4 ms·

Where does the money come from? I mean that non-sarcastically, confess I've not figured out the way the banking system in the large works. edit : thanks all f

Where does the money come from? I mean that non-sarcastically, confess I've not figured out the way the banking system in the large works. edit : thanks all for coherent clear responses.

deleted 4y ago
[deleted]
runlevel1 4y ago
> Q. What is the source of funding used by the FDIC to pay insured depositors of a failed bank? > A. The FDIC's deposit insurance fund consists of premiums already paid by insured banks and interest earnings on its investment portfolio of U.S. Treasury securities. No federal or state tax revenues are involved. Source: https://www.fdic.gov/consumers/banking/facts/#:~:text=what%20is%20the%20source%20of%20funding https://www.fdic.gov/consumers/banking/facts/#:~:text=what%2...
- loeg 4y ago
  Well, no, that's only true if the bank doesn't have sufficient assets to cover secured deposits. Secured deposits were less than 10% of deposits at SVB and they have plenty of assets to cover that; the money comes from selling those assets. The only question is how much money uninsured depositors will get and where it will come from (selling the whole bank, or the assets individually).
- SoftTalker 4y ago
  > its investment portfolio of U.S. Treasury securities In other words, IOUs to itself, like the social security “fund”
- paxys 4y ago
  This isn't the answer to the question that was asked. Yes deposits up to $250K will be paid out using FDIC's normal insurance process (and will be available for all bank customers Monday morning). FDIC is also promising some portion of the remaining uninsured money sometime next week (the "advance dividend" they mention). The source of those funds is undetermined.
zt 4y ago
A lot of SVB's assets can be sold immediately in robust markets (e.g. treasuries)
- stefan_ 4y ago
  If that was true the bank wouldn't be insolvent. And yet: https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFPI-Orders-Silicon-Valley-Bank-03102023.pdf https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP...
  - deleted 4y ago
    [deleted]
  - dgacmu 4y ago
    "A lot of" doesn't mean there's enough to cover the deposit outflow. It may be that the remaining assets amount to 85-90% of remaining customer deposits and can be sold fairly soon. Thats not enough to prevent a bank failure but it's an awful lot better than 0% for folks wondering WTH is going to happen to their money. [Note: 85-90% is hypothetical, the FDIC is likely in the process of figuring out what that number really is right now.]
    - stefan_ 4y ago
      You can't have it both ways, either they can be sold immediately or they can't. What's the theory here? A lot of the assets can be sold immediately but they held off on doing that to cover deposit outflow for the greater good of having FDIC take control, bury SVB & their careers and methodically unwind it for a better price? I don't even doubt you can sell the assets and come out of it with 90% of deposits, but the wording is off.
      - loeg 4y ago
        SVB couldn't keep selling assets because it was insolvent, not because the market was illiquid.
      - 4y ago
ellisv 4y ago
FDIC is funded by insurance premiums of member banks but also can also request money from treasury (afaik never happened). So the money comes from banks paying into FDIC, not tax payers.
swatcoder 4y ago
Eventually, the bank’s assets. It’s not like they were broke or pilfered. They just couldn’t operate anymore. So the FDIC’s responsibility is to do something with what remains. Selling it all to another bank was one option that may not be panning it out; failing that, they’ll fund depositors, creditors, and investors as individual blocks of assets are wound down. Insured depositors are sure to get all of their insured funds and the FDIC would have provided their own funding for that if they needed to. Uninsured balances and uninsured depositors will have high priority for what remains, which should be substantial. These advanced dividends may come from liquid capital at the bank or from some other source of funds the FDIC has access to, and will be based on what the FDIC is already confident they can recover from the assets.
petilon 4y ago
SVB purchased corporate bonds that declined in value, but didn't decline all the way to zero. They still have those bonds, and I believe they can still be sold for > 80% of the price they paid.
- gonzo 4y ago
  The bonds (largely mortgage-backed securities) did not decline in value. If they were held to maturity, they would pay full rate. The issue is that the bonds can’t be sold now for anything like npv, because nearly risk-feee government issued bonds pay 3-4x what these bonds will. That makes them… discounted
  - lazide 4y ago
    No, that the bond still pays out at the end of it’s term doesn’t mean it’s value is the same in a rising inflation world. The actual value of the bond went down, because the expected value of the payout is less, even though the actual amount of dollars returned at maturity is the same. Which is why the market price for it went down.
  - dxhdr 4y ago
    You lose money the instant rates go up. It doesn't matter whether you sell them or not. The only way to gain it back is for rates to go back down. Holding to maturity is irrelevant.
dreamcompiler 4y ago
The last two letters of FDIC stand for "Insurance Corporation" and that's exactly what it is. It collects premiums and pays out in disasters. It just happens to be an Insurance Company owned and operated by the US government.

Where does the money come from? I mean that non-sarcastically, confess I've not figured out the way the banking system in the large works. edit : thanks all for coherent clear responses.

deleted 4y ago

[deleted]

runlevel1 4y ago

> Q. What is the source of funding used by the FDIC to pay insured depositors of a failed bank? > A. The FDIC's deposit insurance fund consists of premiums already paid by insured banks and interest earnings on its investment portfolio of U.S. Treasury securities. No federal or state tax revenues are involved. Source: https://www.fdic.gov/consumers/banking/facts/#:~:text=what%20is%20the%20source%20of%20funding https://www.fdic.gov/consumers/banking/facts/#:~:text=what%2...

loeg 4y ago
Well, no, that's only true if the bank doesn't have sufficient assets to cover secured deposits. Secured deposits were less than 10% of deposits at SVB and they have plenty of assets to cover that; the money comes from selling those assets. The only question is how much money uninsured depositors will get and where it will come from (selling the whole bank, or the assets individually).
SoftTalker 4y ago
> its investment portfolio of U.S. Treasury securities In other words, IOUs to itself, like the social security “fund”
paxys 4y ago
This isn't the answer to the question that was asked. Yes deposits up to $250K will be paid out using FDIC's normal insurance process (and will be available for all bank customers Monday morning). FDIC is also promising some portion of the remaining uninsured money sometime next week (the "advance dividend" they mention). The source of those funds is undetermined.

zt 4y ago

A lot of SVB's assets can be sold immediately in robust markets (e.g. treasuries)

stefan_ 4y ago
If that was true the bank wouldn't be insolvent. And yet: https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFPI-Orders-Silicon-Valley-Bank-03102023.pdf https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP...
- deleted 4y ago
  [deleted]
- dgacmu 4y ago
  "A lot of" doesn't mean there's enough to cover the deposit outflow. It may be that the remaining assets amount to 85-90% of remaining customer deposits and can be sold fairly soon. Thats not enough to prevent a bank failure but it's an awful lot better than 0% for folks wondering WTH is going to happen to their money. [Note: 85-90% is hypothetical, the FDIC is likely in the process of figuring out what that number really is right now.]
  - stefan_ 4y ago
    You can't have it both ways, either they can be sold immediately or they can't. What's the theory here? A lot of the assets can be sold immediately but they held off on doing that to cover deposit outflow for the greater good of having FDIC take control, bury SVB & their careers and methodically unwind it for a better price? I don't even doubt you can sell the assets and come out of it with 90% of deposits, but the wording is off.
    - loeg 4y ago
      SVB couldn't keep selling assets because it was insolvent, not because the market was illiquid.
    - 4y ago

ellisv 4y ago

FDIC is funded by insurance premiums of member banks but also can also request money from treasury (afaik never happened). So the money comes from banks paying into FDIC, not tax payers.

swatcoder 4y ago

Eventually, the bank’s assets. It’s not like they were broke or pilfered. They just couldn’t operate anymore. So the FDIC’s responsibility is to do something with what remains. Selling it all to another bank was one option that may not be panning it out; failing that, they’ll fund depositors, creditors, and investors as individual blocks of assets are wound down. Insured depositors are sure to get all of their insured funds and the FDIC would have provided their own funding for that if they needed to. Uninsured balances and uninsured depositors will have high priority for what remains, which should be substantial. These advanced dividends may come from liquid capital at the bank or from some other source of funds the FDIC has access to, and will be based on what the FDIC is already confident they can recover from the assets.

petilon 4y ago

SVB purchased corporate bonds that declined in value, but didn't decline all the way to zero. They still have those bonds, and I believe they can still be sold for > 80% of the price they paid.

gonzo 4y ago
The bonds (largely mortgage-backed securities) did not decline in value. If they were held to maturity, they would pay full rate. The issue is that the bonds can’t be sold now for anything like npv, because nearly risk-feee government issued bonds pay 3-4x what these bonds will. That makes them… discounted
- lazide 4y ago
  No, that the bond still pays out at the end of it’s term doesn’t mean it’s value is the same in a rising inflation world. The actual value of the bond went down, because the expected value of the payout is less, even though the actual amount of dollars returned at maturity is the same. Which is why the market price for it went down.
- dxhdr 4y ago
  You lose money the instant rates go up. It doesn't matter whether you sell them or not. The only way to gain it back is for rates to go back down. Holding to maturity is irrelevant.

dreamcompiler 4y ago

The last two letters of FDIC stand for "Insurance Corporation" and that's exactly what it is. It collects premiums and pays out in disasters. It just happens to be an Insurance Company owned and operated by the US government.