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Yup. FDIC insurance exists for this reason -- you can let a bank that made bad decisions fail without causing a chain reaction through the economy.

rootusrootus 4y ago
It's great, but it punishes the smaller banks while leaving the 'too big to fail' conglomerates in a position to be bailed out by taxpayers. We need to chop down any bank that poses a systemic risk so that it's small enough for the FDIC to handle.
- dahdum 4y ago
  TARP arguably turned a profit, so a bailout isn't necessarily bad. Might be better to let them fly high, get burned, and then let investors get wiped out while keeping customers whole. What we don't want is socialized losses, but distressed investment gains are a-ok with me.
flutas 4y ago
> FDIC insurance exists for this reason Good luck to all the startups that might have just lost anything they had in SVB over $250k.
- vkou 4y ago
  FDIC being involved doesn't actually mean you lose everything above 250k. Assuming that the bank's problem was liquidity, and not fraud, it's very likely that no depositor will end up taking a haircut.
  - dragonwriter 4y ago
    > It's quite possible that no depositor will end up taking a haircut. It's possible that uninsured deposits will eventually be recovered at full value, but losing access to depository funds is itself a loss which often has a very real costs, and when the Depository Insurance National Bank taking SVBs place opens no later than Monday, uninsured depositors are going to only have a claim against the potential realized value of SVB assets beyond what is necessary to cover the insured deposits, while insured depositors will have access to actual money in actual deposit accounts in an actual (solvent) bank.
loeg 4y ago
Yeah, although SVB's failure demonstrates a major shortcoming with deposit insurance (in its role as a deterrent for bank runs). If you have more than $250k in assets, or are worried about short-term liquidity, you're still incentivized to run from the bank.
- capableweb 4y ago
  Correct me if I'm wrong, but FDIC insurance is mainly to protect individuals / small businesses from lose their entire livelihood, they're unlikely to have more than $250k in their bank account at any given time. If you do, you're most likely in/above the 1% and will survive by other means if you lose everything above $250k (or, rightly be "punished" for not having any other survival mechanism)
  - loeg 4y ago
    Part of the reason to protect retail customers is to reduce runs on banks.

rootusrootus 4y ago

It's great, but it punishes the smaller banks while leaving the 'too big to fail' conglomerates in a position to be bailed out by taxpayers. We need to chop down any bank that poses a systemic risk so that it's small enough for the FDIC to handle.

dahdum 4y ago
TARP arguably turned a profit, so a bailout isn't necessarily bad. Might be better to let them fly high, get burned, and then let investors get wiped out while keeping customers whole. What we don't want is socialized losses, but distressed investment gains are a-ok with me.

flutas 4y ago

> FDIC insurance exists for this reason Good luck to all the startups that might have just lost anything they had in SVB over $250k.

vkou 4y ago
FDIC being involved doesn't actually mean you lose everything above 250k. Assuming that the bank's problem was liquidity, and not fraud, it's very likely that no depositor will end up taking a haircut.
- dragonwriter 4y ago
  > It's quite possible that no depositor will end up taking a haircut. It's possible that uninsured deposits will eventually be recovered at full value, but losing access to depository funds is itself a loss which often has a very real costs, and when the Depository Insurance National Bank taking SVBs place opens no later than Monday, uninsured depositors are going to only have a claim against the potential realized value of SVB assets beyond what is necessary to cover the insured deposits, while insured depositors will have access to actual money in actual deposit accounts in an actual (solvent) bank.

loeg 4y ago

Yeah, although SVB's failure demonstrates a major shortcoming with deposit insurance (in its role as a deterrent for bank runs). If you have more than $250k in assets, or are worried about short-term liquidity, you're still incentivized to run from the bank.

capableweb 4y ago
Correct me if I'm wrong, but FDIC insurance is mainly to protect individuals / small businesses from lose their entire livelihood, they're unlikely to have more than $250k in their bank account at any given time. If you do, you're most likely in/above the 1% and will survive by other means if you lose everything above $250k (or, rightly be "punished" for not having any other survival mechanism)
- loeg 4y ago
  Part of the reason to protect retail customers is to reduce runs on banks.