It makes sense to make depositors whole, they’re innocent here. It doesn’t make sense to make SVB whole for managing their risk poorly.
The bank’s owners have to pay $x for buying FDIC insurance of up to $250k per account per person. If it actually costs $y > $x to insure for more than $250k, then that is quite a windfall for the bank owners at the expense of federal taxpayers.
SVB is dead. Shareholders are getting zero. The losses are not being socialized. But because we don't want a bank run on every regional bank, let's make depositors whole.
Obviously that insurance costs something, and the moral hazard is that both bank owners and depositors of banks with lax standards get to financially benefit from lower costs due to all federal taxpayers subsidizing their risk.
Anytime taxpayers give money, they are tilting the incentives such that the risk of the loss being bailed out is now going to be underpriced, because it will be assumed a bailout is coming.
If the goal is to have no depositor in the US ever lose any money, then the government should just give everyone an account they can transfer money into and out of. It will earn no interest, and no bank owners will profit from the taxpayers’ subsidy.
> make depositors whole
It seems that the big money people affected by this chose this nonsensical, archaic term to use in place of 'bailout' so that people wont react. It really doesnt work and it looks way, way nonsensical.
But in this particular instance taxpayers should want to invest in trust in US banks and dollars until regulation is corrected.
We do. SVB lobbied successfully to exempt itself from the Fed’s stress tests and Basel III, both of which test assets for interest rate risk and would have caught this problem.
Any treasurer or CFO with half a brain knows that.
Don’t worry world, when push comes to shove, those who had nothing to do with it will bear the responsibility!
I don’t think that’s a better message for anyone.
I fail to see how the government doing exactly what the law says and what they've always said they will do makes people lose trust in the US.
You don't want wealthy people and companies thinking their money isn't 100% safe in a top 20 US bank.
Good. That's exactly what should happen. It should happen every single time, repeatedly. People should have to learn the hard way that banks and the government cannot be trusted.
These are the consequences of their irresponsibility. They should not get to avoid those consequences just because "banks and USD are important" or whatever excuse they come up with. If the US really is all about the free market as it claims, it should allow these banks to fail and everyone who trusted those banks to lose. Customers lent their monet to this bank and they lost. Allow them to face the consequences of their actions.
it is all the bailouts and insider dealing that kill confidence in the dollar and the banking system. enforcing the rules increases confidence.