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Why shouldn't they. The fact that there were no serious or lasting consequences after 2008 and bailouts made the message clear. "Act poorly and if you are big e

Why shouldn't they. The fact that there were no serious or lasting consequences after 2008 and bailouts made the message clear. "Act poorly and if you are big enough/connected enough, we'll make sure you don't face consequences." The effects may have hurt some people, even some innocent people, but the long term effects of not holding people responsible is far worse society in the long run. If a child is never allowed to face the consequences of their actions they will never learn.

cm2012 4y ago
The equity holders in SVB were wiped out, they faced consequences. No reason for deposit holders to.
- kneebonian 4y ago
  Why? If you have more than the insured $250k in there you knew that was a possibility. Sure it sucks, but life is unfair, and now other people have to make up the cost.
  - initplus 4y ago
    The government wants it to not be a possibility. Bank accounts are meant to look safe. If government didn’t make it clear they were stepping in here, what do you think would have happened first thing Monday morning? Every small/medium business would have seen the writing on the wall and moved their funds out of small/medium banks and into the handful of “too big to fail” megabanks. Stepping in and making up the cost prevents contagion. The 250k limit is somewhat of a red herring. If every depositor split their funds up to stay under the 250k limit, it doesn’t actually change the overall risk profile for the FDIC.
    - orwin 4y ago
      But only few banks offer the same rates as SVB did. So you can get that risk-free extra 2% on your deposit up to 250k, or up to hundreds of millions, and the government will just pay in fine. That opens up new area of business imho.
- luckylion 4y ago
  Why not? Putting all your company's money into a single bank in return for great loan terms and additionally below-market terms on your home financing is accepting risk. It's a great decision if everything goes right, you save a lot of money, both as a company and the CEO personally. It's a problem if it goes wrong, just as all investments are.
- repiret 4y ago
  I don’t entirely agree - the depositors enjoyed higher interest rates from SVB’s risky behavior. If they face no consequences, then it will encourage institutional depositors to continue flocking to whatever bank is offering the most irresponsible interest rate. We need to balance letting the depositors suffer with causing a system wide run, so I think the FDIC/Fed choice was reasonable, but I would have rather seen them, say, guarantee uninsured deposits, less the interest of those deposits earned over the past 18 months.
majormajor 4y ago
You seem fairly mixed up about who would face which consequences from a bunch of bank runs vs what happened here with the management replaced and shareholders wiped out but depositors backed up. If there's any ground for further actions against the management of the banks, I'm fully supportive of that, but a bunch of bank runs would've hurt everyone but them more than them.
twblalock 4y ago
If depositors lose money, it would be likely to result in runs on other banks. The mission of the FDIC is to prevent that sort of thing. Deposit insurance is not their mission, it's just a means to an end. When it fails to suffice, other actions will be taken to achieve the mission, like we saw this weekend. But even if other bank runs didn't happen, there would be another consequence that I'm sure you wouldn't like either. People would understand that there are now two tiers of deposit safety: small banks where depositors might lose money above $250k if the bank fails, and "too big to fail" banks where that wouldn't happen (because they can't fail!). Everyone would move their deposits to the "too big to fail" banks, which would make those banks even bigger and more powerful.

cm2012 4y ago

The equity holders in SVB were wiped out, they faced consequences. No reason for deposit holders to.

kneebonian 4y ago
Why? If you have more than the insured $250k in there you knew that was a possibility. Sure it sucks, but life is unfair, and now other people have to make up the cost.
- initplus 4y ago
  The government wants it to not be a possibility. Bank accounts are meant to look safe. If government didn’t make it clear they were stepping in here, what do you think would have happened first thing Monday morning? Every small/medium business would have seen the writing on the wall and moved their funds out of small/medium banks and into the handful of “too big to fail” megabanks. Stepping in and making up the cost prevents contagion. The 250k limit is somewhat of a red herring. If every depositor split their funds up to stay under the 250k limit, it doesn’t actually change the overall risk profile for the FDIC.
  - orwin 4y ago
    But only few banks offer the same rates as SVB did. So you can get that risk-free extra 2% on your deposit up to 250k, or up to hundreds of millions, and the government will just pay in fine. That opens up new area of business imho.
luckylion 4y ago
Why not? Putting all your company's money into a single bank in return for great loan terms and additionally below-market terms on your home financing is accepting risk. It's a great decision if everything goes right, you save a lot of money, both as a company and the CEO personally. It's a problem if it goes wrong, just as all investments are.
repiret 4y ago
I don’t entirely agree - the depositors enjoyed higher interest rates from SVB’s risky behavior. If they face no consequences, then it will encourage institutional depositors to continue flocking to whatever bank is offering the most irresponsible interest rate. We need to balance letting the depositors suffer with causing a system wide run, so I think the FDIC/Fed choice was reasonable, but I would have rather seen them, say, guarantee uninsured deposits, less the interest of those deposits earned over the past 18 months.

majormajor 4y ago

You seem fairly mixed up about who would face which consequences from a bunch of bank runs vs what happened here with the management replaced and shareholders wiped out but depositors backed up. If there's any ground for further actions against the management of the banks, I'm fully supportive of that, but a bunch of bank runs would've hurt everyone but them more than them.

twblalock 4y ago

If depositors lose money, it would be likely to result in runs on other banks. The mission of the FDIC is to prevent that sort of thing. Deposit insurance is not their mission, it's just a means to an end. When it fails to suffice, other actions will be taken to achieve the mission, like we saw this weekend. But even if other bank runs didn't happen, there would be another consequence that I'm sure you wouldn't like either. People would understand that there are now two tiers of deposit safety: small banks where depositors might lose money above $250k if the bank fails, and "too big to fail" banks where that wouldn't happen (because they can't fail!). Everyone would move their deposits to the "too big to fail" banks, which would make those banks even bigger and more powerful.