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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

#771

Post by oarabbus_ »

machina_ex_deus wrote: post #702
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…

Banks have lost all excuses to be making money out of other people's deposits. If those deposits are guaranteed by the government, and backstopped by the government, then there's absolutely no reason banks should be able to invest any of them. There's absolutely no excuse left for why banks get to invest any of their clients money. They get free leverage from their clients for free. They can send it to zero and the e…

>If those deposits are guaranteed by the government, and backstopped by the government, then there's absolutely no reason banks should be able to invest any of them.

>Revoke banks ability to invest deposits. They can't get to have the cake and eat it too. They could offer higher interest rates for non guaranteed accounts which bear risk, or zero risk for the already zero interest rates.

You are missing something crucial here - treasury bonds are a loan to the government - this is all by design.

Who will loan the government tens or hundreds of billions of dollars besides the banks? The [Fed/Treasury/FDIC] has no incentive to prevent banks from loaning customer deposits, because the Treasury needs banks to purchase government bonds

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

#772

Post by citizen_friend »

machina_ex_deus wrote: post #702
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…

Banks have lost all excuses to be making money out of other people's deposits. If those deposits are guaranteed by the government, and backstopped by the government, then there's absolutely no reason banks should be able to invest any of them. There's absolutely no excuse left for why banks get to invest any of their clients money. They get free leverage from their clients for free. They can send it to zero and the e…

I see this issue in so many areas. Government orgs and companies have different organizational incentives and tradeoffs. When we substitute a government function with a wallet for contractors, we lose those tradeoff. But it's even worse because now the company has moral hazard.

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

#773

Post by matheusmoreira »

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.

Fractional reserve banking doesn't pose a systemic risk, it pretty much is the systemic risk. The system will never lobby against itself. There's too much money to be made in risking other people's money.

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

#774

Post by baidifnaoxi »

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…

[dead]

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

#775

Post by citizen_friend »

ojbyrne wrote: post #765
machina_ex_deus wrote: post #702

Earlier quoted context omitted.

Banks have lost all excuses to be making money out of other people's deposits. If those deposits are guaranteed by the government, and backstopped by the government, then there's absolutely no reason banks should be able to invest any of them. There's absolutely no excuse left for why banks get to invest any of their clients money. They get free leverage from their clients for free. They can send it to zero and the e…

Define “invest.” Banks invest. That’s literally what they do. People deposit their money rather than put it under their mattress, and the banks reward them by giving extra money to them. Then the banks figure out a way to put that money somewhere else that rewards them more than what they are giving the depositors. Basically that’s the foundation of civilization.

The point is, why doesn't the government just capture that revenue? Instead we are letting private companies keep those earnings, without taking on any risk.

Let's deposit at the bank of USA and cut out the middle man.

> Basically that’s the foundation of civilization

I think many of us would disagree.

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

#776

Post by throwawaaarrgh »

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…

> this is yet another example of changing the rules in the middle of the game.

welcome to democracy bro. also, economies are literally black magic. if anyone claims to know how to make them work right, they are either lying or a witch.

Edit: oh shit I'm getting downvoted to hell. Was it my suggestion that economists are full of shit, or denigrating witches? Because I have nothing against witches.

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

#777

Post by deevolution »

The problem here is a fundamental flaw in the design of bonds.. They're non fungible by design. Why not make their yields fixed to the current fed funds rate regardless of when they were issued? That would eliminate market dislocations like what was experienced by SVB where their 1% yeilding bonds lost tremendous value.

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

#778

Post by americafun »

bcantrill wrote: post #490

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 have no idea who you are. but i dont care: if you take risks you should have skin in the game. what empathy do you expect if you don't have any ?

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

#779

Post by nopassrecover »

oarabbus_ wrote: post #771
machina_ex_deus wrote: post #702

Earlier quoted context omitted.

Banks have lost all excuses to be making money out of other people's deposits. If those deposits are guaranteed by the government, and backstopped by the government, then there's absolutely no reason banks should be able to invest any of them. There's absolutely no excuse left for why banks get to invest any of their clients money. They get free leverage from their clients for free. They can send it to zero and the e…

>If those deposits are guaranteed by the government, and backstopped by the government, then there's absolutely no reason banks should be able to invest any of them. >Revoke banks ability to invest deposits. They can't get to have the cake and eat it too. They could offer higher interest rates for non guaranteed accounts which bear risk, or zero risk for the already zero interest rates. You are missing something cruc…

> because the Treasury needs banks to purchase government bonds

Does it? Or is this just how the system is currently designed?

50 years ago we might have asked who will provide the Fed with the gold it needs to issue enough currency to avoid deflation as the population grows exponentially.

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

#780

Post by svnt »

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…

> Yellen has just broadcast that FDIC insurance is essentially unlimited, as long as you can threaten wider disruption to the economy.

You are almost certainly misreading that signal. Probably since Friday they have assessed that the depositors can be covered once the assets can be liquidated, and that they may even be able to make money doing it.

If they can’t, they can assess the rest of the losses to the system, and those losses once divided up are likely to be inconsequential, even if not considered in relation to a broader run on the banking system.

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