4 ms·

it's good then that the funds to support the deposits are coming from the bank funded fdic fund not taxes then.

yunwal 4y ago
The whole argument is whether uninsured deposits should be provided by the FDIC. I have no problems with the insured amount being returned to customers. The FDIC is a government owned business and shouldn’t be acting outside of it’s financial interests and obligations.
- wstuartcl 4y ago
  The other good news is that it will probably net out to costing little to nothing in the long term as they had enough assets to cover liabilities -- it was a liquidity crunch. Seems very much relevant to what the FDIC was created for -- to make depositors whole and stop contagion. It would be different if the bank was not properly asset backed.
  - yunwal 4y ago
    > The other good news is that it will probably net out to costing little to nothing in the long term If it cost nothing with no risk, surely a larger banking institution would have been willing to step in to solve it. > Seems very much relevant to what the FDIC was created for The FDIC was created to be an insurance corporation, not to bail out banks at their discretion.
    - fisherjeff 4y ago
      The only risk for other banks is opportunity cost: right now, there are much more productive uses of their money than buying old agencies at par. If you had $200b or whatever laying around, you could buy their portfolio and make about the lowest risk $10b there is. But if you just bought new agencies at the same durations instead, you could easily double that. EDIT: To clarify, this is the primary risk at large banks, where they could absorb a chunk of the bonds without significantly affecting their average maturity. Smaller banks obviously risk replaying the SVB run.
      - yunwal 4y ago
        > The only risk for other banks is opportunity cost To be clear, if banks can improve their risk profile for free, they will do that (because it frees them to invest in other risky stuff). A no-risk 5% return while the fed is giving out sub-5% interest rates is a no-brainer. The reason no banks are coming in to help is because it would be a bad investment.
        fisherjeff 4y ago
        They are 5-10% total return, not annual. My point is that it is not a bad investment, it’s just a less-good investment than equivalent bonds with the exact same (extremely low!) risk profile at today’s rates. They were a perfectly fine investment in 2021-22, they just aren’t as attractive in 2023. Could very well be good again in 2024 though, who knows.
    - actually_a_dog 4y ago
      Banks are not being "bailed out." Depositors are. SVB no longer exists. Now, you can certainly argue over the merits of bailing out depositors, but disingenuously framing it as a "bank bailout" is not the position to start from. On that point, the government does have an obligation to "provide for the common defense and the general welfare of the United States," and that is clearly one of the overarching purposes of the Constitution itself. I find it hard to argue that saving tens of thousands of jobs[0] but by making the depositors whole, when the assets of SVB, illiquid though they may be, can cover 60-90% of the cost, is at all the wrong thing to do. This is literally part of why we have a government, and why markets are regulated at all. [0]: I couldn't find a good source on the number of jobs, but that seems like the correct order of magnitude, anyway.
      - yunwal 4y ago
        This is really semantics to me. Customers gave SVB their money because they paid high returns and engaged in risky behavior. That money was used to fund exec and employee salaries. People who take risks should bear the responsibility. Whether the bank still exists or not doesn't really concern me, since the people who ran it into the ground can turn around and do the same thing tomorrow. > "provide for the common defense and the general welfare of the United States," We'll have to agree to disagree that bailing out well-off startup founders and employees is the best way to provide for the general welfare of the United States. I'd start with people undergoing medical bankruptcy, then about a million other categories of people before I got to them. Either way, I'd prefer the accounting to be transparent. The FDIC isn't acting as a corporation here, so they shouldn't be a corporation.
        actually_a_dog 4y ago
        You really think employees of SVB bank clients should bear the burden of decisions made by their employers without their input, likely without their knowledge, and very little reason to care 99.99% of the time? Quick, without looking at your paystub, what bank does your employer use? I don't disagree that doing things like addressing medical debt are worthy ways to promote the general welfare, but let's not pretend it's an either/or, thing here, either. You don't seem to want to acknowledge the full context of the situation, which seems at least on the edge of disengenuousness. This as well, after you try to frame it as a "bank bailout" then backpedal when called on it.
    - wstuartcl 4y ago
      The FDIC charter: The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation’s financial system. The FDIC insures deposits; examines and supervises financial institutions for safety, soundness, and consumer protection; makes large and complex financial institutions resolvable; and manages receiverships.
      - yunwal 4y ago
        > and manages receiverships. This feels like you're agreeing with me. Is that the case? Receiverships have a pretty specific meaning, which explicitly does not include resolving liquidity issues using third-party funding.

The whole argument is whether uninsured deposits should be provided by the FDIC. I have no problems with the insured amount being returned to customers. The FDIC is a government owned business and shouldn’t be acting outside of it’s financial interests and obligations.

wstuartcl 4y ago
The other good news is that it will probably net out to costing little to nothing in the long term as they had enough assets to cover liabilities -- it was a liquidity crunch. Seems very much relevant to what the FDIC was created for -- to make depositors whole and stop contagion. It would be different if the bank was not properly asset backed.
- yunwal 4y ago
  > The other good news is that it will probably net out to costing little to nothing in the long term If it cost nothing with no risk, surely a larger banking institution would have been willing to step in to solve it. > Seems very much relevant to what the FDIC was created for The FDIC was created to be an insurance corporation, not to bail out banks at their discretion.
  - fisherjeff 4y ago
    The only risk for other banks is opportunity cost: right now, there are much more productive uses of their money than buying old agencies at par. If you had $200b or whatever laying around, you could buy their portfolio and make about the lowest risk $10b there is. But if you just bought new agencies at the same durations instead, you could easily double that. EDIT: To clarify, this is the primary risk at large banks, where they could absorb a chunk of the bonds without significantly affecting their average maturity. Smaller banks obviously risk replaying the SVB run.
    - yunwal 4y ago
      > The only risk for other banks is opportunity cost To be clear, if banks can improve their risk profile for free, they will do that (because it frees them to invest in other risky stuff). A no-risk 5% return while the fed is giving out sub-5% interest rates is a no-brainer. The reason no banks are coming in to help is because it would be a bad investment.
      - fisherjeff 4y ago
        They are 5-10% total return, not annual. My point is that it is not a bad investment, it’s just a less-good investment than equivalent bonds with the exact same (extremely low!) risk profile at today’s rates. They were a perfectly fine investment in 2021-22, they just aren’t as attractive in 2023. Could very well be good again in 2024 though, who knows.
  - actually_a_dog 4y ago
    Banks are not being "bailed out." Depositors are. SVB no longer exists. Now, you can certainly argue over the merits of bailing out depositors, but disingenuously framing it as a "bank bailout" is not the position to start from. On that point, the government does have an obligation to "provide for the common defense and the general welfare of the United States," and that is clearly one of the overarching purposes of the Constitution itself. I find it hard to argue that saving tens of thousands of jobs[0] but by making the depositors whole, when the assets of SVB, illiquid though they may be, can cover 60-90% of the cost, is at all the wrong thing to do. This is literally part of why we have a government, and why markets are regulated at all. [0]: I couldn't find a good source on the number of jobs, but that seems like the correct order of magnitude, anyway.
    - yunwal 4y ago
      This is really semantics to me. Customers gave SVB their money because they paid high returns and engaged in risky behavior. That money was used to fund exec and employee salaries. People who take risks should bear the responsibility. Whether the bank still exists or not doesn't really concern me, since the people who ran it into the ground can turn around and do the same thing tomorrow. > "provide for the common defense and the general welfare of the United States," We'll have to agree to disagree that bailing out well-off startup founders and employees is the best way to provide for the general welfare of the United States. I'd start with people undergoing medical bankruptcy, then about a million other categories of people before I got to them. Either way, I'd prefer the accounting to be transparent. The FDIC isn't acting as a corporation here, so they shouldn't be a corporation.
      - actually_a_dog 4y ago
        You really think employees of SVB bank clients should bear the burden of decisions made by their employers without their input, likely without their knowledge, and very little reason to care 99.99% of the time? Quick, without looking at your paystub, what bank does your employer use? I don't disagree that doing things like addressing medical debt are worthy ways to promote the general welfare, but let's not pretend it's an either/or, thing here, either. You don't seem to want to acknowledge the full context of the situation, which seems at least on the edge of disengenuousness. This as well, after you try to frame it as a "bank bailout" then backpedal when called on it.
  - wstuartcl 4y ago
    The FDIC charter: The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation’s financial system. The FDIC insures deposits; examines and supervises financial institutions for safety, soundness, and consumer protection; makes large and complex financial institutions resolvable; and manages receiverships.
    - yunwal 4y ago
      > and manages receiverships. This feels like you're agreeing with me. Is that the case? Receiverships have a pretty specific meaning, which explicitly does not include resolving liquidity issues using third-party funding.