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Why would giving the depositors their money back tempt banks to take risks? SVB has totally folded. Its stock, and probably its bonds, are equally as worthless

by durumu 4y ago

Why would giving the depositors their money back tempt banks to take risks? SVB has totally folded. Its stock, and probably its bonds, are equally as worthless as they were before the government stepped in. I guess it could tempt other businesses to take risks like keeping all their money at one bank, but I’m not sure how big a deal that is.

whydoyoucare 4y ago
Nobody pays out money for uninsured goods. Making the depositors whole is sending a signal that (a) FDIC insurance limits are worthless and can be ignored, (b) Depositors can continue to be callous in their financial behavior, and (c) Banks can take known-stupid risks, worst case the bank will collapse, but depositor money is rock solid safe. While a company parking millions of dollars will require several accounts to meet that FDIC limit, having two to five accounts at separate banks is certainly not out of reach for almost all institutional depositors. Spreading risk, that simple. (Again, all this is hindsight, and I am not exactly privy to what forced startups to park their funds in a single bank, so take my commentary with that grain/rock of salt).
- gretch 4y ago
  These aren't behaviors that add any value to society: > Depositors can continue to be callous in their financial behavior Depositors should be able to select a normal bank and put their money in without having to do a huge deep dive on the books of the bank. In this case the problem was with having too many treasuries or something? Why do we want a small business with $400k in the bank to have to figure out the bank's treasury holdings before they are able to start their ice cream store? Do we want them to have to open multiple bank accounts each time they hit $250k? How is that not just 'busy work' for a business owner (and thus raises the bar to entry for new businesses in the market)?

by durumu 4y ago

whydoyoucare 4y ago

Nobody pays out money for uninsured goods. Making the depositors whole is sending a signal that (a) FDIC insurance limits are worthless and can be ignored, (b) Depositors can continue to be callous in their financial behavior, and (c) Banks can take known-stupid risks, worst case the bank will collapse, but depositor money is rock solid safe. While a company parking millions of dollars will require several accounts to meet that FDIC limit, having two to five accounts at separate banks is certainly not out of reach for almost all institutional depositors. Spreading risk, that simple. (Again, all this is hindsight, and I am not exactly privy to what forced startups to park their funds in a single bank, so take my commentary with that grain/rock of salt).

gretch 4y ago
These aren't behaviors that add any value to society: > Depositors can continue to be callous in their financial behavior Depositors should be able to select a normal bank and put their money in without having to do a huge deep dive on the books of the bank. In this case the problem was with having too many treasuries or something? Why do we want a small business with $400k in the bank to have to figure out the bank's treasury holdings before they are able to start their ice cream store? Do we want them to have to open multiple bank accounts each time they hit $250k? How is that not just 'busy work' for a business owner (and thus raises the bar to entry for new businesses in the market)?