> Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy. I think everyone knew that already. Since 2008 at least. It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones. A domino effect is very hard to prevent when it's based entirely on consumer confidence and those consum…
>it's based entirely on consumer confidence Not typical consumers, right? Typical bank consumers have < $250k in their account, and thus there's no reason for them to cause a run.
I guess maybe if all the small customers pull out of index funds to flee to bitcoin? Not sure.
What if the Federal Reserve offered retail banking. Would it stabilize the banking sector? They wouldn’t be forced to try to find loans to pay interest on deposits. Where do private banks add value over what the Fed could do. ELI5.
Thats what China does and what CBDCs are about. See: Tofu Dreg projects and social credit score system. With privatization you get decentralization.
The Fed is already decentralized, no? There are branches in different regions throughout the country with their own governance, and a central board of governors to oversee the whole thing. I guess what I am asking is, why not treat banking like the utility that it is. Their is a natural monopoly on currency issuance after all, no?
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…
How does this "special assessment on banks" work? Does the FDIC charge all US banks to cover the missing amount? How are the charges distributed? And what law is this? Also if this option was available, why did they just bring it up now?
It’s almost certainly going to manifest as tax that will be passed on to customers in the form of lower interest rates on deposits.
I have never seen such cognitive dissonance here at HN -- which I feel is really saying something! As an SVB customer who had to wire payroll on Tuesday, our perspective is naturally sharpened, but I found the lack of empathy here over the weekend galling. On the one hand, this is understandable, and Silicon Valley has done much to earn collective distrust. On the other hand, this is emphatically not all of us: many…
I respect your work, but you have to realize that what many companies were doing with their money was the financial equivalent of developing by SSHing into prod and editing a 50kloc index.php. And when they got into trouble, they did not stop to asses their situation (possible 5-10% haircut, nbd), but went into full blown existential meltdowns. One minute crying and begging, next minute threatening. In fact, after re…
There are some absolute turkeys out there, no question -- but there were/are also a lot of people who have taken pay cuts and betting it all on themselves to try to bring something innovative and important into the world. And when you say "they got into trouble", what you mean is: the bank in which they (we) are depositors was subjected to a bank run (something that no bank can survive). And yes, I believed and believe that depositors should be made whole: we -- as a group -- were not acting with avarice or recklessness. I am proud of my government and our hard-working regulators who were able to ignore the shrill caricature and see the very real lives that would been adversely affected by deposit loss.
>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…
> I hope it is clear to all of us that avoiding the economic disruption of a cascade of bank failures is in our interest. Very clearly there is a large chuck of this forum that doesn't understand that.
Is it though? I think there's a proportion of readers who might feel grifted by regulatory capture (eg: unable to get on the housing ladder due to draconian zoning policy) and reasonably feel that some of the moral hazard has to be addressed to stop what has been unstoppable growth to give them a chance to establish financial security. It's a fallacy to see it as zero sum, but a temporary crisis in confidence might produce the only opportunity in a lifetime to create the conditions needed for affordable housing to be available for purchase for folks who can keep their jobs during the crisis. Many feel economically abandoned.
So much for moral hazard. Capitalism is supposed to be about profit and loss, you bail out the losers, there is no end to the loss. I guess we still haven't learned the lessons from 2008. Effective regulation should have been put in place to oversee that banks are effectively managing their risks. Not bailing out companies whenever times get tough.
> you bail out the losers, there is no end to the loss The difference here is that the "losers" made was supposed to be an incredibly safe bet. The people who made the actual bad bets are all losing their jobs. Shareholders are getting nothing (ish). It's the customer who's getting protected, here. > I guess we still haven't learned the lessons from 2008 Not my observation, but it's more like we were fighting the las…
When a building company, building my house goes bust. The government doesn't step in to get someone to finish building it. When I order goods from a company and it goes bust, the government doesn't step in to ensure I get my goods.
Engaging with any third party entails a level of risk.
It's a bailout. They're putting the cost, presently unknown and probably not huge, on the other banks. But the message to depositors everywhere, of every size, is "don't worry about your bank's solvency, we'll protect you". So market scrutiny is removed as a discipline on bank asset strategy. That leaves regulation as the only control. That politicizes and bureaucratizes bank lending. And the general presumption that…
the message to depositors everywhere, of every size, is "don't worry about your bank's solvency, we'll protect you".
So market scrutiny is removed as a discipline on bank asset strategy.
Uhh.. isn’t that FDIC’s raison d’tere? (Aside from the ‘every size’ part)
Bank runs are caused by low confidence. FDIC makes depositors confident.
It’s also interesting that failure is socialized among banks- who are equipped to judge the risk their peers are taking.
In cases where you can't predict the future appropriately, sometimes it's better to make prudent decisions that help everyone instead of attempting to punish the sinful. Keep in mind that bank shareholders and senior management are going to get wiped out and fired.
> sometimes it's better to make prudent decisions that help everyone instead of attempting to punish the sinful I'm conflicted about this. In the last seventy-two hours, I made a ridiculous amount of money standing still because risks that shouldn't have paid are being done so by people who shouldn't have to pay them. I personally benefit. But we've given tech companies a visible privilege American farms, factories a…
It's the old saying, if you owe the bank a million dollars you have a problem, if you owe the bank $100m then the bank has a problem.
> Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy. I think everyone knew that already. Since 2008 at least. It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones. A domino effect is very hard to prevent when it's based entirely on consumer confidence and those consum…
> It's very possible that if this is not done, the only banks left at the end of the week will be the "too big to fail" ones. I don't get it. Doesn't the unlimited FDIC insurance encourage mega-banks? If funds were only insured up to 250k, wouldn't that just mean we would have to spread money across multiple banks. And sure some banks would be wiped out but new better banks would take their place. It's not a closed s…
Number of banks failed is less useful info than total size of the banks that failed.
So far this year we are looking a lot closer to 2009 than 2020[0].
The discourse on this thread and Twitter is astoundingly inept. If the FDIC had permitted uninsured depositors to not be made whole, there would’ve been a systemic risk to American banking. Confidence in the banking system is critical to its well functioning. Quite literally banks are built by confidence that their depositors will get their money back. Discussing whether SVBs depositors should’ve taken a haircut miss…
Exactly. The VCs were right, this saved a lot of regional banks and may just stave off a major recession
