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I'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 changin

by deet 4y ago

I'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 ago
I 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 ago
I 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.

by deet 4y ago

chkaloon 4y ago

I 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 ago

I 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.