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Fed will make available additional funding to eligible depository institutions
- itsoktocry 4y agoSo all of the people who banked with SVB and benefited from the excessive risk the bank was taking (perks, higher interest rates on savings) get a freebie , must be nice.
- tough 4y agoToo big too fail
- 323 4y agoThere is an official name for that - Systemically Important Financial Institution https://www.investopedia.com/terms/s/systemically-important-financial-institution-sifi.asp https://www.investopedia.com/terms/s/systemically-important-...
- tough 4y agoToo well-connected to fail then?
- digitaltrees 4y agoThe bank failed and is being liquidated. You want to punish depositors too? Those are discrete issues. Honoring deposits and winding down the company can be done at the same time. There is no down side to backing deposits. Frankly it’s time for the FDIC to raise the ceiling on the guarantee and offer voluntary coverage for 100% of deposits.
- midoridensha 4y agoI disagree; if anything, they should lower the limits of coverage back to $100k. Anyone too stupid to diversify their savings across multiple banking institutions deserves to lose their money (over the limit) when the bank fails. Regular people with less than $100k in cash savings shouldn't have anything to worry about; that's why the FDIC exists. For people with a lot more money, it's not the taxpayer's job to protect them from their own stupidity. Any competent financial advisor (who high net-worth people should be using anyway) will tell them to diversify. And by keeping that much cash spread out over different institutions, risk overall is lowered, not just for the individual, but for the whole system.
- digitaltrees 4y agoHow is a venture backed company with $40m in capital supposed to diversify? How are you supposed to manage a business with all your funds scattered across 100 bank accounts? How are you going to accept payments, manage user log ins, api credentials. There are significant practical operational and technical blockers that you are ignoring.
- reducesuffering 4y agoMay they never ever mock us with false free market beliefs again. Crony capitalism.
- hypothesis 4y agoYeah, they just pull $25B of out that hat, nevermind talks about debt ceiling and defaulting on US debt.
- digitaltrees 4y ago$25b is a rounding error on a rounding error against the US economy. Further the $25b it going to be used to buy assets at par that are currently impaired but expected to go back to full value when interest rates fall. So for an investment of fractions of a penny on the dollar the Fed can preserve a large number of high growth start ups that will accrete trillions of dollars of value in the future. Seems like a good call.
- hypothesis 4y agoIt makes sense in theory, but how is this not a license for further similar schemes? Surely $25B is a rounding error for all major players here, given a noisy constituency, but it looks like this sets up lack of accountability... Also, some articles are claiming that Fed is now covering all uninsured deposits, just like overnight. [0] https://twitter.com/colbyLsmith/status/1635061613920395264 https://twitter.com/colbyLsmith/status/1635061613920395264
- philkuz 4y ago… and we avoid contagion of all regional banks.
- gWPVhyxPHqvk 4y agoYeah, it sucks because it’s going to show up as inflation.
- dcre 4y agoHow's that?
- gWPVhyxPHqvk 4y agoThe bank lost money. Where does this new money come from?
- dcre 4y agoOh right, the money comes from… inflation. What are you talking about?
- di456 4y agoNo, this is damage control to stop contagion. This does nothing for SVB, it's depositors, or shareholders. it's to extend credit with backing of certain assets as collateral to avoid forced sale of said assets and more bank failures. From the announcement: > The financing will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.
- abigail95 4y agoIf treasury bonds are so risky for banks to hold that they need to create a funding program to repo them "at par" - what is the point of the govt allowing banks to hold these bonds in the first place?
- deleted 4y ago[deleted]
- cjbprime 4y agoSurely it does help SVB depositors, since without this action they would (a) take a haircut, since we expect SVB has less assets than deposits, and (b) have to wait some months or years for those remaining assets to be liquidated and distributed to the creditors including them?
- 2OEH8eoCRo0 4y agoPrivatize gains, socialize losses.
- xwdv 4y agoPeople cry out for socialism. Then when they see it in action the response is “Oh no, not like that.”
- digitaltrees 4y agoShareholders are getting wiped out. So no gains as their stock is now worth nothing. Any dividends they collected are a fraction of the stock value.
- Spooky23 4y agoAs long as the bank dies, it’s going to stop more drama and cost not so much as it will prevent further panic.
- vaidhy 4y agoAre you reading a different news than I am? I am not aware of SVB providing excessive interest rate for anyone. The bank burned because they took a duration risk, but I do not think any depositor got any freebie. Unless you are counting on the unnecessary anxiety of losing almost everything for the last few days.
- 323 4y agoYou consider getting your money back from a bank deposit a freebie? You expect every person on the street to be an financial auditing expert and to read theirs bank's statements?
- adverbly 4y agoTBH, looks like they went belly up because of buying too many long term low yield bonds... Sort of the opposite of excessive risk really...
- di456 4y agoNo, it was because they sold the bonds at a loss, triggering a loss of confidence and a bank run.
- ambicapter 4y agoThey sold the bonds at a loss because they suddenly needed to make a whole bunch of depositors whole. It was a bank run. The loss of confidence came before the loss of liquidity.
- di456 4y agoThere was some tail wagging the dog. Depositors wanted to be made whole because the bank had to disclose bond sale, bond purchase, and stock sale activities as a package deal. Each activity individually might have snuck under the radar, but together that spooked the depositors. Then the CEO says there's not a problem which you only need to say if there is a problem. That didn't help either.
- 542458 4y agoWell… SVB took on a lot of interest rate risk (rather than credit risk, which is what we’re more used to banks blowing themselves up with). Then rates rose and SVB were stuck holding long term fixed rate assets that weren’t yielding anywhere what they needed to. They probably didn’t see this as risk, since rates had been very stable for the last decade… but the mortgage market also sounded really safe in 2007. If they actually weren’t taking on risk they’d have bought short term bonds to avoid rate risk, but that wouldn’t have made them any money.
- sithlord 4y agoexcessive risk? I mean one could argue that the MBS they bought were slightly risky, but its not like they bought a crap ton of crypto - or bought a bunch of high risk mortgage securities. They got bit by interest rates, which they should have managed better, and the bank needs to go down, but dont bring down a huge amount of workers with it.
- digitaltrees 4y agoSVB didn’t take excessive risk in any reasonable framework. If you think buying treasury bonds and vanilla MBS is excessive I would love to understand what would be acceptable risk.
- brunooo 4y agoCurious if anyone knows if SVB would have been eligible on Thursday? https://www.law.cornell.edu/cfr/text/12/201.108 https://www.law.cornell.edu/cfr/text/12/201.108 is the list of supported collateral.
- dvt 4y agoInfinite money hack strikes again. The lie here is that this takes care of "households" and "small businesses"—no, this is a bailout ("backstop") that saves the richest of the rich (namely, VCs whose startups parked cash in SVB). Why do you think Gary Tan, Marc Andreesen, etc. went on a press tour yesterday? This is why gambling on Robinhood and on crypto is so pervasive. Regular folks realize that they have zero chances here, it's absolutely a rigged game. Just like in 2008, this isn't capitalism, it's just socialism for the ultra rich.
- gsibble 4y agoExactly. This is really bailing out the rich and their investments. Such bullshit.
- deleted 4y ago[deleted]
- johnfn 4y agoReally? I have friends - normal tech employees - who were telling me they were clearly at risk for not getting a paycheck. I think the story is quite a bit more complex than you say.
- anon291 4y agoThe united states has almost universal unemployment insurance. If your paycheck doesn't come you'll get a check soon.
- elbigbad 4y agoI checked unemployment briefly during all the layoffs and the checks were just a fraction of my regular paycheck. Further, the process is arduous and takes a while before the first check is received. Even further, it’s not clear to me that one gets unemployment eligibility while still being employed just because there’s difficulty paying one’s normal check. Your comment is very handwavey and lacks enough empathy to border on just cruel.
- gWPVhyxPHqvk 4y agoSo, money machine go brr?
- gsibble 4y agoEveryone should google "moral hazard"
- wmf 4y agoI'll see your moral hazard and raise you a social media contagion.
- senko 4y agoTo everyone talking about bailout and money printing: > No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer. (from the other article, currently top of HN, about Signature Bank)
- argella 4y agoWhoever said that doesn’t view inflation as something borne by taxpayers.
- dcre 4y agoPlease, do us the favor of drawing the through-line between this action and inflation.
- mmoustafa 4y agoFurthermore, the banks will pay for it: > Any losses to the [FDIC’s] Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
- kqr2 4y agoBut banks will just pass this onto account holders either through lower interest rates or higher banking fees. So taxpayers with bank accounts are going to pay for this indirectly.
- choeger 4y agoCorrect me if I am wrong, but that's actually a smart move, because the securities cover these liabilities, no? AFAIK, SVB has securities that are currently rated below their nominal value by the market. But these securities will reach their nominal value just before they expire, right? Essentially the fed is just offering a loan on these securities and values them at their nominal value because the fed doesn't care about market prices?
- wmf 4y agoSort of. This emergency liquidity program is only for one year but SVB has some 10-year stuff on the books. There could be losses, especially if rates continue to increase.
- abigail95 4y agoDo you know what the point of raising interest rates and backstopping bonds at the same time is? If there's a price floor for older bonds - how does that affect the rates of newer ones? Or is this irrelevant?
- lottin 4y agoWho's paying the bill? Are they benefiting depositors at the expense of other creditors? Not clear from this press release.
- AH4oFVbPT4f8 4y agoIt will be a special assessment on all banks as required by law. So all the other banks who didnt take these risks get to cover the difference that SVB cant cover. Unbelievable.
- throwaway-blaze 4y agoThat's how all FDIC insurance works. The banks pay, not the taxpayers. Don't be confused by the word "Federal" in the name, it's federally-administered and required by law, not paid for by the feds.
- AH4oFVbPT4f8 4y agoThat is not how I'm reading this. FDIC insurance covers the first 250k from an insurance pool all banks pay into. What I'm reading is that there will be an additional fee will be paid by other banks to make SVB depositors whole. If I'm mistaken, please tell me. "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law."
- tekno45 4y agoyou know thats how ALL insurance works right?
- AH4oFVbPT4f8 4y ago"Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law." Shouldn't the insurance cover what was insured? Why is it covering more than that?
- deleted 4y ago[deleted]
- anon291 4y agoMore printing? How can they honestly simply announce all money will be there tomorrow. Where is the money coming from? Are they going to charge every other bank some cash portion of the 208 billion? Or are they going to create more money and cause inflation
- throwaway-blaze 4y agoAll of the money is there. There's no money printing. The issue is the money has been invested in longer-term securities and no bank is prepared for 25% of deposits to be wired out in a single day...generally they hold around 1-2% in cash.
- anon291 4y agoThe money is not there. Just because a bond is valued at $100 dollars does not mean that 100 exists in cash somewhere. Bonds and debt create money but they don't create cash. Bank withdrawals are cash (essentially). Svb failed not because they didn't have money but because they have no cash. Now the federal reserve, the main issuer of cash, announces that tomorrow, you can take out 209 billion in cash. That is literally money printing. Edit, to illustrate: suppose I deposited $100 into svb. They bought a bond. That means the government can now spend my $100. Now the government has an asset worth $100 AND SVB has an asset worth more than $100 in a few years. Thus the total assets of the government and myself is MORE than the $100 I put in. Except one of those assets (the bond) cannot be exchanged for cash at face value. To say the money is there is true. The dollars are there. But the cash is not. My 100 in cash is now with some government agency somewhere. If the fed turns around now and says they will give me 100 cash for the deposit that is stuck in a ten year bond, then both the government AND myself will have 200 cash total from my original deposit of 100 (and there is also some bond out there with some monetary value). Thus cash was created which means money was printed. Which is inflationary which is going to further pressure the fed.
- abigail95 4y agoTrading a 1% bond above market value is money printing - where does the money come from? It's obviously inflationary compared to not doing it. If all the money was there the bank would just give the bonds themselves to depositors.
- greenthrow 4y agoOnce again billionaires and banks can mismanage their funds, behave recklessly and the government saves them from any consequences. This is completely unacceptable. If i get myself in financial trouble, the Fed will not print money to give me a free loan until I can dig myself out. I am on my own to figure it out or declare bankruptcy. But because our government is completely controlled by big money interests, when the billionaires say jump, our government says "Yes sir! How's this?!" I hope this changes in my lifetime.
- stbenjam 4y agoAs a regular joe declaring chapter 7 bankruptcy is nearly impossible these days anyway. You’ll be on the hook for a substantial percentage of your discharged debts under chapter 13. 10 years later they even reopened my parents bankruptcy because they came into a relatively small sum of money from a medical law suit.
- xenadu02 4y agoNot really... the system should protect depositors. Frankly I think there shouldnt be a deposit insurance limit or it should be much higher. Depositing cash in a bank should be safe for everyone. SVB's executives and shareholders were wiped out. They are the ones with a duty to manage the bank so it is only right they take the hit.
- gsibble 4y agoThe only reason they stepped in to protect these depositors was because their investors were politically connected and powerful and they stood to lost billions.
- pgodzin 4y agoThe government isn't saving SVB, their owners, execs and shareholders are being wiped out.
- deleted 4y ago[deleted]
- sithlord 4y agoI may get downvoted, I may not. But, I am really surprised so many of you all are all about putting likely hundreds of thousands of people out of work. It goes so much further than the "billionaires".
- adra 4y agoStartups are risky. The money invested should be considered a risk. For all the people who would lose their job from this collapse, it's just as sad as the mass layoffs in the tech sector over the last few months. None of the employees of these companies have lost their personal wealth unless they also banked >250k there. The only big losers are the investors putting money into this already risky sector. It's not a sector that needs government backed bailouts. If you want to support the uber rich in these scenarios, just raise the backed insurance to 100% and let the government backed risk to be absolute. This shell game of "were not covering rich people but will will if anything bad happens" is simply disingenuous.
- pgodzin 4y agoStartups are risky enough as is without having to create and manage 50 different banks with 250k in each. Those mass layoffs were the result of poor decisions and execution by the companies, and they should face the consequences. We want startups to focus on innovation, and where they store (not invest) their cash should ideally be trivial
- reducesuffering 4y agoHundreds of thousands of people out of work are threats to curry favor. VC's and businesses who deposited $175B into SVB have likely taken 5 - 20% losses on that. There are offers for 80% of deposits immediately and bridge loans to pay payroll for the foreseeable future until a couple months down the line when whatever left of the deposits is distributed back. Do you advocate for immediately cutting Federal Funds interest rate? Because if not, every quarter point increase will cause thousands of people out of work. Every interest rate increase slashes the value of current assets, leading to try to "cut fat" to recoup value, just like what happened here, and because it's a bank, the wealthy see the opportunity to earn back their $10b - $20b loss by threatening the Federal Government.
- gsibble 4y agoI bet if all the startup investors were Republican this wouldn't have happened.
- nemo44x 4y agoThe masks came off and never forget it. There were many people dancing on the grave and full of joy that our industry was wounded. That our businesses would fail and we’d be hurt and “taken down a notch”. Remember these people and what they stand for. They aren’t our friends. Put them on your lists. Do not forget.
- cft 4y agoPlebs will just pay $0.10 more for a gallon of milk. Nothing to see here
- lamontcg 4y agoAwful lot of meme economics in this thread.
- beefman 4y agoThis headline is incorrect. This is the announcement of the ongoing Bank Term Funding Program, which has nothing to do banks that have already failed. Better headlines: * FRB announces it will make available additional funding to eligible depository institutions * Announcing the Bank Term Funding Program
- dang 4y agoOk, we've reverted the title now, in keeping with the site guidelines (https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html). (Submitted title was "Federal Reserve announces backstop of deposits, all money 100% available Monday".)
- deleted 4y ago[deleted]