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What rules did the FDIC throw out?

by Rapzid 4y ago

toddmatthews 4y ago
typically the FDIC only insures the first $250,000 deposited in an account, but in the case of SVB they said they would cover all deposits
- coredog64 4y ago
  Partly true. The FDIC guarantees account holders to $250k, but they are also responsible for unwinding the failed bank and returning that money to account holders. Because SVBs problems were primarily liquidity-induced, the FDIC was certain they could make account holders whole from the funds available after unwinding.
  - deleted 4y ago
    [deleted]
  - _heimdall 4y ago
    The FDIC didn't have time to go through the books thoroughly enough to be 100% sure all deposits would be covered by liquidating the bank's assets. All accounts are whole on Monday as usual, the Fed simply backed everything and decided it was safer to figure it out later given concerns over contagion.
    - Rapzid 4y ago
      It's my understanding it's a little more complicated than that and still went through the FDIC. Apparently the FDIC funds are not entirely liquid either so the fed extended them a short-term loan to provide the liquidity. At the end of the day the shortfall on the sale got covered by the FDIC funds and the loan from the FED came through on the basis of the FDICs fund and the fact that they then owned all of SVBs assets(they were named the receiver). The FDIC managed the entire thing, backed all the maneuvers with their 128bn fund, is independent and reports to the POTUS, and is entirely funded by deposit insurance fees on the financial industry. The FED had its own opinions on the whole situation I'm sure, and provided a short-term liquidity loan to the FDIC, but it's a bit misleading IMHO they way their involvement is discussed.
      - _heimdall 4y ago
        That makes a lot of sense, thanks! I had been wondering where the FDIC got the money to cover since the fund was already berks it's minimum required balance and didn't have the liquidity. I hadn't seen any reports confirming a Fed loan but that seems like about the only way it could have worked.
        Rapzid 4y ago
        Yeah, just like a bank won't leave 128bn sitting around doing nothing the FDIC also prob at least puts in to bonds and etc(I don't know the breakdown). I wasn't aware of any of this until a few weeks ago had to research. As a disclaimer and promotion of independent research haha.
      - dragonwriter 4y ago
        > The FDIC managed the entire thing, backed all the maneuvers with their 128bn fund, is independent and reports to the POTUS, and is entirely funded by deposit insurance fees on the financial industry. The FED had its own opinions on the whole situation I’m sure, and provided a short-term liquidity loan to the FDIC, but it’s a bit misleading IMHO they way their involvement is discussed. So you are saying that the decision to invoke the systemic risk exception and cover all depositor funds despite the least cost rule was an independent decision of the FDIC and not, as the law requires, a decision made by the Secretary of the Treasury, in consultation with the President, backed by supermajorities of both the Fed board and the FDIC board? Strange that that’s not what the joint Treasury/FDIC/Fed press release said.
  - dragonwriter 4y ago
    They may have believed that, but that’s not the basis for invoking the systemic risk exception which allowed covering of uninsured deposits.
- Rapzid 4y ago
  Yes I'm aware of the insurance guarantee but I'm not aware that the FDIC has some self-imposed rule preventing them from doing more. Honestly that would be a really bizarre self-imposed limitation to have given their mission statement, and given they could just "throw it out" as they see fit.
  - dragonwriter 4y ago
    > Yes I’m aware of the insurance guarantee but I’m not aware that the FDIC has some self-imposed rule preventing them from doing more. The “least-cost rule” is not a self-imposed FDIC rule, its a rule Congress imposed in 1991 after bank failures in the 1980s were felt to have been managed to expensively when the FDIC used funds to allow banks to stay open or otherwise protected uninsured depositors and creditors. > and given they could just “throw it out” as they see fit. They can’t. There is an exception available to the least cost rule, but that exception – the systemic risk exception – cannot be invoked by the FDIC, it can be invoked only by the Secretary of the Treasury, in consultation with the President, and with the support of 2/3 of the FDIC Board of Directors and 2/3 of the Federal Reserve Board.
    - Rapzid 3y ago
      Will investigate but I'm still hearing no rules were thrown out.
GenerWork 4y ago
The $250k depositor insurance cap was suspended in favor of all depositors getting bailed out.
- astrange 4y ago
  They've always said they do their best to recover all depositor funds. It's just not 100% guaranteed by the insurance fund, but that's no reason to wipe out everyone above that. The loss of confidence (and people losing their jobs) would make that much worse for the economy than finding some more money somewhere else; because banks work on confidence, telling people you have their money stops them from withdrawing it, which means you don't need to actually give them it.
  - _heimdall 4y ago
    This time they did in fact say all accounts would be made whole. My employer was banking at SVB, the Monday after the collapse we could login to our account and access all the funds as though nothing happened. I do get why they did it, I was simply pointing out that they changed the rules in the middle of the game.
    - Rapzid 4y ago
      The FDIC had a rule that they were only allowed to guarantee 250k? As in, they were not allowed to guarantee more if they could or deemed it prudent? They had this rule and they threw it out? Do you have a citation or source for this?

What rules did the FDIC throw out?

by Rapzid 4y ago

What rules did the FDIC throw out?

typically the FDIC only insures the first $250,000 deposited in an account, but in the case of SVB they said they would cover all deposits

coredog64 4y ago
Partly true. The FDIC guarantees account holders to $250k, but they are also responsible for unwinding the failed bank and returning that money to account holders. Because SVBs problems were primarily liquidity-induced, the FDIC was certain they could make account holders whole from the funds available after unwinding.
- deleted 4y ago
  [deleted]
- _heimdall 4y ago
  The FDIC didn't have time to go through the books thoroughly enough to be 100% sure all deposits would be covered by liquidating the bank's assets. All accounts are whole on Monday as usual, the Fed simply backed everything and decided it was safer to figure it out later given concerns over contagion.
  - Rapzid 4y ago
    It's my understanding it's a little more complicated than that and still went through the FDIC. Apparently the FDIC funds are not entirely liquid either so the fed extended them a short-term loan to provide the liquidity. At the end of the day the shortfall on the sale got covered by the FDIC funds and the loan from the FED came through on the basis of the FDICs fund and the fact that they then owned all of SVBs assets(they were named the receiver). The FDIC managed the entire thing, backed all the maneuvers with their 128bn fund, is independent and reports to the POTUS, and is entirely funded by deposit insurance fees on the financial industry. The FED had its own opinions on the whole situation I'm sure, and provided a short-term liquidity loan to the FDIC, but it's a bit misleading IMHO they way their involvement is discussed.
    - _heimdall 4y ago
      That makes a lot of sense, thanks! I had been wondering where the FDIC got the money to cover since the fund was already berks it's minimum required balance and didn't have the liquidity. I hadn't seen any reports confirming a Fed loan but that seems like about the only way it could have worked.
      - Rapzid 4y ago
        Yeah, just like a bank won't leave 128bn sitting around doing nothing the FDIC also prob at least puts in to bonds and etc(I don't know the breakdown). I wasn't aware of any of this until a few weeks ago had to research. As a disclaimer and promotion of independent research haha.
    - dragonwriter 4y ago
      > The FDIC managed the entire thing, backed all the maneuvers with their 128bn fund, is independent and reports to the POTUS, and is entirely funded by deposit insurance fees on the financial industry. The FED had its own opinions on the whole situation I’m sure, and provided a short-term liquidity loan to the FDIC, but it’s a bit misleading IMHO they way their involvement is discussed. So you are saying that the decision to invoke the systemic risk exception and cover all depositor funds despite the least cost rule was an independent decision of the FDIC and not, as the law requires, a decision made by the Secretary of the Treasury, in consultation with the President, backed by supermajorities of both the Fed board and the FDIC board? Strange that that’s not what the joint Treasury/FDIC/Fed press release said.
- dragonwriter 4y ago
  They may have believed that, but that’s not the basis for invoking the systemic risk exception which allowed covering of uninsured deposits.
Rapzid 4y ago
Yes I'm aware of the insurance guarantee but I'm not aware that the FDIC has some self-imposed rule preventing them from doing more. Honestly that would be a really bizarre self-imposed limitation to have given their mission statement, and given they could just "throw it out" as they see fit.
- dragonwriter 4y ago
  > Yes I’m aware of the insurance guarantee but I’m not aware that the FDIC has some self-imposed rule preventing them from doing more. The “least-cost rule” is not a self-imposed FDIC rule, its a rule Congress imposed in 1991 after bank failures in the 1980s were felt to have been managed to expensively when the FDIC used funds to allow banks to stay open or otherwise protected uninsured depositors and creditors. > and given they could just “throw it out” as they see fit. They can’t. There is an exception available to the least cost rule, but that exception – the systemic risk exception – cannot be invoked by the FDIC, it can be invoked only by the Secretary of the Treasury, in consultation with the President, and with the support of 2/3 of the FDIC Board of Directors and 2/3 of the Federal Reserve Board.
  - Rapzid 3y ago
    Will investigate but I'm still hearing no rules were thrown out.

GenerWork 4y ago

The $250k depositor insurance cap was suspended in favor of all depositors getting bailed out.

astrange 4y ago
They've always said they do their best to recover all depositor funds. It's just not 100% guaranteed by the insurance fund, but that's no reason to wipe out everyone above that. The loss of confidence (and people losing their jobs) would make that much worse for the economy than finding some more money somewhere else; because banks work on confidence, telling people you have their money stops them from withdrawing it, which means you don't need to actually give them it.
- _heimdall 4y ago
  This time they did in fact say all accounts would be made whole. My employer was banking at SVB, the Monday after the collapse we could login to our account and access all the funds as though nothing happened. I do get why they did it, I was simply pointing out that they changed the rules in the middle of the game.
  - Rapzid 4y ago
    The FDIC had a rule that they were only allowed to guarantee 250k? As in, they were not allowed to guarantee more if they could or deemed it prudent? They had this rule and they threw it out? Do you have a citation or source for this?