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The government made depositors whole, which I think almost instantly restored faith in the system. I feel like it's sort of no-op at this point.

senectus1 4y ago
So the Gov printed a ton more money, to cover the financial malfeasance of the banks yet again, which is a great deal of the reason why inflation is so bad right now from the last time they did that. This restores your faith in them? Our memories are too short and our collective greed is too great.
- jedberg 4y ago
  Fractional reserve banking is basically giving banks the authority to create money on behalf of the government. They didn't create any extra money to cover this.
  - senectus1 4y ago
    this is also a good point. Fractional should only be allowed if fully insured. which would make it cost inefficient, so they wouldn't do it. and that should tell you something about fractional reserves...
- norgie 4y ago
  No money was printed, this will all come out of the FDIC's coffers, which is filled by banks paying essentially insurance premiums. It'll be covered by selling SVB's assets, with any gap covered by an additional assessment on banks.
  - senectus1 4y ago
    I think that you need to read more into what backstops the FDIC. Taxpayers do. FDIC pulls from the Treasury when they can't cover what's needed. FIDC are only meant to cover up to 250k but it looks like Yellin has decided to cover a lot more than that, and that will come from the treasury. >The FDIC is not supported by public funds; member banks' insurance dues are its primary source of funding.[8] When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides.[9] https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
    - Fatnino 4y ago
      It's not like the entire 160b at svb went poof. Fdic takes everything svb had and that covers A LOT more than just 250k per customer. Sure a little bit off the top would have been missing, but yellen figured covering that small gap out of the fdic's pocket was worth calming down the panic. All other banks will be assessed a little bit more for their fdic coverage and the fdic is made whole in just a few months. So if anything it's a small short term loan from the money taxpayers already set aside as the fdic to cover the gap at svb. No money getting printed, no tax hikes.
snapplebobapple 4y ago
Depends on how the deposit flows go. Prudent people will move their money to the big SIBs and that flow could be enough to force another smaller bank to have to sell underwater bonds to cover cash needs and then we get to do this all over again. It could end up being a vicious cycle even with this first bank's depositors were bailed out. Depends how the unrealized losses are distributed to which i have no visibility so will have to wait and see.
JumpinJack_Cash 4y ago
> > restored faith in the system The confidence in a system where 'nothing bad ever happens to nobody' is at historical minimums actually. After the lockdowns, the experimental vaccine, 3 Trillion spending, free money for everybody etc... people aren't stupid. They understand that forest fires are needed for a healthy forest. And this is true in any context. In the last 3 years we have seen the fire brigade and the 747s water bombers being summoned as soon as even a small spark is seen (or even projected to appear). Whatever solution engineered by humans will always be way inferior vis-a-vis Natural selection. This is true for virus, bacteria, antibiotic resistance and also bank failures. Not to mention how the solution is 99.999% of the times just kicking the can down the road, as it happened in the last 3 years.
- TMWNN 4y ago
  > After the lockdowns, the experimental vaccine, 3 Trillion spending, free money for everybody etc... people aren't stupid. They understand that forest fires are needed for a healthy forest. Aaron Klein (former Treasury official, now with Brookings) agrees with you: >There are just under 5,000 banks in America ... the right answer for the number of banks to fail in a year is greater than zero. If you have no bank failing, then you probably have bigger problems in the economy. Look, the first time in American history you went a year without a bank failure was 2005. 2006 was the second year and the regulators told us at the time, that they'd won, that this was great regulation, see, no one was failing, the system couldn't be safer. Kablooey. <https://www.youtube.com/watch?v=rzQx4qmMcJI#t=4m5s https://www.youtube.com/watch?v=rzQx4qmMcJI#t=4m5s>

senectus1 4y ago

So the Gov printed a ton more money, to cover the financial malfeasance of the banks yet again, which is a great deal of the reason why inflation is so bad right now from the last time they did that. This restores your faith in them? Our memories are too short and our collective greed is too great.

jedberg 4y ago
Fractional reserve banking is basically giving banks the authority to create money on behalf of the government. They didn't create any extra money to cover this.
- senectus1 4y ago
  this is also a good point. Fractional should only be allowed if fully insured. which would make it cost inefficient, so they wouldn't do it. and that should tell you something about fractional reserves...
norgie 4y ago
No money was printed, this will all come out of the FDIC's coffers, which is filled by banks paying essentially insurance premiums. It'll be covered by selling SVB's assets, with any gap covered by an additional assessment on banks.
- senectus1 4y ago
  I think that you need to read more into what backstops the FDIC. Taxpayers do. FDIC pulls from the Treasury when they can't cover what's needed. FIDC are only meant to cover up to 250k but it looks like Yellin has decided to cover a lot more than that, and that will come from the treasury. >The FDIC is not supported by public funds; member banks' insurance dues are its primary source of funding.[8] When dues and the proceeds of bank liquidations are insufficient, it can borrow from the federal government, or issue debt through the Federal Financing Bank on terms that the bank decides.[9] https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp...
  - Fatnino 4y ago
    It's not like the entire 160b at svb went poof. Fdic takes everything svb had and that covers A LOT more than just 250k per customer. Sure a little bit off the top would have been missing, but yellen figured covering that small gap out of the fdic's pocket was worth calming down the panic. All other banks will be assessed a little bit more for their fdic coverage and the fdic is made whole in just a few months. So if anything it's a small short term loan from the money taxpayers already set aside as the fdic to cover the gap at svb. No money getting printed, no tax hikes.

snapplebobapple 4y ago

Depends on how the deposit flows go. Prudent people will move their money to the big SIBs and that flow could be enough to force another smaller bank to have to sell underwater bonds to cover cash needs and then we get to do this all over again. It could end up being a vicious cycle even with this first bank's depositors were bailed out. Depends how the unrealized losses are distributed to which i have no visibility so will have to wait and see.

JumpinJack_Cash 4y ago

> > restored faith in the system The confidence in a system where 'nothing bad ever happens to nobody' is at historical minimums actually. After the lockdowns, the experimental vaccine, 3 Trillion spending, free money for everybody etc... people aren't stupid. They understand that forest fires are needed for a healthy forest. And this is true in any context. In the last 3 years we have seen the fire brigade and the 747s water bombers being summoned as soon as even a small spark is seen (or even projected to appear). Whatever solution engineered by humans will always be way inferior vis-a-vis Natural selection. This is true for virus, bacteria, antibiotic resistance and also bank failures. Not to mention how the solution is 99.999% of the times just kicking the can down the road, as it happened in the last 3 years.

TMWNN 4y ago
> After the lockdowns, the experimental vaccine, 3 Trillion spending, free money for everybody etc... people aren't stupid. They understand that forest fires are needed for a healthy forest. Aaron Klein (former Treasury official, now with Brookings) agrees with you: >There are just under 5,000 banks in America ... the right answer for the number of banks to fail in a year is greater than zero. If you have no bank failing, then you probably have bigger problems in the economy. Look, the first time in American history you went a year without a bank failure was 2005. 2006 was the second year and the regulators told us at the time, that they'd won, that this was great regulation, see, no one was failing, the system couldn't be safer. Kablooey. <https://www.youtube.com/watch?v=rzQx4qmMcJI#t=4m5s https://www.youtube.com/watch?v=rzQx4qmMcJI#t=4m5s>