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Deposit insurance should be unlimited for accounts yielding less than the 1-year T-bill. Insurance should be provided via the Fed's balance sheet, not a separat

Deposit insurance should be unlimited for accounts yielding less than the 1-year T-bill. Insurance should be provided via the Fed's balance sheet, not a separate fund. Bank employee and director compensation above 4x GDP/capita in any year to be paid in shares, which they are enjoined from selling while employed by the bank and for one year afterward. They can borrow against the shares to buy mansions – I want them to live in mansions – but they will lose them if they need help paying their depositors. Accounts yielding more than the 1-year T-bill should require labeling as subject to loss.

hartator 4y ago
Yes, I would agree to that. It seems unfair to punish depositors that have zero or very low interest rates on their deposits. At the same time, it seems fair to punish depositors which were yeild chasing that 4.50% APY from SVB savings.
- roundandround 4y ago
  I think depositors who are happy with low interest should be able to use accounts directly from the treasury to work with US bonds.. I don't want to bail out companies that try to eek out small profits in the middle and help them drive the average consumers interest to well bellow the bond rates.
  - hartator 4y ago
    I mean you can buy directly bonds already aren’t you?
    - roundandround 4y ago
      The Treasury is selling bonds for the US' interests and should provide adequate accounts to manage your funds within the context of US savings bonds and transfers. People who put a million in bonds through an opaque account at an intermediary are then still at their own risk. Why subsidize and encourage middlemen? It's like building the scam opportunity for privatized social security insurance management, as if honesty will be the most profitable choice in managing that.. It's inappropriate for the government to design systems that reward scamming in the middle.
      - deleted 4y ago
        [deleted]
      - hartator 4y ago
        Yes, it seems reasonable. I thought a brokerage was doing just the UI basically, but the actual bond is actually in your name?
        roundandround 4y ago
        I think bonds themselves when bought through a normal broker's normal account are usually true investments in your name that can't be "pledged and re-pledged".. I generally accept the argument that people are having trouble running the gauntlet to true government backed low risk investment and that is basically by design (well inherent capitalist evolution).. Anyone who fails to get there or gets talked out of that position by an army of telemarketers in turn fuels those telemarketers getting more people to take inherently worse risk/benefit options that pay for sign ups.
        hartator 4y ago
        I think there is also a convenience factor to be able to buy all bonds on the same platform. It will be annoying if it wasn’t the case.
        roundandround 4y ago
        Sure most people who use brokers are actually interested in wider arrays of risk and we can't really find anyway to lower the corrupt advisor incentive as that tends to go straight into a complexity trade off. I don't think there's still good reasons to use banks for savings now that anyone could buy whatever assets they like with a very similar broker account.. I think anyone accepting lower than government bond rates is basically in a corrupt financial advisor situation where the government is providing everything and someone other than the saver is siphoning money out in the good years. Industries once formed tend to lobby to prevent things that would remove their negative role. I.e. the ability to independently buy savings bonds has not really been kept up with the baseline utility of any other financial account. Normally banks had much more of a role in lending, etc, which is a bit more complicated than letting them leach between people and well defined bonds so I wouldn't say they can't have a function only that I would like them removed from this one.
JumpCrisscross 4y ago
> Bank employee and director compensation above 4x GDP/capita in any year to be paid in shares, which they are enjoined from selling while employed by the bank and for one year afterward You’ve created an incentive for rotating employment, thereby diffusing responsibility.
- beefman 4y ago
  No system is perfect. What would you suggest?
  - JumpCrisscross 4y ago
    > What would you suggest? Fed accepts Treasuries at face value, not market, at the discount window. Stress testing for banks with more than $50bn deposits. (No Barney Frank/SVB exception.) New FDIC assessments for large deposits. Tier so banks can reasonably choose to refuse them, or charge an excess-deposit fee. ($1mm, $10mm, $100mm seem reasonable.)
    - gruez 4y ago
      >Fed accepts Treasuries at face value, not market, at the discount window. Why would anyone buy short dated treasuries then, when you can load up on 25 year treasuries at a steep discount (relative to face value) then turn around and give it to the fed at face value? >Stress testing for banks with more than $50bn deposits. (No Barney Frank/SVB exception.) SVB had just shy of $20B in deposits >New FDIC assessments for large deposits. Tier so banks can reasonably choose to refuse them, or charge an excess-deposit fee. ($1mm, $10mm, $100mm seem reasonable.) Is this really an issue that exists? Are banks obligated by regulation to accept deposits or something?
      - JumpCrisscross 4y ago
        > when you can load up on 25 year treasuries at a steep discount (relative to face value) then turn around and give it to the fed at face value We’ve already answered this question with the bailouts of SVB and Signature’s depositors. (Granted, not shareholders.) Maybe a higher penalty rate for face-value borrowing? Or a limit to it, such that it serves as a canary? > SVB had just shy of $20B in deposits After the run. Before it had close to $200bn [1]. > really an issue that exists It doesn’t, and that’s the problem. The FDIC assesses a uniform charge on all of a bank’s liabilities. It’s clear some depositors pose a greater risk than others. I’m proposing differentiating the FDIC’s fee to incorporate that information, thereby encouraging banks to differentiate. Want to be a loosely-regulated community bank that can offer small depositors a higher rate because you aren’t paying to insure Peter Thiel? Great, now you can. [1] https://www.nytimes.com/2023/03/10/business/silicon-valley-bank-stock.html https://www.nytimes.com/2023/03/10/business/silicon-valley-b...
woodruffw 4y ago
Making depositors’ insurance effectively unlimited so long as it’s below the T-bill rate would probably reduce incentives around liquidity, right? It would be interesting to read policy or study papers on ideas like this; I don’t have especially strong intuitions for how they’d play out.
- curiousllama 4y ago
  If the bank collapses, you get wiped out. Incentive for the banker is the same. Incentive for the depositor shifts assuming perfect information. But in practice, information asymmetry makes depositor preference insensitive to bank risk, regardless of insurance. This would just be an acknowledgement “we’re always gonna have to do it for the big guys, might as well make it fair for the little guys too”
34679 4y ago
Private insurance is available. If you have significantly more than $250k in the bank, you can afford it. Our government has enough "solutions" as it is, and many (most?) of them are targeted toward the people who need them the least.
- mindslight 4y ago
  You are looking at it from the perspective of what features it makes sense to provide to account holders. Instead, after the SVB fiasco we should be looking at it from the perspective that all bank accounts create liability for the FDIC based on public expectations. As such all bank accounts should ultimately be "FDIC insured" - not because we want to help out large account holders with decreased risk, but rather because when something does happen, those nominally "uninsured" account holders are going to be begging for a bailout regardless while spreading panic to get their way. The insurance premiums on larger accounts should be larger (superlinear) to handle the increased variance of larger amounts. If someone wants to store large amounts of money without (indirectly) paying the FDIC insurance fees, then they choose something else besides a bank account - perhaps a brokerage account and/or buying treasuries directly. Furthermore, the hazard of bank management gambling the money away should be discouraged through larger capital requirements, and even criminal penalties for blowing through that capital buffer and into customer deposits due to not employing proper hedging or insurance.

hartator 4y ago

Yes, I would agree to that. It seems unfair to punish depositors that have zero or very low interest rates on their deposits. At the same time, it seems fair to punish depositors which were yeild chasing that 4.50% APY from SVB savings.

roundandround 4y ago
I think depositors who are happy with low interest should be able to use accounts directly from the treasury to work with US bonds.. I don't want to bail out companies that try to eek out small profits in the middle and help them drive the average consumers interest to well bellow the bond rates.
- hartator 4y ago
  I mean you can buy directly bonds already aren’t you?
  - roundandround 4y ago
    The Treasury is selling bonds for the US' interests and should provide adequate accounts to manage your funds within the context of US savings bonds and transfers. People who put a million in bonds through an opaque account at an intermediary are then still at their own risk. Why subsidize and encourage middlemen? It's like building the scam opportunity for privatized social security insurance management, as if honesty will be the most profitable choice in managing that.. It's inappropriate for the government to design systems that reward scamming in the middle.
    - deleted 4y ago
      [deleted]
    - hartator 4y ago
      Yes, it seems reasonable. I thought a brokerage was doing just the UI basically, but the actual bond is actually in your name?
      - roundandround 4y ago
        I think bonds themselves when bought through a normal broker's normal account are usually true investments in your name that can't be "pledged and re-pledged".. I generally accept the argument that people are having trouble running the gauntlet to true government backed low risk investment and that is basically by design (well inherent capitalist evolution).. Anyone who fails to get there or gets talked out of that position by an army of telemarketers in turn fuels those telemarketers getting more people to take inherently worse risk/benefit options that pay for sign ups.
        hartator 4y ago
        I think there is also a convenience factor to be able to buy all bonds on the same platform. It will be annoying if it wasn’t the case.
        roundandround 4y ago
        Sure most people who use brokers are actually interested in wider arrays of risk and we can't really find anyway to lower the corrupt advisor incentive as that tends to go straight into a complexity trade off. I don't think there's still good reasons to use banks for savings now that anyone could buy whatever assets they like with a very similar broker account.. I think anyone accepting lower than government bond rates is basically in a corrupt financial advisor situation where the government is providing everything and someone other than the saver is siphoning money out in the good years. Industries once formed tend to lobby to prevent things that would remove their negative role. I.e. the ability to independently buy savings bonds has not really been kept up with the baseline utility of any other financial account. Normally banks had much more of a role in lending, etc, which is a bit more complicated than letting them leach between people and well defined bonds so I wouldn't say they can't have a function only that I would like them removed from this one.

JumpCrisscross 4y ago

> Bank employee and director compensation above 4x GDP/capita in any year to be paid in shares, which they are enjoined from selling while employed by the bank and for one year afterward You’ve created an incentive for rotating employment, thereby diffusing responsibility.

beefman 4y ago
No system is perfect. What would you suggest?
- JumpCrisscross 4y ago
  > What would you suggest? Fed accepts Treasuries at face value, not market, at the discount window. Stress testing for banks with more than $50bn deposits. (No Barney Frank/SVB exception.) New FDIC assessments for large deposits. Tier so banks can reasonably choose to refuse them, or charge an excess-deposit fee. ($1mm, $10mm, $100mm seem reasonable.)
  - gruez 4y ago
    >Fed accepts Treasuries at face value, not market, at the discount window. Why would anyone buy short dated treasuries then, when you can load up on 25 year treasuries at a steep discount (relative to face value) then turn around and give it to the fed at face value? >Stress testing for banks with more than $50bn deposits. (No Barney Frank/SVB exception.) SVB had just shy of $20B in deposits >New FDIC assessments for large deposits. Tier so banks can reasonably choose to refuse them, or charge an excess-deposit fee. ($1mm, $10mm, $100mm seem reasonable.) Is this really an issue that exists? Are banks obligated by regulation to accept deposits or something?
    - JumpCrisscross 4y ago
      > when you can load up on 25 year treasuries at a steep discount (relative to face value) then turn around and give it to the fed at face value We’ve already answered this question with the bailouts of SVB and Signature’s depositors. (Granted, not shareholders.) Maybe a higher penalty rate for face-value borrowing? Or a limit to it, such that it serves as a canary? > SVB had just shy of $20B in deposits After the run. Before it had close to $200bn [1]. > really an issue that exists It doesn’t, and that’s the problem. The FDIC assesses a uniform charge on all of a bank’s liabilities. It’s clear some depositors pose a greater risk than others. I’m proposing differentiating the FDIC’s fee to incorporate that information, thereby encouraging banks to differentiate. Want to be a loosely-regulated community bank that can offer small depositors a higher rate because you aren’t paying to insure Peter Thiel? Great, now you can. [1] https://www.nytimes.com/2023/03/10/business/silicon-valley-bank-stock.html https://www.nytimes.com/2023/03/10/business/silicon-valley-b...

woodruffw 4y ago

Making depositors’ insurance effectively unlimited so long as it’s below the T-bill rate would probably reduce incentives around liquidity, right? It would be interesting to read policy or study papers on ideas like this; I don’t have especially strong intuitions for how they’d play out.

curiousllama 4y ago
If the bank collapses, you get wiped out. Incentive for the banker is the same. Incentive for the depositor shifts assuming perfect information. But in practice, information asymmetry makes depositor preference insensitive to bank risk, regardless of insurance. This would just be an acknowledgement “we’re always gonna have to do it for the big guys, might as well make it fair for the little guys too”

34679 4y ago

Private insurance is available. If you have significantly more than $250k in the bank, you can afford it. Our government has enough "solutions" as it is, and many (most?) of them are targeted toward the people who need them the least.

mindslight 4y ago
You are looking at it from the perspective of what features it makes sense to provide to account holders. Instead, after the SVB fiasco we should be looking at it from the perspective that all bank accounts create liability for the FDIC based on public expectations. As such all bank accounts should ultimately be "FDIC insured" - not because we want to help out large account holders with decreased risk, but rather because when something does happen, those nominally "uninsured" account holders are going to be begging for a bailout regardless while spreading panic to get their way. The insurance premiums on larger accounts should be larger (superlinear) to handle the increased variance of larger amounts. If someone wants to store large amounts of money without (indirectly) paying the FDIC insurance fees, then they choose something else besides a bank account - perhaps a brokerage account and/or buying treasuries directly. Furthermore, the hazard of bank management gambling the money away should be discouraged through larger capital requirements, and even criminal penalties for blowing through that capital buffer and into customer deposits due to not employing proper hedging or insurance.