11 ms·

Bailing out the owners is obviously completely out of the question, but why bail out the depositors beyond the guarantees they knew they were getting at the tim

by hanoz 4y ago

Bailing out the owners is obviously completely out of the question, but why bail out the depositors beyond the guarantees they knew they were getting at the time? Funny how language is being used to frame all this. For depositors it's made whole, not bailed out, when of course it's no less a bail out.

macintux 4y ago
Because businesses need to be able to pay their employees, because the banking system as a whole relies on trust to function. And because we're not really bailing out depositors. The FDIC is just doing its best to make sure depositors take precedence over bank shareholders, which is as it should be. Sure, you could let Roku lose a half billion dollars, but it's not their fault SVB couldn't meet its obligations. They didn't invest in the bank. Placing your money in a bank should not be a gamble.
- nodemaker 4y ago
  Businesses need to pay their employees from the money they have not from taxpayer money. If a business loses that money because their banking partner lost the money, taxpayers have no obligation to help (beyond the 250k)
  - macintux 4y ago
    Taxpayers benefit enormously from a banking system that isn't a crapshoot. Workers benefit from businesses being able to make payroll. The government isn't offering to bail out depositors. And taxpayers aren't even paying the $250k, that's from an insurance fund paid into by banks.
    - nodemaker 4y ago
      Can the banking system learn from this and improve? For sure it can and that would benefit everyone. But we cant retroactively change the rules. In fact you can argue that people would vote more pro-legistation if something like this was allowed to fail like it should and that would protect more people in the long run. And yes if an insurance fund pays for it then I am all for it. Someone other than the taxpayer has to foot this bill thats all.
      - macintux 4y ago
        Each time we learn new things, impose new regulations, and make new mistakes.
      - colinmorelli 4y ago
        The only way taxpayers avoid footing the bill here is if the FDIC can sell assets to cover 100% of deposits in a very short timeframe, or if another bank comes in and agrees to cover the shortfall. In any other scenario, if businesses with deposits in SVB lose some material amount of their cash, people will be getting laid off, prices will increase for some goods, and some companies will fail. All of these things negatively impact taxpayers. It's not clear to me what the better outcome here is, but this is going to affect everyday people either way.
        tome 4y ago
        > if businesses with deposits in SVB lose some material amount of their cash, people will be getting laid off, prices will increase for some goods Why so necessarily? The first thing to happen is that their equity holders will take a hit. Only then will the other things you state happen. And if the equity holders take a hit, well, that's exactly why they're equity holders.
        colinmorelli 4y ago
        Losing deposits means losing cash flow to fund runway. Many tech companies just spent the last year optimizing to get 18-24 months cash runway. If they just lost several months of that, they will need to recover it somehow. That will come either from layoffs or increasing prices. Similarly, companies raise capital to achieve goals. If 10-20% of that capital vaporizes, the ability to achieve those goals will be harmed. Some companies will not achieve those goals, and may be unable to raise future financing. We're talking about operating cash for these companies. The hit to equity holders is not the problem right now. Of course my comments above refer mostly to venture backed tech companies, but that represents a significant share of SVB's clients.
    - SkyPuncher 4y ago
      > Taxpayers benefit enormously from a banking system that isn't a crapshoot. I wonder how many people here would be screaming the exact opposite if this was their personal banking account? Yes, you can spread your money among multiple accounts. However, data shows it's exceedingly rare (1) an individual bank to fail (2) depositors to loose any money when a bank fails. According to the FDIC list of failed banks [0], there have only been 17 bank failures in the past 5 years. It's been 9 years since a bank has failed without finding an acquirer. To say this is something you must plan for is a bit of a stretch. * https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/ https://www.fdic.gov/resources/resolutions/bank-failures/fai...
  - admax88qqq 4y ago
    Taxpayers arn't paying the 250k, the FDIC is funded by fees they charge the banks, not taxpayers.
  - lambo4bkfast 4y ago
    Taxpayers do have an obligation to ensure that I do not view my checking account as a risky loan to the bank... It is not a positive outcome for taxpayers if they no longer view their deposits as safe. $250k is also a ridiculously low insurance amount for any company with a non-trivial number of employees.
- luckylion 4y ago
  Why are you pretending that Roku would get $250k and not a cent more? They won't. The bank has plenty of assets, they'll take a 5% loss for their strategy of taking on counter party risk, not a 99% loss. Everyone is going to be able to pay their employees, unless they're looking for a reason not to.
  - macintux 4y ago
    I was replying primarily to this sentence. > For depositors it's made whole, not bailed out, when of course it's no less a bail out. It's not a bail out for depositors.
    - luckylion 4y ago
      But if they were to get 100% of their deposits, even if the bank's assets would only cover e.g. 95%, it would be a bail out, wouldn't it? The government would step in and cover the difference with tax payer money. Because that seems to be what some people are demanding, but they don't use the term bailout, because of the connotations.
      - macintux 4y ago
        Yes, that would be a bailout. That’s not what the government is talking about (yet).
        luckylion 4y ago
        But that's what everyone is talking about when they say the government "should make depositors whole", because otherwise they won't be getting their whole money back. And clearly nobody would say "I want the government to follow the known procedures, get your congressman on the phone today". They want the government to deviate from the known and agreed upon procedures: they want a bailout. There wouldn't be any necessity to say anything at all if that wasn't their demand.
stanleydrew 4y ago
It's a matter of differing expectations. When you purchase stock in a bank, there is a reasonable expectation that your investment could lose value. When you deposit money with a bank (in the United States in 2023), you basically never consider the possibility that you might not get it all back. You can certainly argue that the expectation isn't fair, but I'm pretty confident it's nearly universal.
- Kephael 4y ago
  Sure you do, banks fail and you shouldn't expect more than $250,000 of coverage.
- hanoz 4y ago
  In Britain the protected amount is £85k per person per banking group, and it's universal that anyone with more than that splits it over accounts with multiple banks, taking care to make sure the banks aren't part of the same banking group. Is it any different over there, albeit for the rather higher limit, in America?
  - stanleydrew 4y ago
    The whole reason we're having this discussion is that it appears to not be universal for anyone with more than the insured limit to split deposits over multiple accounts. But there's also a big distinction between the working capital required for a business and the size of e.g. a personal savings account, which is kind of getting lost here. If your payroll is $1M every month then it may not really be practical to split deposits across many accounts.
    - tome 4y ago
      > If your payroll is $1M every month then it may not really be practical to split deposits across many accounts. Why not? That's only four accounts' worth of full protection.
- tome 4y ago
  > When you deposit money with a bank (in the United States in 2023), you basically never consider the possibility that you might not get it all back. This is an assumption which desperately needs to change, in my opinion, otherwise the risk of bank runs will be a think ad infinitum.
SkyPuncher 4y ago
> Bailing out the owners is obviously completely out of the question, but why bail out the depositors beyond the guarantees they knew they were getting at the time? The insured amount is absolutely guaranteed. However, it's still standard for a failed bank to make it's depositors whole. I don't have sources, but data I've seen indicates of the nearly 600 bank failures since 2000, few, if any, have resulted in a loss of deposits. ---- Put another way. Most employees don't have contractual obligations to receive severance. However, it's culturally expected that businesses performing layoffs will offer severance. Those who don't risk people not coming to work for them.\ Same situation in the US. The USD and it's banking system is seen as incredibly stable and robust. When chinks start to form, it raises concern and people might start looking to bank in other currencies.

by hanoz 4y ago

macintux 4y ago

Because businesses need to be able to pay their employees, because the banking system as a whole relies on trust to function. And because we're not really bailing out depositors. The FDIC is just doing its best to make sure depositors take precedence over bank shareholders, which is as it should be. Sure, you could let Roku lose a half billion dollars, but it's not their fault SVB couldn't meet its obligations. They didn't invest in the bank. Placing your money in a bank should not be a gamble.

nodemaker 4y ago
Businesses need to pay their employees from the money they have not from taxpayer money. If a business loses that money because their banking partner lost the money, taxpayers have no obligation to help (beyond the 250k)
- macintux 4y ago
  Taxpayers benefit enormously from a banking system that isn't a crapshoot. Workers benefit from businesses being able to make payroll. The government isn't offering to bail out depositors. And taxpayers aren't even paying the $250k, that's from an insurance fund paid into by banks.
  - nodemaker 4y ago
    Can the banking system learn from this and improve? For sure it can and that would benefit everyone. But we cant retroactively change the rules. In fact you can argue that people would vote more pro-legistation if something like this was allowed to fail like it should and that would protect more people in the long run. And yes if an insurance fund pays for it then I am all for it. Someone other than the taxpayer has to foot this bill thats all.
    - macintux 4y ago
      Each time we learn new things, impose new regulations, and make new mistakes.
    - colinmorelli 4y ago
      The only way taxpayers avoid footing the bill here is if the FDIC can sell assets to cover 100% of deposits in a very short timeframe, or if another bank comes in and agrees to cover the shortfall. In any other scenario, if businesses with deposits in SVB lose some material amount of their cash, people will be getting laid off, prices will increase for some goods, and some companies will fail. All of these things negatively impact taxpayers. It's not clear to me what the better outcome here is, but this is going to affect everyday people either way.
      - tome 4y ago
        > if businesses with deposits in SVB lose some material amount of their cash, people will be getting laid off, prices will increase for some goods Why so necessarily? The first thing to happen is that their equity holders will take a hit. Only then will the other things you state happen. And if the equity holders take a hit, well, that's exactly why they're equity holders.
        colinmorelli 4y ago
        Losing deposits means losing cash flow to fund runway. Many tech companies just spent the last year optimizing to get 18-24 months cash runway. If they just lost several months of that, they will need to recover it somehow. That will come either from layoffs or increasing prices. Similarly, companies raise capital to achieve goals. If 10-20% of that capital vaporizes, the ability to achieve those goals will be harmed. Some companies will not achieve those goals, and may be unable to raise future financing. We're talking about operating cash for these companies. The hit to equity holders is not the problem right now. Of course my comments above refer mostly to venture backed tech companies, but that represents a significant share of SVB's clients.
  - SkyPuncher 4y ago
    > Taxpayers benefit enormously from a banking system that isn't a crapshoot. I wonder how many people here would be screaming the exact opposite if this was their personal banking account? Yes, you can spread your money among multiple accounts. However, data shows it's exceedingly rare (1) an individual bank to fail (2) depositors to loose any money when a bank fails. According to the FDIC list of failed banks [0], there have only been 17 bank failures in the past 5 years. It's been 9 years since a bank has failed without finding an acquirer. To say this is something you must plan for is a bit of a stretch. * https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/ https://www.fdic.gov/resources/resolutions/bank-failures/fai...
- admax88qqq 4y ago
  Taxpayers arn't paying the 250k, the FDIC is funded by fees they charge the banks, not taxpayers.
- lambo4bkfast 4y ago
  Taxpayers do have an obligation to ensure that I do not view my checking account as a risky loan to the bank... It is not a positive outcome for taxpayers if they no longer view their deposits as safe. $250k is also a ridiculously low insurance amount for any company with a non-trivial number of employees.
luckylion 4y ago
Why are you pretending that Roku would get $250k and not a cent more? They won't. The bank has plenty of assets, they'll take a 5% loss for their strategy of taking on counter party risk, not a 99% loss. Everyone is going to be able to pay their employees, unless they're looking for a reason not to.
- macintux 4y ago
  I was replying primarily to this sentence. > For depositors it's made whole, not bailed out, when of course it's no less a bail out. It's not a bail out for depositors.
  - luckylion 4y ago
    But if they were to get 100% of their deposits, even if the bank's assets would only cover e.g. 95%, it would be a bail out, wouldn't it? The government would step in and cover the difference with tax payer money. Because that seems to be what some people are demanding, but they don't use the term bailout, because of the connotations.
    - macintux 4y ago
      Yes, that would be a bailout. That’s not what the government is talking about (yet).
      - luckylion 4y ago
        But that's what everyone is talking about when they say the government "should make depositors whole", because otherwise they won't be getting their whole money back. And clearly nobody would say "I want the government to follow the known procedures, get your congressman on the phone today". They want the government to deviate from the known and agreed upon procedures: they want a bailout. There wouldn't be any necessity to say anything at all if that wasn't their demand.

stanleydrew 4y ago

It's a matter of differing expectations. When you purchase stock in a bank, there is a reasonable expectation that your investment could lose value. When you deposit money with a bank (in the United States in 2023), you basically never consider the possibility that you might not get it all back. You can certainly argue that the expectation isn't fair, but I'm pretty confident it's nearly universal.

Kephael 4y ago
Sure you do, banks fail and you shouldn't expect more than $250,000 of coverage.
hanoz 4y ago
In Britain the protected amount is £85k per person per banking group, and it's universal that anyone with more than that splits it over accounts with multiple banks, taking care to make sure the banks aren't part of the same banking group. Is it any different over there, albeit for the rather higher limit, in America?
- stanleydrew 4y ago
  The whole reason we're having this discussion is that it appears to not be universal for anyone with more than the insured limit to split deposits over multiple accounts. But there's also a big distinction between the working capital required for a business and the size of e.g. a personal savings account, which is kind of getting lost here. If your payroll is $1M every month then it may not really be practical to split deposits across many accounts.
  - tome 4y ago
    > If your payroll is $1M every month then it may not really be practical to split deposits across many accounts. Why not? That's only four accounts' worth of full protection.
tome 4y ago
> When you deposit money with a bank (in the United States in 2023), you basically never consider the possibility that you might not get it all back. This is an assumption which desperately needs to change, in my opinion, otherwise the risk of bank runs will be a think ad infinitum.

SkyPuncher 4y ago

> Bailing out the owners is obviously completely out of the question, but why bail out the depositors beyond the guarantees they knew they were getting at the time? The insured amount is absolutely guaranteed. However, it's still standard for a failed bank to make it's depositors whole. I don't have sources, but data I've seen indicates of the nearly 600 bank failures since 2000, few, if any, have resulted in a loss of deposits. ---- Put another way. Most employees don't have contractual obligations to receive severance. However, it's culturally expected that businesses performing layoffs will offer severance. Those who don't risk people not coming to work for them.\ Same situation in the US. The USD and it's banking system is seen as incredibly stable and robust. When chinks start to form, it raises concern and people might start looking to bank in other currencies.