“ no losses will be borne by the taxpayer” seems to have gotten lost in the media cycle.
Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
711–720 of 1001 posts
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#712Yellen 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…
I just posted this on mastodon but I think maybe the community here knows better: If you ran a bank that required insurance on all deposits over the $250k FDIC coverage, and then offered 3rd-party insurance as a convenience for those who wanted it... your bank would be much less likely to suffer a blow up due to a bank run and therefore that insurance should be relatively cheap. Furthermore, people should prefer to b…
> Why is this not commonplace? Simply because the additional fee discourages it?
You actually answer this question in the second half, because banks have been treating the government as free unlimited insurance.
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#713It'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…
Another concerning factor is that many large VC firms sent emails to their portfolio companies (hundreds or more at a time) warning them to withdraw funds, triggering the run. An alternative could have been for this group of already closely connected individuals to call an emergency meeting and agreeing to send the opposite message to their portfolio companies to avoid the crisis. Given SVBs issue was really about pr…
If a VC firm tells you to keep your funds in a bank that gets a run, and you lose access to it, that VC firm destroys its reputation forever.
Please think about the payoff matrix and the fiduciary responsibility of the actors.
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#714Yellen 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…
I don't get it. The FDIC insurance threshold is the bare minimum provided by law. SVB's assets are being sold off or restructured to protect depositors. This is literally the whole point of the receivership process. This appears at this point to be a fairly pedestrian FDIC bank take-over, save for all the culture war B.S. that's cropped up around it.
So, at least two banks failed this week, 16th largest and a smaller one. Then Fed panics and effectively institutes an “unlimited” insurance/backstop policy, as a direct result.
I don’t know if I would call those events “pedestrian”.
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#715It'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 judg…
Actually no. The FDIC was created to protect small depositors without the knowledge to protect themselves against bank failure. Larger depositors were expected to assess their banks or find ways of safeguarding themselves.
One argument against deposit insurance was that it would lead to complacency and businesses offloading their responsibility to the government. And, here we are.
100% deposit insurance sounds great until you realize it leads to government regulation of 100% of the lending. TANSTAAFL. That is a very very bad outcome, there's very little room in it for a model like the Silicon Valley Bank, but that's where we are headed.
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#716Earlier quoted context omitted.
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.
I mostly agree with this, but I feel like the past 25 years or so, ever since "the Greenspan put", has just gone more and more in the direction of telling people that they don't need to worry about doing adequate risk assessments, because if you have powerful people that yell loud enough, and you can cause enough damage, that Washington will come to the rescue. Eventually, I just don't see this ending well. As someon…
I think you are wrong to not keep doing this (and I also don’t believe you’ll stop doing it unless it’s actually hard to continue doing, vs. the initial setup being difficult). I can tell you that after this I will start doing it. I don’t see these events as proving anything for the future. I have no idea what the political climate will be next time around, or any other factors. It’s like being down 9-0 in a soccer game and saying “hey, remember that one epic game we were also down 9-0 but then came back 9-10? Everything is fine.” What? No way. I don’t want my team down 9-0 at the half, ever.
BTW, in my experience many many people are risk averse in specific things they see that others don’t. It’s super hard to be an expert on everything. Talk to someone that knows about construction and they’ll have similar laments about home maintenance. Is it bad to “bail out” people that have their homes washed away in a hurricane? I honestly don’t know. But what I do know is that I’m definitely not jealous of them for making a silly location choice and “not paying the price”. That experience is not fun. I promise this episode was fairly disruptive even with this outcome. It is much better to look on from the outside than wonder whether a bunch of people you don’t know will save you. You’ll feel really bad if the next one isn’t bailed out because something is different and it gets you because you stopped doing something that aligned with your values just because of this thing this time.
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#717Yellen 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…
"Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law."
Yeah, all corporate customers that have seen an FDIC charge on their statement, based on Q-end balances will have a "special" laugh at this. It's going to be passed through and not be bourn by the surviving banks - that benefit from this 'bailout' of their customers....
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#718Yellen 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…
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.
Senior management is going to have their recent sales of millions of dollars and significant percentages of their stock and the bonuses they received hours before the FDIC took over reversed? Because otherwise they weren't really "wiped out" or even close to it.
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#719I 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…
There has been so many great reply to this comment already about how the lack of empathy is directed at the financial system itself rather than the small businesses and individuals directly impacted. The other thing that make it hard for me to have sympathy for a government backed solution is what makes these small companies and individuals anymore worthy of being 'bailed out' than any other small business that finds themselves unable to operate because of situations outside of their control or factored risk.
I don't see VC's and tech workers screaming for the government to step in when it's blue collar or service businesses failing. Thousands of small business with 5-20 people on payroll fail every year because of things outside of their direct control. I know small businesses that had to close doors because they got fucked over by things like landlords going bust and suppliers with half payments and no goods delivered collapsing. It's shitty for any small business to fail because of broader issues outside of their control, how is it fair to label this as anymore worthy of assistance?
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#720Yellen 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…
> broadcast that FDIC insurance is essentially unlimited
Shouldn’t it be? The government is in the best position to regulate and manage the risk of these institutions. We cannot expect average depositors to be financial analysts with the capacity to assess financial institutions.