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> If depositors aren’t protected, then it’s going to have a lot of downstream impacts If depositors with deposits above the FDIC insurance limit _are_ protecte
by WkndTriathlete 4y ago
> If depositors aren’t protected, then it’s going to have a lot of downstream impacts
If depositors with deposits above the FDIC insurance limit _are_ protected then there will be nothing stopping this from happening repeatedly in the future. Depositors that exceed the FDIC insurance limit should be taking a haircut so they learn to do better risk analysis of their bank or purchase auxiliary deposit insurance on their assets at a bank or both. VCs/investors in the companies whose deposits exceed the FDIC insurance limit should take a bath for pushing one specific bank with bad risk management. (How this fact escaped VCs/investors is beyond me. I'm not a risk manager or investment manager by any stretch of the imagination but even I would recognize that investment in long-term near-0% bonds would have nowhere to go but down.)
- KptMarchewa 4y ago>If depositors with deposits above the FDIC insurance limit _are_ protected then there will be nothing stopping this from happening repeatedly in the future. The fact that is stopping this - is the fact that only people who are earning money on risky strategies - shareholders - are being wiped the first. Depositors are NOT investors and do not earn a premium on successful risky bank strategies.
- ivalm 4y agoDepositors are (senior) creditors and take on credit risk. Similar to bond holders.
- dangero 4y agoThis bank run happened based on fear of the scenario we are now in. No bank can withstand a bank run due to fractional reserve ratios. If the depositors lose big then that will increase this fear going forward. In other words, if all depositors are covered there is no longer a substantial fear of a bank run elsewhere. That’s how it stops it from happening again.
- ivalm 4y agoRealistically, this bank run occurred because the depositors were highly correlated. Other banks do not have such a correlated depositor base.