6 ms·

Why would there be a run on other banks if depositors are confident they'll be protected though?

tempsy 4y ago
a “run” can simply be a wake up call to wealthy people with hundreds of thousands or millions in some 0% earning checking account to funnel that money into a money market or t-bills earning 4-5%. that would alone create some outflow even if the reason is not panic
- arbuge 4y ago
  That dynamic, known as cash sorting, had already been going on for several months, and appeared to be stabilizing. If anything, I think the events of the last few days could reduce it somewhat. Better to have your funds safe earning little in a Big 4 bank than somewhere else with higher rates but now perceived to be risky.
  - tempsy 4y ago
    no bank is safer than lending directly to the US government at higher rates than what they can offer
    - arbuge 4y ago
      It's an alternative but that doesn't give you all the flexibility and features a bank account does.
- jliptzin 4y ago
  I happened to check what my citibank savings account pays these days...0.12% interest. Not that I keep any significant amount of money there, anyway. I would if they would pay remotely close to competitive interest rates, but I guess they're banking on most people being too dumb to realize that they can get 4-5% more on their money if they take 5 min to open an account elsewhere.
  - kortilla 4y ago
    Some banks are even offering the better rate if you open a different account with the same bank. They are definitely depending on people not noticing.
  - hypothesis 4y ago
    Might as well buy treasuries with higher rates and tax benefits. Should not take much longer to setup…
  - garyfirestorm 4y ago
    Couple of weeks ago I opened a Citi High Yield Savings account ~3.5% interest rate. Took less than 30 seconds to open the account.
  - jaywalk 4y ago
    I have a checking account that pays 0.1% APY. Savings account is at 3.6% APY. You are getting screwed.
vsareto 4y ago
Baseless speculation, but I wouldn't be surprised if some withdrawals are just moving money around to spread risk. High confidence, but high withdrawals?
- danielmarkbruce 4y ago
  Lots of people are doing exactly this.
postalrat 4y ago
Whats the upside for the risk, no matter how small?
- readthenotes1 4y ago
  alleviating the risk in having to manage piddling amounts of money in multiple Banks.
vkou 4y ago
There doesn't need to be a run, a bank will be closed by FDIC if it is insolvent. And in SVB's case, a very small amount of withdrawals was enough to trigger insolvency. (As it forced the bank to sell, and thereby mark-to-market it's long-term treasuries.)
- biscottigelato 4y ago
  SVB had $45B withdrawals on their $175B deposit base. That is not a small amount of withdrawals. JPM has $500B of cash and cash equivalents on their $3T deposit base. Of which only ~$34B is in actual cash. Even JPM would fall (without Fed backstop) if JPM had that much withdrawals as a percentage of deposit.
  - vkou 4y ago
    > SVB had $45B withdrawals on their $175B deposit base. That is not a small amount of withdrawals. Almost all of those withdrawals happened after the bank was insolvent. SVB had to sell all of their available securities to cover day-to-day customer withdrawals (The problem with being the bank of choice for startups is that they aren't making any money, aren't getting any new investments, but are still spending money.) The bank run started after SVB started dipping into its underwater long-term securities, and borrowing money, and doing emergency fundraising. A more diversified bank (Like any of the big four) would avoid this problem, because their regular day-to-day activity would be a ~net-zero balance of withdrawals and deposits. SVB was uniquely vulnerable because of its undiversified customer base, where normal customer activity pushed it towards insolvency.
downrightmike 4y ago
Why wait for something to get given back when you can take it back right now? Dealing with insurance is always a bitch, especially if they have to pay. They'll drag it out years.
- lxgr 4y ago
  The entire point of FDIC and similar insurances is to make insured funds available within days. If depositors could/had to wait years, there wouldn‘t be a need for insurance anymore in this case.
  - herpderperator 4y ago
    If it were your hard-earned money saved up over the course of years or decades, would you risk seeing if the theory works in practice?
  - notch898a 4y ago
    It's not clear what was meant by "other banks" above. If "other banks" means a large percentage of all of them, the FDIC doesn't have the cash on hand. Sure there may be appropriations from somewhere else, but that could take awhile.
  - rcme 4y ago
    I think the point still stands: why keep your money in a bank known to be insolvent? What is the upside? Especially if you already have an account at a bigger bank.
    - credit_guy 4y ago
      Not a lot of upside, but on the other hand you don't have to deal with all the hassle to switch banks. Even as a private person, I don't relish the idea of switching my bank. I have quite a number of autopayments set up. My salary also goes automatically in my bank account. If I switch it would take me days to set up everything again. I imagine a small/medium company would go through this, but times 100. If you are short on manpower (and who isn't nowadays?), then you have better things to do.
notch898a 4y ago
FDIC only has a reserve ratio of under 2%.

a “run” can simply be a wake up call to wealthy people with hundreds of thousands or millions in some 0% earning checking account to funnel that money into a money market or t-bills earning 4-5%. that would alone create some outflow even if the reason is not panic

arbuge 4y ago
That dynamic, known as cash sorting, had already been going on for several months, and appeared to be stabilizing. If anything, I think the events of the last few days could reduce it somewhat. Better to have your funds safe earning little in a Big 4 bank than somewhere else with higher rates but now perceived to be risky.
- tempsy 4y ago
  no bank is safer than lending directly to the US government at higher rates than what they can offer
  - arbuge 4y ago
    It's an alternative but that doesn't give you all the flexibility and features a bank account does.
jliptzin 4y ago
I happened to check what my citibank savings account pays these days...0.12% interest. Not that I keep any significant amount of money there, anyway. I would if they would pay remotely close to competitive interest rates, but I guess they're banking on most people being too dumb to realize that they can get 4-5% more on their money if they take 5 min to open an account elsewhere.
- kortilla 4y ago
  Some banks are even offering the better rate if you open a different account with the same bank. They are definitely depending on people not noticing.
- hypothesis 4y ago
  Might as well buy treasuries with higher rates and tax benefits. Should not take much longer to setup…
- garyfirestorm 4y ago
  Couple of weeks ago I opened a Citi High Yield Savings account ~3.5% interest rate. Took less than 30 seconds to open the account.
- jaywalk 4y ago
  I have a checking account that pays 0.1% APY. Savings account is at 3.6% APY. You are getting screwed.

vsareto 4y ago

Baseless speculation, but I wouldn't be surprised if some withdrawals are just moving money around to spread risk. High confidence, but high withdrawals?

danielmarkbruce 4y ago
Lots of people are doing exactly this.

postalrat 4y ago

Whats the upside for the risk, no matter how small?

readthenotes1 4y ago
alleviating the risk in having to manage piddling amounts of money in multiple Banks.

vkou 4y ago

There doesn't need to be a run, a bank will be closed by FDIC if it is insolvent. And in SVB's case, a very small amount of withdrawals was enough to trigger insolvency. (As it forced the bank to sell, and thereby mark-to-market it's long-term treasuries.)

biscottigelato 4y ago
SVB had $45B withdrawals on their $175B deposit base. That is not a small amount of withdrawals. JPM has $500B of cash and cash equivalents on their $3T deposit base. Of which only ~$34B is in actual cash. Even JPM would fall (without Fed backstop) if JPM had that much withdrawals as a percentage of deposit.
- vkou 4y ago
  > SVB had $45B withdrawals on their $175B deposit base. That is not a small amount of withdrawals. Almost all of those withdrawals happened after the bank was insolvent. SVB had to sell all of their available securities to cover day-to-day customer withdrawals (The problem with being the bank of choice for startups is that they aren't making any money, aren't getting any new investments, but are still spending money.) The bank run started after SVB started dipping into its underwater long-term securities, and borrowing money, and doing emergency fundraising. A more diversified bank (Like any of the big four) would avoid this problem, because their regular day-to-day activity would be a ~net-zero balance of withdrawals and deposits. SVB was uniquely vulnerable because of its undiversified customer base, where normal customer activity pushed it towards insolvency.

downrightmike 4y ago

Why wait for something to get given back when you can take it back right now? Dealing with insurance is always a bitch, especially if they have to pay. They'll drag it out years.

lxgr 4y ago
The entire point of FDIC and similar insurances is to make insured funds available within days. If depositors could/had to wait years, there wouldn‘t be a need for insurance anymore in this case.
- herpderperator 4y ago
  If it were your hard-earned money saved up over the course of years or decades, would you risk seeing if the theory works in practice?
- notch898a 4y ago
  It's not clear what was meant by "other banks" above. If "other banks" means a large percentage of all of them, the FDIC doesn't have the cash on hand. Sure there may be appropriations from somewhere else, but that could take awhile.
- rcme 4y ago
  I think the point still stands: why keep your money in a bank known to be insolvent? What is the upside? Especially if you already have an account at a bigger bank.
  - credit_guy 4y ago
    Not a lot of upside, but on the other hand you don't have to deal with all the hassle to switch banks. Even as a private person, I don't relish the idea of switching my bank. I have quite a number of autopayments set up. My salary also goes automatically in my bank account. If I switch it would take me days to set up everything again. I imagine a small/medium company would go through this, but times 100. If you are short on manpower (and who isn't nowadays?), then you have better things to do.

notch898a 4y ago

FDIC only has a reserve ratio of under 2%.