5 ms·

It 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 cov

It 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 ago
That'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 ago
  That 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 ago
you 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?
  - FooBarBizBazz 4y ago
    It's really in the banks' collective interest to do this. They can pay for more insurance, or people can lose faith in the banks. The latter situation is much worse for them.
  - deleted 4y ago
    [deleted]
FooBarBizBazz 4y ago
It's not great, but I don't see who else is supposed to cover this. The depositors? Not only does that seem unfair, that would destroy faith in banks -- and then where would banks be? Even worse off than paying an assessment. Simply having the privilege to participate legally in the fractional-reserve system seems plenty profitable for them, and I think they'll grumble and pay rather than be left out of the game. The only alternative would be if bank shares could go negative, i.e., if bank shareholders could become liable. Maybe Switzerland did/does work like this? Then you might not want to hold those shares without also buying a cheap $0-strike PUT from an insurer. But arguably that's what's happening here in the end anyway, just with the FDIC in that insurer role. I think the government did the right thing here.

It 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 ago

That'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 ago
That 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 ago

you 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?
- FooBarBizBazz 4y ago
  It's really in the banks' collective interest to do this. They can pay for more insurance, or people can lose faith in the banks. The latter situation is much worse for them.
- deleted 4y ago
  [deleted]

FooBarBizBazz 4y ago

It's not great, but I don't see who else is supposed to cover this. The depositors? Not only does that seem unfair, that would destroy faith in banks -- and then where would banks be? Even worse off than paying an assessment. Simply having the privilege to participate legally in the fractional-reserve system seems plenty profitable for them, and I think they'll grumble and pay rather than be left out of the game. The only alternative would be if bank shares could go negative, i.e., if bank shareholders could become liable. Maybe Switzerland did/does work like this? Then you might not want to hold those shares without also buying a cheap $0-strike PUT from an insurer. But arguably that's what's happening here in the end anyway, just with the FDIC in that insurer role. I think the government did the right thing here.