Bank failures come in waves
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Bank failures come in waves
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Re: Bank failures come in waves
#2not really. more like three bursts: great depression, 1980, 2008.
Re: Bank failures come in waves
#3not really. more like three bursts: great depression, 1980, 2008.
History didn't start there of course. There were many such failures going all the way back to 1700s in the U.S:
https://en.wikipedia.org/wiki/List_of_banking_crises https://en.wikipedia.org/wiki/Panic_of_1873
Re: Bank failures come in waves
#4Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.
Re: Bank failures come in waves
#5Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.
Well not exactly, the limit encourages diversification which always reduces risk.
Re: Bank failures come in waves
#6Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.
While it may be difficult to see things this way, when you put money into a bank, you’re choosing to not invest that money into something else that might generate a better return for you and for society. The small but real risk of losing your deposits in a bank encourages companies and people with money to invest it into other things.
If there is no default risk, then money will be increasingly stored away inside banks, removing much of the healthy risk-taking activity that generates long term growth and improvements in the standard of living.
Rich people know there is a tiny chance of losing their cash if they stick it in a bank. So they buy other things instead. Those things generate real growth in the economy and improve productivity. Banks have to invest very conservatively because of regulations. Without the tiny risk of default, banks would get all the cash and the economy would stagnate.
Another word for this kind of stagnating economy is “the 1970s.”
Re: Bank failures come in waves
#7Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.
> Pretty Simple fix.
Backstops have a cost, and infinite backstop subsidizes risk taking activity of deposit taking institutions.
I'm not even saying that what was done in the wake of SVB and Signature was wrong, per se, but making it formal policy that all deposits in a bank are insured is a fundamental change to the foundation of banking in the US. It may be "right" or it may be "wrong", but the one thing it is not is "simple", because the consequences could be far reaching, unintended, and unpredictable, both short term and long term.
Re: Bank failures come in waves
#8Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.
Maybe we should stop paying taxes since the FED can just print new money when we need it.
Re: Bank failures come in waves
#9Pretty Simple fix. Have the fed backstop all depositors to infinity. Today there are no limits on the number of 250k FDIC insured deposits. Logically the same thing as insuring a single account to infinity.
SVB had a ridiculously high uninsured deposits % of total liabilities, way above all of its peers: https://news.ycombinator.com/item?id=35241691
Re: Bank failures come in waves
#10A healthy economy has ups and downs, and if you have a bigger up there needs to be a corresponding down. In 2008 we made major decisions to prevent a needed correction down, it turns out all that did was kick the can down the road, and if we kick it down the road again we're just in for another problem.