7 ms·
US Says All SVB Deposits Safe, Creates New Backstop for Banks
- uejfiweun 4y agoOK, what exactly does this mean? I read the announcement as well and it seemed to be so cloaked in gov-speak that I couldn't make heads or tails of it. My current understanding is that the fed is now bailing out SVB? Is that what's happening here? I really hope not, because it seems completely counterproductive to their goal of achieving 2% inflation.
- eyphka 4y agoNo bailout. Investors and executive wiped out. Depositors will be made 100% whole. Fed did its job today and prevented a mass bank run.
- travisjungroth 4y agoThey are not bailing out the bank. They are giving the depositors their account balances. The bank is wiped out, the bank’s bond holders will take a big (maybe total) loss. They’ll sell off the banks assets over time to cover most of the shortfall.
- cft 4y agoWall St Journal editorial board begs to disagree: https://archive.ph/9zBUq https://archive.ph/9zBUq
- travisjungroth 4y agoThat link isn’t loading. What statement did I make that’s in disagreement?
- r00fus 4y agoIt’s opinion. It’s also wrong. This isn’t a bailout. Bankers and shareholders are getting their just rewards; customers are made whole.
- belter 4y agoIf it is not a bailout...What was the 250K FDIC limit for?
- travisjungroth 4y agoThe minimum guarantee, not the maximum capabilities.
- colinmorelli 4y agoAs mentioned in another thread, $250k is a minimum. The FDIC guarantees $250k which is covered by fees paid by the banks. Above and beyond that they will pay out depositors first by selling the bank’s assets, which they took over on Friday. In this case, FDIC is saying they will make depositors whole. They’ll do so by covering it with FDIC funds which they’ll recoup by selling assets and charging other banks if there’s a shortfall.
- sanp 4y agoThe WSJ editorial board disagrees with everything the Biden admin does. I am yet to see an a WSJ opinion say ANYTHING positive about the Biden admin. If someone here has seen such an article I would love to see the link. When someone is this one-sided, it is hard to take them seriously.
- area51org 4y ago> it is hard to take them seriously Especially when their "opinion" directly contradicts the stated facts of the situation. The feds are not going to bail out the bank—Yellin specifically said, "We're not doing that again." But they are giving the depositors, meaning people and companies, their money. That is huge. That, far as I am aware, will prevent this situation from becoming a deadly falling-domino game.
- uejfiweun 4y agoI don't really think the editorial is criticizing Biden. It's criticizing the Fed's easy money policies.
- unyttigfjelltol 4y agoThey will make money immediately available to depositors (emphasis on timing), and the government is standing up a funding mechanism from SVB assets backed by a bank insurance fund. FDIC et al. just fast-forwarded to the end, although notably I don't see a discussion of where any potential profits will go.....
- belltaco 4y agoProbably in the order of a regular bankruptcy, secured debtors first, unsecured debtors second etc. and then shareholders at the very end.
- simple-thoughts 4y agoDepositor get a bail out, additionally every other small bank depositors with over $250k are now backstopped with promise of bailouts. Funding for bailouts is coming from an additional tax on banks.
- andrewinardeer 4y agoAn additional tax on banks that will be passed onto consumers, surely? Banks do not have a reputation of absorbing costs.
- adad95 4y agoBasically... Profit is only mine, but the lost goes to all taxpayers.
- sokoloff 4y agoFalse (at least in this case). From the Treasury’s statement: “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.” Ref: https://home.treasury.gov/news/press-releases/jy1337 https://home.treasury.gov/news/press-releases/jy1337
- hartator 4y agoWhere did the money for the fund is coming from? Even if its coming from other banks, it means they have to increase fees somewhere.
- r00fus 4y agoThe FDIC fund.
- sokoloff 4y agoFirst from the assets of SVB (IOW, from the shareholders’ equity). After that, there is the possibility of special assessments from other member banks, consistent with the (quite short) Treasury statement: “Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
- deleted 4y ago[deleted]
- ahelwer 4y agoI don't think it's nearly clear enough at this point to trust a politically-loaded statement like that, straight from the horse's mouth. There are a lot of ways to obscure this, through inflating the money supply or deferring costs for years or (most insidiously) moving risk around. The money is apparently coming from a special assessment on all other banks in the US; will the customers of those banks see themselves paying more in fees or earning less in interest as a result? Does this drain whatever reserves FDIC has, possibly requiring it to draw funds from the taxpayer in the future when something else bad happens? How does this affect the risk decisions made by other banks, knowing they will be backstopped by the public if, like someone with a bomb strapped to their chest, they promise to take everyone down with them? Apparently SVB was offering loans on very appealing terms to tech companies if they kept deposits at the bank. Companies made the decision to take those terms, accepting the counterparty risk in lieu of paying higher interest on loans from other, more stable banks. Over and over we hear that financial returns are justified because of the risks taken. So is that just a sham, then?
- paulpauper 4y agoSo Roku gets its money back?
- area51org 4y agoThat's what they're saying, yeah.
- shelfchair 4y agohttps://archive.is/YNMqv https://archive.is/YNMqv
- gsibble 4y agoIf this was some big bank serving farming companies in Oklahoma this never would have happened. This only happened because wealthy and powerful politically connected investors stood to lose billions if it didn't. And surprise, they're all Democrats. Once again, politicians serving their masters.
- hello_moto 4y agohttps://theintercept.com/2023/03/11/silicon-valley-bank-used-former-mccarthy-staffers-to-weaken-regulations-lobby-fdic/ https://theintercept.com/2023/03/11/silicon-valley-bank-used... Pop quiz: who is Kevin McCarthy?
- simple-thoughts 4y agoThe goal of interest rate hikes is to cause money destruction through the banking system. But since depositors get a bailout if a bank fails due to these interest rate hikes, won’t that counteract the goal? It seems the transmission mechanism for interest rates to control inflation may be broken.
- dragontamer 4y agoThe goal is to destroy money where it is safe to do so. Aka: the "soft landing". I think we can agree that destroying depositor money is going too far. That being said, we still have a long way to go, inflation is still 6%+, so more rate increases are needed... which will only cause further monetary destruction and other issues similar to SVB.
- simple-thoughts 4y agoDestroying money means a lot of people have to become poorer. So isn’t destroying money where it’s safe to do so just another way of saying the politically connected get bailouts while the rest don’t? It seems that this would be an optimal strategy from a cynical political authority I suppose. Still it makes me wonder if the transmission mechanism for interest rate hikes will work, since the politically connected are where most of the money is already.
- deet 4y agoI'm happy this happened, and it's likely to prevent other bank runs in the near term, but the moral hazard and lack of clarity induced by the government changing policies last minute makes decisions about how to treat money and how to park it really frustrating. Am I good to ignore the $250K FDIC limit forever because this will happen next time too? Will unlimited FDIC backing apply to money in brokerage sweep accounts? Can I park money in a money market fund instead of a bank account now and enjoy higher yields? Because even though it's not technically insured the government will save the day? Are all banks equal now in safety, so I can just pick the highest CD rate regardless of whether it seems sketchy? How about muni bonds? No longer can we just read the sign that's literally posted at these banks "insured to at least $250K" and the disclaimers about lack of insurance on other products and know what anything means. (And, cynically and perhaps irrationally, while I'm glad the startup world is not imploding, I can't help but think of the parties, events, and other goodies that SVB treated VCs and founders to instead keeping more liquid assets on hand...)
- chkaloon 4y agoI would argue that the $250K limit just became irrelevant
- riskneutral 4y ago> the moral hazard The moral hazard in this case is that depositors will feel safer putting all their deposits into a single high-risk bank where they can earn higher interest on deposits, since the implicit insurance is effectively much higher than $250k per individual or company. I think the sensible to solution to this, in the modern age of banking, is for the Federal Reserve to not allow concentrated, high risk banks to exist in the first place. In the same way that the government doesn't allow carnival operators to reduce safety standards in order to make roller coaster rides cheaper or unreasonably fast.
- belltaco 4y agoI think the FDIC has almost always returned even excess of $250K deposits, atleast recently. $250K is just what they guarantee in any circumstance, but it is in the government's interest to stop contagion.
- apodolny 4y agoHere's my understanding of the plan based on the Fed's description[1]: The Federal Reserve has created a new program that provides a backstop to banks based on the par value of their assets, rather than the market value. This is huge because the issue here is that the assets on a bank’s books are baskets of loans (typically mortgages or loans to the US government) that are very safe but have lost market value because interest rates have risen. However, at par (what they'll pay over their lifetimes), they cover all the bank’s deposits. Mechanically, the way this would work would be that if a bunch of depositors all withdraw at once, rather than the bank having to sell that basket of loans at a big loss, they’ll borrow from the Federal Reserve instead. That way, they won’t take a loss and won’t end up insolvent. Depositors get their money and everyone would be happy. Since everyone now knows this is possible, in all likelihood this won’t actually get used that much because it’s safe to leave your money in the bank. [1] https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...
- jcranmer 4y ago> The Federal Reserve has created a new program that provides a backstop to banks based on the par value of their assets, rather than the market value. This is huge because the issue here is that the assets on a bank’s books are baskets of loans (typically mortgages or loans to the US government) that are very safe but have lost market value because interest rates have risen. However, at par (what they'll pay over their lifetimes), they cover all the bank’s deposits. One of the big "lessons" of the 2008 financial crisis was the need to mark assets to market value, because otherwise, the banks were reticent to admit that their worthless assets were, in fact, worthless. So I find a certain amount of amusement in the government saying 15 years later in effect that mark-to-market is a bad idea and needs to be avoided to prevent financial problems.
- belltaco 4y ago>One of the big "lessons" of the 2008 financial crisis was the need to mark assets to market value, because otherwise, the banks were reticent to admit that their worthless assets were, in fact, worthless. This is not about 'worthless' assets. This is about, say, 10 year US treasury bonds, the safest investments in the world, losing current market value because of interest rates raised by the Federal Reserve. The intent is two fold, not only saving banks, but also making sure that long term bond's interest rates don't go higher because of lack of demand. That will have repercussions like municipal bonds not getting buyers except maybe at high rates, etc. >So I find a certain amount of amusement in the government saying 15 years later in effect that mark-to-market is a bad idea and needs to be avoided to prevent financial problems They didn't say that, they're creating a narrow exception in their books. Mark-to-market will continue to be used everywhere else.
- alxmng 4y agoThis statement is confusing. It implies the Fed will guarantee investment accounts. Why keep any money in a non-interest bearing account? It’s amazing the mental and bureaucratic gymnastics needed to avoid admitting that fractional reserve is an inherently unstable system.
- dano 4y agoMy take on the announcement: 1. Existing assets are more than current deposits, but liquidity is low 2. Shareholders, bondholders, etc.. are going to get zero 3. The Fed will provide immediate liquidity 4. Assets will be sold to repay the liquidity provided by the Fed
- greenyoda 4y agoBig, ongoing discussion of the original source: https://news.ycombinator.com/item?id=35127063 https://news.ycombinator.com/item?id=35127063
- willnonya 4y agoSo, print more money to cover assets valued by fairy dust? Sounds like good policy.