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But 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 encou
by fairity 4y ago
But 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.