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No, that's what used to happen, pre-SVB. It has now been established as precedent that if depositors of "regional" (or "systemic") banks have enough clout/crea
by smcin 4y ago
No, that's what used to happen, pre-SVB.
It has now been established as precedent that if depositors of "regional" (or "systemic") banks have enough clout/create enough panic, they can get infinite protection.
We will see if FR depositors' money over the FDIC limit is made whole.
If that happens with FR, then Congress should legislate to raise or index-link FDIC limits, for everyone. (If not, we have moral hazard for both depositors and well-managed banks; and also smaller banks have to compete at an ever-increasing disadvantage.)
- Scoundreller 4y agoIt's actually happened before that. Limit was retroactively raised from $100k to $250k after IndyMac collapsed. But that was for everyone by law (first temporarily by https://archive.fdic.gov/view/fdic/3388 https://archive.fdic.gov/view/fdic/3388 then by Dodd-Frank retroactively & permanently). Even then I thought it was a bad idea because it discouraged depositors from spreading around their assets. Whether we'll see them treat future failures like SVB or not, TBD!
- smcin 4y agoFDIC historical limit was set/raised eight times, essentially a bit higher than tracking inflation: https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation#Historical_insurance_limits https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corp... FDIC(+NCUA) are allowed revise the limit every 5 years, next is 2025. Unless Congress acts sooner. Should the FDIC limit be indexed on inflation?
- Scoundreller 4y agoThat would make more sense. But were any of the pre-2008 increases retroactive?
- smcin 4y agoNot sure what you mean, but they were ad-hoc and retroactive to bank failures, not explicitly to inflation numbers on a five-year schedule. Allowing FDIC limit to be revised for inflation is a new regulation.
- taeric 4y agoStrictly, that never happened. Unless there were literally no assets on seizure. You would lose what couldn't be recovered. Not everything over the insurance mark. Who did lose everything were the investors in the bank. And that still happened.
- ummonk 4y agoNo, that has not happened in 15 years. Every bankruptcy since IndyMac has ended with depositors being made whole. The precedent is a lot older than the recent bank failures.
- smcin 4y agoAnd what I said is banks used to be allowed to fail (and FDIC wasn't directed to make depositors in excess of the insurance limit whole). Ok so the last time reserves didn't cover depositors was 2008 not more recent. My remark is that alloeing banks to fail is no longer happening, and that's setting a really bad moral hazard. Some even suggested during SVB there should be infinite FDIC coverage for 2 years, which would have destructive side-effects towards the end of that period. It's strange to hear people (esp. libertarians) complain about the politicization of the IRS (Taibbi/Twitter Files), but not the FDIC.