nonsense theory that is entirely based on the idea that everybody in the world will accept the value of our currency is maintained while no other country on earth gets this benefit.

The sarcasm was warranted.

Re: Bank failures come in waves

#39

Post by xupybd »

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.

So the banks can take risks but the tax payer pays when things go wrong?

Maybe there needs to be regulation that forces banks to hold way more cash?

Re: Bank failures come in waves

#40

Post by TechBro8615 »

brightball wrote: post #38
acjohnson55 wrote: post #17

Earlier quoted context omitted.

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…

In all circumstances. It’s a nonsense theory that is entirely based on the idea that everybody in the world will accept the value of our currency is maintained while no other country on earth gets this benefit. The sarcasm was warranted.

I don't remember adding a sarcasm tag. :)

I do agree that only the US (or whichever country controls the reserve currency) could really get away with this. But it already gets away with quite a lot, including "exporting inflation," so why not squeeze the dollar for all its worth as long as it's printed by the world's only superpower?

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