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It's a bit embarrassing to have to invoke the systemic risk exception when regulations on these banks were relaxed in 2018 on the theory that they wouldn't pose
by noelsusman 4y ago
It's a bit embarrassing to have to invoke the systemic risk exception when regulations on these banks were relaxed in 2018 on the theory that they wouldn't pose a systemic risk if they got into trouble. This should spark some serious soul searching from everyone involved in that effort, but I'm not holding my breath.
Anyway, I'm happy for all the depositors.
- AH4oFVbPT4f8 4y agoWhy are you happy for the depositors? They took a risk depositing more than what was covered by fdic. to clarify, i'm happy for the employees, workers, etc that will remain employed while their company made poor decisions. My beef is that companies knowingly took risks. Would this even be an issue if all the VC companies didnt all try to pull their money out on Thur/Fri ?
- zachrip 4y agoI'm very ignorant on the subject - what else would they do with the money?
- hobo_mark 4y agoBuy treasury bills?
- erik_seaberg 4y agoPeople have pointed out brokers that will shotgun your deposits across many banks to game the deposit insurance limit, and apparently the FDIC is fine with that. But if every employer needs to do this, they can’t vote with their feet anymore, and I’m not sure there’s still a reason for separate banks to exist and compete.
- Me1000 4y agoAs others have pointed out there are of course options: multiple accounts, buying safe bonds, etc. But those are all pretty unrealistic for most small businesses. Startups with 3 or 4 people aren't going to spend a lot of time learning all the ins and outs and risks of the options available.
- NoboruWataya 4y agoBuy safe, highly liquid securities like t-bills, commercial paper, money market funds etc.
- toomuchtodo 4y agoThis is a reasonable middle ground. Depositors are made whole and taxpayers aren’t on the hook directly (although this will filter down to them in aggregate in a de minimis manner). To those with large amounts of fiat hanging around: please don’t fuck around again. Spend a few hours with your finance team to minimize risk. It is straightforward and well within the means of anyone with these cash or cash equivalents on hand (sweep accounts, short dated treasuries, etc). Build it into your runbook. Costs are minimal, consider them an insurance premium. Edit: if you don’t have a finance team, you can get the same help from a contract finance professional. There is some responsibility that must be taken.
- eropple 4y ago> To those with large amounts of fiat hanging around: please don’t fuck around again. They are going to. The smuglord backpatting on social media has already begun. But I admire your optimism.
- gizmondo 4y agoWhy bother? It seems all deposits are in fact insured regardless of what rules say.
- toomuchtodo 4y agoThe wheel will not always land on zero. Everyone got lucky there was will to bend the rules.
- gizmondo 4y agoEveryone will now act as if all deposits are insured, because the authorities demonstrated that it's true. This in turn will make any other decision in the future even harder, it's kinda self fulfilling prophecy. Seriously, you'd have to be stupid now to buy deposit insurance.
- toomuchtodo 4y agohttps://www.cnbc.com/2023/03/16/svb-signature-bank-failures-yellen-says-us-banking-system-is-stable-and-deposits-remain-safe.html https://www.cnbc.com/2023/03/16/svb-signature-bank-failures-...
- hoytschermerhrn 4y agoIt’s simply unrealistic for businesses to not exceed the $250k insurance limit.
- deleted 4y ago[deleted]
- gameshot911 4y agoYou can buy insurance to protect amounts above $250k.
- AH4oFVbPT4f8 4y agoExactly this, take out insurance, open additional accounts so that the companies livelihood is not dependent on a single bank. What about all the companies who funded all these 'companies' ? Why aren't they stepping in to clean up the mess?
- avalys 4y agoAnd who ensures that the insurance company has enough capital to pay out on that insurance?
- deleted 4y ago[deleted]
- consumer451 4y agoI had no idea that was an option. My google-fu is failing me, what is that called? Who are the providers? Seems like it would be a mega capital intensive insurance product. edit: this is way out of my wheelhouse, so an actual answer would be educational.
- Kortaggio 4y agoThe term to google for is "insured cash sweep", but the specifics depend on the particular financial institution you work with. Instead of a single insurance provider, your cash is sharded behind the scenes among many member institutions. Here's one bank I picked at random from Google[0]. Brokerages like Schwab[1] and IBKR[2] also have a private insurer (both use Lloyd's of London) they offer as a service to customers. [0] https://www.stearnsbank.com/personal/high-balance-deposit https://www.stearnsbank.com/personal/high-balance-deposit [1] https://www.schwab.com/legal/sipc-account-protection https://www.schwab.com/legal/sipc-account-protection [2] https://ibkr.info/node/2012 https://ibkr.info/node/2012
- Me1000 4y agoI can't believe we're on day 3 of this and it still has to be explained. SVBs depositors were mostly companies. Companies don't go to new banks every time their account balance reached $250k. If these deposits were not honored thousands of companies would not be able to make payroll.
- noelsusman 4y agohttps://www.intrafinetworkdeposits.com/ https://www.intrafinetworkdeposits.com/
- ericpauley 4y agoThe number of comments (including from high-profile people) that completely ignore the fact that deposit sweeps exist in the past few days has been astounding...
- dlubarov 4y agoIs it really a desirable solution though? Seems like gaming the system, and if the end result will be that effectively all deposits are FDIC insured anyway, why not just get rid of the $250k limit?
- noelsusman 4y agoIt spreads the risk out among a bunch of different banks, thus drastically lowering the odds that the FDIC will have to pay out on the full amount deposited.
- morelisp 4y agoI can't believe we're still on day 3 and people are still arguing with the strawman that you'd have to open an account per $250k to mitigate the risk. (You need to open two or three accounts total, and beyond that you're big enough to start buying your own T-Bills. And no, that doesn't mean you do that at $750k. Christ, it's a distributed systems problem, you guys should be able to figure this out.)
- drstewart 4y agoWhy are you happy for the employees? They took a risk working for a company that was depositing more than what was covered by fdic.
- AH4oFVbPT4f8 4y agoThe same way I feel bad for someone who is at fault in an accident and gets hurt. I don't like seeing bad things happen to people or see people suffer. Those employees who work for these companies don't have a lot of say where the company keeps their money.
- drstewart 4y agoThe companies who deposit money in these banks don't have a lot of say where the bank invests their money.
- bart_spoon 4y agoAre you aware of how your employer’s cash and assets are held?
- drstewart 4y agoAre you aware of how your bank's cash and assets are invested?
- eksx 4y agoGenuine question but if a company has 10 million where or how do they deposit it for it to be insured?
- morelisp 4y agoThe depositors were largely those with means to manage risk but not doing so. Surely you mean you're happy for the workers, clients, contractors, etc., not the depositors? Right? The backstop was sold on the backs of those people, and if they're not the overwhelming beneficiary it means the depositors might not have been totally honest with us about their motives!
- kgwgk 4y ago> Surely you mean you're happy for the workers, clients, contractors, etc., not the depositors? Why would anyone be happy for the workers of a bank that won't exist anymore in any form once the liquidation is sorted out? [Edit: Nevermind, my dumbass didn't understand that those were the workers of the depositors, the clients of the depositors, etc.]
- deleted 4y ago[deleted]
- JamisonM 4y agoYou could be happy for most of the workers of the bank too... it is not like the tellers and loans officers were managing the systemic risk of the bank! I am happy for them if they have jobs tomorrow if they were doing their jobs well given that we know that the C-suite and board were screwing stuff up.
- mortenjorck 4y agoI think there was an air of "hey, it's been ten years since 2008, the system is working; we can relax Dodd-Frank a little bit." After March 2023, the message should be an unequivocal "no, not even a little bit."
- 2OEH8eoCRo0 4y agoNo more polio! We can stop getting polio vaccines!
- hammock 4y ago[flagged]
- Waterluvian 4y agoSeatbelts and airbags are a leading cause of auto accident injuries. They need to go. (I know you’re saying that tongue-in-cheek. I’m just being a stinker)
- hammock 4y agoNot saying anything tongue in cheek. https://www.npr.org/2019/11/16/780068006/how-the-oral-polio-vaccine-can-cause-polio https://www.npr.org/2019/11/16/780068006/how-the-oral-polio-...
- Waterluvian 4y agoI wonder if not using the vaccine would result in more or fewer total cases over a period of time. (None of which is to say we shouldn’t always try to design safer seatbelts and airbags)
- dev_tty01 4y agoThat article says nothing about the relative risk of no oral polio administration vs. the small number of people who can get polio from it. The level of death pre oral polio vaccine vs after is clear. The article is simply pointing out that it would be better if everyone could get the vaccine without live virus because the live virus oral version is beginning to have some unintended issues. The use of oral polio vaccines has saved huge numbers of lives but it needs to be modified now. It is not speaking against vaccines in general.
- bagels 4y agoOf course the people lobbying for that knew it was a lie to make more money.
- sanderjd 4y agoA bit embarrassing? But yep, I'm happy with the ends, but honestly not that happy with the means.
- matheusmoreira 4y agoFractional reserve banking doesn't pose a systemic risk, it pretty much is the systemic risk. The system will never lobby against itself. There's too much money to be made in risking other people's money.
- rib3ye 4y agoIt's not just the profit incentive. Imagine a world without lending against liabilities: yes, some people will be able to buy a home, pay for college, buy a car without a loan, but the financial friction will keep a vast majority of people in poverty. And then it's going to be someone's full-time job to manage those liabilities. Should they do it for free?
- klabb3 4y ago> Imagine a world without lending against liabilities FRB isn’t creation of wealth, it’s plain old redistribution. In other words—welfare for those who can haul in the biggest loans, at the expense of those who earn, work and save up. What would those people do, if they got a chance? What are the compound effects of that over time?