5 ms·

Unrelated, but even in the US, the standard deposit insurance "guarantee" is not exactly guaranteed. If a small insured bank fails, the FDIC can absorb its loss

Unrelated, but even in the US, the standard deposit insurance "guarantee" is not exactly guaranteed. If a small insured bank fails, the FDIC can absorb its losses. If a large bank collapses, they might be able to cover losses, but only if it is an isolated incident, (like Washington Mutual). However if there was ever a large run on the banks (like in 1929), they could only renumerate small a fraction of insured deposits (at most 2% in 2017).

JumpCrisscross 9y ago
> if there was ever a large run on the banks (like in 1929), they could only renumerate small a fraction of insured deposits (at most 2% in 2017) The FDIC (a) cannot "cram down" [1], (b) has the ability to borrow $500 billion from the U.S. Treasury [2] and (c) is backed by the "full faith and credit" of the U.S. Government [3]. A decision to "renumerate small a fraction [sic] of insured deposits" would be a political call. It's certainly not a "could only" scenario. [1] https://en.wikipedia.org/wiki/Cram_down https://en.wikipedia.org/wiki/Cram_down [2] https://www.fdic.gov/news/news/press/2009/pr09153.html https://www.fdic.gov/news/news/press/2009/pr09153.html [3] https://www.fdic.gov/deposit/deposits/ https://www.fdic.gov/deposit/deposits/
- bmc7505 9y ago
  (a) What alternative would they have, besides closing the banks? (b) Still only a small fraction of insured deposits. (c) Contingent on its ability to govern. How long would that last in such a scenario?
  - JumpCrisscross 9y ago
    > What alternative would they have, besides closing the banks? Receivership [0]. Note that if your bank closes, the FDIC still sends you your money. > How long would that last in such a scenario? The FDIC has about $7 trillion in insured deposits [1]. In the crisis, between TARP [2] and TALF [3], the federal government printed $1.5 trillion. (About $1.8 trillion in 2017 dollars [4].) Meanwhile, the Fed bought $4.5 trillion in assets through its quantitative easing programmes [5]. Adjusting for inflation, we probably saw close to $7 trillion in fiscal and monetary stimulus. [0] https://www.fdic.gov/about/strategic/strategic/receivership.html https://www.fdic.gov/about/strategic/strategic/receivership.... [1] https://www.fdic.gov/bank/statistical/stats/2017jun/fdic.pdf https://www.fdic.gov/bank/statistical/stats/2017jun/fdic.pdf [2] https://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Program https://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Progra... [3] https://en.m.wikipedia.org/wiki/Term_Asset-Backed_Securities_Loan_Facility https://en.m.wikipedia.org/wiki/Term_Asset-Backed_Securities... [4] https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1.50&year1=200812&year2=201709 https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1.50&year1=200... [5] https://en.m.wikipedia.org/wiki/Quantitative_easing https://en.m.wikipedia.org/wiki/Quantitative_easing
AznHisoka 9y ago
Naive question but couldnt they just print more money?

JumpCrisscross 9y ago

> if there was ever a large run on the banks (like in 1929), they could only renumerate small a fraction of insured deposits (at most 2% in 2017) The FDIC (a) cannot "cram down" [1], (b) has the ability to borrow $500 billion from the U.S. Treasury [2] and (c) is backed by the "full faith and credit" of the U.S. Government [3]. A decision to "renumerate small a fraction [sic] of insured deposits" would be a political call. It's certainly not a "could only" scenario. [1] https://en.wikipedia.org/wiki/Cram_down https://en.wikipedia.org/wiki/Cram_down [2] https://www.fdic.gov/news/news/press/2009/pr09153.html https://www.fdic.gov/news/news/press/2009/pr09153.html [3] https://www.fdic.gov/deposit/deposits/ https://www.fdic.gov/deposit/deposits/

bmc7505 9y ago
(a) What alternative would they have, besides closing the banks? (b) Still only a small fraction of insured deposits. (c) Contingent on its ability to govern. How long would that last in such a scenario?
- JumpCrisscross 9y ago
  > What alternative would they have, besides closing the banks? Receivership [0]. Note that if your bank closes, the FDIC still sends you your money. > How long would that last in such a scenario? The FDIC has about $7 trillion in insured deposits [1]. In the crisis, between TARP [2] and TALF [3], the federal government printed $1.5 trillion. (About $1.8 trillion in 2017 dollars [4].) Meanwhile, the Fed bought $4.5 trillion in assets through its quantitative easing programmes [5]. Adjusting for inflation, we probably saw close to $7 trillion in fiscal and monetary stimulus. [0] https://www.fdic.gov/about/strategic/strategic/receivership.html https://www.fdic.gov/about/strategic/strategic/receivership.... [1] https://www.fdic.gov/bank/statistical/stats/2017jun/fdic.pdf https://www.fdic.gov/bank/statistical/stats/2017jun/fdic.pdf [2] https://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Program https://en.m.wikipedia.org/wiki/Troubled_Asset_Relief_Progra... [3] https://en.m.wikipedia.org/wiki/Term_Asset-Backed_Securities_Loan_Facility https://en.m.wikipedia.org/wiki/Term_Asset-Backed_Securities... [4] https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1.50&year1=200812&year2=201709 https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1.50&year1=200... [5] https://en.m.wikipedia.org/wiki/Quantitative_easing https://en.m.wikipedia.org/wiki/Quantitative_easing

AznHisoka 9y ago

Naive question but couldnt they just print more money?