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US discusses fund to backstop deposits if more banks fail
- amluto 4y agoI hope that a change like this would come with a requirement that all FDIC-insured banks become subject to the full set of capital and stress test requirements that the largest banks are subject to. This would need care to avoid immediately killing some smaller banks.
- swatcoder 4y agoAll these people shocked by the risk inherent in their large deposits — it wouldn’t hurt for there to be somewhere you actually can rest cash securely, for a service fee. You could imagine a federal institution for this, or simply a regulatory program that required banks to offer such an account. The only reason there’s risk on uninsured deposits is because banks are allowed to place their own bets with the money in exchange for holding it.
- pgwhalen 4y ago> it wouldn’t hurt for there to be somewhere you actually can rest cash securely, for a service fee. This is called a Narrow Bank. [0] The Fed doesn't want it though, because such a bank would not participate in the money creation process, or help the Fed disseminate its monetary policy, which all banks implicitly do. Alternatively... > You could imagine a federal institution for this, or simply a regulatory program that required banks to offer such an account. This is called a CBDC. [1] It may one day happen. [0] https://www.bloomberg.com/opinion/articles/2019-03-08/the-fed-versus-the-narrow-bank https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe... [1] https://www.federalreserve.gov/central-bank-digital-currency.htm https://www.federalreserve.gov/central-bank-digital-currency...
- lowkey 4y ago[0] https://archive.is/WEuO8 https://archive.is/WEuO8
- deleted 4y ago[deleted]
- mschuster91 4y ago> it wouldn’t hurt for there to be somewhere you actually can rest cash securely, for a service fee. If you're large enough to have your own bank - many car manufacturers are, IIRC also IKEA - and are in Europe, you can already do this and deposit money at the ECB. In fact, so many were interested in that service that it turned from the usual - banks get paid interest, but a low rate - to the negative as a consequence of all the QE money injected after 2008ff. If you're not large enough, park your money into a time spread of government bonds - the US and Germany are among the safest harbors you can get. Spread your yearly cash burn over 5-10 different banks, buy 1 year bonds and roll them over with the rest.
- helsinkiandrew 4y ago> Spread your yearly cash burn over 5-10 different banks, buy 1 year bonds and roll them over with the rest. That’s almost what SVB did, but they got hit by an “unexpected cash burn”. 1 year government bonds may be at low risk of default but there’s a high risk of interest rates and market conditions changing in that time. If you suddenly need the money in 6 months and interest rates have changed, you’ve lost money. You’d need to buy monthly bills to be truly safe and then have the cost of rolling them over every month. Ironically SVB offers a product that can help you do that: https://www.svb.com/liquidity-management/deposits-and-investments/svb-cash-sweep https://www.svb.com/liquidity-management/deposits-and-invest...
- TMWNN 4y ago>If you're large enough to have your own bank - many car manufacturers are, IIRC also IKEA - and are in Europe, you can already do this and deposit money at the ECB. In fact, so many were interested in that service that it turned from the usual - banks get paid interest, but a low rate - to the negative as a consequence of all the QE money injected after 2008ff. Didn't ordinary banks offer negative interest rates too? Or was it just the ECB?
- anon84873628 4y agoIsn't this what the various US Treasury money market funds are for?
- pishpash 4y agoWhat I was going to say. Turns out these are safer than banks. In fact why do people use banks at all if they don't need branch services?
- eli 4y agoyou can do this now with https://www.intrafi.com/ https://www.intrafi.com/ - they federate your money in $250k chunks to as many banks as it takes, but you still access it all through one main bank. I understand it pays respectable interest rates too
- toomuchtodo 4y agoThe limit is $50M, which should be plenty for any org to meet short term obligations. The rest of your funds can then be in short dated treasuries, which are risk free.
- eli 4y agoPretty sure it goes above 50.
- toomuchtodo 4y agoPerhaps my information is inaccurate, that’s the number I was told by a colleague at a financial services firm that just launched their related HYSA sweep product a week ago. Perhaps the limit is defined by each provider? https://en.wikipedia.org/wiki/Certificate_of_Deposit_Account_Registry_Service https://en.wikipedia.org/wiki/Certificate_of_Deposit_Account...
- binkHN 4y ago> ...it wouldn’t hurt for there to be somewhere you actually can rest cash securely, for a service fee. I think this is called a US government short-term bond, and they'll pay you.
- downvotetruth 4y agoMore a deposit box.
- cjoelrun 4y agohttps://www.nytimes.com/2019/07/19/business/safe-deposit-box-theft.html https://www.nytimes.com/2019/07/19/business/safe-deposit-box...
- AH4oFVbPT4f8 4y agoWhat can be done to prevent the rollback of these regulations several years later when everyone has forgotten what happened?
- geoduck14 4y ago> I hope that a change like this would come with a requirement that all FDIC-insured banks become subject to the full set of capital and stress test requirements that the largest banks are subject to. Please don't think this is good or beneficial
- g42gregory 4y agoWait a minute. Why would more (large) banks fail? I am guessing small banks and companies fail periodically. By any measure, SVB seems to be a one-off, gigantic risk management blunder. Why would there be an expectation of more of this to come?
- dragontamer 4y agoIts the FDIC's job to wargame the "what if" scenario, if things get worse. (Even if there's no evidence in that direction yet).
- twelve40 4y agoyes, and i wonder if they were preparing for the SVB thing in advance, too. The run that everyone is blaming happened in about 24 hr window and ended up in them taking over, is it even possible to prepare for a bank takeover in such a short time?
- Godel_unicode 4y agoInstitutions have long memories, especially government ones. I suspect there are a decent number of people who still work there and cut their teeth during the financial crisis. It would also be mind blowing to me for someone whose job is to handle bank failures to not have a playbook for them. I know that FEMA has a truly impressive library of disaster playbooks in their analogous role.
- upon_drumhead 4y agoThere was an episode of "The G Word" on Netflix that followed a FDIC bank takeover game-day. They're always preparing for the worst and know when they're called, if they handle things smoothly, it protects the entire system. I have huge respect for the FDIC. I feel they're the perfect example of a government agency that works.
- delfinom 4y agoThere are other banks with similar long term treasury holding problems vs liabilities and assets on hand. Not the real big guys like Chase and co, but banks in size to SVB. First Republic and Signature Bank are going to be clenching their buttholes next week as they are set to experience a bit of a bankrun too. Basically, look at the stock market, any bank that is now hit with a >50% decline in share price like those 2 named above is because people noticed the problem.
- encryptluks2 4y ago[dead]
- delfinom 4y agoPrivatize profits, socialize losses.
- paulddraper 4y agoDeath, taxes, and bailouts
- sammalloy 4y agoRepublicans get elected and rollback regulations. Democrats get elected and are forced to bailout the industry the Republicans deregulated. Rinse and repeat as a variation on Jude Wanniski's "Two Santas" tactical strategy.
- hanklazard 4y agoSounds like this could help with preventing potential panics at other banks but seems like this would do nothing for uninsured deposits at SVB, correct?
- rywalker 4y agoMonday is going to be a shit show. All banks are going to see large depositors pull funds, to diversify risks. They will have incoming deposit activity too, but the weaker ones may have a cash crunch that causes a widespread run, as dominos begin to fall. Hopefully govt takes quick actions like this one, to minimize effect - but we are definitely getting more pain before relief :(
- xwdv 4y agoWhere is the best place to track the shit show in real time??
- rywalker 4y agoI’d say bank stocks with biggest price drops would be big indicator of which banks are most at risk. I wouldn’t be surprised if all bank stocks are halted with the market open, to contain the contagion.
- AH4oFVbPT4f8 4y agoHow would an investor know if a bank is at risk other than speculation?
- paulddraper 4y agoAirlines bailed out in 2001. Banks bailed out in 2008. Wait, I mean 2020 and 2023. I wanna my business to be too big to fail.
- pgwhalen 4y agoIn what sense were banks bailed out in 2020, and it what sense are they being bailed out now?
- paulddraper 4y ago2001/2020 was airlines
- Analemma_ 4y agoPlease stop using the word "bailout" to describe what the FDIC does, it isn't even close. Shareholders are wiped out in a FDIC takeover event, and if needs to be additional money to make depositors whole, it comes from a fund paid for by taxes on banks. No money comes from taxpayers, and the "bad people" (bank management and shareholders) are punished just like you want.
- paulddraper 4y agoI'm referencing the article.
- AH4oFVbPT4f8 4y agoTheres a petition being pushed by Garry asking for people to sign that calls for the government to save SVB. I agree with you that FDIC is only insurance but the ask is to be saved by the taxpayers.
- chkaloon 4y agoThinking that the proposal making the rounds that in the future all deposits be fully insured is not so crazy. Paid for by the banks (and subsequent fees) of course. After this, cash sweeps will become VERY popular, making full insurance essentially the case anyway.
- HWR_14 4y agoEh, I have no idea why I should be forced to subsidize the banking practices of billion dollar corporations with fees on my money. At some point you have enough wealth you are responsible for managing it well. I understand the social benefits of making sure ordinary people using banks ordinarily are safe. But Roku can afford to manage its own risk.
- chkaloon 4y agoIf cash sweeps become ubiquitous, you will be subsidizing it whether you want to or not. This just makes it explicit.
- HWR_14 4y agoYou seem to be using cash sweep differently from how I do. Care to explain how you mean it?
- chkaloon 4y agoThe term meaning varies by brokerage, but my implied meaning here is a service that distributes a large virtual account across a network of banks to keep the individual actual accounts below the insured limit. If this becomes the norm, even large accounts will become effectively insured. They will pay a fee (or receive a lower return) for it for sure. You could argue that this is a free market way to adjust from this event, but this was already available yet the failure still happened. Making it explicit saves the system from future less savvy or inattentive depositors creating a mess again.
- deleted 4y ago
- ALittleLight 4y agoWhy don't banks offer a "virtual bank account" which would be like a management layer on top of N actual bank accounts. This way, a depositor could deposit an arbitrary dollar amount (automatically divided among total/250k accounts) and still benefit from FDIC insurance and the ease of a single "virtual" account.
- metadat 4y agohttps://archive.ph/7cI5w https://archive.ph/7cI5w
- barbariangrunge 4y agoIn Canada, we don't have to worry about bank runs. I feel calm about my own money, but am just a tiny bit worried that the unstable banks down south are going to train wreck the western economies again
- machina_ex_deus 4y agoJust don't go protesting, I heard that's one way to lose access to your money in Canada.
- SECProto 4y ago> Just don't go protesting, I heard that's one way to lose access to your money in Canada. You heard incorrectly. Don't accept anonymous international donations to participate in disruptive harassment so severe that it requires the federal government to invoke the emergencies act. It's a pretty damn easy bar to pass.
- lowkey 4y agoI think you mean just don’t give or receive donations in any amount to any cause that the Canadian government may retro-actively determine to be unacceptable or embarrassing, and your right to access your own money won’t be put at risk. (By a fellow Canadian with a different point of view.)
- SECProto 4y agoThese are the parts that aren't a reasonable argument: > your right to access your own money won’t be put at risk. The bank accounts that were frozen were those "that funnel money to demonstrators"[1] - i.e, not their own money. > any cause that the Canadian government may retro-actively determine to be unacceptable This was after the invocation of the Emergencies Act, which made it clear that the actions were not permissible. And the use of the Emergencies Act was found to be justified.[2] [1] https://www.cbc.ca/news/politics/emergencies-act-banks-ottawa-protests-1.6353968 https://www.cbc.ca/news/politics/emergencies-act-banks-ottaw... [2] https://www.cbc.ca/news/politics/poec-report-released-friday-1.6750919 https://www.cbc.ca/news/politics/poec-report-released-friday...
- devmunchies 4y agoMaybe a law on the corporate side would be good? Like you can’t have more than $50mm or 25% of cash (if greater than $10mm) in a single institution for more than a single quarter. (My numbers are not based on anything) It could also prevent the largest banks from being the only safe place since you can’t park all your cash there.
- Overtonwindow 4y ago...Those lobbyists and PR folks must be hard at work on that bailout.
- metadat 4y agoWhy do banks, whose fundamental job is to accept money and then return it to the customer on demand, struggle to meet the "giving the money back to you" obligation. Why isn't there be a bank that doesn't fuck around with my money, so I can always be guaranteed to be able to get it out whenever I want. I'd gladly pay $20/mo or so for such a service. Another case of: "If you aren't paying for it, you are the product." Earning US$500 taxable annual interest on an account with balances averaging US$100,000 isn't particularly valuable to me, especially if the edge cases are that the money I gave them might sometimes not be available to be returned to me when I need it.
- anon291 4y agoThe main purpose of banks is to create money, not to give you your money back.
- AH4oFVbPT4f8 4y agoA lot of people are getting a crash course of how banking works this weekend thats for sure.