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I think Yellen is signalling the right approach, frankly. First, the balance between the bank's assets (its loans and the investments it made with depositors m

I think Yellen is signalling the right approach, frankly. First, the balance between the bank's assets (its loans and the investments it made with depositors money, plus the bank's capital) and its liabilities, is such that SVB has enough holdings to cover nearly all of its deposits. The banks capital (that is its equity, and subordinated debt) should all go toward making depositors whole. That's what bank capital is for. The question then becomes how much of a hole is left in order to make depositors whole? It won't be that big a number, if you assume that the vast majority of the deposits will remain as deposits in whatever bank the Feds find to purchase the corpse of SVB - remember, that SVB failed not because it it had a huge mismatch between liabilities and assets, but because its depositors tried to withdraw all their money all at once - that is because SVB was put in a situation where it had to make good on all its liabilities in a 2 day period. It couldn't do that, because its assets were tied up in loans to other customers which couldn't be instantly recalled, and government bonds which couldn't be sold quickly enough without incurring substantial losses, and its own capital. It became illiquid overnight. But the actual delta between assets and liabilities may well be a few billion dollars, if the deposits are not all yanked out. For the Feds to put up that money as part of a deal to sell SVBs portfolio intact to another bank, makes good sense to me. The right people (investors in the bank) take the haircut, the depositors get their money.

paganel 4y ago
> For the Feds to put up that money as part of a deal to sell SVBs portfolio intact to another bank, makes good sense to me Honest question: why? I.e. why can't the capitalists invested in this business absorb the reasonable haircut? (I assume it's "reasonable" based on the information we have been provided with until now). Depositors (especially those holding more than 250k) were also investors, they were getting back more money than they had put in.
- 300bps 4y ago
  The “capitalists” invested in this business will get $0. Look at their stock chart. Heck, look at what their bonds are paying. There will very likely be nothing left for the “capitalists” after depositors are paid.
- initplus 4y ago
  SVB catered primarily to businesses - the last thing we need right now is every business worrying about where their bank deposits are. If they do worry, it may trigger more runs as they all try to move their funds to “safer” banks.
  - paganel 4y ago
    And then why shouldn’t be the whole banking system be nationalized? Businesses are capitalists by detonation (especially those based in the Bay), doing business comes with risks, managing risk is one of the basis of capitalism.
- walnutclosefarm 4y ago
  I make a clear distinction between depositors and investors. The holders of the bank's capital - it's equity and and subordinate bond debt, are at-risk investors, and should, as I said in my original post, take a 100% haircut (assuming the bank in fact has fewer assets than liabilities.) But a depositor - who probably was earning negligible interest for parking their cash in the bank - has a reasonable expectation that their deposit is safe in a regulated bank. And the government has an interest in assuring bank customers across the country that ordinary deposits are safe in regulated banks that are adequately capitalized.
bradleyjg 4y ago
Sure we taxpayers can toss in a few billion. In exchange, VCs can give up the carried interest loophole and founders can give up 83b elections. Deal?
- benjaminsky2 4y ago
  Founders aren’t the only ones who can make an 83b election. Regular employees can do so too if they’re allowed early exercise.
  - bradleyjg 4y ago
    And founders aren’t the only ones that will benefit from a bailout.
300bps 4y ago
First, the balance between the bank's assets (its loans…) Keep in mind those loans are largely being paid by SVB customers that are very likely scrambling to make sure they can pay their employees right now. It’s pretty assured that more SVB loans will be defaulting in the coming weeks than if their depositors didn’t lose access to about half of their money.
- wanderingmind 4y ago
  This, people here are not talking about feedback loops and second order effects, most lending customers and depositing customers are highly correlated
jmull 4y ago
If you're volunteering to give or invest a few billion into the SVB receivership deal, then go right ahead. Please leave me and my tax dollars out of it. I'm not just hard-hearted, BTW. Unlimited depositor insurance is an awful idea.
- tqi 4y ago
  ooc why is unlimited deposit insurance a bad idea? A quick Google search didn't have many results, except some brief articles about section 343 of Dodd Frank (which itself seemed limited in scope).
  - jmull 4y ago
    It’s called “moral hazard”. Normally, depositors have to have confidence the bank they choosewill handle their money competently and responsibly. With unlimited insurance, depositors will simply choose the bank that offers the best terms. Banks need depositor, so they will respond to what depositors want. In the first case there is pressure to handle money competently and responsibility. In the second, there is pressure to take risks to be able to provide the best terms. https://en.wikipedia.org/wiki/Moral_hazard https://en.wikipedia.org/wiki/Moral_hazard
    - tqi 4y ago
      But Moral Hazard seems more like a risk of Deposit Insurance overall, rather than just unlimited insurance? Also it's not like FDIC is granted automatically, couldn't there just be much more strict capital requirement and risk limits in exchange for a higher protection?
      - jmull 4y ago
        There is a hazard, but it's low: (1) small depositors, in general, aren't in a very good position to evaluate the risk of a bank very well. So they won't be exerting much positive force on banks anyway. (2) even if they could evaluate risk well they still wouldn't exert much pressure because that requires an organizing force (even if the aggregate amount of deposits is high) (3) Understand that the FDIC is a nation-wide program and that the funds the FDIC pays out do not come from tax payers. They come from premiums paid by member banks. Banks get the money for the premiums by reducing the terms they offer depositors. That is, the banks directly, and depositors indirectly pay for the risk taken on by the banks directly and the depositors indirectly. This breaks down at higher dollar amounts though because banks and depositors aren't really uniform, but at lower levels of money it's a good approximation. At higher levels of money, depositors and banks will apply increasingly sophisiticated measures to shift reward toward themselves and risk away. That is, they will find ways to work the system. At some level the insurance program becomes a way for more sophisticated players to profit less sophisticated players. A cap of $250K puts everyone at approximately the same level of sophistication and makes it harder to run some con at scale. BTW, insurance for amounts higher than $250K is available. It's not that popular, though, because it's expensive. It's expensive, of course, because of the risk.
roflyear 4y ago
Accounts are worth money to a bank even with no balance. Likely if JPM or someone buys the bank people will continue to use those accounts. So yeah someone will fill the hole and their stock price will probably go up because of it

paganel 4y ago

> For the Feds to put up that money as part of a deal to sell SVBs portfolio intact to another bank, makes good sense to me Honest question: why? I.e. why can't the capitalists invested in this business absorb the reasonable haircut? (I assume it's "reasonable" based on the information we have been provided with until now). Depositors (especially those holding more than 250k) were also investors, they were getting back more money than they had put in.

300bps 4y ago
The “capitalists” invested in this business will get $0. Look at their stock chart. Heck, look at what their bonds are paying. There will very likely be nothing left for the “capitalists” after depositors are paid.
initplus 4y ago
SVB catered primarily to businesses - the last thing we need right now is every business worrying about where their bank deposits are. If they do worry, it may trigger more runs as they all try to move their funds to “safer” banks.
- paganel 4y ago
  And then why shouldn’t be the whole banking system be nationalized? Businesses are capitalists by detonation (especially those based in the Bay), doing business comes with risks, managing risk is one of the basis of capitalism.
walnutclosefarm 4y ago
I make a clear distinction between depositors and investors. The holders of the bank's capital - it's equity and and subordinate bond debt, are at-risk investors, and should, as I said in my original post, take a 100% haircut (assuming the bank in fact has fewer assets than liabilities.) But a depositor - who probably was earning negligible interest for parking their cash in the bank - has a reasonable expectation that their deposit is safe in a regulated bank. And the government has an interest in assuring bank customers across the country that ordinary deposits are safe in regulated banks that are adequately capitalized.

bradleyjg 4y ago

Sure we taxpayers can toss in a few billion. In exchange, VCs can give up the carried interest loophole and founders can give up 83b elections. Deal?

benjaminsky2 4y ago
Founders aren’t the only ones who can make an 83b election. Regular employees can do so too if they’re allowed early exercise.
- bradleyjg 4y ago
  And founders aren’t the only ones that will benefit from a bailout.

300bps 4y ago

First, the balance between the bank's assets (its loans…) Keep in mind those loans are largely being paid by SVB customers that are very likely scrambling to make sure they can pay their employees right now. It’s pretty assured that more SVB loans will be defaulting in the coming weeks than if their depositors didn’t lose access to about half of their money.

wanderingmind 4y ago
This, people here are not talking about feedback loops and second order effects, most lending customers and depositing customers are highly correlated

jmull 4y ago

If you're volunteering to give or invest a few billion into the SVB receivership deal, then go right ahead. Please leave me and my tax dollars out of it. I'm not just hard-hearted, BTW. Unlimited depositor insurance is an awful idea.

tqi 4y ago
ooc why is unlimited deposit insurance a bad idea? A quick Google search didn't have many results, except some brief articles about section 343 of Dodd Frank (which itself seemed limited in scope).
- jmull 4y ago
  It’s called “moral hazard”. Normally, depositors have to have confidence the bank they choosewill handle their money competently and responsibly. With unlimited insurance, depositors will simply choose the bank that offers the best terms. Banks need depositor, so they will respond to what depositors want. In the first case there is pressure to handle money competently and responsibility. In the second, there is pressure to take risks to be able to provide the best terms. https://en.wikipedia.org/wiki/Moral_hazard https://en.wikipedia.org/wiki/Moral_hazard
  - tqi 4y ago
    But Moral Hazard seems more like a risk of Deposit Insurance overall, rather than just unlimited insurance? Also it's not like FDIC is granted automatically, couldn't there just be much more strict capital requirement and risk limits in exchange for a higher protection?
    - jmull 4y ago
      There is a hazard, but it's low: (1) small depositors, in general, aren't in a very good position to evaluate the risk of a bank very well. So they won't be exerting much positive force on banks anyway. (2) even if they could evaluate risk well they still wouldn't exert much pressure because that requires an organizing force (even if the aggregate amount of deposits is high) (3) Understand that the FDIC is a nation-wide program and that the funds the FDIC pays out do not come from tax payers. They come from premiums paid by member banks. Banks get the money for the premiums by reducing the terms they offer depositors. That is, the banks directly, and depositors indirectly pay for the risk taken on by the banks directly and the depositors indirectly. This breaks down at higher dollar amounts though because banks and depositors aren't really uniform, but at lower levels of money it's a good approximation. At higher levels of money, depositors and banks will apply increasingly sophisiticated measures to shift reward toward themselves and risk away. That is, they will find ways to work the system. At some level the insurance program becomes a way for more sophisticated players to profit less sophisticated players. A cap of $250K puts everyone at approximately the same level of sophistication and makes it harder to run some con at scale. BTW, insurance for amounts higher than $250K is available. It's not that popular, though, because it's expensive. It's expensive, of course, because of the risk.

roflyear 4y ago

Accounts are worth money to a bank even with no balance. Likely if JPM or someone buys the bank people will continue to use those accounts. So yeah someone will fill the hole and their stock price will probably go up because of it