4 ms·

If the shareholders were wiped out (as I understand they were), then the moral hazard seems limited, no? The main remaining moral hazard would be that customer

If the shareholders were wiped out (as I understand they were), then the moral hazard seems limited, no? The main remaining moral hazard would be that customers would be incentivized to choose banks that offered higher rates as a result of taking on unsustainable risk. But this moral hazard is checked by investors who are directly incentivized to remain solvent and liquid, because otherwise they will lose everything. This leaves me with two questions: 1. Did investors of the bank literally lose everything? Or did they get bought out by the government at pennies on the dollar? If indeed this was a liquidity crisis, rather than a solvency crisis, it seems like the shares would still be worth something. Did the shareholders have to agree to give up their ownership, and were they compensated for that? 2. Why didn't the 2008 bailouts follow this model? The way this bank failure was handled makes much more sense to me than the 2008 model. It seems right to me that shareholders should lose everything if the institution fails. Why did shareholders get to keep their companies in 2008?

Xeoncross 4y ago
Because other, national/international banks like JPM, WFC, & BAC have a much closer uh... relationship with congress.
twblalock 4y ago
At the moment SVB stock is worthless and SVB does not legally even exist anymore. The government didn't buy the shares. Every shareholder got wiped out, unless something changes.
maxerickson 4y ago
The assets are rolled into the new bank, to back the deposits. FDIC probably won't pay in very much in the end. https://www.fdic.gov/news/press-releases/2023/pr23019.html https://www.fdic.gov/news/press-releases/2023/pr23019.html Several banks were wiped out in 2008. Other banks exchanged large amounts of equity for government funds. Establishing systemic stability by injecting large amounts of government money was seen as better than letting the entire mortgage system collapse (which is what likely would have happened if all the banks holding mortgage backed securities were left to unwind). The shareholders didn't get off scot free, the government ended up their major partner and sold the assets for more than they had injected into the system (which doesn't necessarily represent a profit).

Xeoncross 4y ago

Because other, national/international banks like JPM, WFC, & BAC have a much closer uh... relationship with congress.

twblalock 4y ago

At the moment SVB stock is worthless and SVB does not legally even exist anymore. The government didn't buy the shares. Every shareholder got wiped out, unless something changes.

maxerickson 4y ago

The assets are rolled into the new bank, to back the deposits. FDIC probably won't pay in very much in the end. https://www.fdic.gov/news/press-releases/2023/pr23019.html https://www.fdic.gov/news/press-releases/2023/pr23019.html Several banks were wiped out in 2008. Other banks exchanged large amounts of equity for government funds. Establishing systemic stability by injecting large amounts of government money was seen as better than letting the entire mortgage system collapse (which is what likely would have happened if all the banks holding mortgage backed securities were left to unwind). The shareholders didn't get off scot free, the government ended up their major partner and sold the assets for more than they had injected into the system (which doesn't necessarily represent a profit).