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Banking shouldn’t be an investment. The entire economy runs on the idea that banks are fundamentally secure. This is why banks are regulated, and why deposit in

Banking shouldn’t be an investment. The entire economy runs on the idea that banks are fundamentally secure. This is why banks are regulated, and why deposit insurance exists. The extension of it past $250,000 is very good

sanderjd 4y ago
Yeah but the problem is that nobody wrote that down beforehand. It's not good to make it up as we go during emergencies. It's good to have clear rules written down ahead of time.
- jasd 4y ago
  Yes, people make mistakes and then learn from them. Sometimes not every scenario can be anticipated. In this instance a bunch of startups got caught in this mess and 250k won't be enough for them to survive/meet their employees' payroll. I appreciate the govt stepping in and hopefully rewriting the rules based on the learnings.
- surfpel 4y ago
  > It's not good to make it up as we go during emergencies Complicated, fragile emergencies are precisely the time to consider exceptions to hard rules. After all, if all our rules were perfect, we wouldn’t have an emergency to begin with.
  - sanderjd 4y ago
    No, because those exceptions become the new rule, and fragile emergencies are a bad time to think through what the new rule should be. "Hard cases make bad law." I feel the need to say this in every comment because I don't expect people to read my other comments, but I do support what was done here, assuming the private buyer solution was tried and it failed, I just also think it's bad that things are run this way.
    - surfpel 4y ago
      > No, because those exceptions become the new rule I disagree that this necessarily sets the new rule. Sure, sometimes it creates new precedents, but the necessity for an exception should go on to inform new hard set rules to prevent the necessity for exceptions in the first place. In this case, a return to a more regulated banking sector, hopefully. This is not dissimilar from highly agile work environments that require frequent process changes to achieve the ultimate goal.
      - sanderjd 4y ago
        It is entirely dissimilar from highly agile work environments, because neither the federal government nor the financial system are highly agile. And even in far more agile systems, path dependency and status quo bias are very powerful. I would make a very large wager with you that in a decade it will be unquestioned that last night was the night US bank deposits of any size became fully government backed. Maybe that's even a good thing! I dunno, I have no idea what all the downstream effects will be. But the banking system now works a different way than it did on Thursday morning, and I think it's reasonable to question the wisdom of a change this huge being made over one random weekend.
- dev_tty01 4y ago
  Why do you think the Fed was making things up as they went along? The rules were written down years ago and they were followed in this case. https://www.fdic.gov/bank/historical/crisis/chap2.pdf https://www.fdic.gov/bank/historical/crisis/chap2.pdf
  - sanderjd 4y ago
    I think you may have missed the news last night. They just invented three brand new facilities within 72 hours of SVB collapsing. That is making it up as you go.
nrmitchi 4y ago
There is a huge spectrum of coverage possibilities in between 250k and “effectively infinity”
- jiggawatts 4y ago
  The $250K should be thought of as a minimum protection level, not a moral imperative to be a maximum protection level.
  - yunwal 4y ago
    This effectively ends up being a subsidy for risky, well-connected people while being a tax on responsible, not-especially-well-connected people.
jojobas 4y ago
How would you run banks (or anything else for that matter) that wouldn't be an investment? A public service?
- psychlops 4y ago
  I wondered the same thing. I think it's another veiled call for socialism. It would be weird (not the right word) to have government banks buying government and corporate bonds to pay a common interest rate and have no liability at all for bad investments.
- iancmceachern 4y ago
  Yeah, like credit unions
  - jojobas 4y ago
    Credit unions are not public services. They are essentially banks where deposits are shares. A credit union could blunder on long term loans just as well as a commercial bank.
    - iancmceachern 4y ago
      "By all measures, credit unions fail less often than similarly sized banks. During 1980–2018, asset-weighted credit union failure rates were far lower than those of banks: 0.10% vs. 0.22%" Source https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.researchgate.net/publication/337740920_Factors_contributing_to_failures_of_credit_unions_and_banks_1980-2018%23:~:text%3DBy%2520all%2520measures%252C%2520credit%2520unions,the%2520following%253A%2520%25E2%2586%2592%2520Less%2520capital.&ved=2ahUKEwjKt5uc2tn9AhXtD0QIHezEAQIQFnoECB8QBQ&usg=AOvVaw1ctuh7xojv8wI314l3wPr8 https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...
      - jojobas 4y ago
        Sure, however, when a credit union takes a loss, it's worn by the depositors, not by shareholders for there are none.
zoobab 4y ago
"The entire economy runs on the idea that banks are fundamentally secure" We should organize bank runs more often to verify that statement.
- hackernewds 4y ago
  you say that in jest, but this event did expose that we (especially geriatric legislators) are not prepared to tackle a "social media" climate. 10 years ago neither could this Prisoners dilemma have taken place, nor could so much money have been physically drained in cash minus online banking.
  - psychlops 4y ago
    And yet somehow almost every other bank didn't fail due to interest rate hikes. They seem to be prepared enough for the social media climate.
    - TimJRobinson 4y ago
      *so far. Other banks don't have a tight nit group of customers so bank runs don't spread as quick. Most, maybe all, banks don't have enough funds to cover a full on bank run because almost all treasuries bought over a year ago are worth less than their original value.
watwut 4y ago
> This is why banks are regulated, and why deposit insurance exists. The extension of it past $250,000 is very good It is not good. The insurance limits goes hand in hand with regulations. Different higher insurance limit needs to imply higher regulations and more control. This particular bank and these particular VCs lobbied heavily to have the regulations eased up. They won. These particular VCs forced their startups to have money in this bank, because it was good for them. That is literally structural reason to not bail it all out. It is the "we are risk takers, we take profits from higher risk, but when it fails and cause damages someone else must protect our investments" strategy of VCs.
criley2 4y ago
If people would accept 0% interest on their deposits, banking could be a fundamentally secure non-investment. But people do like their interest... and in order for banks to take your $100 and give you back $101, well, that $1 has to come from somewhere.
- hellojesus 4y ago
  It would have to be negative, as in an up front cost to the consumer. Banks need to make money to cover operating costs at the very least. It's not that people don't accept 0% interest on deposits, it's that consumers would have to pay money to a bank to keep it operating with no risk. Take that situation and then introduce a new bank that makes loans and therefore can pay depositors x% in interest on their deposits. If enough people decide that's a better deal than paying for total security, they'll take it. The entire point of a low FDIC policy is to keep the small players safe while forcing the large players to make prudent decisions with their capital. Bailouts introduce moral hazard that says no big players need to scrutinize the risk adjusted returns they're getting. It's free money to those with money whole everyone else pays for it.
- evancox100 4y ago
  I mean, my Chase checking account is still only paying 0.01% interest. Many many people seem to be ok with ~0% interest on their day-to-day cash needs.

sanderjd 4y ago

Yeah but the problem is that nobody wrote that down beforehand. It's not good to make it up as we go during emergencies. It's good to have clear rules written down ahead of time.

jasd 4y ago
Yes, people make mistakes and then learn from them. Sometimes not every scenario can be anticipated. In this instance a bunch of startups got caught in this mess and 250k won't be enough for them to survive/meet their employees' payroll. I appreciate the govt stepping in and hopefully rewriting the rules based on the learnings.
surfpel 4y ago
> It's not good to make it up as we go during emergencies Complicated, fragile emergencies are precisely the time to consider exceptions to hard rules. After all, if all our rules were perfect, we wouldn’t have an emergency to begin with.
- sanderjd 4y ago
  No, because those exceptions become the new rule, and fragile emergencies are a bad time to think through what the new rule should be. "Hard cases make bad law." I feel the need to say this in every comment because I don't expect people to read my other comments, but I do support what was done here, assuming the private buyer solution was tried and it failed, I just also think it's bad that things are run this way.
  - surfpel 4y ago
    > No, because those exceptions become the new rule I disagree that this necessarily sets the new rule. Sure, sometimes it creates new precedents, but the necessity for an exception should go on to inform new hard set rules to prevent the necessity for exceptions in the first place. In this case, a return to a more regulated banking sector, hopefully. This is not dissimilar from highly agile work environments that require frequent process changes to achieve the ultimate goal.
    - sanderjd 4y ago
      It is entirely dissimilar from highly agile work environments, because neither the federal government nor the financial system are highly agile. And even in far more agile systems, path dependency and status quo bias are very powerful. I would make a very large wager with you that in a decade it will be unquestioned that last night was the night US bank deposits of any size became fully government backed. Maybe that's even a good thing! I dunno, I have no idea what all the downstream effects will be. But the banking system now works a different way than it did on Thursday morning, and I think it's reasonable to question the wisdom of a change this huge being made over one random weekend.
dev_tty01 4y ago
Why do you think the Fed was making things up as they went along? The rules were written down years ago and they were followed in this case. https://www.fdic.gov/bank/historical/crisis/chap2.pdf https://www.fdic.gov/bank/historical/crisis/chap2.pdf
- sanderjd 4y ago
  I think you may have missed the news last night. They just invented three brand new facilities within 72 hours of SVB collapsing. That is making it up as you go.

nrmitchi 4y ago

There is a huge spectrum of coverage possibilities in between 250k and “effectively infinity”

jiggawatts 4y ago
The $250K should be thought of as a minimum protection level, not a moral imperative to be a maximum protection level.
- yunwal 4y ago
  This effectively ends up being a subsidy for risky, well-connected people while being a tax on responsible, not-especially-well-connected people.

jojobas 4y ago

How would you run banks (or anything else for that matter) that wouldn't be an investment? A public service?

psychlops 4y ago
I wondered the same thing. I think it's another veiled call for socialism. It would be weird (not the right word) to have government banks buying government and corporate bonds to pay a common interest rate and have no liability at all for bad investments.
iancmceachern 4y ago
Yeah, like credit unions
- jojobas 4y ago
  Credit unions are not public services. They are essentially banks where deposits are shares. A credit union could blunder on long term loans just as well as a commercial bank.
  - iancmceachern 4y ago
    "By all measures, credit unions fail less often than similarly sized banks. During 1980–2018, asset-weighted credit union failure rates were far lower than those of banks: 0.10% vs. 0.22%" Source https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.researchgate.net/publication/337740920_Factors_contributing_to_failures_of_credit_unions_and_banks_1980-2018%23:~:text%3DBy%2520all%2520measures%252C%2520credit%2520unions,the%2520following%253A%2520%25E2%2586%2592%2520Less%2520capital.&ved=2ahUKEwjKt5uc2tn9AhXtD0QIHezEAQIQFnoECB8QBQ&usg=AOvVaw1ctuh7xojv8wI314l3wPr8 https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...
    - jojobas 4y ago
      Sure, however, when a credit union takes a loss, it's worn by the depositors, not by shareholders for there are none.

zoobab 4y ago

"The entire economy runs on the idea that banks are fundamentally secure" We should organize bank runs more often to verify that statement.

hackernewds 4y ago
you say that in jest, but this event did expose that we (especially geriatric legislators) are not prepared to tackle a "social media" climate. 10 years ago neither could this Prisoners dilemma have taken place, nor could so much money have been physically drained in cash minus online banking.
- psychlops 4y ago
  And yet somehow almost every other bank didn't fail due to interest rate hikes. They seem to be prepared enough for the social media climate.
  - TimJRobinson 4y ago
    *so far. Other banks don't have a tight nit group of customers so bank runs don't spread as quick. Most, maybe all, banks don't have enough funds to cover a full on bank run because almost all treasuries bought over a year ago are worth less than their original value.

watwut 4y ago

> This is why banks are regulated, and why deposit insurance exists. The extension of it past $250,000 is very good It is not good. The insurance limits goes hand in hand with regulations. Different higher insurance limit needs to imply higher regulations and more control. This particular bank and these particular VCs lobbied heavily to have the regulations eased up. They won. These particular VCs forced their startups to have money in this bank, because it was good for them. That is literally structural reason to not bail it all out. It is the "we are risk takers, we take profits from higher risk, but when it fails and cause damages someone else must protect our investments" strategy of VCs.

criley2 4y ago

If people would accept 0% interest on their deposits, banking could be a fundamentally secure non-investment. But people do like their interest... and in order for banks to take your $100 and give you back $101, well, that $1 has to come from somewhere.

hellojesus 4y ago
It would have to be negative, as in an up front cost to the consumer. Banks need to make money to cover operating costs at the very least. It's not that people don't accept 0% interest on deposits, it's that consumers would have to pay money to a bank to keep it operating with no risk. Take that situation and then introduce a new bank that makes loans and therefore can pay depositors x% in interest on their deposits. If enough people decide that's a better deal than paying for total security, they'll take it. The entire point of a low FDIC policy is to keep the small players safe while forcing the large players to make prudent decisions with their capital. Bailouts introduce moral hazard that says no big players need to scrutinize the risk adjusted returns they're getting. It's free money to those with money whole everyone else pays for it.
evancox100 4y ago
I mean, my Chase checking account is still only paying 0.01% interest. Many many people seem to be ok with ~0% interest on their day-to-day cash needs.