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Matt Levine says essentially the same thing [0]: > There was a run on SVB in part because there hasn’t been a big bank run in a while, and people — venture cap

by bambax 4y ago

Matt Levine says essentially the same thing [0]: > There was a run on SVB in part because there hasn’t been a big bank run in a while, and people — venture capitalists, startups — were naturally worried that they might lose their deposits if their bank failed. Then the bank failed. If it turns out to be true that they lose their deposits, there could be more bank runs: Lots of businesses keep uninsured deposits at lots of banks, and if the moral of SVB is “your uninsured transaction-banking deposits can vanish overnight” then those businesses will do a lot more credit analysis, move their money out of weaker banks, and put it at, like, JPMorgan. This could be self-fulfillingly bad for a lot of weaker banks. My assumption is that the FDIC, the Federal Reserve, and the banks who are looking at buying SVB all really don’t want that. But what it means is, there isn't (or there can't be) "uninsured" deposits, because they would cause unacceptable systemic risk. Then the next question is, of course: why should there be insured deposits, why pay the premiums, if in effect all deposits are insured by vertue of the necessity of protecting the system? [0] https://www.bloomberg.com/opinion/articles/2023-03-10/startup-bank-had-a-startup-bank-run https://www.bloomberg.com/opinion/articles/2023-03-10/startu...

skippyboxedhero 4y ago
No-one is saying this. Ackman isn't saying this. He says explicitly that depositors outside of FDIC will need to be paid through the sale of assets. What he is saying is that the bank should be recapped (with existing equity essentially wiped out), the govt should put in place a support package to help with the sale of assets (that would likely be profitable for the taxpayer, as in 2008), and the franchise value (which is undoubtedly positive) should be preserved. I do not agree with elements of this but the FDIC system isn't supposed to work proactively. The insurance element of the system is working, they have stopped depositors doing things that will harm the value of the assets, it is working.

by bambax 4y ago

skippyboxedhero 4y ago

No-one is saying this. Ackman isn't saying this. He says explicitly that depositors outside of FDIC will need to be paid through the sale of assets. What he is saying is that the bank should be recapped (with existing equity essentially wiped out), the govt should put in place a support package to help with the sale of assets (that would likely be profitable for the taxpayer, as in 2008), and the franchise value (which is undoubtedly positive) should be preserved. I do not agree with elements of this but the FDIC system isn't supposed to work proactively. The insurance element of the system is working, they have stopped depositors doing things that will harm the value of the assets, it is working.