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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

#381

Post by skwirl »

version_five wrote: post #112

So they made their decision, everyone can move on. I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty. The idea of some noble class of investors championing disruption is dead. They're just a bunch of rent seekers like everybody else. For some silly reason I had some respect for the startup industry before this, now I see it as a joke. It's great at a personal level that "foun…

The people I lost respect for was a large portion of HN commenters calling on bank depositors - largely small businesses - to be snuffed out because there was a run on their bank. The comments have largely been factually wrong, misleading, and downright psychopathic. I am glad our government is not controlled by such people, but I question the value of this forum going forward given the large portion of it that is so incredibly toxic and so poorly informed.

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

#382

Post by turingfeel »

mgav wrote: post #357

"RE: student debt forgiveness, I think folks shouldn’t get a bailout (banks, airlines or students), as bailouts remove accountability for actions" ~Jason Calacanis, Twitter, Jul 27, 2019 link to Tweet: https://twitter.com/Jason/status/1155224393028476933

I am really, really not a fan of the guy. However making cash deposits and taking out loans are two very different things.

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

#383

Post by postalrat »

dodgerdan wrote: post #218
seo-speedwagon wrote: post #98

This is 100% a bailout and the wording that “no losses […] will be borne by the taxpayer” is a shameful misrepresentation. Just because a bunch of VCs and founders didn’t realize they were at risk of this happening if they kept all their money in one bank, they still bear the responsibility of their losses. Looking forward to this new future where uninsured deposits are actually 100% backed by the FDIC, so actually i…

Not really. If 5 or 6 more regional banks fail next week due to depositors seeking the safety of big banks there won’t be enough money to guarantee deposits for more banks. If they didn’t guarantee the SVB depositors that outcome would have been almost guaranteed, the train wreck would have impacted de-risked companies too, because the entire regional banking system would implode. Not acting now to stop contagion bec…

And if it doesn't then what?

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

#384

Post by dragonwriter »

joe_the_user wrote: post #368
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, that's been the implicit rule since 2008 at least (arguably earlier). If anything, not supporting all depositors would have been changing the rules mid game and so would have lead to massi…

> No, that’s been the implicit rule since 2008 at least (arguably earlier).

No, depositors have lost money in failures since 2008. Its true that, for a long time, the FDIC has tried to resolve failures in a way which protects as much of the uninsured deposits as possible, but it has very much not been a guarantee.

The systemic risk exception invoked here is an exception.

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

#385

Post by [deleted] »

seizethecheese wrote: post #282
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.

[deleted]

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

#386

Post by bart_spoon »

huhneverthot wrote: post #271
version_five wrote: post #112

So they made their decision, everyone can move on. I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty. The idea of some noble class of investors championing disruption is dead. They're just a bunch of rent seekers like everybody else. For some silly reason I had some respect for the startup industry before this, now I see it as a joke. It's great at a personal level that "foun…

Who would've thought post-hand-wringing-over-poor-300k-salary-tech-workers realizing their disposability that we would have another event reminding HN just how different the rules are for capital owners than the rest of us. Why is that tech workers, many of whom easily have earned over a million dollars in salary over the past few years can't be told to "live within their means"? Why is it that the same VCs that rall…

How many startup employees do you believe are making 300k? That’s FAANG, big-tech companies that were in no way affected by SVB going under. If anything, startups are known for paying below market rate because they have tighter margins and compensate with the tenuous promise that more money might be made in the form of stock options if the company makes it big, which usually doesn’t pan out.

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

#387

Post by bradleyjg »

jongjong wrote: post #372
version_five wrote: post #112

So they made their decision, everyone can move on. I just hope nobody forgets how prominent VCs behaved during the brief period of uncertainty. The idea of some noble class of investors championing disruption is dead. They're just a bunch of rent seekers like everybody else. For some silly reason I had some respect for the startup industry before this, now I see it as a joke. It's great at a personal level that "foun…

It's impossible to move on. There were insufficient funds to pay depositors; meaning, the money was gone - Since the money didn't vanish into thin air; somebody got that money through some scheme. Now taxpayers are going to be footing the bill... It's a government-ordained transfer of wealth from good, honest taxpayers to whatever (possibly malicious) entities got that money. It's theft. It's straight theft. Not even…

It’s not strictly speaking taxpayers, it’s anyone with a bank account at a U.S. bank. But same effect.

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

#388

Post by wskinner »

mortenjorck wrote: post #159
noelsusman wrote: post #15

It's a bit embarrassing to have to invoke the systemic risk exception when regulations on these banks were relaxed in 2018 on the theory that they wouldn't pose a systemic risk if they got into trouble. This should spark some serious soul searching from everyone involved in that effort, but I'm not holding my breath. Anyway, I'm happy for all the depositors.

I think there was an air of "hey, it's been ten years since 2008, the system is working; we can relax Dodd-Frank a little bit." After March 2023, the message should be an unequivocal "no, not even a little bit."

How did the relaxation of Dodd-Frank lead to what happened at SVB?

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

#389

Post by evan_ »

Taniwha wrote: post #318
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…

One reason why it's not (mostly) a bailout is that SVB's deposits are (as far as we know) still backed by bonds and mortgage backed securities, the problem is that those securities can't be easily sold right now (because people want higher valued investments) - a sudden forced sale means selling at a loss (or a cash flow crisis which is how SVB got into this state), holding on to them and letting them play out and th…

One thing nobody seems to be talking about is whether SVB had more assets than liabilities- presumably they did since it was a money-making enterprise, right? So even if they sell at a loss there may be more than enough to cover the liabilities.

We’ll see I guess.

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

#390

Post by kypro »

jakubadamw wrote: post #24
serf wrote: post #8

> No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer. i'm out of touch with how much of this works, can someone explain how this is paid without burden to the taxpayer?

Not an expert either, but this: > Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law. suggests other banks will effectively pick up the bill?

What you don't pay for in tax, you will pay for in inflation, basically.

> The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.

https://www.federalreserve.gov/newsevents/pressreleases/mone...

They're basically going to allow banks to post treasuries as collateral in exchange for cash. Making this effectively a form of QE.

To understand better, banks don't hold the cash you give them. They take it and invest it in "safe" assets like treasuries and mortgage backed securities. But because rates have sky rocketed US banks are currently sitting on hundreds of billions in loses on these investments.

That's generally not a huge problem though because so long as the banks can hold these assets to maturity they'll eventually get their money back. Problems only occur when a large number of customers start demanding their deposits back ASAP. If enough customers want their deposits in a short enough window then the bank will be force sell those investments at a loss so they can return cash to customers.

To avoid this scenario the Fed are basically saying, if a bank is ever forced to realise loses, then the Fed will take those loses and "print cash" to make them whole again.

It's probably the right thing to do given the systemic risk, but this is inflationary.

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