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

by cm2012 4y ago

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.

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

by cm2012 4y ago

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

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.