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The issue is that people are moving their deposits out of banks and banks are facing liquidity issues.
by drexlspivey 4y ago
The issue is that people are moving their deposits out of banks and banks are facing liquidity issues.
- zie 4y agoThat's the Bank's problem. They know exactly why everyone is running to MMF's. Banks can fix it whenever they want, by being less greedy. So far they don't seem very motivated. Banks provide us with insurance against our future liquidity risk, up to the $250k or so FDIC limit. MMF's do not have that same level of insurance.
- kasey_junk 4y agoBank a&l regulations are more strict than money market funds.
- zie 4y agoExactly.
- bagacrap 4y agoYes those greedy banks that are selfishly trying not to go out of business
- zie 4y agoBanks arguably still serve a purpose, but when most risk is externalized by the govt, the incentive for banks is to let the govt take the risk for you, leading to things like SVB. The govt should not take the risk away from being an equity shareholder in a bank, that's wrong. I'm fine with them taking the risk away from customers of the bank, that's what FDIC is all about. Most customer money in banks is not FDIC insured anymore and that's a problem. Perhaps $250k/account is not enough insurance these days, but that's a different discussion If banks can't survive, that's the equity shareholders problem, just like any other business. What happened with CS, when their govt decided to bail out the equity shareholders makes me very unhappy. The equity shareholders knew the reputation of CS was trash, and continued for decades to ride it further down the drain. They deserved to get flushed for having decades to fix the problem and refusing.
- bagacrap 4y agoCS shareholders got next to nothing. The govt forced through a deal over the weekend that valued the equity at far less than what the market did just 2 days prior. Anyway that's not even in the same country. SVB shareholders got zero.
- zie 4y agoBondholders got actually nothing. It's not supposed to work that way. It should be: Equity gets zero, Bondholders get something.
- drexlspivey 4y agoExcept those were not actual bonds and it was clear by how they work that they were junior to equity
- bagacrap 4y agoSome bondholders got something. Specifically, the ones holding traditional bonds. The ones holding higher-paying and riskier bonds got nothing, by design.