4 ms·

Except no one thought the deposits were actually uninsured. Back in 2008, the FDIC launched the Transaction Account Guarantee Program to provide unlimited insu

Except no one thought the deposits were actually uninsured. Back in 2008, the FDIC launched the Transaction Account Guarantee Program to provide unlimited insurance to uninsured deposits in non-interest bearing accounts, and then later expanded to low interest accounts, on an emergency basis. This program protected nearly a trillion dollars in uninsured deposits, and made all of them whole. After Dodd-Frank, the program was ended. However, if the FDIC deems a situation to have systemic risks, it's within their statutory authority to do this again. And it now seems the Government is planning to do exactly that, should they be unable to find a buyer for SVB.

wpietri 4y ago
Oh, "no one". Gosh golly, impressive how you can read minds like that. That program was an always-temporary response to a major financial crisis. I expect most finance professionals knew that it was temporary. But suppose you're right. Suppose all the cool kids thought they'd get bailed out no matter what. In that case, it's even more important now to not use taxpayer money to prevent the big-money SVB accountholders from taking a haircut. Because your justification here is exactly the kind of moral-hazard problem that regulators are very eager to prevent.
- jlmorton 4y ago
  The Transaction Account Guarantee Program was industry-funded. There is precisely zero moral hazard in protecting depositors, who have no ability to gauge the risk in any particular bank on an ongoing basis, particularly with an industry-funded program.
  - wpietri 4y ago
    It wasn't the industry guaranteeing the funds, it was the FDIC, meaning the taxpayer. If the industry wants a program like that, they can create it. Indeed it already exists: https://www.difxs.com/DIF/Home.aspx https://www.difxs.com/DIF/Home.aspx But depositors obviously have the ability to gauge risk, especially sophisticated depositors with millions of dollars of cash lying around. Otherwise people wouldn't be squawking right now about the risk of money being moved out of certain banks to certain other banks. Otherwise things like the DIF wouldn't exist. Otherwise treasury management wouldn't be a whole profession. The problem is that many depositors are not looking just for safety, they pick other things, sometimes over that. Which is their right! But sometimes when trade safety for other things, it turns out badly for them.

wpietri 4y ago

Oh, "no one". Gosh golly, impressive how you can read minds like that. That program was an always-temporary response to a major financial crisis. I expect most finance professionals knew that it was temporary. But suppose you're right. Suppose all the cool kids thought they'd get bailed out no matter what. In that case, it's even more important now to not use taxpayer money to prevent the big-money SVB accountholders from taking a haircut. Because your justification here is exactly the kind of moral-hazard problem that regulators are very eager to prevent.

jlmorton 4y ago
The Transaction Account Guarantee Program was industry-funded. There is precisely zero moral hazard in protecting depositors, who have no ability to gauge the risk in any particular bank on an ongoing basis, particularly with an industry-funded program.
- wpietri 4y ago
  It wasn't the industry guaranteeing the funds, it was the FDIC, meaning the taxpayer. If the industry wants a program like that, they can create it. Indeed it already exists: https://www.difxs.com/DIF/Home.aspx https://www.difxs.com/DIF/Home.aspx But depositors obviously have the ability to gauge risk, especially sophisticated depositors with millions of dollars of cash lying around. Otherwise people wouldn't be squawking right now about the risk of money being moved out of certain banks to certain other banks. Otherwise things like the DIF wouldn't exist. Otherwise treasury management wouldn't be a whole profession. The problem is that many depositors are not looking just for safety, they pick other things, sometimes over that. Which is their right! But sometimes when trade safety for other things, it turns out badly for them.