4 ms·

Who are you trying to disincentivize? How would it dissuade the bank's management if depositors took a haircut? What behavior do you think punishing depositors

Who are you trying to disincentivize? How would it dissuade the bank's management if depositors took a haircut? What behavior do you think punishing depositors would prevent? Do you think depositors should hire an accountant and economist to review their bank's balance sheet every quarter?

Uvix 4y ago
If they have more than $250K in the one institution: yes, they should. Better yet would be spreading their deposits around, but if they don't want to do that, they should take the necessary steps to evaluate the risk appropriately.
- mgraczyk 4y ago
  Ok but that's a bad policy that makes no sense and I'm glad the fed, Treasury, and FDIC are stepping in to change it. Sad that congress hasn't done anything over the past few years, but better the problem be solved than letting faith in our financial system collapse.
  - rashkov 4y ago
    It does seem like a weird loophole and charade to have to split money among many banks. Just give businesses a way to store their money without earning interest and with no risk. As far as I know that’s not an option under our banking system
    - amalcon 4y ago
      It's neither a loophole nor a charade: it's diversification to reduce exposure to risk. Bank failures are somewhat coordinated, sure. Still, it's much more likely that one bank fails than N>1 banks. Since you are exposed to less risk, your insurer (FDIC) is also exposed to less risk. It makes complete sense for the insurer to incentivize this sort of behavior.
      - ProjectArcturis 4y ago
        But what it really incentivizes is putting all your money in a too-big-to-fail bank. That's much easier and just as safe as opening a dozen, or hundreds of accounts. And it results in there being 3 banks in the whole country.
        politician 4y ago
        There is, in truth, only one “bank” in this country. The Federal Reserve Banks that hold the master ledger for the official US Dollar market. Everything else downstream is basically redundant legacy infrastructure from a time before pervasive broadband network infrastructure.
        ProjectArcturis 4y ago
        That would be news to anyone who actually works in finance.
  - harimau777 4y ago
    Personally, seeing the government bail out corporations is what causes me to loose faith in our financial system.
    - mgraczyk 4y ago
      This isn't a bailout (unless you also consider FDIC a bailout). And fortunately most people don't see it that way, so this was the right move.
      - hypothesis 4y ago
        I dunno, but POTUS appears to be fine with this being described as bailout. [0] https://mobile.twitter.com/POTUS/status/1635080376572956672 https://mobile.twitter.com/POTUS/status/1635080376572956672
hn_throwaway_99 4y ago
> Do you think depositors should hire an accountant and economist to review their bank's balance sheet every quarter? Basically, yes, but without the hyperbole - an accountant yes, an economist no. This is not that hard. Treasury management is a specific function of any company. I definitely don't blame these startups for not being financial experts, but VCs absolutely should have been coaching their client companies how to manage their cash safely.
- mgraczyk 4y ago
  Imagine what the world would look like if you got what you're asking for. Tens of thousands of extra dollars of overhead to open a bank account? To save literally nothing directly for taxpayers, and a few dollars per account for banks? I would strongly prefer to he socialized insurance and safety net in this case, and I'm a die hard capitalist.
  - hn_throwaway_99 4y ago
    You seem to think that the world doesn't already work like this. There are tons [1] of [2] products [3] that are offered specifically to make it easy to spread cash around at multiple institutions. And that in and of it self is beneficial, because it is essentially diversifying the risk of those deposits. Now, with what the fed has done, why would anyone bother spreading their risk around? 1. https://www.intrafinetworkdeposits.com/ https://www.intrafinetworkdeposits.com/ 2. https://www.wintrust.com/maxsafe.html https://www.wintrust.com/maxsafe.html 3. https://www.moneycrashers.com/cash-management-account/ https://www.moneycrashers.com/cash-management-account/
    - creato 4y ago
      Seems like the FDIC is achieving the exact same outcome with a lot less hassle and overhead for everyone.
      - naasking 4y ago
        I think this is exactly it. More and more this arrangement is starting to sound like the baseless justification used for US healthcare: a bunch of middle men milking value for little actual benefit. Addressing risk can be more efficient and we can make the system far more efficient by cutting out all of this overhead and red tape. As long as the banks are properly disincentivized in other ways from being over-leveraged and taking too much risk, this arrangement would just be much better overall.
mitthrowaway2 4y ago
This is a simplification, but: the bank should have to offer depositors an interest rate (or other value-add, such as competitive services) that makes it worth their while to trust the bank with their deposits. A bank that makes very conservative investments/loans can only offer a low interest rate to depositors, because they earn less profit on the spread, but their depositors will accept it because of the safety of the institution. A bank that makes speculative investments/loans can offer a high interest rate to depositors, because they earn enough to offer it, and they'll need to, to attract depositors away from the safer conservative institutions. A bank that can offer a government-backed guarantee to depositors can offer a low interest rate while making big profits, and pay big dividends to their shareholders and executives, steal market share from their conservative competitors while making themselves more systemically essential in the process, and leave the public on the hook if they fail.
- ProjectArcturis 4y ago
  If you allow banks to make extremely speculative investments with depositor money, you end up with Ponzi-like behavior that ultimately hurts unsophisticated retail folks. Just like all the crypto "banks" offering 20% staking that are collapsing now. All you've described is a way to build a pitfall for naive investors so they can lose the first $20k they've ever saved.
AlbertCory 4y ago
As I read his post, he's talking about punishing the bank executives as much as the depositors. So, clawing back every penny they took for doing sound risk management while not actually doing it is totally fair.

Uvix 4y ago

If they have more than $250K in the one institution: yes, they should. Better yet would be spreading their deposits around, but if they don't want to do that, they should take the necessary steps to evaluate the risk appropriately.

mgraczyk 4y ago
Ok but that's a bad policy that makes no sense and I'm glad the fed, Treasury, and FDIC are stepping in to change it. Sad that congress hasn't done anything over the past few years, but better the problem be solved than letting faith in our financial system collapse.
- rashkov 4y ago
  It does seem like a weird loophole and charade to have to split money among many banks. Just give businesses a way to store their money without earning interest and with no risk. As far as I know that’s not an option under our banking system
  - amalcon 4y ago
    It's neither a loophole nor a charade: it's diversification to reduce exposure to risk. Bank failures are somewhat coordinated, sure. Still, it's much more likely that one bank fails than N>1 banks. Since you are exposed to less risk, your insurer (FDIC) is also exposed to less risk. It makes complete sense for the insurer to incentivize this sort of behavior.
    - ProjectArcturis 4y ago
      But what it really incentivizes is putting all your money in a too-big-to-fail bank. That's much easier and just as safe as opening a dozen, or hundreds of accounts. And it results in there being 3 banks in the whole country.
      - politician 4y ago
        There is, in truth, only one “bank” in this country. The Federal Reserve Banks that hold the master ledger for the official US Dollar market. Everything else downstream is basically redundant legacy infrastructure from a time before pervasive broadband network infrastructure.
        ProjectArcturis 4y ago
        That would be news to anyone who actually works in finance.
- harimau777 4y ago
  Personally, seeing the government bail out corporations is what causes me to loose faith in our financial system.
  - mgraczyk 4y ago
    This isn't a bailout (unless you also consider FDIC a bailout). And fortunately most people don't see it that way, so this was the right move.
    - hypothesis 4y ago
      I dunno, but POTUS appears to be fine with this being described as bailout. [0] https://mobile.twitter.com/POTUS/status/1635080376572956672 https://mobile.twitter.com/POTUS/status/1635080376572956672

hn_throwaway_99 4y ago

> Do you think depositors should hire an accountant and economist to review their bank's balance sheet every quarter? Basically, yes, but without the hyperbole - an accountant yes, an economist no. This is not that hard. Treasury management is a specific function of any company. I definitely don't blame these startups for not being financial experts, but VCs absolutely should have been coaching their client companies how to manage their cash safely.

mgraczyk 4y ago
Imagine what the world would look like if you got what you're asking for. Tens of thousands of extra dollars of overhead to open a bank account? To save literally nothing directly for taxpayers, and a few dollars per account for banks? I would strongly prefer to he socialized insurance and safety net in this case, and I'm a die hard capitalist.
- hn_throwaway_99 4y ago
  You seem to think that the world doesn't already work like this. There are tons [1] of [2] products [3] that are offered specifically to make it easy to spread cash around at multiple institutions. And that in and of it self is beneficial, because it is essentially diversifying the risk of those deposits. Now, with what the fed has done, why would anyone bother spreading their risk around? 1. https://www.intrafinetworkdeposits.com/ https://www.intrafinetworkdeposits.com/ 2. https://www.wintrust.com/maxsafe.html https://www.wintrust.com/maxsafe.html 3. https://www.moneycrashers.com/cash-management-account/ https://www.moneycrashers.com/cash-management-account/
  - creato 4y ago
    Seems like the FDIC is achieving the exact same outcome with a lot less hassle and overhead for everyone.
    - naasking 4y ago
      I think this is exactly it. More and more this arrangement is starting to sound like the baseless justification used for US healthcare: a bunch of middle men milking value for little actual benefit. Addressing risk can be more efficient and we can make the system far more efficient by cutting out all of this overhead and red tape. As long as the banks are properly disincentivized in other ways from being over-leveraged and taking too much risk, this arrangement would just be much better overall.

mitthrowaway2 4y ago

This is a simplification, but: the bank should have to offer depositors an interest rate (or other value-add, such as competitive services) that makes it worth their while to trust the bank with their deposits. A bank that makes very conservative investments/loans can only offer a low interest rate to depositors, because they earn less profit on the spread, but their depositors will accept it because of the safety of the institution. A bank that makes speculative investments/loans can offer a high interest rate to depositors, because they earn enough to offer it, and they'll need to, to attract depositors away from the safer conservative institutions. A bank that can offer a government-backed guarantee to depositors can offer a low interest rate while making big profits, and pay big dividends to their shareholders and executives, steal market share from their conservative competitors while making themselves more systemically essential in the process, and leave the public on the hook if they fail.

ProjectArcturis 4y ago
If you allow banks to make extremely speculative investments with depositor money, you end up with Ponzi-like behavior that ultimately hurts unsophisticated retail folks. Just like all the crypto "banks" offering 20% staking that are collapsing now. All you've described is a way to build a pitfall for naive investors so they can lose the first $20k they've ever saved.

AlbertCory 4y ago

As I read his post, he's talking about punishing the bank executives as much as the depositors. So, clawing back every penny they took for doing sound risk management while not actually doing it is totally fair.