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why should the taxpayers be put on the hook for that?
by ejb999 4y ago
why should the taxpayers be put on the hook for that?
- jpmattia 4y ago> why should the taxpayers be put on the hook for that? One reason that it was done in the past was because it saves the taxpayers money by bailing out a single meltdown rather than something systemic. But you should recognize: The taxpayers back up the FDIC, but singleton meltdowns are paid out of the insurance fund, which is paid into by the banks themselves. As long as that fund does not get exhausted (ie a systemic meltdown) it doesn't cost the taxpayers directly.
- ejb999 4y agoand then makes the next failure even more likely - companies will take on more and more risks if they know they will be bailed out. I for one am tired of privatizing the profits, and socializing the losses.
- flyinglizard 4y agoThe entire financial system is built on trust and stability. When a bank is rescued its shareholders suffer (by selling at a loss, nationalization, whatever). It’s not a positive outcome for them, but rescuing a bank has big implications for systematic stability.
- weard_beard 4y agoTaking a vitamin C pill and avoiding the doctor saves money fighting cancer. What’s your point?
- jonas21 4y agoWhy? When the FDIC steps in, the bank doesn't get to go on operating like nothing happened. They're shut down, the owners of the bank lose their money, and management is fired. It's the depositors who are bailed out.
- lazide 4y agoThe word you’re looking for is ‘moral hazard’.
- triceratops 4y agoYou're right in general. But the FDIC doesn't sound like that.
- spoonjim 4y agoThe owners of the bank - the people who keep the bank’s profits - are wiped out when a bank is dissolved.
- adamsmith143 4y agoThe only systemic risk of SVB failing is a lot of SF-Bay Area Tech Bro founders can no longer afford their Teslas and Mansion rentals anymore.
- calpaterson 4y agoThe FDIC isn't funded from general taxation, it's funded by a specific levy on banks.
- ceejayoz 4y agoIf it were to ever run out, though, it's generally assumed taxpayers would make up the rest.
- mynameishere 4y agoNo, the bank could be allowed to collapse or the Fed could arrange a meeting (LTCM style) and basically force a buyout. Nothing is assumed.
- kasey_junk 4y agoThe FDIC is explicitly backed by the full faith and credit of the US government (and thus taxpayers). In the extremely unlikely case that the fdic insurance fund couldn’t make insured deposits while the tax payer is on the hook.
- ceejayoz 4y agoThat's unrelated. The FDIC isn't gonna renege on the $250k protection, even if they run out of money. The US government will step in. The bank's continued existence isn't the FDIC's concern. Making the depositors whole is.