Can anyone help me understand why would any bank practice proper risk management after this? SVB took on risk by catering to high risk clients (startups). Growth metrics were great as a result. And stock performed spectacularly (up nearly 6x from April 2020 lows at ath). More conservative banks like JPM, however, saw modest growth. If you're a banker and your salary is tied to stock performance, why not just adopt th…
> More conservative banks like JPM, however, saw modest growth. Also they continue to exist.
Why should that be any concern if you’re not the founder and are just exec #107?
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…
People can learn how to use Treasurydirect.gov instead of using their bank as a lousy bond broker. Inflation protected bonds, that you can buy only $10k a year of are some of the highest yielding risk free investments that exist. Banks should just make money off fees and hold short duration Treasury bills only.
Other institutions that have LPs should lend to businesses, students and home owners.
With this news, I'm opening a bank. Here is my business plan: 1. Make risky investments and offer better terms than other banks 2. Watch business flock to me 3. Get filthy rich on yearly bonuses 4. 10 years later my risky investments blow up (Make sure to sell stock before) 5. Get taken over by the FDIC 6. Don't return those years of bonuses 7. Let other banks pay for my wrongdoing with a "special assessment" 8. Walk…
Is this any different without steps 5 and 7? I don't understand how the FDIC actions change the incentives here.
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…
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…
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.
> Keep in mind that bank shareholders and senior management are going to get wiped out and fired.
And do the same thing again. Wasn't the CEO ex-Lehman?
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…
It's not though, SVB equity holders are getting zeroed out. Raiding the DIF to pay out depositors in extraordinary circumstances and then recovering it through a special assessment is basically the whole point of having an FDIC. The justice is that SVB equity went to $0.
> 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. The criteria isn't threatening a "wider disruption to the economy", it's threatening the quality of life of a certain class of people. When unions threaten a wider disruption to the economy…
> it's threatening the quality of life of a certain class of people. Like the jerks who chose to work for a company that picked a specific SaaS payroll provider. Or those entitled Etsy sellers that expected to get paid. The absolute nerve.
We don’t live in a socialist society. These companies chose not to diversify their risk. If they didn’t know their accounts had a max insurance rating of $250k, then they deserve to fold.
FDIC insurance is intended for consumers not to be instantly without. If you are a corporation, you are responsible for you own financial risk.
9 banks have failed in the last 5 years. The fed is treating this special and that’s why it’s an issue. Essentially they are telling the public “as long as you are with a large bank that holds large assets, we will protect you”.
> 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.
what’s stopping a bank from making really risky loans, give super high yields? Everyone will go to that bank since there is no risk to them?
Because that's not how modern banking works. This isn't George Bailey lending out deposits; retail banks don't use deposited money at all it just kind of disappears.
>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…
> > Governments are supposed to act in the best interest of the governed Many of the governed see what policymakers and politicians call 'systemic risk' and 'instability' as a not so unwelcome wildcard considering that the wealthy of today are mostly descendants of wealthy land owners from the times of the Crusades. > > They did their job and did it quickly and effectively Where are the Fed , D.C. , the FDIC etc. whe…
Maybe in the UK you can tie a lot of wealth to the Norman aristocracy but the United States is far too new for anything like that.