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This is exactly the statement that's required, given the confusion and irresponsible politicization of deposit insurance. Shareholders lose 100%, depositors ge

by marvin 4y ago

This is exactly the statement that's required, given the confusion and irresponsible politicization of deposit insurance. Shareholders lose 100%, depositors get 100% of their deposits back. It's a simple situation, and the former point (as opposed to the solution during the GFC) counteracts moral hazard.

bradleyjg 4y ago
What politicization of deposit insurance? The amount of deposits that are insured have been capped since the program was put in place 90 years ago. Making all depositors completely whole is not insurance. That was not a risk that premiums were paid for. It’s a government bailout.
- marvin 4y ago
  The politicisation should be obvious from the "eat the rich" rhetoric currently floating everywhere on Twitter. The government is mostly concerned with the stability of the economy and preventing cascading bank runs, which this climate is less conductive to. That much should be obvious to a slightly keen observer. While it's well and good in theory that deposits are capped at $250k, adhering strictly to that rule right now will cause cascading consequences much more serious than the price of this guarantee. Sensible realpolitik right now is to guarantee the deposits to prevent cascading wealth destruction that will very much hit Joe Average, then adapt the system to prevent moral hazard and ensure that this insurance premium is collected in the future. There will probably be a way to recoup the cost of the guarantee from debt holders to SVB, but right now the real concern is putting out the burning crisis of confidence.
npalli 4y ago
I don't think she is saying (as of the article) that depositors will get 100% back. They will get help but could be with a haircut.
- jocro 4y ago
  And that haircut won't be fun for many but I think the balance sheet had them at around $200 billion in deposits with $175 billion in assets. Obviously the question now becomes liquidity but I think the sky is not yet falling (unless more dominos start to tumble)
- nightpool 4y ago
  There will be a lot of political and financial pressure to value their HTM bonds at 100% because otherwise it will precipitate more runs on banks and more distrust in the financial system. And these are in fact the safest bonds in the world—they're going to get paid out, but the problem is that in 10 years, money isn't going to be worth as much as it's worth today. So banks don't necessarily want to buy them at full face value (because there are better things they could be buying), but in this situation, they're probably going to
fma 4y ago
If depositors get 100% back (I assume the government pays the difference between selling SBV assets & the deposits)...then what's the purpose of saying "FDIC Insured up to $250k"? It's a moot then isn't it? I don't need to go through the hassle of distributing my money anymore? Edit: I read the article. Yellen says "“But we are concerned about depositors, and we’re focused on trying to meet their needs.” She says NOTHING about depositors getting 100% back. It could be that they get the share of deposits back faster.
- rib3ye 4y ago
  I think you’re beginning to get it. Consider time it takes to get your deposit back: FDIC says depositors will get $250k back on Monday morning (pretty incredible turnaround actually). For the rest, they will have to wait for assets to be sold.
  - Denvercoder9 4y ago
    > For the rest, they will have to wait for assets to be sold. Actually, that's not completely true; FDIC also says that they'll pay an advance dividend to uninsured depositors next week. That likely won't be the full balance, but they'll get at least part of their deposits back before assets are sold.
- agotterer 4y ago
  Depositors get deposits back because their deposits are wrapped up in SVB assets. Once those assets are liquidated they get what is theirs. This could end up being less that 100% if the assets end up being sold for less than the total deposits. The FDIC insures that no matter what you are covered for up to $250k. Let’s say the bank had zero assets then all deposits would get their $250k and likely nothing else since there’s no other assets to sell and distribute. This could have been the case if SVB had larger losses or turned out to be cooking the books or something. But that’s not the case here. They have the depositors money, it just happens to be in illiquid assets that they could’t liquidate fast enough to cover the bank run withdrawals.
- obventio56 4y ago

by marvin 4y ago

bradleyjg 4y ago

What politicization of deposit insurance? The amount of deposits that are insured have been capped since the program was put in place 90 years ago. Making all depositors completely whole is not insurance. That was not a risk that premiums were paid for. It’s a government bailout.

marvin 4y ago
The politicisation should be obvious from the "eat the rich" rhetoric currently floating everywhere on Twitter. The government is mostly concerned with the stability of the economy and preventing cascading bank runs, which this climate is less conductive to. That much should be obvious to a slightly keen observer. While it's well and good in theory that deposits are capped at $250k, adhering strictly to that rule right now will cause cascading consequences much more serious than the price of this guarantee. Sensible realpolitik right now is to guarantee the deposits to prevent cascading wealth destruction that will very much hit Joe Average, then adapt the system to prevent moral hazard and ensure that this insurance premium is collected in the future. There will probably be a way to recoup the cost of the guarantee from debt holders to SVB, but right now the real concern is putting out the burning crisis of confidence.

npalli 4y ago

I don't think she is saying (as of the article) that depositors will get 100% back. They will get help but could be with a haircut.

jocro 4y ago
And that haircut won't be fun for many but I think the balance sheet had them at around $200 billion in deposits with $175 billion in assets. Obviously the question now becomes liquidity but I think the sky is not yet falling (unless more dominos start to tumble)
nightpool 4y ago
There will be a lot of political and financial pressure to value their HTM bonds at 100% because otherwise it will precipitate more runs on banks and more distrust in the financial system. And these are in fact the safest bonds in the world—they're going to get paid out, but the problem is that in 10 years, money isn't going to be worth as much as it's worth today. So banks don't necessarily want to buy them at full face value (because there are better things they could be buying), but in this situation, they're probably going to

fma 4y ago

If depositors get 100% back (I assume the government pays the difference between selling SBV assets & the deposits)...then what's the purpose of saying "FDIC Insured up to $250k"? It's a moot then isn't it? I don't need to go through the hassle of distributing my money anymore? Edit: I read the article. Yellen says "“But we are concerned about depositors, and we’re focused on trying to meet their needs.” She says NOTHING about depositors getting 100% back. It could be that they get the share of deposits back faster.

rib3ye 4y ago
I think you’re beginning to get it. Consider time it takes to get your deposit back: FDIC says depositors will get $250k back on Monday morning (pretty incredible turnaround actually). For the rest, they will have to wait for assets to be sold.
- Denvercoder9 4y ago
  > For the rest, they will have to wait for assets to be sold. Actually, that's not completely true; FDIC also says that they'll pay an advance dividend to uninsured depositors next week. That likely won't be the full balance, but they'll get at least part of their deposits back before assets are sold.
agotterer 4y ago
Depositors get deposits back because their deposits are wrapped up in SVB assets. Once those assets are liquidated they get what is theirs. This could end up being less that 100% if the assets end up being sold for less than the total deposits. The FDIC insures that no matter what you are covered for up to $250k. Let’s say the bank had zero assets then all deposits would get their $250k and likely nothing else since there’s no other assets to sell and distribute. This could have been the case if SVB had larger losses or turned out to be cooking the books or something. But that’s not the case here. They have the depositors money, it just happens to be in illiquid assets that they could’t liquidate fast enough to cover the bank run withdrawals.
obventio56 4y ago