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> SVB’s uninsured deposits(anything over 250k) accounted for 94% of its total deposits and the FDIC took the extraordinary step of insuring those deposit after

> SVB’s uninsured deposits(anything over 250k) accounted for 94% of its total deposits and the FDIC took the extraordinary step of insuring those deposit after the fact. Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders. All the bank's equity would have been wiped out sure (and it was anyways) but losses to depositors would likely be slim to none. If folks lost anything it would worst case have been like a 5-10% haircut, not 100% of un-insured deposits. The FDIC was using this as an opportunity to say "we've got your back no matter what" to reassure the public. It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits - insured or uninsured - in this day and age in the US regardless of the FDIC's 'new' position. > The first republic rescue saw three of the largest US banks depositing 30 billion dollars to prop it up. The only real issue at banks right now is that they're in long-term government debt which has significant mark to market losses - which are an issue if folks are trying to withdraw since they can't be liquidated for face value. However if they're held to maturity there's no loss. So the Fed provided a facility where banks can borrow against the maturity value of long-term debt instead of market value. That makes the problem basically solved.

JediLuke 4y ago
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bogomipz 4y ago
>"Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders." Do you realize how many tech companies used SVB as their primary banking facility? There were plenty of companies who would not have made pay role. So yes real regular people would have been affected. >"It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits - insured or uninsured - in this day and age in the US regardless of the FDIC's 'new' position." The FDIC invoked a "systemic risk exception" in order to make SVB and Signature Bank depositors whole. Federal law requires the FDIC to resolve failed banks by choosing the method the least costly to the Deposit Insurance Fund. Here "resolved" means making only insured depositors whole. The only exception to this is the systemic risk exception. This is law not just some shit you can make up. >"The only real issue at banks right now is that they're in long-term government debt which has significant mark to market losses " Uh no, the issue that is that there's a lot of uncertainty. I don't think nobody really knows the extent of it at this point because a lot of midsize banks haven't really been under strong regulatory scrutiny until very recently. A crisis of confidence is still a crisis. A crisis of confidence is precisely what causes a run on banks.
- nytesky 4y ago
  I’m so tired of the fake make pay role canard. All depositors had $250k guaranteed at the bat. But sure maybe that’s short for 2 weeks of payroll for many companies. Well FDIC was already cash payout warrants against the size of of their deposit assets (something like 50% would be available). If you need more than 50% of available cash to make payroll, you were already a dead firm walking. With liquid assets like long term treasuries, they could have been liquidated quickly, and at worst most companies would have seen a 10-15% haircut. A haircut hurts. But running a business includes all sorts of risks. You could have a lawsuit. You could have a fire. Your cloud provider could shutdown. They knew about the risk of being uninsured (since many companies have corporate treasurers who manage multiple banks and portfolio of treasury bills to manage bank risk), and this was just the one risk their company faced that came to fruition.
  - bogomipz 4y ago
    I'm not sure how you reconcile acknowledging the reality of companies not being able to make payroll for two weeks and also calling it a "canard" in back to back sentences. A "fake canard" would be a double negative by the way ;) If you reread the thread and the context of what I was responding to it was the OP stating "It's not clear anyone would have lost anything at all ..." Perhaps you are well-off but losing a pay check for couple of weeks has real consequences for lots of people.
    - Dylan16807 4y ago
      > Perhaps you are well-off but losing a pay check for couple of weeks has real consequences for lots of people. They're arguing that companies could already make payroll just fine with access to half their balance. A 100% guarantee was not necessary.
      - bogomipz 4y ago
        If your payroll plus all other outgoing expenses was greater than $250K then no you would not be able to "make payroll just fine." This is simple math. Arguing against basic math is absurd.
A4ET8a8uTh0 4y ago
<< Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders. That is a very interesting question. I agree it is not clear, but it is not in ' not clear' status due to some legalistic formality. It is unclear, because it would appear treasuries around the world[1] are basically making up rules as they go. It does not inspire confidence. The question is definitely open and I honestly do not know the answer. [1]https://www.marketwatch.com/story/contracts-are-made-to-be-honored-david-tepper-lashes-out-against-credit-suisse-bond-writedown-272302e2?mod=home-page https://www.marketwatch.com/story/contracts-are-made-to-be-h...
imtringued 4y ago
This strategy only makes sense if the Fed believes this to be a short term problem for which it is worth buying time for. If it was genuinely hopeless and in the next decade will see 5% interest, making all those 10 year bonds worthless then there is no rhyme or reason to bail anyone out. The return on selling bonds today or waiting until maturity would be identical.
- arcticbull 4y ago
  They’re treasuries, when they mature you get the full face value plus interest. They cannot be worthless at maturity without the entire American state imploding. That's why they're able to offer this facility at all.
bogomipz 4y ago
>"It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits - insured or uninsured - in this day and age in the US regardless of the FDIC's 'new' position." When IndyMac Bank failed in the 2008 financial crisis, the FDIC paid uninsured depositors 50 cents of every dollar[1][2][3]. I would say that very much of "this day and age." From the FDIC's IndyMac Resolution: "If it is determined that you have uninsured funds, the FDIC will generate and mail to you a Receiver Certificate. This certificate entitles you to share proportionately in any funds recovered through the disposal of the assets of IndyMac Bank, F.S.B. This means that you will eventually recover some of your uninsured funds. The FDIC declared a 50% advance dividend for uninsured deposits."[2] It's bizarre to argue that what was literally an exceptional decision(SRE) by the FDIC could not have been otherwise. [1] https://www.ocregister.com/2009/07/13/indymac-customers-still-hope-to-recoup-lost-money/ https://www.ocregister.com/2009/07/13/indymac-customers-stil... [2] https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/indymac.html https://www.fdic.gov/resources/resolutions/bank-failures/fai... [3] https://www.brookings.edu/2023/03/21/how-does-deposit-insurance-work/ https://www.brookings.edu/2023/03/21/how-does-deposit-insura...
- arcticbull 4y ago
  > When IndyMac Bank failed in the 2008 financial crisis, the FDIC paid uninsured depositors 50 cents of every dollar[1][2][3]. I would say that very much of "this day and age." And after that banking rules became a lot stricter to reduce the risk of this happening again. That's kind of the point, 2008 isn't "this day and age."
  - bogomipz 4y ago
    >"And after that banking rules became a lot stricter to reduce the risk of this happening again." Except that Dodd-Frank legislation was continuously chipped away at, ultimately resulting in the 2018 "Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018."[1]. This 2018 bit of legislation is notable in that it completely loosened the regulatory regime and oversight of small and midsize banks - the exact profile of institutions being discussed here! Specifically this new legislation reduced the number of banks that were subject to stronger federal oversight. Under the Dodd-Frank legislation, banks with assets of more than $50 billion were subject to stress tests and higher capital requirements. The newer 2018 legislation contained a section that basically eliminated that stronger regulation for banks with assets between $50 billion and $100 billion and moved the goal posts of "discretionary oversight" out to financial institutions with assets between $100 billion and $250 billion instead. It's fascinating that you are arguing points without seeming to have an understanding of all that has changed since Dodd/Frank 13 year ago. You seem to be completely unaware of the developments since 2018 i.e the exact things that enabled the developments of the last two weeks. [1] https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp https://www.investopedia.com/terms/d/dodd-frank-financial-re...

JediLuke 4y ago

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bogomipz 4y ago

>"Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders." Do you realize how many tech companies used SVB as their primary banking facility? There were plenty of companies who would not have made pay role. So yes real regular people would have been affected. >"It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits - insured or uninsured - in this day and age in the US regardless of the FDIC's 'new' position." The FDIC invoked a "systemic risk exception" in order to make SVB and Signature Bank depositors whole. Federal law requires the FDIC to resolve failed banks by choosing the method the least costly to the Deposit Insurance Fund. Here "resolved" means making only insured depositors whole. The only exception to this is the systemic risk exception. This is law not just some shit you can make up. >"The only real issue at banks right now is that they're in long-term government debt which has significant mark to market losses " Uh no, the issue that is that there's a lot of uncertainty. I don't think nobody really knows the extent of it at this point because a lot of midsize banks haven't really been under strong regulatory scrutiny until very recently. A crisis of confidence is still a crisis. A crisis of confidence is precisely what causes a run on banks.

nytesky 4y ago
I’m so tired of the fake make pay role canard. All depositors had $250k guaranteed at the bat. But sure maybe that’s short for 2 weeks of payroll for many companies. Well FDIC was already cash payout warrants against the size of of their deposit assets (something like 50% would be available). If you need more than 50% of available cash to make payroll, you were already a dead firm walking. With liquid assets like long term treasuries, they could have been liquidated quickly, and at worst most companies would have seen a 10-15% haircut. A haircut hurts. But running a business includes all sorts of risks. You could have a lawsuit. You could have a fire. Your cloud provider could shutdown. They knew about the risk of being uninsured (since many companies have corporate treasurers who manage multiple banks and portfolio of treasury bills to manage bank risk), and this was just the one risk their company faced that came to fruition.
- bogomipz 4y ago
  I'm not sure how you reconcile acknowledging the reality of companies not being able to make payroll for two weeks and also calling it a "canard" in back to back sentences. A "fake canard" would be a double negative by the way ;) If you reread the thread and the context of what I was responding to it was the OP stating "It's not clear anyone would have lost anything at all ..." Perhaps you are well-off but losing a pay check for couple of weeks has real consequences for lots of people.
  - Dylan16807 4y ago
    > Perhaps you are well-off but losing a pay check for couple of weeks has real consequences for lots of people. They're arguing that companies could already make payroll just fine with access to half their balance. A 100% guarantee was not necessary.
    - bogomipz 4y ago
      If your payroll plus all other outgoing expenses was greater than $250K then no you would not be able to "make payroll just fine." This is simple math. Arguing against basic math is absurd.

A4ET8a8uTh0 4y ago

<< Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders. That is a very interesting question. I agree it is not clear, but it is not in ' not clear' status due to some legalistic formality. It is unclear, because it would appear treasuries around the world[1] are basically making up rules as they go. It does not inspire confidence. The question is definitely open and I honestly do not know the answer. [1]https://www.marketwatch.com/story/contracts-are-made-to-be-honored-david-tepper-lashes-out-against-credit-suisse-bond-writedown-272302e2?mod=home-page https://www.marketwatch.com/story/contracts-are-made-to-be-h...

imtringued 4y ago

This strategy only makes sense if the Fed believes this to be a short term problem for which it is worth buying time for. If it was genuinely hopeless and in the next decade will see 5% interest, making all those 10 year bonds worthless then there is no rhyme or reason to bail anyone out. The return on selling bonds today or waiting until maturity would be identical.

arcticbull 4y ago
They’re treasuries, when they mature you get the full face value plus interest. They cannot be worthless at maturity without the entire American state imploding. That's why they're able to offer this facility at all.

bogomipz 4y ago

>"It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits - insured or uninsured - in this day and age in the US regardless of the FDIC's 'new' position." When IndyMac Bank failed in the 2008 financial crisis, the FDIC paid uninsured depositors 50 cents of every dollar[1][2][3]. I would say that very much of "this day and age." From the FDIC's IndyMac Resolution: "If it is determined that you have uninsured funds, the FDIC will generate and mail to you a Receiver Certificate. This certificate entitles you to share proportionately in any funds recovered through the disposal of the assets of IndyMac Bank, F.S.B. This means that you will eventually recover some of your uninsured funds. The FDIC declared a 50% advance dividend for uninsured deposits."[2] It's bizarre to argue that what was literally an exceptional decision(SRE) by the FDIC could not have been otherwise. [1] https://www.ocregister.com/2009/07/13/indymac-customers-still-hope-to-recoup-lost-money/ https://www.ocregister.com/2009/07/13/indymac-customers-stil... [2] https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/indymac.html https://www.fdic.gov/resources/resolutions/bank-failures/fai... [3] https://www.brookings.edu/2023/03/21/how-does-deposit-insurance-work/ https://www.brookings.edu/2023/03/21/how-does-deposit-insura...

arcticbull 4y ago
> When IndyMac Bank failed in the 2008 financial crisis, the FDIC paid uninsured depositors 50 cents of every dollar[1][2][3]. I would say that very much of "this day and age." And after that banking rules became a lot stricter to reduce the risk of this happening again. That's kind of the point, 2008 isn't "this day and age."
- bogomipz 4y ago
  >"And after that banking rules became a lot stricter to reduce the risk of this happening again." Except that Dodd-Frank legislation was continuously chipped away at, ultimately resulting in the 2018 "Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018."[1]. This 2018 bit of legislation is notable in that it completely loosened the regulatory regime and oversight of small and midsize banks - the exact profile of institutions being discussed here! Specifically this new legislation reduced the number of banks that were subject to stronger federal oversight. Under the Dodd-Frank legislation, banks with assets of more than $50 billion were subject to stress tests and higher capital requirements. The newer 2018 legislation contained a section that basically eliminated that stronger regulation for banks with assets between $50 billion and $100 billion and moved the goal posts of "discretionary oversight" out to financial institutions with assets between $100 billion and $250 billion instead. It's fascinating that you are arguing points without seeming to have an understanding of all that has changed since Dodd/Frank 13 year ago. You seem to be completely unaware of the developments since 2018 i.e the exact things that enabled the developments of the last two weeks. [1] https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp https://www.investopedia.com/terms/d/dodd-frank-financial-re...