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Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
- compumike 4y agoTreasury Secretary Yellen was quite clear in an interview a few hours ago: "The problems of the tech sector aren't at the heart of the problems of this bank." https://youtu.be/vSZcPvp7NVU?t=292 https://youtu.be/vSZcPvp7NVU?t=292 Appears that leadership at the highest levels seems to be clearly aware that the problem at SVB had to do with bond prices/rates (rather than anything startup/tech/Silicon Valley specific), and that other banks may have the situation and be vulnerable to "contagion".
- cma 4y ago>other banks may have the situation and be vulnerable to "contagion". Are other banks that are in danger are now halting bonuses in anticipation to make sure to keep their books as sound as possible. And are they issuing new equity, diluting shareholders and employee option holders, to make sure they make it through responsibly?
- bushbaba 4y agoIf SVB depositors aren’t made whole. We will see a bank run come Monday. And there will be contagion as most banks likely also bought bonds/treasuries with reduced face value from the fast rate hikes.
- postalrat 4y agoThat type of thinking didn't save svb and won't save other banks.
- panarky 4y agoI also lost money on the bonds in my portfolio, who will make me whole?
- the-grump 4y agoYou took the risk buying those bonds. Depositing cash at a bank is a different matter. No bailout for SVB; no bailout for you.
- paxys 4y agoDepositing >250K cash in a bank carries similar risk, so not a different matter at all.
- jacooper 4y agoIf depositing money in a bank is risk, where should I put my money then?
- paxys 4y agoUnder your mattress. Protected by an armed guard. Split up among various banks. In treasury bonds. In the financial markets. In Bitcoin. Wherever you want. It's not the taxpayer's burden to insure >250k worth of your cash in one location.
- the-grump 4y agoThe big, big banks (Chase, BofA) are too big to fail and are also subject to more thorough stress tests. That's one option. You could also deposit in multiple banks to stay below 250k. There are institutions that automate that. Another option is to deal directly with the federal government and buy bonds from them (likely through a bank but your money doesn't have to stay there for long). Then only the most catastrophic scenario would see you losing money. You are still subject to inflation and interest rate risk. But honestly at that point, worry about having guns and knowing how to use them, not where your money is. One last edit to add that Treasury is making all depositors whole. So, really, all of this is moot... besides the guns :)
- reducesuffering 4y agoDepositing cash at a bank is not a different matter. You are giving another organization your money. Everyone knows that the government, FDIC, only insures up to $250k. That organization is then lending it out to make enough profits to employ thousands of people to give you, the depositor, all the services you've come to expect. Only charlatans are dumping $5m into a single bank with the thought, "no worries, if anything goes wrong the government will pay me my $5m." All of the interest SVB depositors were rewarded with was coming from MBS. Heads, I get extra interest, tails, government bails my deposit out.
- frgtpsswrdlame 4y agoIf we have to back them on the downside I want profit on the upside. Private profits and public losses cannot be the rules of the game.
- hanklazard 4y agoThis is referring specifically to deposits not equity or corporate bond holders, management, etc. The depositors are not making a sizable returns, they’re just wanting to keep their money in a bank account.
- tome 4y agoThe problem is that continuing to bail out depositors means that they'll never do due diligence on their banks and therefore bank executives will keep trying risky strategies that increase their bonuses.
- chernevik 4y agoAnd then the regulators have to approve EVERY asset and of course anything looking slightly weird (hint: a startup) will be "risky" and unloanable. The only way an SVB can exist is if banks are allowed to take risk.
- grogenaut 4y agowhat kind of due diligence are you imagining that I, a depositor with under 250k should / am doing on a bank? What do you believe, I, as a single depositor of 250k CAN DO to audit a bank or otherwise make sure it's safe for my deposit?
- tome 4y agoOh, when I say "bail out" I mean bail out of depositors with more than $250k of deposits, less than $250k already being well-understood to be covered. You, as a single depositor of $250k are fine. If you have $1m then you spread it out amongst 4 banks and are fine. If you have more then you'd better use your own nous or hire a financial advisor.
- jimt222 4y agoA.k.a. “moral hazard”. When people take financial risks (such as holding more than $250K in FDIC insured bank account), why should taxpayers cover their losses?
- comte7092 4y ago> why should taxpayers cover their losses It doesn’t follow that there will be any losses to cover. The government can take ownership of the assets of the bank and won’t be stuck having to sell them at a loss.
- ivalm 4y agoIf you mark to market the assets are less than liabilities. It’s unlikely government will keep to maturity a bunch of 30 year mortgages. At the same time, we should just make FDIC limit infinite and make depositors whole.
- comte7092 4y agoThe fed already has billions of dollars worth of mortgage backed securities on its balance sheet right now.
- ivalm 4y agoI mean sure, but when it transacts it will be marked to market, it won't be just valued at the original hold to maturity so fed will take a loss. Also, fed is trying to shrink its balance sheet, presumably.
- comte7092 4y agoI don’t believe the fed typically marks its assets to market, though I’d be open to a correction on that point. Typically they just roll off the balance sheet by letting assets mature and not re purchasing. They are indeed trying to shrink their balance sheet, but at the volumes they are working at, the entirety of SVBs assets amount to a few months of the fed’s current volumes.
- blindriver 4y agoSilicon Valley Bank was an outlier with respect to risk. https://johnhcochrane.blogspot.com/2023/03/silicon-valley-bank-blinders.html https://johnhcochrane.blogspot.com/2023/03/silicon-valley-ba... The CEO pushed to ease regulations, and the lack of regulations led to this over-indexing in risk that was clear as daylight. But no one cared because they helped out startups, everyone knew the CEO personally, the VCs had relationships with the banks, etc. Saying that "no one could see that coming" was wrong. Now the crybaby VCs THAT ACTUALLY CAUSED THIS PANIC IN THE FIRST PLACE get their way by preserving their investments, but hopefully the stark hypocrisy of Biden, first saying that millionaires "need to pay their fair share" and then immediately turning around and bailing his Silicon Valley VC buddies out, will be brought up time and time again during the election cycle.
- paulpauper 4y agoNo one know what is going happen. If I had to guess, there will be no lifeline. Populist pressure too strong.
- paxys 4y agoYup the government isn't spending tens of billions to bail out a bank with "Silicon Valley" in its title. Supporting it is an instant election loss for any politician on either side of the aisle.
- flandish 4y agoI disagree - it’ll be bailed out in the same manner by which “pro labor” (yet actually a scab) Biden promised to help the workers at railways - but instead made it illegal to strike. Rep and Dem alike - this election season is going to be worse than 2016. Strap in.
- noelsusman 4y agoHas there been any good reporting on why so many tech startups had large amounts of uninsured cash deposits? This has been a solved problem for a long time. https://www.intrafi.com/solutions/depositors/ https://www.intrafi.com/solutions/depositors/ https://americandeposits.com/how-it-works/ https://americandeposits.com/how-it-works/ There's no reason for a small business to have any uninsured cash deposits. Is this a corruption story? Are they all just that incompetent?
- swatcoder 4y agoIt’s hearsay, honestly, but I heard that participating in their venture loan program involved keeping your deposits exclusively with them as a form of collateral. For hyperoptimistic founders and VC’s, the opportunity for loans where they aren’t otherwise available may have thrown responsible banking practices out the window. It would fit the character of the startup industry, seems reasonable from a lending standpoint, and explains why VC’s are now acting like they got caught with their pants down, so I’m curious of there’s truth to it.
- objclxt 4y ago> Is this a corruption story? Are they all just that incompetent? I have heard through the grapevine that some startups were locked into varying exclusivity deals with SVB.
- andygcook 4y agoAnecdotally, most founders are extremely busy and much of their financial success is in finding product/market-fit to maximize equity value. Therefore, learning about maximizing interest and managing dozens of bank accounts to minimize insolvency risk didn’t seem like a good use of time. Parking cash in SVB, which had been around for 40 years (with some investors even requiring startups to bank with them), seemed like a safe, secure option. Obviously, hindsight is 20/20 here.
- lordnacho 4y agoSure but don't they hire a CFO who knows what to do with financial instruments?
- labrador 4y agoAs a Independent non-aligned American voter, I have to ask myself did Peter Thiel deliberately cause a run on SVB? Did Elon Musk buy Twitter to destroy it as an effective platform for Democratic organizing? Is Musk coordinating with Tucker Carlson to push propaganda that Jan 6 was merely constitutionally protected protest? And are House Republicans coordinating with Thiel, Musk and Tucker Carlson over the debt ceiling limit to cause a financial crisis to bring down the Federal government to accrue power to themselves? Like Carlson, I'm just asking questions.
- Vecr 4y agoOnly the Jan 6 protest outside the in-use government buildings was constitutionally protected. As far as I know the congress does not have to allow random people to disturb them while in session and can enforce that. In general, it's safe for the police to do so, I think they should arrest all rioters on basic misdemeanor charges, do a bit of investigation, and then let those go who did not do anything. Obviously in this case if you went into the senate chamber you would get at least a misdemeanor trespassing charge.
- labrador 4y agoThere's a big effort on the right, including by Musk, to rewrite history and portray them as political prisoners ahead of the 2024 election.
- christophilus 4y agoThere’s been a big effort on both sides to rewrite history. A bunch of dumb, rowdy protestors made some dumb moves. One side heralds them as patriotic heroes. The other as dangerous, violent insurrectionists the like of which we’ve never seen. Nah. They were just a big, dumb crowd doing big dumb things.
- labrador 4y agoI agree with you. There were small groups like the Oath Keepers and the Proud Boys who invaded the capitol in "stack" formations following premeditated plans. Nobody talks about them much. Instead the media wants to talk about the hapless enthusiasts who LARPed their way into committing minor crimes following the breaches created by these more committed groups.
- sidewndr46 4y agoWhy does the government & media get away with using words like "contagion"? If a single bank failure were to precipitate the collapse of the US banking system as a whole, this isn't a contagion. It is the reality of the insanely fragile nature of US banking.
- AmVess 4y agoThey are calling it such because contagions spread. Tomorrow is going to be a bloodbath.
- sidewndr46 4y agoAs it ought to be. Idiots gave some idiots money who banked said money with idiots. The answer is not for the government to step in and rescue the idiots. The idiocy will only proliferate when that happens.
- hello_moto 4y agolove the simplistic world of view of an HN reader against a financial institution that has been in business for 40 years....
- AmVess 4y agoYou mean the business that is now out of business and needs many billions in bailout cash. THAT business?
- hello_moto 4y agoYou ran a bank before? You better hope people don't lose confidence on their Bank by Monday.
- AmVess 4y agoThe people running SVB seem to never have run a bank before. Do you know how I know that? THEY ARE OUT OF BUSINESS BECAUSE THEY FLEW IT INTO THE GROUND.
- machina_ex_deus 4y agoIf this happens, banks have officially lost all their legitimacy and all banks should have their priviledges revoked. There is absolutely no reason banks should be given the priviledge of being the only way to deposit money, while playing with those customers money and simultaneously having zero risk on that money. These banks are getting 10 to 1 leverage, from me, captive customer. Break their monopoly. I want an account at the Fed, and I want zero banks to be able to take leverage with my money, unless and until these banks give me a worthwhile interest rates on deposits. Let them actually compete. Right now it's not a competition, there are too big to fail banks which actually hold deposits, and there are small banks which can fail arbitrarily and cannot possibly compete because they actually assume the risk themselves. I want zero risk CBDC. At the Fed. With the Fed's current interest rates as they give to real banks. All their privileges should be gone. They can stay as investment institutions and if you trust them as that you're free to put your money there. They get all the priviledge with no responsibility. If they cover for them, this should be the end of banking. Nothing less. Digital coin with zero risk and connection to all standard paying systems. Same interest as banks. Demote banks to investment institutions and make their special priviledges obsolete. No bank except the Fed will be too big to fail then, when no one's forcing you to bank anywhere.
- junofan 4y agoIt’s ridiculous how much bank fuckery we’re forced to put up with. I’m not splitting deposits across 50 banks while middlemen make money.
- fach 4y agoIf the Fed provides a backstop for uninsured deposits, all banks have lost their legitimacy? They are not bailing out shareholders.
- machina_ex_deus 4y agoThey are officially announcing to all listening banks that customers deposits are theirs to gamble with as they please. Why do banks get to play with those deposits, as if they were just free leverage from unwilling captive participants? How can small banks compete against big banks that can allow themselves to act this way? They can't. If you're big you get to risk it all. If you're small nobody will come to you as they know they won't be insured by a spooked Fed stopping "contagion". There's no legitimate reason to keep banks priviledge as a government supported oligopoly of investment institutions allowed to play with other people's money. If you admit the government is actually backstopping those deposits, there is absolutely zero reasons why banks get to gamble it in the first place. They are getting to eat the cake and have it too. This has to stop. If I gambled away all your money you'd never give me more again. If the bank gambled away all your money and the government came and made you whole, you'd look to become a banker too so you get to gamble away money that isn't yours.
- bedhead 4y agoI literally can't dream up a worse policy choice than to highly incentivize the almost immediate withdrawal of every non-insured deposit in the country from the banking system just so the money can be parked in t-bills. Every bank intervention has some degree of being unpalatable for various reasons, but you know why we do it? Because it's better than the alternative. Sorry. Remember when that money market fund broke the buck in 08? You can't have these sorts of products not getting par, all hell will break loose. Right now, the thing that worries me the most is idiot politicians (redundant) inserting themselves and focusing on tangential things like who got paid a bonus or whatever. These people will - R and D - manage to screw it up.
- Overtonwindow 4y agoThose lobbyist are hard at work. Treasury Secretary, Janet Yellen may have said that there will be no bail out, but mark my words: The vultures will get their money back. I have worked in government, both policy, and political, for 22 years. The only thing that makes the government actually move is money. The majority of the powers that be cannot afford to alienate Silicon Valley campaign cash. Be thankful for your government, it's the best that money can buy.
- Overtonwindow 4y agoAs I said. They got bailed out.