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I should have explained better. My sense is that right now there is an implicit expectation in the market that the 250k threshold is no longer relevant, and tha

I should have explained better. My sense is that right now there is an implicit expectation in the market that the 250k threshold is no longer relevant, and that the FDIC is implicitly insuring everything that looks remotely like a deposit, regardless of the amount. This doesn't work. The only way to draw a new line in the sand is some sort of reform. The key issue is that the new line has to be "subgame perfect", meaning it has to be credible that if a bank steps over the new line, it will not simply be bailed out again.

unityByFreedom 4y ago
Yes, now I wonder if anyone is allowed to fail. David Sacks complained that if the regionals aren't protected, then everyone will only bank with the big four. Yet if everyone is protected even when the bank makes poor decisions, that's a run on the FDIC itself. So as you say, where is this new line, and who can be trusted to allow those who cross it to fail?
- A4ET8a8uTh0 4y ago
  << Yes, now I wonder if anyone is allowed to fail. That was one of the questions on the call/presentation I was recently on and no one has a clear answer at the moment ( I suppose it is not a surprise since we can't take Yellen at her word ). Some clarity will be needed and sooner rather than later if stated policy and rules are to be believed to be real policy and rules. FWIW, odds are, just about every bank by now has either reviewed or scrambling to review their exposure. I do not envy the weight of Yellen's decisions, because from where I sit it is still hard to tell if it was a 'less bad choice' available.
  - unityByFreedom 4y ago
    > odds are, just about every bank by now has either reviewed or scrambling to review their exposure The lesson they learned is to shout global emergency when your regional bank can't meet withdrawals due to poorly managed finances. Banks will not be more prudent, in the long run. They've just been taught that the government will protect depositors beyond federally insured limits. So now they can make riskier bets.
- zaroth 4y ago
  Keep in mind that SVB equity was totally wiped out. Everyone most certainly was not protected. The people who make the poor decisions absolutely took a hit. The Board and management of the bank all took a hit and lost their jobs. I don’t see a big problem with depositors being made whole. The bonds that backed their deposits are fully intact.
  - UncleEntity 4y ago
    > The Board and management of the bank all took a hit and lost their jobs. Right after they cashed out significant amounts of SVB stocks.
    - webmaven 4y ago
      Don't be too surprised if the FDIC (or perhaps the SEC, since we're talking about equity) forces clawbacks of those payouts, not to mention salary and bonuses in general after December 2021.
      - unityByFreedom 4y ago
        What is the case against them? You can't claw back without demonstrating some law was broken. Making a bad financial decision that causes a business to fail isn't against the law unless you somehow profited from it. And, from what's publicly known, SVB's CEO didn't come away with more money from the bank's closure than he would have had he continued running the bank.
  - unityByFreedom 4y ago
    The question is, what would it take for a bank to be allowed to fail? The FDIC insurance line of $250k must've meant something.
    - Rapzid 4y ago
      SVB failed. You should look up the FDIC mission statement; it has nothing to do with drawing lines in the sand.
phh 4y ago
> I should have explained better. My sense is that right now there is an implicit expectation in the market that the 250k threshold is no longer relevant, and that the FDIC is implicitly insuring everything that looks remotely like a deposit, regardless of the amount. If rich people think that, I think they deserve to be taxed at more than 80%, because that's stupid. FDIC move was perfectly rational and cost-optimized. Had they not done that, there would have been more bank runs, and they would have to actually pay out 250k/account on many more accounts than just SVB's, while ""saving"" SVB cost almost nothing.
- deleted 4y ago
  [deleted]
- dbfx 4y ago
  You yourself just explained the reasoning as to why they would think that and seem to agree as well, not sure why you'd call it stupid.
rexreed 4y ago
The simplest answer is "excess deposits insurance". Banks (or third-party insurers) could charge a monthly insurance fee for balances over $250k that provides insurance over the FDIC $250k cap. This allows everyone else under the $250k cap to bank without paying fees (the bank already paying insurance on those as per FDIC), and provides greater coverage to those above the cap. Think of it like an Umbrella Insurance policy. Some banks might provide the insurance for their most favored clients if they so choose, or embed the insurance inside other services.
- pjc50 4y ago
  > Banks charge a monthly insurance fee for balances over $250k that provides FDIC insurance over the $250k cap The thing is .. the FDIC is already funded by banks. https://www.fdic.gov/about/what-we-do/index.html https://www.fdic.gov/about/what-we-do/index.html "The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts - deposits in virtually every bank and savings association in the country." How the banks choose to pass that cost on to customers/shareholders is up to them. It's instructive to read https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/2022dec/qbp.pdf https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/... for the last available quarter; the insurance fund is on page 24. I can quote you two numbers and you can decide whether they are big or small: there is $128 billion in the fund, and this covers 1.27% of total US banking deposits.
  - rexreed 4y ago
    Yes that's correct. I'm suggesting an additional fee that is paid by the account holder who holds excess funds above the amounts that are already covered by the bank in their fees for FDIC insurance coverage. I'm aware of the existing bank-paid insurance that covers the mandatory $250k FDIC coverage up to the cap. The difference that I am suggesting is that the umbrella insurance is paid by the account holder to the bank for excess insurance coverage. This allows insurance coverage for account holders over $250k, of which there is no insurance coverage, optional or of any kind, available today.
deleted 4y ago
[deleted]

unityByFreedom 4y ago

Yes, now I wonder if anyone is allowed to fail. David Sacks complained that if the regionals aren't protected, then everyone will only bank with the big four. Yet if everyone is protected even when the bank makes poor decisions, that's a run on the FDIC itself. So as you say, where is this new line, and who can be trusted to allow those who cross it to fail?

A4ET8a8uTh0 4y ago
<< Yes, now I wonder if anyone is allowed to fail. That was one of the questions on the call/presentation I was recently on and no one has a clear answer at the moment ( I suppose it is not a surprise since we can't take Yellen at her word ). Some clarity will be needed and sooner rather than later if stated policy and rules are to be believed to be real policy and rules. FWIW, odds are, just about every bank by now has either reviewed or scrambling to review their exposure. I do not envy the weight of Yellen's decisions, because from where I sit it is still hard to tell if it was a 'less bad choice' available.
- unityByFreedom 4y ago
  > odds are, just about every bank by now has either reviewed or scrambling to review their exposure The lesson they learned is to shout global emergency when your regional bank can't meet withdrawals due to poorly managed finances. Banks will not be more prudent, in the long run. They've just been taught that the government will protect depositors beyond federally insured limits. So now they can make riskier bets.
zaroth 4y ago
Keep in mind that SVB equity was totally wiped out. Everyone most certainly was not protected. The people who make the poor decisions absolutely took a hit. The Board and management of the bank all took a hit and lost their jobs. I don’t see a big problem with depositors being made whole. The bonds that backed their deposits are fully intact.
- UncleEntity 4y ago
  > The Board and management of the bank all took a hit and lost their jobs. Right after they cashed out significant amounts of SVB stocks.
  - webmaven 4y ago
    Don't be too surprised if the FDIC (or perhaps the SEC, since we're talking about equity) forces clawbacks of those payouts, not to mention salary and bonuses in general after December 2021.
    - unityByFreedom 4y ago
      What is the case against them? You can't claw back without demonstrating some law was broken. Making a bad financial decision that causes a business to fail isn't against the law unless you somehow profited from it. And, from what's publicly known, SVB's CEO didn't come away with more money from the bank's closure than he would have had he continued running the bank.
- unityByFreedom 4y ago
  The question is, what would it take for a bank to be allowed to fail? The FDIC insurance line of $250k must've meant something.
  - Rapzid 4y ago
    SVB failed. You should look up the FDIC mission statement; it has nothing to do with drawing lines in the sand.

phh 4y ago

> I should have explained better. My sense is that right now there is an implicit expectation in the market that the 250k threshold is no longer relevant, and that the FDIC is implicitly insuring everything that looks remotely like a deposit, regardless of the amount. If rich people think that, I think they deserve to be taxed at more than 80%, because that's stupid. FDIC move was perfectly rational and cost-optimized. Had they not done that, there would have been more bank runs, and they would have to actually pay out 250k/account on many more accounts than just SVB's, while ""saving"" SVB cost almost nothing.

deleted 4y ago
[deleted]
dbfx 4y ago
You yourself just explained the reasoning as to why they would think that and seem to agree as well, not sure why you'd call it stupid.

rexreed 4y ago

The simplest answer is "excess deposits insurance". Banks (or third-party insurers) could charge a monthly insurance fee for balances over $250k that provides insurance over the FDIC $250k cap. This allows everyone else under the $250k cap to bank without paying fees (the bank already paying insurance on those as per FDIC), and provides greater coverage to those above the cap. Think of it like an Umbrella Insurance policy. Some banks might provide the insurance for their most favored clients if they so choose, or embed the insurance inside other services.

pjc50 4y ago
> Banks charge a monthly insurance fee for balances over $250k that provides FDIC insurance over the $250k cap The thing is .. the FDIC is already funded by banks. https://www.fdic.gov/about/what-we-do/index.html https://www.fdic.gov/about/what-we-do/index.html "The FDIC receives no Congressional appropriations - it is funded by premiums that banks and savings associations pay for deposit insurance coverage. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts - deposits in virtually every bank and savings association in the country." How the banks choose to pass that cost on to customers/shareholders is up to them. It's instructive to read https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/2022dec/qbp.pdf https://www.fdic.gov/analysis/quarterly-banking-profile/qbp/... for the last available quarter; the insurance fund is on page 24. I can quote you two numbers and you can decide whether they are big or small: there is $128 billion in the fund, and this covers 1.27% of total US banking deposits.
- rexreed 4y ago
  Yes that's correct. I'm suggesting an additional fee that is paid by the account holder who holds excess funds above the amounts that are already covered by the bank in their fees for FDIC insurance coverage. I'm aware of the existing bank-paid insurance that covers the mandatory $250k FDIC coverage up to the cap. The difference that I am suggesting is that the umbrella insurance is paid by the account holder to the bank for excess insurance coverage. This allows insurance coverage for account holders over $250k, of which there is no insurance coverage, optional or of any kind, available today.

deleted 4y ago

[deleted]