Looking forward to the Econtalk podcast on this.
Russ Roberts usually has some pretty knowledgeable people on who know behind the scenes stuff.
Should be fascinating what comes out over the next few months.
Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
821–830 of 1001 posts
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#822I 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…
It's 0 % shocking to see the lack of empathy and schadenfreude, if you've been in H1B related discussion on this site over the years.
I came here to say this.
If you feel shocked by the lack of empathy at "You knew all along that only $250K was insured, riiiggtt??", please consider empathy when you are about to type in " You knew that H-1B isn't an immigrant visa, right?".
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#823Yellen 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…
Do realize that the SVB bankers and shareholders remain completely screwed. This bailout does not save them. Nor will any FDIC bailout.
So the FDIC existing does not change how a bank behaves. From the perspective of the bank, bankruptcy and FDIC takeover are effectively the same thing.
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#824Yellen 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.
Not exactly. Or rather yes, but the rules changed in 2008, not this week. Specifically after IndyMac failed in 2008, there was significant blowback on the FDIC from Congress, and an unoficial, unnounced policy was put in place to ignore the $250k limit and ensure uninsured depositors took no losses in (almost) all cases.
From https://www.americanbanker.com/opinion/will-fdic-keep-protec...:
> Of the 127 banks and thrifts that failed from Jan. 1, 1993, to the last bank that failed before IndyMac was closed [...] 71% of the total deposits of the 127 failures were in institutions where uninsured depositors suffered a loss, while 29% of the deposits were in institutions resolved through a P&A that fully protected uninsured depositors from any loss whatsoever.
Whereas:
> Since IndyMac, there have been 522 failures, excluding Washington Mutual [...] Of the 522 failures, just 31, or 5.9%, were resolved in a manner that only protected insured deposits — uninsured depositors were therefore put at risk of a loss. Those 31 banks and thrifts held just 4.9% of the deposits of the post-IndyMac failures.
(Washington Mutual is excluded because it was enormous compared to the other failed banks - although since uninsured depositors were protected, including it just skews the stats even further.)
So for the past 15 years, we've had a system where the overwhelming majority (well over 95%) of uninsured deposits were protected, and thus, it would have been legitimately very surprising if recovery for uninsured deposits in SVB wasn't 100%, because it's very clear that unstated FDIC policy is to aim for that, and they've got a strong track record of achieving it. (I will state that I find the hidden nature of this policy problematic, however.)
The only thing surprising about events so far is that there's been enough noise that some new policies had to be announced, instead of it all just being quietly resolved like normal.
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#825What does backstopping this bank mean for inflation? Where are we getting the money from to secure the deposits of the bank?
Where does it end? If this small bank was vulnerable, how many other small banks will we need to do this for?
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#826How about a special levy on VC funds to pay for the special risk that they create in the banking sector?
I asked on another thread why everyone was banking with the same bank. The answer was that SVB was willing to do things for the VCs clients that other banks were not.
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#827[dead]
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#828Yellen 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. 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…
I think the main goal is to prevent a wider banking crisis and this spiraling out of control. That would surely affect everyone..
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#829With 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.
A lot of people would lose money and the system would have to change.
Re: Joint statement by the Department of the Treasury, Federal Reserve, and FDIC
#830Earlier quoted context omitted.
> 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.
I mean, yeah.
Lots of people are starving and homeless for as trivial a "decision" as that.
I'd much rather give everybody food and a home, including the Etsy seller, instead of: giving the bankers a ski jolly, people still starving and homeless, less this Etsy seller. Why can't we do that?
Some of those entitled Etsy sellers voted against everybody having food and a home; My heart breaks, but not as much for those who have and hate. Maybe now that they are hungry and homeless too they will be a little more sympathetic. Surely that would be best.