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I'm pretty sure the companies and people who held their money in First Republic would survive losing the money they had with them (in most cases it's only a par

I'm pretty sure the companies and people who held their money in First Republic would survive losing the money they had with them (in most cases it's only a part of their assets). I'm also quite sure the owners of the First Republic stock could afford losing the value of those stocks. It might have been a little tough for some of them, but most would just shrug it off. I do not understand why government and other banks are so anxious about a bank or two failing? Is it because all other banks are also rotten and leveraged?

brookst 3y ago
It's never the direct effects. It would likely cause people and companies with uninsured money in other banks to pull their funds out, quite possibly leading to cascading failures even for banks that are perfectly smart and healthy today. The simple fact is that no bank can survive a run. Not a single one. Because that's how the business works. IMO the best offramp from the systemic problem is to announce a schedule to phase out any protection for uninsured deposits. Say, 100% insurance for the next 6 months, declining by 1% per month after that, phased out completely in 8ish years. Slow enough to avoid panic and dramatic swings while allowing the industry to create new products and address the market need.
- flakeoil 3y ago
  Yes, and there needs to be some kind of restriction on how much one can expect to be allowed to withdraw in a certain amount of time. If too many want to pull out, there should be an automatic stop and everybody should know about this. The bank should maybe even be required to pay out a little extra interest as compensation. Better this kind of limited draw out than having to rescue banks left and right and having huge amounts of regulation which can never fully stop these kind of events.
deleted 3y ago
[deleted]
EMM_386 3y ago
> I'm pretty sure the companies and people who held their money in First Republic would survive losing the money they had with them Depositors shouldn't have to do due-dilligence on their bank. It might be something worth doing if you're going to park a large amount of money in the bank about the $250k insurance cap, but otherwise it shouldn't be necessary. The investors should be doing this. And if they get wiped out, too bad. There are also ways to spread money over $250k so it stays insured. What we have here is essentially making the $250k cap meaningless for these "too big to fail" banks. The problem is nobody really knows if their bank is considered a "systemic risk" or not. Nor should they have to care.
- brookst 3y ago
  How do you think your bank would fare if everyone who has uninsured money in it pulled it all out tomorrow? The proven with the "let the people who made poor decisions lie in the bed they made" is that it creates a panic where they lght our beds on fire. Maybe we "deserve" it too, but that doesn't seem like great public policy.
  - EMM_386 3y ago
    I never suggested that the depositors should lose their money. They should have known about the 250k limit and not exceeded it in the first place, but I didn't say they should lose their money. I said the cap is irrelevant. Everyone with SVB got all their money back. Even if you had $20 million in the account at SVB, you got it back. When, technically, you are only supposed to get back $250k. So the rule is applied arbitrarily, depending on what is or is not a "systemic risk". If a rural bank fails and people have more than 250k in their accounts, they will lose it. If SVB or First Republic fails, they won't. This case is a little different in that JP Morgan bought the whole thing. Which is just leading to further consolidation in the really TBTF banks.
- flakeoil 3y ago
  Sure, but the ones with less than $250k will still get their money even if the bank goes down. The thing is I wonder if there really is a bank "too big to fail". The rich people who have their money in that bank will not go hungry if the money is gone. Most companies will not go bankrupt if the cash they have in the bank is gone. They might have a rough time, but the company could issue new shares or lend from another bank or sell a building they own and rent it back of whatever, but all the clients of a bank will not disappear just because their bank and some of their cash in that bank does disappear. In my opinion it's worse with all the hoolabaloo when things like this happens and central banks and governments start to talk it's "too big to fail" and they want to rescue banks, lower interest rates, print money etc like in 2008 and the stock market tanks 50%. Just because some loud rich people at banks would lose their money. Most companies in the world would do just fine without JP Morgan and Goldman Sachs.

brookst 3y ago

It's never the direct effects. It would likely cause people and companies with uninsured money in other banks to pull their funds out, quite possibly leading to cascading failures even for banks that are perfectly smart and healthy today. The simple fact is that no bank can survive a run. Not a single one. Because that's how the business works. IMO the best offramp from the systemic problem is to announce a schedule to phase out any protection for uninsured deposits. Say, 100% insurance for the next 6 months, declining by 1% per month after that, phased out completely in 8ish years. Slow enough to avoid panic and dramatic swings while allowing the industry to create new products and address the market need.

flakeoil 3y ago
Yes, and there needs to be some kind of restriction on how much one can expect to be allowed to withdraw in a certain amount of time. If too many want to pull out, there should be an automatic stop and everybody should know about this. The bank should maybe even be required to pay out a little extra interest as compensation. Better this kind of limited draw out than having to rescue banks left and right and having huge amounts of regulation which can never fully stop these kind of events.

deleted 3y ago

[deleted]

EMM_386 3y ago

> I'm pretty sure the companies and people who held their money in First Republic would survive losing the money they had with them Depositors shouldn't have to do due-dilligence on their bank. It might be something worth doing if you're going to park a large amount of money in the bank about the $250k insurance cap, but otherwise it shouldn't be necessary. The investors should be doing this. And if they get wiped out, too bad. There are also ways to spread money over $250k so it stays insured. What we have here is essentially making the $250k cap meaningless for these "too big to fail" banks. The problem is nobody really knows if their bank is considered a "systemic risk" or not. Nor should they have to care.

brookst 3y ago
How do you think your bank would fare if everyone who has uninsured money in it pulled it all out tomorrow? The proven with the "let the people who made poor decisions lie in the bed they made" is that it creates a panic where they lght our beds on fire. Maybe we "deserve" it too, but that doesn't seem like great public policy.
- EMM_386 3y ago
  I never suggested that the depositors should lose their money. They should have known about the 250k limit and not exceeded it in the first place, but I didn't say they should lose their money. I said the cap is irrelevant. Everyone with SVB got all their money back. Even if you had $20 million in the account at SVB, you got it back. When, technically, you are only supposed to get back $250k. So the rule is applied arbitrarily, depending on what is or is not a "systemic risk". If a rural bank fails and people have more than 250k in their accounts, they will lose it. If SVB or First Republic fails, they won't. This case is a little different in that JP Morgan bought the whole thing. Which is just leading to further consolidation in the really TBTF banks.
flakeoil 3y ago
Sure, but the ones with less than $250k will still get their money even if the bank goes down. The thing is I wonder if there really is a bank "too big to fail". The rich people who have their money in that bank will not go hungry if the money is gone. Most companies will not go bankrupt if the cash they have in the bank is gone. They might have a rough time, but the company could issue new shares or lend from another bank or sell a building they own and rent it back of whatever, but all the clients of a bank will not disappear just because their bank and some of their cash in that bank does disappear. In my opinion it's worse with all the hoolabaloo when things like this happens and central banks and governments start to talk it's "too big to fail" and they want to rescue banks, lower interest rates, print money etc like in 2008 and the stock market tanks 50%. Just because some loud rich people at banks would lose their money. Most companies in the world would do just fine without JP Morgan and Goldman Sachs.