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FDIC to hit biggest US banks with $16B bill for SVB clean-up
- senojsitruc 3y agohttps://archive.is/Dw3nV https://archive.is/Dw3nV
- Alupis 3y agoAh, yes, and there's the hat trick. $16 Billion in fees (so far!) means you and I, regular people, will be paying to bail out SVB, it's bad decisions, and it's account holder's bad decisions. Wonderful. Somehow we convinced a significant portion of the country that tax payers won't be responsible for these unprecedented bailouts. Yet, here we are.
- shawabawa3 3y agoAre you implying that those $16B will be passed on to account holders? How exactly?
- shmatt 3y agoUS megacorps aren't exactly known to happily reduce profits without trying to claw them back elsewhere
- ouid 3y agoWhat? Companies set prices to maximize profit. If charging more in fees was going to make them more money they would aready have done it. This argument that you are using maybe didn't come directly from a corporate PR firm, but it sounds like one.
- ksherlock 3y agoIndirectly, via lower interest rates on accounts, higher interest rates on loans, higher fees on other things.
- JumpCrisscross 3y ago> Are you implying that those $16B will be passed on to account holders? How exactly? Lower rates on deposits, higher rates on borrowing, more fees and more marginal accounts and branches being closed.
- bagacrap 3y agoIf a branch was profitable before, it's no less profitable to keep it open now.
- velcrovan 3y agoWhat is the mechanism by which this fee will be passed to you?
- paulddraper 3y agoHis/her bank will charge higher fees or offer lower interest.
- dragontamer 3y agoSo move your money into a money market fund or other, lower-fee and/or higher-interest place to park cash.
- latchkey 3y agoAlready done. 4.9% is lovely right now. https://www.cit.com/cit-bank/bank/cds/no-penalty-cd https://www.cit.com/cit-bank/bank/cds/no-penalty-cd
- ghaff 3y agoThere's this somewhat odd bifurcation right now between: - Basically zero interest rate accounts which are presumably counting on a combination of small accounts and lazy money not bothering to chase market-level interest rates and - Banks/brokerages actively chasing people willing to park a lot of money in cash at current low-risk interest rates 4-5% may not beat inflation but it looks pretty good in a very uncertain economic environment.
- dragontamer 3y agoCPI's latest number is 4.9% YoY and 0.4% MoM. So the VMFXX's 5.01% rate is beating the latest estimates on inflation.
- ghaff 3y ago
- koolba 3y agoTax payers aren’t responsible for any of this. Only people who use the banking system, receive interest, have deposit accounts… If you are unbanked and work a W2 (paid in cash of course), you’re not on the hook for any of this! It’s a coincidence that 99.99% of tax payers use the banking system.
- latchkey 3y agoI really sigh over comments like this. It just shows how shitty the banking system is. This is exactly why I keep moving more and more into being my own bank (the .01%).
- infamouscow 3y agoThere are alternatives like Bitcoin, but on HN they're met with immediate resistance and bad faith arguments. An open mind genuinely interesting in learning about alternatives is needed to have this discussion.
- vivab0rg 3y agoThis. So much this. More than ever now.
- latchkey 3y agoAgreed. That said, I'm not afraid to talk about some aspects of crypto here and I think it is worth pushing against the few noisy profiles that are so strongly anti-crypto. I just have to word things in a way that I'm speaking about facts and not trying to directly shill something, which I'm honestly not. This comment I made recently might shed some light on what I'm talking about... https://news.ycombinator.com/item?id=35918310 https://news.ycombinator.com/item?id=35918310 It is possible to lend wrapped bitcoin as collateral, borrow against it and then re-lend out that borrowed thing (or use it to provide liquidity). Essentially enabling one to use that bitcoin "investment" to work for you instead of just being a shiny pet rock that HN loves to hate on. This is part of 'being your own bank' and a way to move away from the traditional banking system into something more decentralized. DeFi is also why I say that the biggest threat to bitcoin is wrapped bitcoin. =) I haven't touched the actual bitcoin chain, in years. Given that other chains, which support wrapped bitcoin, now use a fraction of the energy they did previously (proof of stake), it makes the ESG arguments around bitcoin itself, go out the window.
- compiler-guy 3y agoA stable banking system is very much in regular people's interest.
- toomuchtodo 3y agoSo is not arriving it at by rewarding excessive risk taking (ie no shareholder or exec clawbacks of comp) by taking it out of the pockets of regular people by way of the additional costs incurred upon them by their US GSIB, after smaller banks went to Congress and complained they were "excessively regulated." [1] It seems the party line is that it's totally fine for the Fed to reject Narrow Banking [2] (which is as close to zero risk as you can get in developed world finance at the cost of fractional reserve banking), but hand wringing across them, FDIC, OCC, and the executive branch when JPM needs to save the banking system again [3] [4]. Who could ever foresee the cyclic crises of our own making /s. EDIT: We could have an inherently stable banking system. Regulators collectively choose a lesser alternative. [1] https://www.usatoday.com/story/news/politics/2023/04/13/svb-lobbying-bank-regulations/11555491002/ https://www.usatoday.com/story/news/politics/2023/04/13/svb-... [2] https://www.chicagobooth.edu/review/safest-bank-fed-wont-sanction https://www.chicagobooth.edu/review/safest-bank-fed-wont-san... [3] https://en.wikipedia.org/wiki/Panic_of_1907 https://en.wikipedia.org/wiki/Panic_of_1907 [4] https://www.nytimes.com/2023/05/01/business/first-republic-jpmorgan-fdic.html https://www.nytimes.com/2023/05/01/business/first-republic-j... | https://archive.is/IFBW7 https://archive.is/IFBW7 (jpm customer)
- maxbond 3y agoGenuinely curious, if our banks only received interest from the Fed: 1. How are loans originated? If they can only deposit at the Fed, how is anyone supposed to get a mortgage? 2. What value does the bank provide at that point? Why wouldn't the Fed just give people bank accounts?
- toomuchtodo 3y ago1. Bond issuance and securitization, as happens today for most mortgages. The existing capital markets, broadly speaking. 2. Exactly [1]. Similarly to airlines, it’s a utility masquerading as a business. Everyone gets a demand deposit account, no fees, and instant payment functionality. Everyone else in the ecosystem is then either a lender or some sort of value add financial services provider. Good questions! [1] https://www.congress.gov/bill/116th-congress/senate-bill/3571 https://www.congress.gov/bill/116th-congress/senate-bill/357...
- megaman821 3y agoHow much money will big banks make from increased deposits flowing from small regional banks? Something tells me with the spread of the overnight lending rate to the savings rate banks are paying consumers they will come out ahead on this deal.
- bagacrap 3y agoYes, in general banks that survive will make more money due to higher interest income.
- mullingitover 3y agoThat sounds like a large number, but given the amount of money flowing through the banking system it's basically a rounding error. This isn't even a tough call: I'm thrilled to lose a six pack of beer's worth of interest payments rather than have my regional bank go out of business because everyone's freaked out about the safety of their deposits.
- gjsman-1000 3y ago> everyone's freaked out about the safety of their deposits Everybody knew that they were insured only until $250,000. At my bank, it's on a plaque at every self-service ATM at every branch. Every single person who deposited in these banks knew this and decided to live with that risk. The risk came due, and now the FDIC has decided that banks that are too big or influential get an unlimited protection, but small little mom-and-pop banks won't get a penny past $250K if they screw up. I think that if you actually put more than $250K in the bank and got hit, that's on you. You should've gotten insurance from elsewhere or used multiple banks. It literally exists and it's optional, it's called Depositors Insurance Fund Coverage (DIF), and it insures everything over $250K if you opt-in. You could also get MaxSafe, which insures up to $3.75 million. Wealthfront has a bank account with $5 million of insurance for those interested. Regular people should not pay a penny for bad risk-taking. To me, this reeks "Privatize the gains, socialize the losses."
- sharemywin 3y agoI thought it was socialism for the rich?
- junofan 3y agoThe FDIC plaque says “at least $250k.” This is how the FDIC works. By the same logic you’re free to use accounts that aren’t FDIC-insured if you have a problem with how the FDIC works.
- gjsman-1000 3y ago> By the same logic you’re free to use accounts that aren’t FDIC-insured Unless you are going foreign, FDIC insurance is legally mandatory. But be prepared for a hellish tax return the moment you open a foreign bank account - the IRS will demand a lot of paperwork. Edit for reply: There is NCUA for credit unions; but the limits are the same, still mandatory, and it's the US Government again. Basically off-brand FDIC.
- fatfingerd 3y agoI think this is the inevitable result of relaxing glass-steagall. The costs of shutting down the first line of failures will make the second line of failures. Naturally bank shareholders should lose everything before tax payers and the last thing we should do is stop the destruction of an industry caused by its own lobbying. Its brokerage accounts for everyone..
- donmcronald 3y agoClaw back the personal wealth of the executives when banks and hedge funds fail. It'll never happen though. They have too much political power. The Vice documentary about the 2008 financial crisis has some interesting tidbits. They talk about how the global banking system is at risk of collapse in one part while another part says any deals that take away executive bonuses would be rejected. Let that sink in. The US, with the most powerful government in the world, couldn't even take away executive bonuses to sell the public on a bailout plan that would save the banking system. It's crazy.
- JumpCrisscross 3y ago> US, with the most powerful government in the world, couldn't even take away executive bonuses to sell the public on a bailout plan that would save the banking system Absent legislation, the United States can’t retroactively break private contracts. The proper thing to do, what we’ve done in the recent bank failures, is to break the bank that wrote those contracts.
- donmcronald 3y agoThink of it in reverse then. The banking executive, who already have hundreds of millions or billions of dollars in personal wealth, weren't willing to give up one year of bonuses to save their industry.
- JumpCrisscross 3y ago> banking executive, who already have hundreds of millions or billions of dollars in personal wealth, weren't willing to give up one year of bonuses to save their industry Well, they didn't need to. That was the problem. We've since fixed it by requiring clawbacks and improving the ability for the FDIC to e.g. put SVB into receivership.
- WrtCdEvrydy 3y agoI mean, that's what FDIC is... it's basically backing a bank's funds using the US tax payers at the end.
- JumpCrisscross 3y ago> will be paying to bail out SVB It’s not bailing out SVB. It’s bailing out its depositors. Your broader point stands–there was a bail-out where we were promised there would be none. But unlike in the GFC, the bank itself was not bailed out.
- HDThoreaun 3y agoSVB no longer exists, its shareholders lost everything. It was not bailed out.
- sharemywin 3y agojust the depositors that could have bought private insurance.
- slt2021 3y agohad these depositors not been made whole - all of them would have rushed through the door to get their money back and park it at Fed/money market funds/TBTF banks/etc - and it would have cause even more bank runs
- kelnos 3y agoSure, but this is just a further symptom of the problem. Maybe it made sense to do a depositor bailout this time, but I don't see any reasonable structural changes that will prevent this from happening again. Ideally we want no bank runs, confidence in the system, and banks that keep their risk profile low enough that they can survive a big chunk of their depositors deciding to take their money out. What changes have been made since SVB's failure to achieve this? What confidence do we have that another SVB won't happen next year or whenever?
- slt2021 3y agoSVB's failure was in risk management (duration risk mismatch and deposit concentration in tech industry), other banks seem to be fine and well diversified with depositor base. but if people start taking money out of banks and start putting money in fed funds/money market, then these kinda problems will repeat again. but most likely - failing banks will be just acquired by larger competitors, and thats it
- cbsmith 3y ago> $16 Billion in fees (so far!) means you and I, regular people, will be paying to bail out SVB, it's bad decisions, and it's account holder's bad decisions. Wonderful. Worth considering is the impact on us regular people if SVB's depositors hadn't been made whole. It seems highly likely we'd all be financially less well off. > Somehow we convinced a significant portion of the country that tax payers won't be responsible for these unprecedented bailouts. Yet, here we are. Just to be clear: tax payers aren't going to be paying this $16.5 billion, and the intervention is not unprecedented. Obviously, this will increase the operating costs for banks in the form of deposit insurance fees, and that will effectively be born by shareholders and customers of said banks, particularly depositors. The costs will consequently be borne proportionately to the amount of money one has on deposit. Given the wealth disparities in this country, "regular people" won't be shouldering much of the burden. You could certainly argue that "the wealthy" will somehow find a way to transfer their costs to "regular people", but by that same logic, regular people would have been paying for the costs incurred from NOT intervening with SVB, as this was just a tiny fraction of the uninsured deposits. Beyond that, because US banks would be perceived as less stable, the operating costs for banks would have certainly increased anyway, and by far more, as US bank bonds would be devalued due to the increased risk. The idea that "rich people who made bad decisions" are being "bailed out" by "regular people" is a misnomer. Everyone was "bailed out" by the FDIC. The fact that everyone benefits from the FDIC's intervention is what creates the problematic dynamic in the first place.
- deleted 3y ago[deleted]
- kryptiskt 3y agoIt's a cheap price to pay. Imagine if the FDIC had said "fuck you", All the companies and individuals with big deposits in the weaker banks would have started bank runs on them immediately after the weekend (farfetched? SVB showed how fast these things happen these days). And the more banks that fall, the more vulnerable would the remaining ones be, because the failure of one bank would affect the others balance sheets.
- jabart 3y agoDid you read the article? "The proposal spares the vast majority of the US’s 4,500 FDIC-insured banks, and the fees are computed based on banks’ uninsured deposits on the grounds that $15.8bn of the $18.5bn cost of the SVB and Signature losses were due to the coverage of accounts larger than the $250,000 limit, and most of those accounts are in large banks." If you bank at one of the 4,500 other banks, they do not have any additional fee as part of this special assessment. If you bank at one of the banks that has this special assessment, it's like all other fees the bank pays as the cost of doing business. That cost went up, and if they choose to pass it on then it should make them less competitive which would in theory have you bank at some place smaller which then in theory would have less of a FDIC risk. All in theory as the invisible hand of the market isn't always so straight forward.
- tedunangst 3y agoWhy are you keeping piles of cash in a mega bank savings account that pays 0.01% anyway? Move it to a regional bank that isn't being assessed the fee.
- deleted 3y ago[deleted]
- singleshot_ 3y agoIf you bank with one of the institutions that is subject to this policy and you are not a multimillionaire it is highly likely that you are making a mistake that is causing you to be exploited by greedy rich people. Take an hour this weekend and find a credit union and I bet you that you will be pleasantly surprised.
- michael1999 3y agoIt is by no means clear that tax payers will be paying for any of it, unless you happen to hold bank equities. This is the FDIC sticking US banks with the bill. The equity owners of SVB were (correctly) zeroed. They were not bailed out. The account holders were bailed out. The regulators feared the risk of contagion more than moral hazard. I'm inclined to agree. With some luck, it will inject a bit more realism into their lobbying around regulation.
- paulddraper 3y agoFree lunch
- koolba 3y ago> The FDIC said the payments would not begin until the second quarter of 2024 and would be collected over two years, translating to an annual rate of 0.125 per cent of each bank’s uninsured deposits. This is going to be a fun one to track. I fully predict the big banks will game their own deposit holdings to not fall into this category. A year is plenty of time for them to find some loophole.
- lax4ever 3y agoThere doesn't seem to be much that they can do to game it as the calculations seem to be based on uninsured deposits. The bank doesn't control how much a depositor places in the bank.
- koolba 3y ago> The bank doesn't control how much a depositor places in the bank. Ha! Of course they do. All it takes is a letter or phone call advertising a new cash management account that holds overnight treasuries. Customers can sign up and move their $250K+ deposits (which technically aren’t insured anyway) to that non-deposit account.
- lax4ever 3y agoNot every bank is going to be able to leverage a CMA that works the additional FDIC insurance. And even then, offering incentives or products does not mean a depositor will actually utilize them.
- sgerenser 3y agoThey can easily set up accounts so that they earn lower (or no) interest over $250k, or do what Apple is doing with Apple Card savings and not even allow balances over $250k. Then the bank is effectively passing on the fee to only those unwise enough to keep more than $250k in a account.
- lax4ever 3y ago
- lumb63 3y agoDoes it seem crazy to anyone else that the FDIC is levying a “special assessment”? The I in FDIC is insurance - the fund should have enough money to cover bank failures at the rate they are expected, much like an insurance company would, not charge other banks. This is like your car insurance company levying a fee on everyone every time someone gets in an accident. It’s not insurance, it’s transferring one bank’s losses to all others in an arbitrary manner.
- EMM_386 3y agoIf I am reading this correctly, they have enough to cover this: > The Deposit Insurance Fund (DIF) balance was $128.2 billion on December 31, 2022, up $2.8 billion from the end of the third quarter. https://www.fdic.gov/about/strategic-plans/strategic/insurance.html https://www.fdic.gov/about/strategic-plans/strategic/insuran...
- tgma 3y agoHealth insurance in the US has a concept of “deductible” and “copay” in the event of a failure; this is not dissimilar to copay.
- mminer237 3y agoA copay for someone else? I've never had my insurance company send me an extra bill because my neighbor got in a car accident.
- tgma 3y agoThe banks are not paying insurance to insure “themselves.” They are paying insurance to insure all depositors in the banking system, so the failure event belongs to the banking system at large not the failed bank in particular.
- dredmorbius 3y agoYou all but certainly have, though it's not usually framed like this. Many auto insurance policies include risk indicators based on location, age, educational levels, and similar factors. If members of that cohort prove to be a higher risk than earlier actuarial models had presumed, rates increase. That's similar in general spirit to what's happening here.
- bagacrap 3y agoI swear, people will distort reality any way they can to make themselves victims of this.