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People are getting too caught up in the 250k limit. Most bank failures result in all depositors being made whole - even over the limit. Normally by regulators

People are getting too caught up in the 250k limit. Most bank failures result in all depositors being made whole - even over the limit. Normally by regulators “hinting” that a larger bank should acquire the failing banks assets whole. FDIC exists to create faith in the banking system - no to just enforce a rule book on how deposit insurance is structured. The goal is for FDIC to never have to pay out in the first place - FDIC’s existence prevents the bank run from starting. The obvious conclusion to the 250k limit (splitting deposits between banks) doesn’t really do anything to actually reduce risk in the banking system, or risk to FDIC. Splitting deposits like this is artificial behaviour that doesn’t have any real benefits to overall stability of the economy.

LiquidSky 4y ago
>People are getting too caught up in the 250k limit. Because you're engaging in the classic Hacker News behavior of a narrow technical point that misses the larger context. People aren't upset about the mechanics of the FDIC. People are upset that time after time the rich make blunder after blunder after blunder and time after time are protected from their own idiocy and hubris in circumstances where everyone else would be left to rot. The same people who, when the shoe is on the other foot, gleefully lecture everyone else about choice and consequences and patronizingly tell them to learn about better personal finance habits. You're describing the biology of an individual tree and missing the forest. You've filled this discussion with many comments all missing the bigger picture of what's going on and why people are angry about this. You can't analyze events in a vacuum.
- listenallyall 4y ago
  And you're describing putting money in a bank as a "blunder," "idiocy" and "hubris." Which is where rational people will likely take exception with your viewpoint.
  - cbzbc 4y ago
    A bank that had a rather cavalier approach to a particular class of risks that the founders and VCs benefited from personally (mortgages, personal loans and other wealth management services at highly discounted rates).
    - listenallyall 4y ago
      We're talking about a BANK here -- state & federally regulated, licensed, accredited -- not some equity investment. Bank depositors should not have to vet a risk profile before opening an account. Do you know the primary risks of the banks you do business with? Which industries they make the most loans to? What investments they've made? Do they hold the minimum deposit reserves, or more?
- FooBarBizBazz 4y ago
  > People are upset that time after time the rich make blunder after blunder after blunder and time after time are protected from their own idiocy and hubris in circumstances where everyone else would be left to rot. I actually think this has created a precedent that will protect deposits of over $250k at small banks. Which is not the domain of poor people, but also not necessarily that of billionaires. So this whole fiasco has created protections that more-or-less ordinary people may well benefit from. Plus, although $250k is a lot for an individual, it isn't necessarily a ton for a business. For example, I once encountered a small software company of about four people, funded by "friends and family" investors (mostly immigrants), that had about $500k in the bank. The employees were solidly middle-class, and the founder was maybe on par with your typical dentist. So I don't view this as only a bailout for billionaires, because I think bank failures can affect anyone with a little money. However, I will grant you -- or volunteer -- the following comparison: Compare this rescue, to what hasn't been done for the residents of East Palestine. That situation is a little different, because the railroad can surely pay for it, so there's no need to consider passing any liability through, say (by analogy) to the railroad industry as a whole. If the executive and judicial branches had been as swift to act in that case as the FDIC, Fed, and Treasury have been in this case, then the people of East Palestine would have been evacuated immediately to comfortable digs, their houses bought for their pre-accident market value, and Norfolk Southern sued to pay for it all. So while I think the right thing was done in this case, and think it will even benefit fairly-ordinary members of the upper-middle-class, I will grant you that the little guys too often do get steamrolled.
altpaddle 4y ago
Hmm I think having a limit probably does make things marginally safer. If you can have $250k in 4 bank accounts or $1MM in 1 bank, it's far less likely that all 4 of those banks would go out of business at the same time vs 1 bank. This decreases the likelihood that the FDIC would have to payout. Also having a limit in theory should force depositors to consider the safety of who they're banking with.
- initplus 4y ago
  It makes things marginally safer for you as a depositor because of how the FDIC insurance is structured. But it doesn't meaningfully reduce the FDIC's risk as the deposit insurer: 1000 businesses, 10 (same size) banks Scenario A: each bank has 100 depositors, each storing 100% of their deposit with the bank Scenario B: each bank has 1000 depositors, each storing 10% of their deposit with the bank In both scenarios the total amount deposited at each bank is the same. The risk to FDIC if an individual bank fails is actually higher in scenario B. But the deposit insurance limit rules push us towards scenario B.

LiquidSky 4y ago

>People are getting too caught up in the 250k limit. Because you're engaging in the classic Hacker News behavior of a narrow technical point that misses the larger context. People aren't upset about the mechanics of the FDIC. People are upset that time after time the rich make blunder after blunder after blunder and time after time are protected from their own idiocy and hubris in circumstances where everyone else would be left to rot. The same people who, when the shoe is on the other foot, gleefully lecture everyone else about choice and consequences and patronizingly tell them to learn about better personal finance habits. You're describing the biology of an individual tree and missing the forest. You've filled this discussion with many comments all missing the bigger picture of what's going on and why people are angry about this. You can't analyze events in a vacuum.

listenallyall 4y ago
And you're describing putting money in a bank as a "blunder," "idiocy" and "hubris." Which is where rational people will likely take exception with your viewpoint.
- cbzbc 4y ago
  A bank that had a rather cavalier approach to a particular class of risks that the founders and VCs benefited from personally (mortgages, personal loans and other wealth management services at highly discounted rates).
  - listenallyall 4y ago
    We're talking about a BANK here -- state & federally regulated, licensed, accredited -- not some equity investment. Bank depositors should not have to vet a risk profile before opening an account. Do you know the primary risks of the banks you do business with? Which industries they make the most loans to? What investments they've made? Do they hold the minimum deposit reserves, or more?
FooBarBizBazz 4y ago
> People are upset that time after time the rich make blunder after blunder after blunder and time after time are protected from their own idiocy and hubris in circumstances where everyone else would be left to rot. I actually think this has created a precedent that will protect deposits of over $250k at small banks. Which is not the domain of poor people, but also not necessarily that of billionaires. So this whole fiasco has created protections that more-or-less ordinary people may well benefit from. Plus, although $250k is a lot for an individual, it isn't necessarily a ton for a business. For example, I once encountered a small software company of about four people, funded by "friends and family" investors (mostly immigrants), that had about $500k in the bank. The employees were solidly middle-class, and the founder was maybe on par with your typical dentist. So I don't view this as only a bailout for billionaires, because I think bank failures can affect anyone with a little money. However, I will grant you -- or volunteer -- the following comparison: Compare this rescue, to what hasn't been done for the residents of East Palestine. That situation is a little different, because the railroad can surely pay for it, so there's no need to consider passing any liability through, say (by analogy) to the railroad industry as a whole. If the executive and judicial branches had been as swift to act in that case as the FDIC, Fed, and Treasury have been in this case, then the people of East Palestine would have been evacuated immediately to comfortable digs, their houses bought for their pre-accident market value, and Norfolk Southern sued to pay for it all. So while I think the right thing was done in this case, and think it will even benefit fairly-ordinary members of the upper-middle-class, I will grant you that the little guys too often do get steamrolled.

altpaddle 4y ago

Hmm I think having a limit probably does make things marginally safer. If you can have $250k in 4 bank accounts or $1MM in 1 bank, it's far less likely that all 4 of those banks would go out of business at the same time vs 1 bank. This decreases the likelihood that the FDIC would have to payout. Also having a limit in theory should force depositors to consider the safety of who they're banking with.

initplus 4y ago
It makes things marginally safer for you as a depositor because of how the FDIC insurance is structured. But it doesn't meaningfully reduce the FDIC's risk as the deposit insurer: 1000 businesses, 10 (same size) banks Scenario A: each bank has 100 depositors, each storing 100% of their deposit with the bank Scenario B: each bank has 1000 depositors, each storing 10% of their deposit with the bank In both scenarios the total amount deposited at each bank is the same. The risk to FDIC if an individual bank fails is actually higher in scenario B. But the deposit insurance limit rules push us towards scenario B.