Why America has 4000 banks is beyond me. In my country they all consolidated in the 60s and 70s into a half a dozen giants.
My company used to bank with Bank of America. It was awful. They seemed to have no concept of how to work with small business or a tech startup. We moved to another bank (not svb) and it's been a much better experience.
Only leveraging the giants of a given industry is not good for innovation nor specialization.
At least that is what I have seen here in Canada, I imagine the US is very similar in that regard.
To draw an analogy, should every business owner with physical goods only sell and distribute their goods through Amazon and/or Walmart? Yes, their size provides many benefits, but also has dramatic costs to their business and impacts how customers are served.
Local community banks make it far easier for farmers and coffee shops to get loans. Local community banks keep money locally and grow locally. The consolidation of banks is a problem to avoid, not desire.
Local Credit Unions and small local banks rock.
The phrase "too big to fail" doesn't mean it's impossible for it to fail; that's not a thing. It means the govt/public feeling obligated to bail it out when it does fail because the public thinks they're so dependent on it that they're worse off of they let it fail.
A lot of confusion centers around the assumption that any bailout will be for the bank’s operations, not for the depositor’s deposits. That’s perfectly valid confusion - historically it’s been the latter! - and the FDIC isn’t willing to talk about deposits yet, either.
Also the term "too big to fail" comes to mind. Isolated risk vs systemic risk. Which one is it now? We can have opinions but Yellen may have more informed data about the gravity of the situation. It does make sense for governments to intervene in systemic risks such as this and covid.
It makes sense that they’ll make depositors whole before even thinking about the rest. From the top of that page:
“ All depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
https://time.com/6262009/silicon-valley-bank-deposit-insuran...
It’s almost certainly not going to come to that in this case as the normal fdic playbook will work but the federal government has a history of taking action when extraordinary bank failures happen.
https://www.americanbanker.com/opinion/will-fdic-keep-protec...
Yes. Anything else?
You let one bank collapse, OK. If the collapse causes other banks to collapse then it's bad. When WalMart, Costco can't transfer money to fill shelves, people go hungry. When people can't get their wages, they go hungry.
And then don't mix the two.
Basically the (idealized) Democratic Socialism of the Nordic governments.
Food for thought:
David Graeber in Debt: The First 5,000 Years asks if Capitalism might be intrinsically unmanageable, so therefore prone to collapse. He notes that every economy in history experienced a debt crisis, requiring intervention (eg revaluing currency, revolution).
More recently, Katarina Pistor wrote The Code of Capital, which documents the modern economy built on top of our shared legal fiction of property. Here's a pretty good interview. https://the-ezra-klein-show.simplecast.com/episodes/katharin...
FYI, I'm not an economist, so I'm not aware of anyone making the specific case that Capitalism is chaotic and so therefore will eventually collapse (aka chaos theory).
There's no point pretending that the large banks are "private" if they are subjected to some special rules.
People put their money there willingly, no one forced them to. Let them all feel the joys of "free market capitalism".
That would be a good idea. If bank is too big to FDIC to absorb and "too big to fail" and it fails it becomes Treasury owned overnight.
For example Paul Krugman agrees. https://www.nytimes.com/2009/02/23/opinion/23krugman.html
>What Alan Greenspan, the former Federal Reserve chairman, and a staunch defender of free markets, actually said was, “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” I agree.
>The case for nationalization rests on three observations.
>First, some major banks are dangerously close to the edge in fact, they would have failed already if investors didn’t expect the government to rescue them if necessary.
>Second, banks must be rescued. The collapse of Lehman Brothers almost destroyed the world financial system, and we can’t risk letting much bigger institutions like Citigroup or Bank of America implode.
>Third, while banks must be rescued, the U.S. government can’t afford, fiscally or politically, to bestow huge gifts on bank shareholders.
... >Still, isn’t nationalization un-American? No, it’s as American as apple pie.
Then if people want more they could get account somewhere else, but fully carry the risks from that.
When my business gets a new order, and needs $200,000 loan we don't have to buy the raw material, we need short loan of 1-2 months from the bank. The bank uses your deposits to make that loan.
Point is that no one should be forced to take on risk if they are using a bank. Instead it should work like any other investment.
Those that are below $250k are taking effectively zero risk. The worst case scenario is possibly losing access to funds for one business day before the FDIC returns deposits up to the coverage limit.
This is, of course, without playing games using sweep accounts or other instruments.
That said, it's all a tradeoff. Increasing FDIC insurance coverage means decreasing the yield on savings accounts, since banks fund FDIC and wouldn't take a cut in profits for it. Not sure what the optimal outcome here really is.
FIAT currency is proped up by private bussiness banks. Only a tiny fraction of the money supply is the M1, or base money (printed by FED).
The way that banks expand the money supply is by providing the illusion that all my money is there and available while at the same time being loaned out to someone else.
Fractional reserve banking means that banks don’t have all their deposits in hand. It does not mean that they invent cash for loans.
(The distinction here is less obvious in a digital world, but it’s quite clear if you think about how it would work if physical cash was used)
I’m not sure exactly what Yellen is proposing (I only subscribe to print FT so no access), but it seems like special treatment for the well connected on Sandhill Road.
What is unusual is the Treasury secretary making public comment about it. But this is a unusually large bank failure and a rather critical moment.
I see two waves in Silicon Valley. Wave one was actual innovation, computers etc. Wave two was rent-seeking conmen fueled by zero interest rates and privacy thieves.
If it's a question of rigid legality that also doesn't make sense to me, because from what I remember from 2008 was the government's legal options were incredibly widespread.
1. https://www.fdic.gov/consumers/banking/facts/priority.html
The FDIC amount is a minimum, not a maximum.
But I agree, college loans should not be forgiven past what is legally available ($0).
Also, you are talking about a major banking collapse if people start thinking that their deposits aren't safe. (a lot of people will start pulling money, even if under 250k). There are so many irrational people out there...
edit: I guess somewhere in what I said was confusing, I was referring to past fails where most deposits were likely well under the 250k. NOT SVB where the vast majority were well above that threshold.
>About 37,000 customers accounted for nearly $157 billion or 74% of the bank's assets with an average account size of over $4 million
So it seems the opposite is almost true, because the accounts are valued so high with generally more flexible account holders, they're able to move swiftly
[1]: https://www.businessinsider.com/how-silicon-valley-bank-impl...
To address your actual point: we don’t know whether WaMu depositors had a lot in uninsured accounts, probably not as much as SVB, but we do know that all depositors were made whole when JP Morgan Chase bought the bank — from assets WaMu already had, not the FDIC’s pool. Even senior creditors received some amount back!
The majority of avg deposits were NOT < 250K.
Only 3-7% of SVB accounts under FDIC limits.
Edit: corrected to have specific languange
According to [0], regulatory filings disclosed that 85% of deposits (not accounts) were uninsured.
[0]: https://time.com/6262009/silicon-valley-bank-deposit-insuran...
no one knows what it was as of 3.10.23
> As at the end of 2022, it had 37,466 deposit customers, each holding in excess of $250,000 per account -- and -- The bank does have another 106,420 customers whose accounts are fully insured but they only control $4.8 billion of deposits
So SVB had only about ~150k banking customers. And of those, less than 40k are actually affected by this debacle.
-- -- -- --
The numbers are being mixed up, it feels. Only 3% of total deposits are covered witn the guaranteed FDIC insurance. The rest are spread across less than 40k depositors. And the average (not median, but plain mathematical average) amount on those accounts appears to be $4M.
Not much different than what the US government is already doing. Reached the debt limit? Just raise it again, lol.
/s
Buying 3 month T bills won't pay much, but it will pay more than the interest SVB pays on your checking account balance and importantly is backed by the full faith and credit of the us govt.
What gives you that indication? The bank specialized in working with startups, most of whom have more than $250k in the bank