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> Big highlighter on "deposit". No government or even FDIC money is involved in this. > > It's significant that this is a private action. No evidence on my par

> Big highlighter on "deposit". No government or even FDIC money is involved in this. > > It's significant that this is a private action. No evidence on my part of back this up, but assuming that the government _isn't_ implicitly involved in de-risking this for banks seems naïve. I don't think these organizations, not exactly known for their civic-mindedness or charity, would risk any of their own precious liquidity without assurances or incentives from the government.

aorloff 4y ago
The banks have concluded that the public statement may be worth more than those government assurances anyway. And yes these banks are TBTF
jacquesm 4y ago
On the contrary, they have a very strong incentive to do so: it shows the market that they not only trust their own long term position but that they are able to act in concert to take care of a competitor in trouble exactly without the government forcing them to do so, in effect doing an end run around those that are now asking for more regulation. And that is all the incentive they need.
- brisdak 4y ago
  isn't this almost like a cartel move
  - ceejayoz 4y ago
    Laws against cartels in the US say things like "in restraint of trade or commerce" and "monopolize any part of the trade or commerce". Propping a competitor up in this nature is fairly hard to argue as "restraint of trade".
  - icegreentea2 4y ago
    Yes-ish. Let's be real, banking is a public-private partnership. While it IS significant that the banks themselves are doing this, and not the Fed/FDIC, it would also seem quite possible (likely?) to be some nudging from the Fed/Treasury. Some form of "hey, we did our part (the new emergency backstop), you guys need to show you're worth this effort". While the top-tier of banking is obviously in competition with each other, they're also bound together by their shared interest in the status quo, and then doubling bound together by the Fed/USG also being very interested in the status quo. So it's cartel-like, but it would be a mistake to only include the banks as members of the cartel.
  - honeybadger1 4y ago
    They are colluding to keep a repeatedly failing system alive.
    - Lolaccount 4y ago
      [flagged]
      - dang 4y ago
        Could you please stop posting unsubstantive comments and flamebait? You've unfortunately been doing it repeatedly. It's not what this site is for, and destroys what it is for. If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and taking the intended spirit of the site more to heart, we'd be grateful.
    - pjc50 4y ago
      This is like saying a bunch of nodes behind a load balancer are "colluding to keep a failing system alive" when one of them fails over; it's technically correct but .. you don't actually want the system to fail? Because people are using it?
      - thewildginger 4y ago
        But a possibly better and more optimized implementation can't be put in place until the current one fails, that's the core issue here. Many people want reforms to the banking system, bit the system is defended fiercely until it's un-ignorable. This is a defense of god awful ways of doing things so the general public can ignore it. Banks directly acting to help their competition? Why? Isn't that how competition is supposed to work? What we're seeing is yet another version of capital and capitalism in decline, and rich financiers are still claiming the empire is wearing a wonderful robe. News flash! he's wearing nothing at all.
        pjc50 4y ago
        > But a possibly better and more optimized implementation can't be put in place until the current one fails That's like saying we can't implement renewable energy until the grid goes dark, and the best way to get reform is to go round blowing up some power stations. People are depending on this infrastructure to work! Advocating for bank failures without regard to the consequences to the users is the sort of accelerationism that you normally only hear from revolutionary Communists. What is the acceptable level of collateral damage from bank failures to you?
- Aaronontheweb 4y ago
  So why didn't these same banks band together and buy out SVB / its assets instead of letting it file chapter 11? Wouldn't have preventing the 2nd and 3rd biggest bank failures in U.S. history happen within a few days of each other been a much better way of preventing future regulation?
  - bombcar 4y ago
    Because it moved too fast I suspect. And FDIC wasn’t calling the banks boards and saying “you need to do this”.
  - asah 4y ago
    SVB's fall happened in less than 48 hours and nobody actually thought they'd fail until they did - with FRB, people took the risk seriously because of the precedent.
    - Aaronontheweb 4y ago
      SVB's liquidity problems were known for months because they were a function of interest rates and failure to manage interest rate risk on their part - besides, the CEO was on the board of the SF Fed. It's not like they weren't in communication with other banks about what's going on with the markets and the Fed itself.
      - floor2 4y ago
        But SVB was solvent and basically fine long-term. If VCs hadn't panicked at herd-mentality stampeded $40,000,000,000 out of the bank in a day, forcing it to sell 10 year treasuries at depressed market rates, it would have been fine. SVB isn't like the 2008 banks that held mortgage-backed securities that turned out to be full of people who lied about their income and assets and would never get repaid. SVB had treasuries that absolutely would have been repaid. SVB was trying to do an equity raise to solve their short-term liquidity issues. If they'd done so quietly, and gotten money from a big institution before going public, they'd probably have been fine. Instead, the public equity raise spooked people, caused a bank run, and made their liquidity go from "risky" to broken.
roenxi 4y ago
"The US banks are so strong that this time they can just bail themselves out. We didn't think of that back in '08" ~ Government Officials, on the horrifically unpopular '08 bailouts that nobody lets them forget. The odds are quite good that the lesson learned in the last crisis was not to tell people what is going on. The US government has consistently responded to every crisis in the last ... 10? 20? ... years by turning on the printing presses. It is a real leap to say this time will be different. Why will it be different? It is a crisis. They're going to print.
- criley2 4y ago
  Ironically, the bank bailouts of 2008 were a wild success. The TARP program was paid back in under a year at a decent profit to the taxpayer. ("Through the Treasury, the US Government actually booked $15.3 billion in profit, as it earned $441.7 billion on the $426.4 billion invested."). That's basically the cost of funding NASA for that year, paid for by the return on the bailout investment. I get that the optics of having the government loan money to banks is bad, but realistically, it was wildly successful.
  - Aaronontheweb 4y ago
    That's if you ignore the secondary effects: "moral hazard," knowing that if you become big enough to create political waves in the event that you fail you can continue to gamble with depositor money, make your annual bonus, and safely be rescued by Federal depositor backstop / bailout in the event that you eventually go tits up. I wonder if that'll ever happen again after 2008...
    - KptMarchewa 4y ago
      What they did with SVB prevents this thinking. Make the depositors whole, wipe out shareholders, prosecute the executives.
      - Aaronontheweb 4y ago
        Not really - rewriting the rules (FDIC insurance limits) midway through because SVB's own depositors yelled "bank run!" loud enough is still moral hazard. Do I need to make sure I bank with an institution that Jason Calcanis, Mark Cuban, et al use so I can insure my deposits with their political / popular leverage?
postingawayonhn 4y ago
Avoiding a crisis of trust and financial system meltdown is enough to get them to commit to this.
giancarlostoro 4y ago
He's not saying the government isn't involved he's saying no government money, or even FDIC money is involved in this.
- Mizoguchi 4y ago
  If they get a tax write off for those $30B that's technically goverment money involved.
  - pjc50 4y ago
    Please explain how you get a tax write off for depositing money in a bank.
vertis 4y ago
I don't think this is civic-mindedness at all the great depression taught us that bank runs and failures are contagious. The very purpose of FDIC is to prevent this (and other countries have similar schemes), but it can only go so far. Putting their own money in can be entirely in their own self interest if it stops problems from spreading. None of those banks want the kind of problems that come with SVB, Signature and First Republic (and whichever one is next).
- zeven7 4y ago
  Something I don't understand: The people withdrawing above FDIC insurance limits aren't just putting the millions they withdraw under a mattress. They have to put it somewhere. And the most logical place to put it seems to be one of these big banks. Don't these big banks stand to gain from the collapse of small banks, as people flee small banks and into big banks? What risk do the big banks have of experiencing a run? Where would people put all that money?
  - djbusby 4y ago
    Game Theory. Will you be the last one standing?
    - tablespoon 4y ago
      Also, I imagine the "people flee[ing] small banks ... into big banks" makes this particular stabilizing action easier. The big banks just redirect all the new deposits they're getting back to the small banks where they came from to stabilize things.
  - fallingknife 4y ago
    There are bigger considerations here for these banks than the gains they would make from the failure of small banks. They know that they are in a very nice position with the government guaranteeing all of their debt while at the same time leaving them free to make as much profit as they can. They know that the mass failure of regional banks while big banks gain would be a political event as much as a financial one. They know that they are some of the most widely hated organizations in the US, and that the political fallout from such an event would not go in their favor like last time, so they will pull out all the stops to prevent it from happening.
naasking 4y ago
> I don't think these organizations, not exactly known for their civic-mindedness or charity, would risk any of their own precious liquidity without assurances or incentives from the government. The spectre of more regulation given all of the recent failures from 2008 to today has them spooked I bet.
- tablespoon 4y ago
  > The spectre of more regulation given all of the recent failures from 2008 to today has them spooked I bet. Exactly. Also probably the fear of a wider contagion contained by a government response that leaves the shareholders and executives high and dry (rather than the comfortable 2008-style bailouts). It's not in anyone interest for this to blow up further, which could spur fundamentally selfish organizations into seemingly altruistic action.

aorloff 4y ago

The banks have concluded that the public statement may be worth more than those government assurances anyway. And yes these banks are TBTF

jacquesm 4y ago

On the contrary, they have a very strong incentive to do so: it shows the market that they not only trust their own long term position but that they are able to act in concert to take care of a competitor in trouble exactly without the government forcing them to do so, in effect doing an end run around those that are now asking for more regulation. And that is all the incentive they need.

brisdak 4y ago
isn't this almost like a cartel move
- ceejayoz 4y ago
  Laws against cartels in the US say things like "in restraint of trade or commerce" and "monopolize any part of the trade or commerce". Propping a competitor up in this nature is fairly hard to argue as "restraint of trade".
- icegreentea2 4y ago
  Yes-ish. Let's be real, banking is a public-private partnership. While it IS significant that the banks themselves are doing this, and not the Fed/FDIC, it would also seem quite possible (likely?) to be some nudging from the Fed/Treasury. Some form of "hey, we did our part (the new emergency backstop), you guys need to show you're worth this effort". While the top-tier of banking is obviously in competition with each other, they're also bound together by their shared interest in the status quo, and then doubling bound together by the Fed/USG also being very interested in the status quo. So it's cartel-like, but it would be a mistake to only include the banks as members of the cartel.
- honeybadger1 4y ago
  They are colluding to keep a repeatedly failing system alive.
  - Lolaccount 4y ago
    [flagged]
    - dang 4y ago
      Could you please stop posting unsubstantive comments and flamebait? You've unfortunately been doing it repeatedly. It's not what this site is for, and destroys what it is for. If you wouldn't mind reviewing https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html and taking the intended spirit of the site more to heart, we'd be grateful.
  - pjc50 4y ago
    This is like saying a bunch of nodes behind a load balancer are "colluding to keep a failing system alive" when one of them fails over; it's technically correct but .. you don't actually want the system to fail? Because people are using it?
    - thewildginger 4y ago
      But a possibly better and more optimized implementation can't be put in place until the current one fails, that's the core issue here. Many people want reforms to the banking system, bit the system is defended fiercely until it's un-ignorable. This is a defense of god awful ways of doing things so the general public can ignore it. Banks directly acting to help their competition? Why? Isn't that how competition is supposed to work? What we're seeing is yet another version of capital and capitalism in decline, and rich financiers are still claiming the empire is wearing a wonderful robe. News flash! he's wearing nothing at all.
      - pjc50 4y ago
        > But a possibly better and more optimized implementation can't be put in place until the current one fails That's like saying we can't implement renewable energy until the grid goes dark, and the best way to get reform is to go round blowing up some power stations. People are depending on this infrastructure to work! Advocating for bank failures without regard to the consequences to the users is the sort of accelerationism that you normally only hear from revolutionary Communists. What is the acceptable level of collateral damage from bank failures to you?
Aaronontheweb 4y ago
So why didn't these same banks band together and buy out SVB / its assets instead of letting it file chapter 11? Wouldn't have preventing the 2nd and 3rd biggest bank failures in U.S. history happen within a few days of each other been a much better way of preventing future regulation?
- bombcar 4y ago
  Because it moved too fast I suspect. And FDIC wasn’t calling the banks boards and saying “you need to do this”.
- asah 4y ago
  SVB's fall happened in less than 48 hours and nobody actually thought they'd fail until they did - with FRB, people took the risk seriously because of the precedent.
  - Aaronontheweb 4y ago
    SVB's liquidity problems were known for months because they were a function of interest rates and failure to manage interest rate risk on their part - besides, the CEO was on the board of the SF Fed. It's not like they weren't in communication with other banks about what's going on with the markets and the Fed itself.
    - floor2 4y ago
      But SVB was solvent and basically fine long-term. If VCs hadn't panicked at herd-mentality stampeded $40,000,000,000 out of the bank in a day, forcing it to sell 10 year treasuries at depressed market rates, it would have been fine. SVB isn't like the 2008 banks that held mortgage-backed securities that turned out to be full of people who lied about their income and assets and would never get repaid. SVB had treasuries that absolutely would have been repaid. SVB was trying to do an equity raise to solve their short-term liquidity issues. If they'd done so quietly, and gotten money from a big institution before going public, they'd probably have been fine. Instead, the public equity raise spooked people, caused a bank run, and made their liquidity go from "risky" to broken.

roenxi 4y ago

"The US banks are so strong that this time they can just bail themselves out. We didn't think of that back in '08" ~ Government Officials, on the horrifically unpopular '08 bailouts that nobody lets them forget. The odds are quite good that the lesson learned in the last crisis was not to tell people what is going on. The US government has consistently responded to every crisis in the last ... 10? 20? ... years by turning on the printing presses. It is a real leap to say this time will be different. Why will it be different? It is a crisis. They're going to print.

criley2 4y ago
Ironically, the bank bailouts of 2008 were a wild success. The TARP program was paid back in under a year at a decent profit to the taxpayer. ("Through the Treasury, the US Government actually booked $15.3 billion in profit, as it earned $441.7 billion on the $426.4 billion invested."). That's basically the cost of funding NASA for that year, paid for by the return on the bailout investment. I get that the optics of having the government loan money to banks is bad, but realistically, it was wildly successful.
- Aaronontheweb 4y ago
  That's if you ignore the secondary effects: "moral hazard," knowing that if you become big enough to create political waves in the event that you fail you can continue to gamble with depositor money, make your annual bonus, and safely be rescued by Federal depositor backstop / bailout in the event that you eventually go tits up. I wonder if that'll ever happen again after 2008...
  - KptMarchewa 4y ago
    What they did with SVB prevents this thinking. Make the depositors whole, wipe out shareholders, prosecute the executives.
    - Aaronontheweb 4y ago
      Not really - rewriting the rules (FDIC insurance limits) midway through because SVB's own depositors yelled "bank run!" loud enough is still moral hazard. Do I need to make sure I bank with an institution that Jason Calcanis, Mark Cuban, et al use so I can insure my deposits with their political / popular leverage?

postingawayonhn 4y ago

Avoiding a crisis of trust and financial system meltdown is enough to get them to commit to this.

giancarlostoro 4y ago

He's not saying the government isn't involved he's saying no government money, or even FDIC money is involved in this.

Mizoguchi 4y ago
If they get a tax write off for those $30B that's technically goverment money involved.
- pjc50 4y ago
  Please explain how you get a tax write off for depositing money in a bank.

vertis 4y ago

I don't think this is civic-mindedness at all the great depression taught us that bank runs and failures are contagious. The very purpose of FDIC is to prevent this (and other countries have similar schemes), but it can only go so far. Putting their own money in can be entirely in their own self interest if it stops problems from spreading. None of those banks want the kind of problems that come with SVB, Signature and First Republic (and whichever one is next).

zeven7 4y ago
Something I don't understand: The people withdrawing above FDIC insurance limits aren't just putting the millions they withdraw under a mattress. They have to put it somewhere. And the most logical place to put it seems to be one of these big banks. Don't these big banks stand to gain from the collapse of small banks, as people flee small banks and into big banks? What risk do the big banks have of experiencing a run? Where would people put all that money?
- djbusby 4y ago
  Game Theory. Will you be the last one standing?
  - tablespoon 4y ago
    Also, I imagine the "people flee[ing] small banks ... into big banks" makes this particular stabilizing action easier. The big banks just redirect all the new deposits they're getting back to the small banks where they came from to stabilize things.
- fallingknife 4y ago
  There are bigger considerations here for these banks than the gains they would make from the failure of small banks. They know that they are in a very nice position with the government guaranteeing all of their debt while at the same time leaving them free to make as much profit as they can. They know that the mass failure of regional banks while big banks gain would be a political event as much as a financial one. They know that they are some of the most widely hated organizations in the US, and that the political fallout from such an event would not go in their favor like last time, so they will pull out all the stops to prevent it from happening.

naasking 4y ago

> I don't think these organizations, not exactly known for their civic-mindedness or charity, would risk any of their own precious liquidity without assurances or incentives from the government. The spectre of more regulation given all of the recent failures from 2008 to today has them spooked I bet.

tablespoon 4y ago
> The spectre of more regulation given all of the recent failures from 2008 to today has them spooked I bet. Exactly. Also probably the fear of a wider contagion contained by a government response that leaves the shareholders and executives high and dry (rather than the comfortable 2008-style bailouts). It's not in anyone interest for this to blow up further, which could spur fundamentally selfish organizations into seemingly altruistic action.