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"This is a temporary program; banks can only tap this liquidity for about a year. In the ordinary course, bank runs don’t last for a year; they either cause an

"This is a temporary program; banks can only tap this liquidity for about a year. In the ordinary course, bank runs don’t last for a year; they either cause an institution to fail very quickly or peter out. But the other reason this is time-bounded is to defang the moral hazard, on behalf of both banks and their customers. (Moral hazard in insurance is when the existence of insurance makes it incentive-compatible for you to be imprudent in your own risk taking, expecting someone else to bear the consequences.)" This is likely the most important part. FED, Treasury and administration bought some time, but what happens after one year is anyone's guess.

deleted 4y ago
[deleted]
zie 4y ago
That was the Fed and treasuries way of telling all the owners of banks across the US, take the beating or else. If the banks listen and take the beating, invest more equity and re-adjust their banking practices to handle interest rate risk, nothing exciting happens. If the banks don't heed the klaxon call, they will likely get wiped to zero and cease to be owners of banks anymore(because the FDIC will take the bank over and say enough). Depositors/customers of the banks will probably be just fine though. The FDIC will either find a new set of owners or dissolve it and move customers to new banks that did take the beating. I imagine some idiots will try and call the bluff, get wiped to zero and hopefully learn something in the process, if only to not be a bank owner anymore.
- A4ET8a8uTh0 4y ago
  I will admit that I did not think about it in those terms, but that is why I like to come here ; you are exposed to different perspectives. Do you think this is a way for FED to raise the rates further despite the interest risk you mentioned since failure of SVB put next interest hike into question[1]? edited for clarity [1]https://www.marketwatch.com/story/bank-fallout-undermines-fed-rate-hike-expectations-with-full-percentage-point-of-cuts-seen-by-year-end-8422db60?mod=home-page https://www.marketwatch.com/story/bank-fallout-undermines-fe...
  - zie 4y ago
    I think the Feds are going to keep fighting inflation. Will they rate hike or not I have no idea, but I'd be very surprised if they lowered rates right away. Unless the economy really goes bonkers stupid and crashes hard, I really don't see them lowering rates anytime this year and maybe not next. A few banks that were arguably stupid crashing and burning? Well that's part of the expected cost of fighting inflation.

deleted 4y ago

[deleted]

zie 4y ago

That was the Fed and treasuries way of telling all the owners of banks across the US, take the beating or else. If the banks listen and take the beating, invest more equity and re-adjust their banking practices to handle interest rate risk, nothing exciting happens. If the banks don't heed the klaxon call, they will likely get wiped to zero and cease to be owners of banks anymore(because the FDIC will take the bank over and say enough). Depositors/customers of the banks will probably be just fine though. The FDIC will either find a new set of owners or dissolve it and move customers to new banks that did take the beating. I imagine some idiots will try and call the bluff, get wiped to zero and hopefully learn something in the process, if only to not be a bank owner anymore.

A4ET8a8uTh0 4y ago
I will admit that I did not think about it in those terms, but that is why I like to come here ; you are exposed to different perspectives. Do you think this is a way for FED to raise the rates further despite the interest risk you mentioned since failure of SVB put next interest hike into question[1]? edited for clarity [1]https://www.marketwatch.com/story/bank-fallout-undermines-fed-rate-hike-expectations-with-full-percentage-point-of-cuts-seen-by-year-end-8422db60?mod=home-page https://www.marketwatch.com/story/bank-fallout-undermines-fe...
- zie 4y ago
  I think the Feds are going to keep fighting inflation. Will they rate hike or not I have no idea, but I'd be very surprised if they lowered rates right away. Unless the economy really goes bonkers stupid and crashes hard, I really don't see them lowering rates anytime this year and maybe not next. A few banks that were arguably stupid crashing and burning? Well that's part of the expected cost of fighting inflation.