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> These banks are the equivalent of the apartment owner. The issue is that they ARE important enough to the economy to be considered an "large apartment buildi
by ke88y 3y ago
> These banks are the equivalent of the apartment owner.
The issue is that they ARE important enough to the economy to be considered an "large apartment building owner" (see: de facto bailouts) but were NOT regulated as such. Pardon my continued use of a somewhat tortured analogy.
You and me and everyone else without >$250K in an SVB account should be angry about this. Why? Because the customers of SVB were getting attractive returns on their deposits. So they got exposure to the upside of the bank's risk, but were bailed out of the downside.
- bluefirebrand 3y ago> So they got exposure to the upside of the bank's risk, but were bailed out of the downside. This is a huge flaw in the current way things are operating, but it benefits those people making the decisions and their friends so I don't see it changing. Facing consequences for bad investments is apparently something only poor people have to worry about. Which is insane.
- stickfigure 3y ago> customers of SVB were getting attractive returns on their deposits Can you quantify that? If a startup had $1M in a business checking account, what interest rate were they getting paid? I was under the impression that depositors at SVB were getting 0% like everyone else in the 0-interest-rate era.
- FireBeyond 3y agoAround 4.91% interest up to $4M.
- butlerm 3y ago> Around 4.91% interest up to $4M. Anyone being paid interest like that on demand deposits should expect their bank to fail, unfortunately, and consider themselves lucky to get cents on the dollar when it does.
- butlerm 3y ago> So they got exposure to the upside of the bank's risk, but were bailed out of the downside. The fastest way to cure the risk of banks like SVB would be to make it illegal to pay interest on demand deposits and have those that want to earn interest to either purchase certificates of deposit or invest in some kind of mutual fund. There are hundreds of money market mutual funds that are safer than making an uninsured deposit at (read: loan to) a mid size commercial bank. It would also be necessary to require all deposits to be insured and have banks pay appropriately risk adjusted deposit insurance premiums of course.