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If a money center TBTF bank were in danger of failing, the US Gov't will, as you say, "literally invent real USD money, [to] make their balance sheet whatever t
by unyttigfjelltol 3y ago
If a money center TBTF bank were in danger of failing, the US Gov't will, as you say, "literally invent real USD money, [to] make their balance sheet whatever they want...."
If SVB can't fail gracefully, then anything larger certainly has the full faith and credit of the US Gov't behind its deposits, just like the Federal Reserve itself. That is why drawing comparisons between them makes sense.
- zie 3y agoI seriously doubt they would do it like that. For the next year or so, BOA can borrow at 100% nominal value for ALL of their US govt debt, so they are basically guaranteed to survive for a year, regardless of what anyone does. Probably what they would do, if BOA were to fail, would be to let it "pretend fail", where they essentially just replace all the senior officers and CEO(and all their equity goes to zero), and then give the new management team a big fat loan to help them get back on their feet. There is very little chance that the FDIC would let BOA get swallowed up by another TBTF bank, that would be letting even more concentration into public banking, something I don't think they want. Even if we are way more diversified in banking than every(?) other country. There is zero chance they would swallow it up and become a bank themselves like you are suggesting. SVB failed because they were incompetent people running the bank. They had no risk management dept for a long time before failure, and had no diversification of any kind. When they saw the writing on the wall, instead of trying to deal with the problem, they tried to play Ostrich. Their equity in the bank went to zero like it should. BOA has a risk management department, and they are working hard to keep the lights on. I'm a BOA/ME customer and am not worried.