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I was reading this and came across "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer." What does this "special ass

I was reading this and came across "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer." What does this "special assessment on banks" mean in practice? Do they just go to all the bulge bracket banks and demand that they buy the outdated Treasuries at a loss? How does this work?

mtremsal 4y ago
IIRC banks pay a fee to the FDIC in exchange for providing insurance, and because the FDIC is not funded by taxpayer money, the fee simply goes up when needed.
- nerdponx 4y ago
  Right. You do stupid reckless stuff that causes a loss? Fine, your insurance premiums go up. Same as with homes and cars. The only outcome I'd like to see better are bonus clawbacks for the "removed" senior management.
  - mtremsal 4y ago
    I don’t know about clawbacks on bonuses, but part of their comp is equity and shareholders are getting wiped, so you’re pretty much getting your wish anyway.
- patientplatypus 4y ago
  So there is SVB and Signature bank that have both collapsed in terms of $300 billion. If what you are saying is correct, does that mean that the banks are required to pay hire fees across the industry upwards of $300 amortized over a certain amount of years? If that's the case then the taxpayer will most definitely be on the hook. I don't know if spread across all taxpayers this fee would be negligible, and I also don't know how this would affect the CD rate that banks would offer to clients. Presumably it would force them to lower it, which would be counter to the anti-inflationary moves of the Federal Reserve, but that might not matter given that this is a current issue. It's possible this might also affect banks willingness to raise rates in the future in response to Fed tightening if they thought there was a risk to the banking sector. Given the size and how quickly the banks are failing I'd hazard a guess (this is not financial advice) that in order for the FDIC to maintain it's own portfolio it would have to raise rates enough to be noticeable to consumers, even given the number of FDIC accounts. Can someone comment on if this is the case and how much this might affect forward guidance for banks and consumers?
  - kgwgk 4y ago
    The hole - if any - should be much less than $300bn. (But sure, there is a huge overlap between taxpaxers and banking clients/shareholders.)
  - wmf 4y ago
    SVB and Signature bank that have both collapsed in terms of $300 billion This is not correct. SVB, for example, owes depositors ~$150B but they also have assets of almost $150B. The hole that FDIC needs to fill in may be less than $10B; it may even be zero.
    - firstlink 4y ago
      This has been repeated ad nauseam but it does not pass the smell test. If SVB were solvent then it would not be in receivership.
      - evan_ 4y ago
        It’s a cash flow issue. Cash flow kills plenty of profitable businesses.
        hd95489 4y ago
        It’s a true solvency issue. They could have announced this before the bank collapsed and it still would have collapsed eventually because assets were less than liabilities
      - j16sdiz 4y ago
        The rules was setup that FIDC can take over when they smell something wrong before it is proven true insolvent.
  - chernevik 4y ago
    The basic analysis that the costs will ultimately fall on other banks' depositors is correct. That's why it's a bailout.
- fma 4y ago
  In other words...it's funded by anyone who uses a bank. A quick Google shows that only 6% of Americans are unbanked. If 94% of Americans are going to see higher fees, lower interest rates on accounts, higher interest rates on loans, reduced services in order to make up for increased insurance fees, it's practically paid by tax payers.
  - greenyoda 4y ago
    > lower interest rates on accounts... These days, banks need to be competitive with Treasury rates to get large deposits from informed investors. Anyone with a brokerage account can get a 5% interest rate today on short-term Treasury securities (risk-free if held to maturity, and exempt from state/local income tax). So if banks start lowering rates on deposits, they may have a shortage of money for lending.
    - hd95489 4y ago
      If they don’t have required reserves they don’t need any deposits.
  - dahart 4y ago
    Everyone being a taxpayer and everyone having a bank account is a coincidence. This does not equate to bank fees being taxes. I’m not saying you’re wrong, but this argument isn’t strong. It’s the same as saying we’re being taxed for smart phones or cars on the basis that most people buy them. A tax is something the government collects and it’s mandatory. The other massive difference here is that the fees are distributed according to certain kinds of savings and investments, not according to income nor according to any and every bank account. I don’t have bank fees, for example, for my checking account.
    - briHass 4y ago
      To continue your cell phone analogy, this could easily be like the 'number portability' regulation that was simply passed on to consumers as a fee that vastly overpaid for the cost and now represents almost pure profit for carriers. Banks are too smart to make it that obvious, however. They'll wind those fees in silently.
adastra22 4y ago
Higher FDIC insurance rates, which get passed on to banking customers.
deleted 4y ago
[deleted]

mtremsal 4y ago

IIRC banks pay a fee to the FDIC in exchange for providing insurance, and because the FDIC is not funded by taxpayer money, the fee simply goes up when needed.

nerdponx 4y ago
Right. You do stupid reckless stuff that causes a loss? Fine, your insurance premiums go up. Same as with homes and cars. The only outcome I'd like to see better are bonus clawbacks for the "removed" senior management.
- mtremsal 4y ago
  I don’t know about clawbacks on bonuses, but part of their comp is equity and shareholders are getting wiped, so you’re pretty much getting your wish anyway.
patientplatypus 4y ago
So there is SVB and Signature bank that have both collapsed in terms of $300 billion. If what you are saying is correct, does that mean that the banks are required to pay hire fees across the industry upwards of $300 amortized over a certain amount of years? If that's the case then the taxpayer will most definitely be on the hook. I don't know if spread across all taxpayers this fee would be negligible, and I also don't know how this would affect the CD rate that banks would offer to clients. Presumably it would force them to lower it, which would be counter to the anti-inflationary moves of the Federal Reserve, but that might not matter given that this is a current issue. It's possible this might also affect banks willingness to raise rates in the future in response to Fed tightening if they thought there was a risk to the banking sector. Given the size and how quickly the banks are failing I'd hazard a guess (this is not financial advice) that in order for the FDIC to maintain it's own portfolio it would have to raise rates enough to be noticeable to consumers, even given the number of FDIC accounts. Can someone comment on if this is the case and how much this might affect forward guidance for banks and consumers?
- kgwgk 4y ago
  The hole - if any - should be much less than $300bn. (But sure, there is a huge overlap between taxpaxers and banking clients/shareholders.)
- wmf 4y ago
  SVB and Signature bank that have both collapsed in terms of $300 billion This is not correct. SVB, for example, owes depositors ~$150B but they also have assets of almost $150B. The hole that FDIC needs to fill in may be less than $10B; it may even be zero.
  - firstlink 4y ago
    This has been repeated ad nauseam but it does not pass the smell test. If SVB were solvent then it would not be in receivership.
    - evan_ 4y ago
      It’s a cash flow issue. Cash flow kills plenty of profitable businesses.
      - hd95489 4y ago
        It’s a true solvency issue. They could have announced this before the bank collapsed and it still would have collapsed eventually because assets were less than liabilities
    - j16sdiz 4y ago
      The rules was setup that FIDC can take over when they smell something wrong before it is proven true insolvent.
- chernevik 4y ago
  The basic analysis that the costs will ultimately fall on other banks' depositors is correct. That's why it's a bailout.
fma 4y ago
In other words...it's funded by anyone who uses a bank. A quick Google shows that only 6% of Americans are unbanked. If 94% of Americans are going to see higher fees, lower interest rates on accounts, higher interest rates on loans, reduced services in order to make up for increased insurance fees, it's practically paid by tax payers.
- greenyoda 4y ago
  > lower interest rates on accounts... These days, banks need to be competitive with Treasury rates to get large deposits from informed investors. Anyone with a brokerage account can get a 5% interest rate today on short-term Treasury securities (risk-free if held to maturity, and exempt from state/local income tax). So if banks start lowering rates on deposits, they may have a shortage of money for lending.
  - hd95489 4y ago
    If they don’t have required reserves they don’t need any deposits.
- dahart 4y ago
  Everyone being a taxpayer and everyone having a bank account is a coincidence. This does not equate to bank fees being taxes. I’m not saying you’re wrong, but this argument isn’t strong. It’s the same as saying we’re being taxed for smart phones or cars on the basis that most people buy them. A tax is something the government collects and it’s mandatory. The other massive difference here is that the fees are distributed according to certain kinds of savings and investments, not according to income nor according to any and every bank account. I don’t have bank fees, for example, for my checking account.
  - briHass 4y ago
    To continue your cell phone analogy, this could easily be like the 'number portability' regulation that was simply passed on to consumers as a fee that vastly overpaid for the cost and now represents almost pure profit for carriers. Banks are too smart to make it that obvious, however. They'll wind those fees in silently.

adastra22 4y ago

Higher FDIC insurance rates, which get passed on to banking customers.

deleted 4y ago

[deleted]