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A lot of people are asking “how is this not a bailout?” right now. I would caution against dismissing them, it’s a legitimate question. Pointing to the “Taxpaye

• JamisonM 4y ago
  Agreed, not a bailout as this is the purpose of the insurance scheme. If someone gave me 10-to-1 odds that actually there will be no shortfall associated with this action I would happily take that bet. Shareholders will be wiped out but SVB's assets will cover all of the deposits, the regulator is just being extra-conservative.
• itake 4y ago
  > the FDIC expects to recover 99% of the money Where do you see the 99%? My understanding is the bulk of their assets (long-term bonds) dropped 30% in value. If these bonds are sold on the market, they wont have 99% of the money. Maybe the treasury is giving them the money back of the bond?
  • eclipticplane 4y ago
    I'm guessing the FDIC can just hold them to maturity. The FDIC also has immediate access to a $100 billion loan from the treasury via statute if they needed cash. Over the lifetime of the bonds/loans, they might even make money like what happened in the TARP program.
    • simmerup 4y ago
      Surely inflation adjusted they’ll be massively out of pocket if they hold the bonds to maturity. That’s why they’re worth so little in the first place.
      • drexlspivey 4y ago
        Inflation does not affect a bond’s value
        • zzleeper 4y ago
          Expected inflation definitely affects bond values today
        • NotYourLawyer 4y ago
          As a matter of opportunity cost then. You’ll lose money if you hold these to maturity, which is why their value has fallen in the first place.
          • itake 4y ago
            not to be pedantic, but my understanding is their value dropped because the treasury is selling higher interest bonds. Why would anyone buy a low interest bond at face value when for the same-price purchase a high interest bond?
            • curiousgal 4y ago
              It's not just that. A bond's price is simply the sum of its discounted future cash flows. i.e. the coupon value divided by (1+) the interest rate. When interest rates rise, the price goes down.
• humanistbot 4y ago
  > If there’s a shortfall they will charge the banks a little extra in their next insurance payment, but keep in mind we’re talking about at most a few billion dollars spread over every bank; they are unlikely to pass on a small cost like that, but even if they do pass on the cost to the taxpayer it will be something like $10 per person maximum. Sounds like a bailout at the taxpayers' expense, just with extra steps. A bailout of a few billion dollars that banks are allowed to pass on to their customers is still a bailout.
  • travisjungroth 4y ago
    Money is fungible. You could take any amount of money from banks and argue that they’ll pass on the costs to customers.
  • chadash 4y ago
    This is quite different than a bailout. They can’t just go to their customers and say, hey, we got this bill now you have to pay for it. They can raise fees, but then customers can go to another bank. They can lower what they pay in interest rates, but again, customers can go to other banks. Or customers can buy treasuries instead of keeping money in bank accounts. Banks are not the only place to keep money, nor the only way to raise money. Sure, chances are that some of the money will come from raising rates on customers, but some of this will just come out of bank profits.
    • flutas 4y ago
      So by your own words, it’s still a bailout being paid by taxpayers. It’s just that taxpayers may decide to pay in either money (fees, less interest) or time (switching banks and updating payment methods, or taking money out to buy bonds).
      • el_cujo 4y ago
        In a painfully literal sense, yeah it's being paid by tax payers because everyone pays taxes. The better distinction is that it is not paid via tax revenue. Even if the FDIC has to levy fees on banks to help cover the cost and the banks raise fees on their customers to cover this, this is not the same as the tax payers funding the bailout because they're not funding it in their capacity as tax payers (where they have no option but to pay the government and would probably prefer their money go towards building a school or something). Additionally, the banks wouldn't just be scooping the extra money out of people's accounts, it would be in the form of higher fees or something which the customer could decide to leave the bank over if they desired. Most wouldn't do this, but again the point is that there is at least an option where as a tax payer funded bailout there isn't. At a certain point, everything in the economy is connected and you could drill deep enough to say the tax payer pays for literally everything, but at that point the label becomes meaningless.
• Taniwha 4y ago
  One reason why it's not (mostly) a bailout is that SVB's deposits are (as far as we know) still backed by bonds and mortgage backed securities, the problem is that those securities can't be easily sold right now (because people want higher valued investments) - a sudden forced sale means selling at a loss (or a cash flow crisis which is how SVB got into this state), holding on to them and letting them play out and they still have their value (worst case you sell them at a loss that is the difference between what they yield and what current investments yield)
  • evan_ 4y ago
    One thing nobody seems to be talking about is whether SVB had more assets than liabilities- presumably they did since it was a money-making enterprise, right? So even if they sell at a loss there may be more than enough to cover the liabilities. We’ll see I guess.
    • dragonwriter 4y ago
      > One thing nobody seems to be talking about is whether SVB had more assets than liabilities On paper, with some of them at HTM valuation, they did. At actual market value, I don’t know that an assessment has been done. > So even if they sell at a loss there may be more than enough to cover the liabilities. Sure, but there is still a kind of bailout in what amounts to a bridge loan from the FDIC for the uninsured balances.
  • linuxftw 4y ago
    No, they liquidated those positions at a loss because of outflows. They are actually short the cash.
    • heartbreak 4y ago
      They didn’t liquidate $200 billion in MBS and treasury bonds in a week let alone a day.
      • linuxftw 4y ago
• paulddraper 4y ago
  If the shortfall is indeed "small" as you claim, why not let it be borne, instead of redistributed? I find the dissonance deafening.
  • MrStonedOne 4y ago
    [dead]
  • fwlr 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.” I don’t think they have a choice. Congress decided for them.
    • paulddraper 4y ago
      The losses to the fund have to be recovered via special assessment. The magnitude of losses to the fund is discretionary.
      • fwlr 4y ago
        I don’t think the accounting of losses to the fund is actually discretionary, if they lose money they have to report it, they can’t just re-define the fund as marginally smaller than it was before. I don’t think I understand what you mean.
  • sebzim4500 4y ago
    Because even a single dollar disappearing from someone's bank account will drastically decrease confidence in the US banking sector. Modern society requires people to trust banks, if everyone tries to pull their funds and hide it under their mattress we are fucked.
    • yunwal 4y ago
      As opposed to decreasing trust in the government, which will now be seen as an institution that takes money from normal people and allocates it to those who confuse real money with Monopoly money.
• anonu 4y ago
  Simpler answer: bail outs keep the stock afloat. Here the stock goes to $0.
  • A4ET8a8uTh0 4y ago
    This is merely an answer. Stock of SVB may ( may because at this point I am not discounting anything ) go to zero, however based on available information, vast majority of depositors ( 90% range ) were above FDIC insurance cap, which makes it a bailout of depositors AND, effectively and likely more importantly, all the smart ( and well-connected money ) that are invested in those startups. It is a bailout. Its true beneficiaries are not as straightforward as in 2008 though. << bail outs keep the stock afloat. Here the stock goes to $0. In such a case you are wrong about this statement then. This bailout is 100% intended to keep stock afloat; just not SVB's.
    • sajacy 4y ago
      Interesting. So a bailout is when the rules are changed so that some people get to keep money that they otherwise would have lost (or would not have gotten). I'm onboard with that. But then the PPP and pandemic payments were bailouts, too - a bailout isn't necessarily a "bad" thing, right? Like, we judge the bailout by who benefits, right? We should just bail out families, small businesses with payroll needs, etc., and VC firms should take a haircut? Or rich people shouldn't be bailed out - cap FDIC guaranteed deposits at 1m? Or should Signature have gotten the full deposit bailout (not tained with VC funny-money), while SVB should not? Serious question: what is the rule / policy / threshold that solves the problem better than "everyone affected by the problem gets the same full deposit insurance"? It's a decision full of tradeoffs, being made in a limited time and information situation. I don't think the Fed+FDIC+Yellen are making calls based on trying to "save" nor "punish" certain groups - they can't possibly have the time or resources to figure out an optimal solution.
      • A4ET8a8uTh0 4y ago
        << So a bailout is when the rules are changed so that some people get to keep money that they otherwise would have lost (or would not have gotten). I'm onboard with that. I would say that bailout is a bailout is a bailout. No need for conditionals here. Most people instinctively know the bank would not survive without government intervention. << But then the PPP and pandemic payments were bailouts, too - a bailout isn't necessarily a "bad" thing, right? You may be assuming something about me that I did not say. I am not sure what PPPs were exactly, but at its core, they were bailouts too ( or at least that was their intended purpose ). << what is the rule / policy / threshold that solves the problem better than "everyone affected by the problem gets the same full deposit insurance"? The rule is really simple: follow the policy you claim to follow. Otherwise some may think you are lying all the time.
• dawsmik 4y ago
  It looks like they may have done a little bit of lying. https://nongaap.substack.com/p/sivb-held-to-mortem-governance https://nongaap.substack.com/p/sivb-held-to-mortem-governanc...
• sanderjd 4y ago
  My answer: It is a bailout. And that's ok, if it was the best of bad options. Must we play the silly semantic game? By your explanation, all the bailouts during the '08 financial crisis also weren't bailouts. But they were.
  • fwlr 4y ago
    I don’t like semantic games either. I always do my best to resolve a word to mean “the thing people care about when they use this word”. In the case of “bailout” it seems to me that what people care about is whether it will cost taxpayers. In the case of SVB, it seems that their assets will cover their deposits, and FDIC has an insurance fund that gives them the liquid capital to cover deposits immediately while waiting for assets to sell. So no cost to taxpayers - not even in the form of “higher deposit insurance costs to banks being passed on to bank customers, who are taxpayers”. (It’s possible to play semantic games until we formulate a picture that does show taxpayers will pay, e.g. “the FDIC’s deposit insurance fund is made up of payments made by banks, and banks would have passed on the cost of those payments to customers in the form of not offering as much interest on deposits as they otherwise would have offered, so the funds used to make the bridge are a bailout the taxpayer has already paid for”. Money is infinitely fungible, you can always tell a story where taxpayers paid the bill. But we said we weren’t going to play semantic games.)
    • sanderjd 4y ago
      I don't think the second part is a semantic game at all. This switch to insure all deposits rather than just deposits up to a fairly low limit will definitely impose additional costs to the banking sector which will definitely be passed on to some degree or other. I agree this is certainly not a transfer of tax money to private institutions, and I applaud that, but I still think it is socializing a big chunk of additional risks of an industry where the rewards are large and private. But more broadly I just don't think "bailout" is as narrow as just "costs taxpayers". This may be wrong, but I think of "bailout" as having its root in what you do to save a sinking ship. The widespread belief here is that there was a significant risk of an important ship - the banking sector - sinking, and government action has been taken to keep it from sinking. To me, we've bailed out that sinking ship. (And I'm glad we did!) I guess it remains to be seen whether I'm the weirdo with a strange definition, or whether everyone will agree that this was a bailout, once it stops being a question with such immediacy.
• dragonwriter 4y ago
  Its a (potential, whether any funds will be necessary is unknown) bailout of depositors (not the bank or its shareholders) at the (potential) expense of other banks (not taxpayers).
• plandis 4y ago
  > If there’s a shortfall they will charge the banks a little extra in their next insurance payment, but keep in mind we’re talking about at most a few billion dollars spread over every bank; they are unlikely to pass on a small cost like that, but even if they do pass on the cost to the taxpayer it will be something like $10 per person maximum. Regardless of size that sure sounds like “taxpayers will pick up the bill”
  • AdamN 4y ago
    Bank customers will pick up the bill. There are actually a large number of US residents that aren't bank customers or are too small to meaningfully increase fees on. This will cost money but it will be smeared out across businesses and middle class/upper class individuals.
    • fidgewidge 4y ago
      It's an in extra cost that the government is forcing people to pay against their will, in order to achieve social objectives decided by the government. It's a tax and making banks act as the collectors doesn't change that. I really hope the tech community doesn't try and pull this sort of stupid word game on the rest of society because everyone will see through it.
      • AdamN 4y ago
        So you're saying they're just raising an existing tax by that logic (since FDIC is already using this mechanism and all banks already pay into it for the base FDIC insurance)
        • fidgewidge 4y ago
          Yes!