3 ms·

Unpopular opinion: the government should try to make depositors of banks whole when their banks fail.

Denvercoder9 4y ago
That's literally what FDIC does it. It guarantees the first $250K, and sells the failed bank's assets to cover as much as possible above that amount. It's not as if all deposits are completely gone now, most commentary I read expects that at least 80% or so will be recovered, it might just take a while.
Clubber 4y ago
They do, but there is a limit of $250K that the FDIC (taxpayers) guarantee. It's been $250K since 2008, but they should allow it to keep up with inflation, which would be approximately $355K now. The rest needs to come from the sale of the bank's assets, but that takes a while. I believe the petition is asking that the government cover the difference by paying out now and assume the risk of the bank's assets not covering the difference.
dehrmann 4y ago
I have no idea why this idea is suddenly so unpopular. People see putting money in banks as a de-facto safe decision. $250k might be a reasonable cutoff for individuals, but it's clearly way too low for businesses. If that threshold had been more like $10M, SVB might have even survived since depositors would have had faith they could access enough of their funds within a day of a bank failure. Instead, there was a bank run.
- somsak2 4y ago
  Is it suddenly so unpopular? Can you link me to think pieces / opinions that have been published in the last few years that are arguing for increased deposit insurance for businesses? I don't recall hearing about this ever before. If you wanted such a high cap, you'd need to increase the deposit insurance premiums much further to cover for it. The banks were already unhappy about the most recent 2 basis point increase earlier this year -- https://www.fdic.gov/news/financial-institution-letters/2022/fil22048.html https://www.fdic.gov/news/financial-institution-letters/2022...
  - dehrmann 4y ago
    > I don't recall hearing about this ever before. That's like saying you don't remember hearing about CDOs as a potential problem in 2006. This is the second-largest bank failure in the US, and it disproportionately hits one industry. This just isn't a problem we're used to thinking about.
    - somsak2 4y ago
      Exactly. If there was no strong opinion previously, it can't have become "suddenly unpopular."
- JohnFen 4y ago
  > I have no idea why this idea is suddenly so unpopular. It's not suddenly unpopular. It's never been popular to ask people to rescue businesses just because the lost a bet. > it's clearly way too low for businesses. Right, but businesses have a number of ways to limit their risk that individuals don't have. FDIC is not the only protection available, it's just the one that doesn't cost you anything.
  - dehrmann 4y ago
    > It's never been popular to ask people to rescue businesses just because the lost a bet. No one's asking for SVB or shareholders to be bailed out, they're asking for depositors to be bailed out. When you put money in the bank, you don't think of it as "making a bet."
    - JohnFen 4y ago
      > When you put money in the bank, you don't think of it as "making a bet." Up to the limits of your insurance, you're not. (Well, even then you technically are, but it's as close to a sure thing as you'll get). Beyond that, though, you are, always have been, and always will be. There is no risk-free place to park a bunch of money. Not even under your mattress. That's why you always need to be thinking about risk mitigation. Not just with money, by the way, but with everything your business does. If you're beyond the $250k, you should be fully aware that you're making a bet. There's literally signs inside of every bank telling you that.

That's literally what FDIC does it. It guarantees the first $250K, and sells the failed bank's assets to cover as much as possible above that amount. It's not as if all deposits are completely gone now, most commentary I read expects that at least 80% or so will be recovered, it might just take a while.

Clubber 4y ago

They do, but there is a limit of $250K that the FDIC (taxpayers) guarantee. It's been $250K since 2008, but they should allow it to keep up with inflation, which would be approximately $355K now. The rest needs to come from the sale of the bank's assets, but that takes a while. I believe the petition is asking that the government cover the difference by paying out now and assume the risk of the bank's assets not covering the difference.

dehrmann 4y ago

I have no idea why this idea is suddenly so unpopular. People see putting money in banks as a de-facto safe decision. $250k might be a reasonable cutoff for individuals, but it's clearly way too low for businesses. If that threshold had been more like $10M, SVB might have even survived since depositors would have had faith they could access enough of their funds within a day of a bank failure. Instead, there was a bank run.

somsak2 4y ago
Is it suddenly so unpopular? Can you link me to think pieces / opinions that have been published in the last few years that are arguing for increased deposit insurance for businesses? I don't recall hearing about this ever before. If you wanted such a high cap, you'd need to increase the deposit insurance premiums much further to cover for it. The banks were already unhappy about the most recent 2 basis point increase earlier this year -- https://www.fdic.gov/news/financial-institution-letters/2022/fil22048.html https://www.fdic.gov/news/financial-institution-letters/2022...
- dehrmann 4y ago
  > I don't recall hearing about this ever before. That's like saying you don't remember hearing about CDOs as a potential problem in 2006. This is the second-largest bank failure in the US, and it disproportionately hits one industry. This just isn't a problem we're used to thinking about.
  - somsak2 4y ago
    Exactly. If there was no strong opinion previously, it can't have become "suddenly unpopular."
JohnFen 4y ago
> I have no idea why this idea is suddenly so unpopular. It's not suddenly unpopular. It's never been popular to ask people to rescue businesses just because the lost a bet. > it's clearly way too low for businesses. Right, but businesses have a number of ways to limit their risk that individuals don't have. FDIC is not the only protection available, it's just the one that doesn't cost you anything.
- dehrmann 4y ago
  > It's never been popular to ask people to rescue businesses just because the lost a bet. No one's asking for SVB or shareholders to be bailed out, they're asking for depositors to be bailed out. When you put money in the bank, you don't think of it as "making a bet."
  - JohnFen 4y ago
    > When you put money in the bank, you don't think of it as "making a bet." Up to the limits of your insurance, you're not. (Well, even then you technically are, but it's as close to a sure thing as you'll get). Beyond that, though, you are, always have been, and always will be. There is no risk-free place to park a bunch of money. Not even under your mattress. That's why you always need to be thinking about risk mitigation. Not just with money, by the way, but with everything your business does. If you're beyond the $250k, you should be fully aware that you're making a bet. There's literally signs inside of every bank telling you that.