- FDIC guarantees that every deposit at these banks up to an unlimited amount will be paid out by the US government.
- Because of that guarantee, the bank run stops and people leave their money there (and in fact deposit more).
- Because of the influx of cash the bank solves its liquidity issues and the government doesn't actually have to spend a single penny.
In theory all of this works. But the next question is – how far will this go? Will FDIC do the same for every bank in the country? Can they all just start taking more and more risk? Do customers not need to care about how well their bank is run, because ultimately the US government is everyone's bank?
Did we just accidentally invent a fully socialized national banking system?
> Did we just accidentally invent a fully socialized national banking system?
Not if the profits still go private interests.
The standard way of doing big business in the USA for quite some time has been “socialize the costs, privatize the profits”. So on the face of it this doesn’t seem new.
If I were head of a smaller or regional bank, I’d be running for the lawyers, because I would find it very hard to believe that FDIC would extend their offer in a fair and reasonable manner to smaller banks. If they don’t, it’s arguably a form of extortion, using mandatory fees on small banks to only protect big ones. How would that be legal?
To avoid legal hot water, the FDIC may find themselves to equally protect every bank which might quickly turn out regrettable…
> Did we just accidentally invent a fully socialized national banking system?
According to Kevin O’Leary, YES. He also makes a point about how the management was "idiotic" because if they had just gone to JP Morgan, or Wells Fargo, or another big bank - and said, "hey, we got a short term cash problem with a lot of treasuries," they almost certainly could have come to a very low-interest loan arrangement that would have prevented this outcome.
Apologies if I'm missing something, is this discussing the new Bank Term Funding Program or some other guarantee?
(edit: I see the phrasing "fully protected by the FDIC" -- this might be the general idea that depositors won't lose anything, but not literally that FDIC is officially extending insurance, I think?)
Anyway, for the BTFP, I think it is generally available to all banks. Seems to allow borrowing against underwater assets at par value, at roughly 4.6% interest.
While it came together over the weekend[1] there are some guardrails -- including that it only applies to collateral that was already owned at the time of announcement (so far...).
[1] based on zero evidence, I wouldn't be surprised if they have stuff like this war-gamed and sketched out in case
Run your bank off a cliff, require every rule be broken to save your bacon, and now ask people to reline your coffers with more deposits. Absolutely stunning...
On second thought - SVB is apparently the safest place on the planet to park enormous amounts of cash. Why would you not deposit everything here? The Government will just save you if SVB screws it up again... right? Absolutely zero risk in parking everything with SVB... what a great signal to be sending the public.
> On second thought - SVB is apparently the safest place on the planet to park enormous amounts of cash. Why would you not deposit everything here? The Government will just save you if SVB screws it up again… right?
I mean, SVB (and every other bank except those three) wouldn’t exist today if people treated the three banks the government decided to invoke the systemic risk exception for [0] in the last financial crisis that way, so, I’m going to guess the market will also not treat SVB that way.
[0] Two of which didn’t end up needing the exception to actually be used because the mere announcement of the decision facilitated other resolutions.
Is that a fair assessment or just a knee jerk reaction to first reading?
How long will the FDIC make this unlimited protection available to SVB++? Is it just long enough to calm everyone down, and then in a few weeks/months release a very quite announcement that the guarantee is going back to the original $250k? If it is new gov't policy that all accounts every where are guaranteed for ever, then that's a huge banking shift that seems like something that would require a bit of congressional approval. But that's just me not knowing a damn thing about how the FDIC decisions like this are made
It’s the Silicon Valley BRIDGE Bank. The one that was created by the government after shareholders were wiped out and the execs were fired, and new management was appointed.
Of course, a lot of operations, data, tech will continue. How else would they ensure customers etc are provided access to their funds and are able to carry out their regular banking services.
"The number one thing you can do to support the future of this institution is to help us rebuild our deposit base, both by leaving deposits with Silicon Valley Bridge Bank and transferring back deposits that left over the last several days."
Effectively there are two banks (Silicon Valley Bridge Bank, N.A. and Signature Bridge Bank, N.A.) with de facto unlimited FDIC insurance, as there's explicit guarantee for all existing and new deposits.
Somewhere between "$250k" and "infinite" would have been less moral hazard.
Feels like we've set a dangerous precedent, but only for depositors who are politically connected and can instill panic.
When does the de facto unlimited FDIC insurance expire/ When does Silicon Valley Bridge Bank go back to normal?
Second: IIUC, any shortfall in making SVB depositors whole will come from a levy on the rest of the banking system (and maybe small (<$400m) clawbacks from execs' share sales). How much will that levy cost the rest of us? Can it be legally or politically challenged? Are any Congressmen challenging it? (Where are the libertarian Republicans on this?)
In widely underreported news, before anyone blames looser regulations, Barney Frank of the Dodd-Frank Act fame was literally on the board of Signature Bank, which also collapsed. He also has stated the regulation reduction under the last administration has nothing to do with this situation, whatever you make of that.
IMHO, it feels like at minimum the regulators should have required that in exchange for reduced oversight for banks in the $50-$250B range - they should have reduced FDIC coverage for depositors and have been required a form to be filled out by existing and new customers to notify them of this reduction in coverage.
paxys|3 years ago
- FDIC guarantees that every deposit at these banks up to an unlimited amount will be paid out by the US government.
- Because of that guarantee, the bank run stops and people leave their money there (and in fact deposit more).
- Because of the influx of cash the bank solves its liquidity issues and the government doesn't actually have to spend a single penny.
In theory all of this works. But the next question is – how far will this go? Will FDIC do the same for every bank in the country? Can they all just start taking more and more risk? Do customers not need to care about how well their bank is run, because ultimately the US government is everyone's bank?
Did we just accidentally invent a fully socialized national banking system?
TaylorAlexander|3 years ago
Not if the profits still go private interests.
The standard way of doing big business in the USA for quite some time has been “socialize the costs, privatize the profits”. So on the face of it this doesn’t seem new.
gjsman-1000|3 years ago
To avoid legal hot water, the FDIC may find themselves to equally protect every bank which might quickly turn out regrettable…
> Did we just accidentally invent a fully socialized national banking system?
According to Kevin O’Leary, YES. He also makes a point about how the management was "idiotic" because if they had just gone to JP Morgan, or Wells Fargo, or another big bank - and said, "hey, we got a short term cash problem with a lot of treasuries," they almost certainly could have come to a very low-interest loan arrangement that would have prevented this outcome.
mister_tee|3 years ago
(edit: I see the phrasing "fully protected by the FDIC" -- this might be the general idea that depositors won't lose anything, but not literally that FDIC is officially extending insurance, I think?)
Anyway, for the BTFP, I think it is generally available to all banks. Seems to allow borrowing against underwater assets at par value, at roughly 4.6% interest.
https://www.federalreserve.gov/newsevents/pressreleases/file...
While it came together over the weekend[1] there are some guardrails -- including that it only applies to collateral that was already owned at the time of announcement (so far...).
[1] based on zero evidence, I wouldn't be surprised if they have stuff like this war-gamed and sketched out in case
Alupis|3 years ago
On second thought - SVB is apparently the safest place on the planet to park enormous amounts of cash. Why would you not deposit everything here? The Government will just save you if SVB screws it up again... right? Absolutely zero risk in parking everything with SVB... what a great signal to be sending the public.
jacooper|3 years ago
dragonwriter|3 years ago
I mean, SVB (and every other bank except those three) wouldn’t exist today if people treated the three banks the government decided to invoke the systemic risk exception for [0] in the last financial crisis that way, so, I’m going to guess the market will also not treat SVB that way.
[0] Two of which didn’t end up needing the exception to actually be used because the mere announcement of the decision facilitated other resolutions.
dylan604|3 years ago
How long will the FDIC make this unlimited protection available to SVB++? Is it just long enough to calm everyone down, and then in a few weeks/months release a very quite announcement that the guarantee is going back to the original $250k? If it is new gov't policy that all accounts every where are guaranteed for ever, then that's a huge banking shift that seems like something that would require a bit of congressional approval. But that's just me not knowing a damn thing about how the FDIC decisions like this are made
rhaway84773|3 years ago
It’s the Silicon Valley BRIDGE Bank. The one that was created by the government after shareholders were wiped out and the execs were fired, and new management was appointed.
Of course, a lot of operations, data, tech will continue. How else would they ensure customers etc are provided access to their funds and are able to carry out their regular banking services.
cloudking|3 years ago
flatiron|3 years ago
zhoutong|3 years ago
jacooper|3 years ago
I think the first step they have to do if there is any hope of a successful relaunch, is a full rebrand.
smcin|3 years ago
Second: IIUC, any shortfall in making SVB depositors whole will come from a levy on the rest of the banking system (and maybe small (<$400m) clawbacks from execs' share sales). How much will that levy cost the rest of us? Can it be legally or politically challenged? Are any Congressmen challenging it? (Where are the libertarian Republicans on this?)
gjsman-1000|3 years ago
Overtonwindow|3 years ago
dylan604|3 years ago
ekianjo|3 years ago
This guy really thinks people are THAT stupid?
TMWNN|3 years ago
* a complete outsider to SVB
* formerly with FDIC
* ran a consumer banking-tech startup until joining SVB
* ran Fannie Mae for six years after the 2008 financial crisis
* high-level experience at BofA and Deutsche Bank
He sounds like about as ideal a person to run the new SVB as imaginable.
somethoughts|3 years ago
[1] https://www.wsj.com/articles/barney-frank-pushed-to-ease-fin...
tedunangst|3 years ago