4 ms·

That's exactly the point: not guaranteeing deposits incentives everyone to move all their money beyond 250k into a big 4 bank as soon as they can on Monday morn

That's exactly the point: not guaranteeing deposits incentives everyone to move all their money beyond 250k into a big 4 bank as soon as they can on Monday morning. Great for JPM, but could be deadly for a huge section of the US banking industry.

wpietri 4y ago
Unfortunately, guaranteeing deposits for everyone creates moral hazard, because it means people will not pay attention to the risk level of their bank, giving bank CEOs even more incentive to play "heads I win, tails they lose" with taxpayer money. I am all for FDIC insuring accounts, and I'm fine with the level being as high as $250k. But anybody with a lot of cash beyond that should already understand what the word "uninsured" means. If they don't my sympathy for them is limited. If we're going to spend billions more on improving the social safety net, people with hundreds of thousands of dollars in cash just lying around are not my first priority.
- sjm-lbm 4y ago
  I really don't understand the moral hazard here. The people making risk decisions - ie, the SBV staff - should absolutely be wiped out. If there's a legal way to claw back the proceeds from the stock sales they made in the run up to the last few days, I wouldn't have a problem with that either.
  - wpietri 4y ago
    It's sort of like federal storm insurance for beachfront property. If you make it too cheap for people to take risks, they will take too many risks, costing the government money. So you have to make sure risk and reward are balanced. When people choose where to bank their millions of dollars, they are making a market-based choice. Markets only work when, on balance, good choices get good results and bad choices get bad results. If people can make risky choices and still make money because other people bail them out, that creates a moral hazard.
    - wpietri 4y ago
      Oh, and that isn't a hypothetical example. Thousands of federally insured houses have been rebuild 10 times or more: https://www.nrdc.org/experts/rob-moore/flood-rebuild-repeat-need-flood-insurance-reforms https://www.nrdc.org/experts/rob-moore/flood-rebuild-repeat-...
      - bombcar 4y ago
        I’ve always been of the idea of the feds are insuring something, they should have a buyout option (something similar to what FDIC just did). FDIC doesn’t wait for the bank to call them, they monitor and step in.
        wpietri 4y ago
        Indeed! And I believe that for floods, the FEMA buyout program is something like that: https://www.fema.gov/case-study/flood-buyout-eases-homeowners https://www.fema.gov/case-study/flood-buyout-eases-homeowner...
  - blackoil 4y ago
    > I really don't understand the moral hazard here. It incentives ignoring risks from grey/black swan events. Weak analogue, a CTO comes in who removes redundancy/backups from the system, saves huge costs and gets huge bonuses. Once every 5 years system fails and data is lost, CTO loses bonus but on average he is making more.
- throwawaysleep 4y ago
  People shouldn't need to pay attention to what their bank is doing. That is what regulators are for. Having to constantly review bank financial statements to determine whether you can have an account there is ridiculous.
  - wpietri 4y ago
    For individuals, sure. Which is why I'm in favor of the FDIC system. It's a waste of time to make average people try to figure out the safety of particular banks just to be sure their $5k in checking is safe. For people managing millions of dollars, though, I think they should, y'know, do their jobs and make professional-grade risk management decisions. Especially when the alternative is taxpayers coughing up money to subsidize their mistakes.
    - bombcar 4y ago
      It’s so rare that people ignore it. I’m surprised there aren’t insurance companies offering “fdic++” - I’m sure the underwriters could work out what it would have to be.
      - mindslight 4y ago
        https://www.difxs.com/ https://www.difxs.com/ for one. I learned about this today through the Nerdwallet link. It's small though and I'm surprised there hasn't been more talk of it and other optional deposit insurance. What does this landscape look like for large companies routinely doing millions in payroll? You can't tell me they sweep it all in/out of different banks in 250k chunks. There has to be some sort of widely used insurance offerings, no?
  - justin66 4y ago
    > People shouldn't need to pay attention to what their bank is doing. There's a really nice threshold for measuring this: if you have more cash than can be spread conveniently amongst a number of banks such that those account balances do not exceed FDIC insurance limits, you do need to pay attention to what your bank is doing.
swatcoder 4y ago
Deposits above 100k weren’t insured until 2008, and through 250k only in the 15 years since then. Do you think all the CFO’s, accountants, and financial advisors of American industry didn’t know that until this weekend? Yet the small and regional banks still seemed to have made it all this time.
- throwawaysleep 4y ago
  There is "knowing" intellectually and then there is fully understanding that a particular bad thing can happen to you. I was aware of this regulation. I thought it was unlikely. But now that it is happened, I will be removing all my money from smaller banks over to TD (big Canadian bank).
  - wpietri 4y ago
    Moving from multiple banks to one bank is probably increasing your risk here. Especially so if we're talking about more than $250k. And if we're talking about less, then this example shouldn't change anything for you. As the article we're discussing explains, anybody with less than $250k can withdraw that from SVB starting Monday morning, maybe before.

wpietri 4y ago

Unfortunately, guaranteeing deposits for everyone creates moral hazard, because it means people will not pay attention to the risk level of their bank, giving bank CEOs even more incentive to play "heads I win, tails they lose" with taxpayer money. I am all for FDIC insuring accounts, and I'm fine with the level being as high as $250k. But anybody with a lot of cash beyond that should already understand what the word "uninsured" means. If they don't my sympathy for them is limited. If we're going to spend billions more on improving the social safety net, people with hundreds of thousands of dollars in cash just lying around are not my first priority.

sjm-lbm 4y ago
I really don't understand the moral hazard here. The people making risk decisions - ie, the SBV staff - should absolutely be wiped out. If there's a legal way to claw back the proceeds from the stock sales they made in the run up to the last few days, I wouldn't have a problem with that either.
- wpietri 4y ago
  It's sort of like federal storm insurance for beachfront property. If you make it too cheap for people to take risks, they will take too many risks, costing the government money. So you have to make sure risk and reward are balanced. When people choose where to bank their millions of dollars, they are making a market-based choice. Markets only work when, on balance, good choices get good results and bad choices get bad results. If people can make risky choices and still make money because other people bail them out, that creates a moral hazard.
  - wpietri 4y ago
    Oh, and that isn't a hypothetical example. Thousands of federally insured houses have been rebuild 10 times or more: https://www.nrdc.org/experts/rob-moore/flood-rebuild-repeat-need-flood-insurance-reforms https://www.nrdc.org/experts/rob-moore/flood-rebuild-repeat-...
    - bombcar 4y ago
      I’ve always been of the idea of the feds are insuring something, they should have a buyout option (something similar to what FDIC just did). FDIC doesn’t wait for the bank to call them, they monitor and step in.
      - wpietri 4y ago
        Indeed! And I believe that for floods, the FEMA buyout program is something like that: https://www.fema.gov/case-study/flood-buyout-eases-homeowners https://www.fema.gov/case-study/flood-buyout-eases-homeowner...
- blackoil 4y ago
  > I really don't understand the moral hazard here. It incentives ignoring risks from grey/black swan events. Weak analogue, a CTO comes in who removes redundancy/backups from the system, saves huge costs and gets huge bonuses. Once every 5 years system fails and data is lost, CTO loses bonus but on average he is making more.
throwawaysleep 4y ago
People shouldn't need to pay attention to what their bank is doing. That is what regulators are for. Having to constantly review bank financial statements to determine whether you can have an account there is ridiculous.
- wpietri 4y ago
  For individuals, sure. Which is why I'm in favor of the FDIC system. It's a waste of time to make average people try to figure out the safety of particular banks just to be sure their $5k in checking is safe. For people managing millions of dollars, though, I think they should, y'know, do their jobs and make professional-grade risk management decisions. Especially when the alternative is taxpayers coughing up money to subsidize their mistakes.
  - bombcar 4y ago
    It’s so rare that people ignore it. I’m surprised there aren’t insurance companies offering “fdic++” - I’m sure the underwriters could work out what it would have to be.
    - mindslight 4y ago
      https://www.difxs.com/ https://www.difxs.com/ for one. I learned about this today through the Nerdwallet link. It's small though and I'm surprised there hasn't been more talk of it and other optional deposit insurance. What does this landscape look like for large companies routinely doing millions in payroll? You can't tell me they sweep it all in/out of different banks in 250k chunks. There has to be some sort of widely used insurance offerings, no?
- justin66 4y ago
  > People shouldn't need to pay attention to what their bank is doing. There's a really nice threshold for measuring this: if you have more cash than can be spread conveniently amongst a number of banks such that those account balances do not exceed FDIC insurance limits, you do need to pay attention to what your bank is doing.

swatcoder 4y ago

Deposits above 100k weren’t insured until 2008, and through 250k only in the 15 years since then. Do you think all the CFO’s, accountants, and financial advisors of American industry didn’t know that until this weekend? Yet the small and regional banks still seemed to have made it all this time.

throwawaysleep 4y ago
There is "knowing" intellectually and then there is fully understanding that a particular bad thing can happen to you. I was aware of this regulation. I thought it was unlikely. But now that it is happened, I will be removing all my money from smaller banks over to TD (big Canadian bank).
- wpietri 4y ago
  Moving from multiple banks to one bank is probably increasing your risk here. Especially so if we're talking about more than $250k. And if we're talking about less, then this example shouldn't change anything for you. As the article we're discussing explains, anybody with less than $250k can withdraw that from SVB starting Monday morning, maybe before.