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My argument: Accounts seem to be de facto fully protected anyway, or at least close enough. So making it official allows the FDIC to assess the proper rates for

My argument: Accounts seem to be de facto fully protected anyway, or at least close enough. So making it official allows the FDIC to assess the proper rates for what they're actually insuring (which is necessarily super-linear due to increased variance). Anyone who wants to park lots of money without paying the FDIC insurance cost can buy Treasury bills/notes directly.

dehrmann 4y ago
> Anyone who wants to park lots of money without paying the FDIC insurance cost can buy Treasury bills/notes directly This brings up the interesting question of what the role of banks should be. When savers have access to money market funds investing in short-term government debt (this is basically what SVB bought), why bother with the intermediary? We're also in a world of securitized mortgages where banks are just the originators. There are also mortgage originators that just do mortgages. These days, the only unique services banks provide are retail services and small business loans.
- ummonk 4y ago
  SVB bought mortgage backed securities as well, not just treasuries.
taeric 4y ago
This is mainly from poor coverage of what happened with SVB. The main thing protected there was the value of long term bonds. Last thing that fed wanted was for those to plummet at auction. Not the large deposits that would have gone down with them.
- mindslight 4y ago
  I don't understand the argument you are making. Regardless of any additional reasons it happened, depositors at SVB were bailed out, right? And it's widely held that depositors at the TBTF megabanks will be bailed out similarly, right? So unless/until a bank fails and the feds actually make large depositors take a haircut, then it seems that large accounts are de facto covered. To me, it would seem the dynamic is not one of "large depositors can do their own diligence and giving them FDIC coverage would be a burden", but rather "banks and their depositors aren't responsible enough to accept the consequences of uninsured accounts".
  - taeric 4y ago
    My argument is that they were "bailed out" to the tune of 20% or so. And really only if they insisted on pulling their money out immediately. Not "everything over the insurance number." (Which, for many of these was 0. They were completely uninsured, is my understanding.) Per reporting I can easily find (in that I'm not searching too hard on this), they had 167 billion in assets, and about 119 in deposits. Per the reporting, the sale that was managed by the FDIC sold off part of those assets for 72 billion, at a reported discount of 16.5 billion. About 20%. Now, granted, it is possible that the other 90 billion of assets are somehow way worse, but I have not heard further panic on those? But, just going by those numbers there was clearly never any risk that depositors lost everything over 250k. Which is how this is largely getting reported.
    - mindslight 4y ago
      > But, just going by those numbers there was clearly never any risk that depositors lost everything over 250k. Which is how this is largely getting reported. For sure! The news coverage bothered me too because it seemed to be implicitly treating the SVB failure like a cryptocurrency exit scam, where most/all of the money is just gone. If depositors did have to take a haircut it might have even been lower than 20%, as my understanding is that the FDIC has some power to claw back withdrawals that were part of the bank run. I still think it's fair to call it a bail out because since those accounts weren't FDIC insured then the policy was supposed to be for them to not have been made whole, and they were. But I don't really see how this affects my original argument. Whether subsequent banks have 5%, 20%, 50%, or 100% of their assets vanish, the political calculus is going to be the same.
      - taeric 4y ago
        Then we are fairly aligned. I've been used to talking to people that thought bailed out meant they had nothing, otherwise. I do think the calculus of keeping the bonds from visibly losing value was more important. (Edit: but I do not disagree with your assertion.)

dehrmann 4y ago

> Anyone who wants to park lots of money without paying the FDIC insurance cost can buy Treasury bills/notes directly This brings up the interesting question of what the role of banks should be. When savers have access to money market funds investing in short-term government debt (this is basically what SVB bought), why bother with the intermediary? We're also in a world of securitized mortgages where banks are just the originators. There are also mortgage originators that just do mortgages. These days, the only unique services banks provide are retail services and small business loans.

ummonk 4y ago
SVB bought mortgage backed securities as well, not just treasuries.

taeric 4y ago

This is mainly from poor coverage of what happened with SVB. The main thing protected there was the value of long term bonds. Last thing that fed wanted was for those to plummet at auction. Not the large deposits that would have gone down with them.

mindslight 4y ago
I don't understand the argument you are making. Regardless of any additional reasons it happened, depositors at SVB were bailed out, right? And it's widely held that depositors at the TBTF megabanks will be bailed out similarly, right? So unless/until a bank fails and the feds actually make large depositors take a haircut, then it seems that large accounts are de facto covered. To me, it would seem the dynamic is not one of "large depositors can do their own diligence and giving them FDIC coverage would be a burden", but rather "banks and their depositors aren't responsible enough to accept the consequences of uninsured accounts".
- taeric 4y ago
  My argument is that they were "bailed out" to the tune of 20% or so. And really only if they insisted on pulling their money out immediately. Not "everything over the insurance number." (Which, for many of these was 0. They were completely uninsured, is my understanding.) Per reporting I can easily find (in that I'm not searching too hard on this), they had 167 billion in assets, and about 119 in deposits. Per the reporting, the sale that was managed by the FDIC sold off part of those assets for 72 billion, at a reported discount of 16.5 billion. About 20%. Now, granted, it is possible that the other 90 billion of assets are somehow way worse, but I have not heard further panic on those? But, just going by those numbers there was clearly never any risk that depositors lost everything over 250k. Which is how this is largely getting reported.
  - mindslight 4y ago
    > But, just going by those numbers there was clearly never any risk that depositors lost everything over 250k. Which is how this is largely getting reported. For sure! The news coverage bothered me too because it seemed to be implicitly treating the SVB failure like a cryptocurrency exit scam, where most/all of the money is just gone. If depositors did have to take a haircut it might have even been lower than 20%, as my understanding is that the FDIC has some power to claw back withdrawals that were part of the bank run. I still think it's fair to call it a bail out because since those accounts weren't FDIC insured then the policy was supposed to be for them to not have been made whole, and they were. But I don't really see how this affects my original argument. Whether subsequent banks have 5%, 20%, 50%, or 100% of their assets vanish, the political calculus is going to be the same.
    - taeric 4y ago
      Then we are fairly aligned. I've been used to talking to people that thought bailed out meant they had nothing, otherwise. I do think the calculus of keeping the bonds from visibly losing value was more important. (Edit: but I do not disagree with your assertion.)