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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

#951

Post by makomk »

hartator wrote: post #770
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…

> [svb.com] 4.50% APY on deposits Well, my accounts don't pay as much. Are you okay refunding the extra APY you get by having your bank takes more risks for the past years?

I've seen this argument made a few times, and it's nonsense. SVB didn't fail because they paid out 4.5% APY on their money market accounts; that's pretty safe for them because they can easily earn that much from low-risk bonds and Treasuries and as I understand it that doesn't have the duration mismatch problems that affected their normal, boring, no-or-minimal-interest demand deposit accounts. (Also, I'm pretty sure people weren't earning that kind of interest for the past few years - the interest rate increases that made it possible are really recent.) It's related to the cause of their failure, but only in the sense that the fact interest rates increased so much that it was viable to offer that kind of money market account caused outflows from other accounts - it didn't particularly matter whether it was SVB or any other bank, or even potentially corporations just buying bonds directly.

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

#952

Post by nateburke »

nateburke wrote: post #243
mgraczyk wrote: post #61

Earlier 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.

They should claw back SVB CEO pay and televise the moment the funds move. Show the CEOs number going down and some other public number going up. Bonus points if his face is televised at that moment at well That's all that's really necessary in terms of handling moral hazard and public perception that this is yet another bailout. Let ppl see the CEO suffer and they will be fine with having taxes foot the bailout bill.…

I think that there are two types of trust at stake here:

1. Trust that bank deposits won't disappear.

2. Trust that the financial system is fair.

A bailout sacrifices 2 for 1.

Letting SVB fail sacrifices 1 for 2.

My proposal is for a bailout, while doing the bare minimum necessary to prevent a backlash. Remember that the death penalty still gets the thumbs-up from voters in many places in America. It's foolish to think that the people who distrust Silicon Valley will be able to "move past this" in a mature, dispassionate way, given the namesake of the bank.

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

#953

Post by JackAndJack »

After 2008 collapse and now this, what has government done to prevent this? Bailing out needs to be done to protect the depositors everyone sympathizes with small businesses. However, what safe guards were put in place or are being put in place for this to not happen again?

I guess none.

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

#954

Post by ElevenLathe »

I have a somewhat basic question that nonetheless seems to be difficult for a non-specialist to answer with just internet research. I am hoping someone here can answer it:

I have my liquid savings in a local credit union (which therefore isn't insured by FDIC, but by NCUA). Will the bank fees mentioned in this letter ("Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.") apply to my credit union?

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

#955

Post by dev_tty01 »

snarf21 wrote: post #933
dev_tty01 wrote: post #287

Earlier 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. 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…

While what you say is true, maybe we shouldn't allow mergers and other avenues to allow these banks (and other verticals) to be too big to fail. We've made that a target for all companies. Just get too big to fail and you get all the upside and none of the downside for free. That is my main complaint. By allowing deposits to be invested without risk, these too big to fail banks are encouraged to chase the highest yie…

I think at least a part of the solution is to increase regulation as banks get larger. Since it is clear that the fate of very large banks is tied in to the the fate of the economy itself, they should be appropriately regulated. In particular, short term asset/deposit ratio requirements should be modified as a bank gets larger. That could reduce the need for the FDIC to step in when depositors get nervous and provide disincentives to getting too large.

I think something like this could make large banks more of an asset for the economy rather than a liability. I wouldn't want to just set a maximum size. If a bank wants to get huge and maintain conservative and safe asset/deposit ratios, good for them.

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

#956

Post by machina_ex_deus »

batmenace wrote: post #950
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…

Well that's far from the complete picture. It's not that the gov't is backstopping all bank stupidity -- the new facility simply says that for redemptions, US government bonds and MBS can be valued at face value not market value. Only for the purpose of ensuring liquidity for redemptions

Yes, they keep on inventing all kinds of new rules that effectively transform the assets that banks happen to be holding onto assets that are worth more. It's just printing money in an obscure way.

The bottom line is that letting banks invest their clients deposits, while clients - even startups that even know in advance they will need this money in short duration - will keep on blowing in our faces. It might be mortgage backed securities, or treasuries, or anything else.

It's always the same story: banks are leeching money getting rich from taking risks with everyone's money, and the risk is bailed out again and again and again by the government.

They are given government mandate to be the only way to hold money. And then a government privilege to gamble that money on whatever financial instrument that we currently pretend has no risk. And then when we discover it had risk after all, the government pays for the risk.

All the while, banks were leveraged 10x or 20x on the fake "no risk", paid 0 interest rates on deposits, and got to take all the profits from that risk.

The fact that even startups couldn't co opt away from this madness speaks volumes. They were getting leveraged with 10yr duration instruments with depositors base that they knew is burning cash.

If those startups wanted to buy 10yr bonds with their VC money, they would've done it. But the bank just got permission to gamble their clients money.

It's even worse because more than getting bailed out, the thing these VCs want the most is for the rate hikes to stop. They got to both break the system with their actions and get what they wanted.

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

#957

Post by afiori »

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…

I feel like treasury bonds (of your own government) have different risk profiles than most other investments.

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

#958

Post by m1nz1 »

phphphphp wrote: post #623
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…

The reason employees are anxious about their next pay checks is because of the VC-induced panic which is entirely self-serving and has not one iota to do with making payroll — that’s just a palatable hand-wavey justification for demanding government intervention because their precious points are at risk. I have a great deal of empathy for the workers anxious about being paid, but that goes without saying, there’s not…

I also think that people here are missing the game that was played by the VCs. I have a friend working at Insight who told me that they were preparing to issue loans and further funding to portfolio companies. This of course is less ideal than having the government bail their portfolio out, but they would have had no choice. So, having shot themselves in the foot by starting a panic, they decided that the best way to avoid getting in trouble was to push the panic even further to the point that it threatened the entire economic system.

Personally, that is what I find so disgusting and that is the source of my animosity. I believe the fed ultimately chose to maximize the probability of avoiding a crisis over punishing these morons. I think that is wise but still not good.

The analogy I choose is this. Imagine there is a forest that is due for a bit of a natural fire. We should let it burn - but wait it turns out some people built and sold houses in this forest. Instead of evacuating and having these people suffer and need to relocate, we put out the fire. Since we put out this fire, these people living in a hazardous way continue to do so. Eventually a massive fire will start and kill those people and spread to other areas that it otherwise would not have. All because we decided to stop the “maintenance” fire from clearing the brush.

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

#960

Post by kneebonian »

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…

This strikes me as more a perspective of someone whose lived so long in a stable system that they consider it a fundamental immoral failing when something does occasionally go wrong. The loaning of your clients money is the fundemental idea that banking works on, if you weren't able to grow your clients money through lending it you would have no reason to accept clients money in the first place.

Bank runs used to happen all the time. The fact that this is the first bank collapse we have seen in basically a lifetime is more of a miracle than anything else, and should be considered a stunning success that a bank collapse is a once in a lifetime event rather than a yearly occurrence that it used to be.

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