4 ms·

Shockingly bad take. SVB investors were wiped out 100%, this includes most of the net worth of the leadership team. Moral hazard is definitely still in play.

by jpgvm 4y ago

Shockingly bad take. SVB investors were wiped out 100%, this includes most of the net worth of the leadership team. Moral hazard is definitely still in play. All we need to see after this is is Basel III and Fed regulation extended to cover all banks of any size, not just those with over 250B in assets. Covering all the deposits out of the FDIC fund when none of the assets are bad debt just makes sense. The shortfall will be assessed from banks next quarter and the assets will be held to maturity by the Fed most likely and the proceeds returned back into FDIC (which will subsequently lower insurance premiums by the banks in the future). The only people that lost here are investors in SVB and temporarily the other FDIC members will lose a small amount of money to additional FDIC special payment to replenish the insurance fund (but they will "get it back" later).

Gwypaas 4y ago
> Covering all the deposits out of the FDIC fund when none of the assets are bad debt just makes sense. The shortfall will be assessed from banks next quarter and the assets will be held to maturity by the Fed most likely and the proceeds returned back into FDIC (which will subsequently lower insurance premiums by the banks in the future). This is completely ignoring the time value of money. Money today is worth more than money in the future. We are transferring real value today and thus making the public, through the other less risky banks, eat the haircut that will happen no matter what. The losses are real. What this has done is create the following incentives: For depositors: 1. Bank with the riskiest bank possible since all deposits are covered. For banks: 1. Become super-risky and extract value as soon as possible through dividends and bonuses. Depositors are covered either way. The banking system has lost the risk side of things, and it is now a 100% regulated industry. We could remove the banks and have everyone deal with the Fed instead.
- Ekaros 4y ago
  And for bank owners. Simply setup company or your own funds in bank as deposit and offer huge rates to yourself. 100% safe whatever you do.
- rhaway84773 4y ago
  You’re ignoring that banks are highly regulated. The simplest, and first thing to do is to lower the threshold for systemically important banks back down to the original $50Bn before it was raised to $250Bn in 2018.
- AnimalMuppet 4y ago
  Your incentive for depositors doesn't follow. What incentive do I have to seek out a risky bank? That I won't lose my money? If I have a safe one, I also won't lose my money. And if I have a risky one, I have some possibility that next time the powers that be will decide that the rules are different. Even if they don't, I still have the possibility that my money will be unavailable for a certain amount of time, and that I will have to deal with bureaucracy to get it back. Why would I deliberately choose that? What's my upside? Your incentive for banks doesn't follow either. Shareholders got wiped out. This sure wasn't in their interest, previous dividends or no. Management may get bonuses clawed back, and even if they don't, they're not going to find a job that pays as well ever again.
  - orwin 4y ago
    They can provide higher rates if they take riskier investments/arbitrages, I thought everyone knew this.
    - AnimalMuppet 4y ago
      Well, and did they? Did SVB provide higher rates than other banks? I don't think so; I recall reading that part of their problem was that they lost tens of billions of dollars of interest free deposits over the last year or so. I think that the risk went into higher profits, not higher rates to depositors. So, not really an incentive to depositors.
- helen___keller 4y ago
  > 1. Become super-risky and extract value as soon as possible through dividends and bonuses. Depositors are covered either way. Depositor risk has never been a consideration of the bank except as far as it relates to the banks ability to grow shareholder value (if investors are wiped out, the bank doesn’t give a shit whether depositors are also wiped out) > The banking system has lost the risk side of things, and it is now a 100% regulated industry. We could remove the banks and have everyone deal with the Fed instead. Strongly agree tbh. There’s social reasons why it won’t happen but I’d much prefer this
  - phlakaton 4y ago
    Wow! Is that the "Bank of the United States"'s music I'm hearing? Yeah, I think we had that argument as a society a looooong time ago.
wunderland 4y ago
Your comment ignores that SVB made bad investments for which they will not be held responsible.
- jpgvm 4y ago
  Management of all sorts of that run companies into the ground usually make out with their salary and bonuses. Unless we change the status quo about rewarding CXXs with huge amounts of stock AND giant salaries AND allow them to cash those stock grants out before retirement I don't see that changing.
- colechristensen 4y ago
  The bank doesn’t exist any more, the stockholders were wiped out and leaders will have lost tens of millions. How is that not being held responsible?
  - rvnx 4y ago
    They still keep the salaries, the bonuses, the supercars, etc. And the customers who didn't want to ask questions how they were paying 5% interest on cash while equity was going down and bonds all-time low... They benefited from the scheme as well, they are not victims. The real victim is the taxpayer (or indirectly other bank customers through insurance mechanism) that is going to cover the losses.
  - f6v 4y ago
    Loosing money is not being responsible. By that logic, I’m bearing the responsibility if my ETF go down in price.
    - rvnx 4y ago
      This is like the FB announcement where Zuck is "taking responsibility" https://about.fb.com/news/2022/11/mark-zuckerberg-layoff-message-to-employees/ https://about.fb.com/news/2022/11/mark-zuckerberg-layoff-mes... Yeah yeah, taking responsibility in a way that he is mostly not personally affected. Taking responsibility would entitle pouring back the billions he cashed out back into the company.
__alexs 4y ago
Not disagreeing with the badness of the take but > SVB investors were wiped out 100%, this includes most of the net worth of the leadership team. The CEO's base pay is >$1m/year in cash and he's sold over $40m in SVB stock since 2018 https://www.secform4.com/insider-trading/1259867.htm https://www.secform4.com/insider-trading/1259867.htm I can't see how this would wipe out his net worth.

by jpgvm 4y ago

Gwypaas 4y ago

> Covering all the deposits out of the FDIC fund when none of the assets are bad debt just makes sense. The shortfall will be assessed from banks next quarter and the assets will be held to maturity by the Fed most likely and the proceeds returned back into FDIC (which will subsequently lower insurance premiums by the banks in the future). This is completely ignoring the time value of money. Money today is worth more than money in the future. We are transferring real value today and thus making the public, through the other less risky banks, eat the haircut that will happen no matter what. The losses are real. What this has done is create the following incentives: For depositors: 1. Bank with the riskiest bank possible since all deposits are covered. For banks: 1. Become super-risky and extract value as soon as possible through dividends and bonuses. Depositors are covered either way. The banking system has lost the risk side of things, and it is now a 100% regulated industry. We could remove the banks and have everyone deal with the Fed instead.

Ekaros 4y ago
And for bank owners. Simply setup company or your own funds in bank as deposit and offer huge rates to yourself. 100% safe whatever you do.
rhaway84773 4y ago
You’re ignoring that banks are highly regulated. The simplest, and first thing to do is to lower the threshold for systemically important banks back down to the original $50Bn before it was raised to $250Bn in 2018.
AnimalMuppet 4y ago
Your incentive for depositors doesn't follow. What incentive do I have to seek out a risky bank? That I won't lose my money? If I have a safe one, I also won't lose my money. And if I have a risky one, I have some possibility that next time the powers that be will decide that the rules are different. Even if they don't, I still have the possibility that my money will be unavailable for a certain amount of time, and that I will have to deal with bureaucracy to get it back. Why would I deliberately choose that? What's my upside? Your incentive for banks doesn't follow either. Shareholders got wiped out. This sure wasn't in their interest, previous dividends or no. Management may get bonuses clawed back, and even if they don't, they're not going to find a job that pays as well ever again.
- orwin 4y ago
  They can provide higher rates if they take riskier investments/arbitrages, I thought everyone knew this.
  - AnimalMuppet 4y ago
    Well, and did they? Did SVB provide higher rates than other banks? I don't think so; I recall reading that part of their problem was that they lost tens of billions of dollars of interest free deposits over the last year or so. I think that the risk went into higher profits, not higher rates to depositors. So, not really an incentive to depositors.
helen___keller 4y ago
> 1. Become super-risky and extract value as soon as possible through dividends and bonuses. Depositors are covered either way. Depositor risk has never been a consideration of the bank except as far as it relates to the banks ability to grow shareholder value (if investors are wiped out, the bank doesn’t give a shit whether depositors are also wiped out) > The banking system has lost the risk side of things, and it is now a 100% regulated industry. We could remove the banks and have everyone deal with the Fed instead. Strongly agree tbh. There’s social reasons why it won’t happen but I’d much prefer this
- phlakaton 4y ago
  Wow! Is that the "Bank of the United States"'s music I'm hearing? Yeah, I think we had that argument as a society a looooong time ago.

wunderland 4y ago

Your comment ignores that SVB made bad investments for which they will not be held responsible.

jpgvm 4y ago
Management of all sorts of that run companies into the ground usually make out with their salary and bonuses. Unless we change the status quo about rewarding CXXs with huge amounts of stock AND giant salaries AND allow them to cash those stock grants out before retirement I don't see that changing.
colechristensen 4y ago
The bank doesn’t exist any more, the stockholders were wiped out and leaders will have lost tens of millions. How is that not being held responsible?
- rvnx 4y ago
  They still keep the salaries, the bonuses, the supercars, etc. And the customers who didn't want to ask questions how they were paying 5% interest on cash while equity was going down and bonds all-time low... They benefited from the scheme as well, they are not victims. The real victim is the taxpayer (or indirectly other bank customers through insurance mechanism) that is going to cover the losses.
- f6v 4y ago
  Loosing money is not being responsible. By that logic, I’m bearing the responsibility if my ETF go down in price.
  - rvnx 4y ago
    This is like the FB announcement where Zuck is "taking responsibility" https://about.fb.com/news/2022/11/mark-zuckerberg-layoff-message-to-employees/ https://about.fb.com/news/2022/11/mark-zuckerberg-layoff-mes... Yeah yeah, taking responsibility in a way that he is mostly not personally affected. Taking responsibility would entitle pouring back the billions he cashed out back into the company.

__alexs 4y ago

Not disagreeing with the badness of the take but > SVB investors were wiped out 100%, this includes most of the net worth of the leadership team. The CEO's base pay is >$1m/year in cash and he's sold over $40m in SVB stock since 2018 https://www.secform4.com/insider-trading/1259867.htm https://www.secform4.com/insider-trading/1259867.htm I can't see how this would wipe out his net worth.