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This is not about protecting investors in SVC. It's about protecting people who deposited money in an SVC bank account. If you have less than $250K in a bank a
by DennisP 4y ago
This is not about protecting investors in SVC. It's about protecting people who deposited money in an SVC bank account.
If you have less than $250K in a bank account, then all of it is automatically protected by law. So yes, all the regular people got similar protection in 2008.
- treis 4y agoAnd more broadly, protecting the other banks in a similar situation from their own runs. I think there's a reasonable argument to be made that it'd be cheaper in the long run to stop the contagion at SVB instead of watching another dozen banks collapse.
- swatcoder 4y agoMaybe in the medium run. In the long run, you just establish that it's okay to make higher risk bets than you can afford to recover from because the government is too skittish to let any domino fall. That's the road to increasingly wild volatility, not a reliable economy.
- DennisP 4y agoBailing out depositors is not the same as bailing out the bank. The bank should go out of business, but that doesn't mean depositors have to lose their funds.
- fairity 4y agoBut bailing out depositors here is essentially also a bail out of the next risk-taking bank that will go under sans a bailout. So, to some extent it does encourage long term risk taking by bank execs.
- DennisP 4y agoNo, because bailing out the depositors will not keep the bank from going under. The bank will still go out of business and its investors will still lose all their money. Same for the next bank that goes under, even if its depositors are also bailed out.
- hairofadog 4y agoI feel like investors are taking a calculated risk, though, whereas depositors (not unreasonably, in my opinion) thought their money in the bank was “money in the bank”.
- luckylion 4y agoAnd it was, with the caveat of "up to $250k per entity per bank". I don't think we'll remove all caveats from everything, we're just asked to removed them from something that only affects rich people.
- mixdup 4y agoI feel like if you have millions of dollars you should be sophisticated enough to understand FDIC insurance limits. Piling literal billions of dollars into one small bank is a calculated risk, too
- fairity 4y agoI’m saying that bailing out SVB depositors will prevent First Republic Bank (for example) from experiencing a similar bank run and going out of business. So, a bail out of SVB depositors is also, in effect, a bail out of FRB. And, that dynamic creates a long term incentive for risk taking.
- DennisP 4y agoBut preventing bank runs is the main point of deposit insurance in the first place.
- swatcoder 4y agoWhat does it mean for the bank to go out of business if everybody gets their money back? That suggests that the bankers themselves did a great job turning high-risk bets with depositor money into no-risk bets. They may as well just reincorporate as another entity and do it again. (And if the have to personally retire because of regulatory "penalty", other bankers can still step in and repeat the same play until they're asked to retire as well.)
- DennisP 4y agoLet's say you have an account at Wells Fargo, I've invested in Wells Fargo stock, and Wells Fargo goes out of business. The idea here is that I lose all my money because I made a stupid investment, and you keep all your money because you just deposited your money in a bank. Maybe the Wells Fargo executives could start another bank, but making you lose all your money doesn't do anything to prevent that.
- luckylion 4y agoWhy aren't they asking to add another FDIC level with the maximum insured amount at e.g. $5m and increase insurance premiums for banks accordingly? That'd take care of it, if you have $5m in cash and want to put it into a bank account, you just pay more fees, the bank pays a significantly larger insurance premium and everyone lives happily ever after. This feels like an Ethereum thing. Code is law, but not if it's inconvenient.
- WkndTriathlete 4y agoThere's nothing stopping _you personally_ from purchasing insurance on your $5m at the bank from an insurer (or reinsurer) instead of socializing the cost of insuring higher-valued accounts on everyone else.
- mixdup 4y agoThe one thing that mandatory FDIC insurance gives you over purchasing private insurance is a) the US Government is guaranteed to not go bust (and if it does, we're all living off canned goods anyway) and b) you avoid the situation where people don't do the responsible thing and then you have to bail them out anyway (this is also part of the argument behind government provided healthcare insurance, but that's another topic for another day) Buying private insurance leaves you open to the risk of the insurance company going bust, and, it not being mandatory means people can take the risk and then come crying to the US Treasury to solve this unknowable systemic risk that everyone actually does know about--which we're already seeing heavy pressure from people to bail out these depositors who are above the insurance limits
- jmclnx 4y agoWhat about "regular" people's 401k, it took almost 10 years for it to recover. No protection there. Also if you can have a bank account above 250000, you are not a "regular person".
- nova22033 4y agoIf you make 50K, the company that pays you probably has more than 250k in a bank account.. So this will still affect the regular person. They should definitely NOT do a 100 cents to the $ bailout...Someone needs to take a haircut
- tppiotrowski 4y agoCurious about the logic you used to determine a company's balance based on employee pay. Is this just your own number fidgeting or an actual best practice in finance? It seems weird that a company paying someone less than $5K a month would need $250K in the bank. we had $100K seed check at my startup and I got paid $6K per month as a counter example.
- icedchai 4y agoIt's a bit different. Banks are supposed to be a safe place for cash. "Safe" means essentially zero risk: interest checking, CDs, etc. Low interest, low risk. This is very different from an investment account (401k or not) where risk is expected. If I had >250K at a smaller bank, I'd be concerned.
- matthewdgreen 4y agoPersonally I think protecting bank depositors is a good idea. However: I would also note that many people (including Bill Ackman) have been screaming at the government & Fed to get inflation under control: specifically, they've blamed the government (and Fed) for their loose monetary and fiscal policy throughout the pandemic. And indeed the government tightened fiscal policy as they wanted, and the result was that SVB failed. Does Ackman now want the government/Fed to step in and pour its money in to shore up depositors? Won't that be more of the same inflationary policy that he's been railing against?
- p_j_w 4y agoUnless your questions are rhetorical, I think you're making a mistake in thinking any of these people are asking for certain policies out of any principals beyond their own self-interest.