Fed and FDIC discussing backstop to make SVB depositors whole, stem contagion
cnbc.com
cnbc.com
There is absolutely no reason banks should be given the priviledge of being the only way to deposit money, while playing with those customers money and simultaneously having zero risk on that money.
These banks are getting 10 to 1 leverage, from me, captive customer. Break their monopoly. I want an account at the Fed, and I want zero banks to be able to take leverage with my money, unless and until these banks give me a worthwhile interest rates on deposits. Let them actually compete. Right now it's not a competition, there are too big to fail banks which actually hold deposits, and there are small banks which can fail arbitrarily and cannot possibly compete because they actually assume the risk themselves.
I want zero risk CBDC. At the Fed. With the Fed's current interest rates as they give to real banks.
All their privileges should be gone. They can stay as investment institutions and if you trust them as that you're free to put your money there.
They get all the priviledge with no responsibility. If they cover for them, this should be the end of banking. Nothing less. Digital coin with zero risk and connection to all standard paying systems. Same interest as banks. Demote banks to investment institutions and make their special priviledges obsolete. No bank except the Fed will be too big to fail then, when no one's forcing you to bank anywhere.
With CBDC I get to put in my bank what I don't want with the government and vice versa.
They are using you as leverage because you have zero leverage on them. There are bank runs and the JP morgan stock is going up, because people have literally nowhere to flee to.
People have been known to overthrow their own governments because of fuckery.
Corporations have been known to lobby gov and hire thugs to keep upset labor and customer pools held down.
How can small banks compete against big banks that can allow themselves to act this way? They can't. If you're big you get to risk it all. If you're small nobody will come to you as they know they won't be insured by a spooked Fed stopping "contagion".
There's no legitimate reason to keep banks priviledge as a government supported oligopoly of investment institutions allowed to play with other people's money. If you admit the government is actually backstopping those deposits, there is absolutely zero reasons why banks get to gamble it in the first place. They are getting to eat the cake and have it too. This has to stop.
If I gambled away all your money you'd never give me more again. If the bank gambled away all your money and the government came and made you whole, you'd look to become a banker too so you get to gamble away money that isn't yours.
Apart from the arguing about the definition of gambling here applied to the SVB situation, no one is going to be able to give SVB another dime after this. They no longer exist. This is the exact opposite of risk free.
It's sad you're actually satisfied with a fictitious corporate entity "dying" when these people have perfected the art of making hostage situations with other people's money. It's all continuing because they get to successfully trade the hostages for a bailout each time. This guy is a professional Madoff, the only difference between them is that this guy is abusing bank's priviledge to get the government to backstop his ponzies.
Appears that leadership at the highest levels seems to be clearly aware that the problem at SVB had to do with bond prices/rates (rather than anything startup/tech/Silicon Valley specific), and that other banks may have the situation and be vulnerable to "contagion".
Are other banks that are in danger are now halting bonuses in anticipation to make sure to keep their books as sound as possible.
And are they issuing new equity, diluting shareholders and employee option holders, to make sure they make it through responsibly?
https://www.intrafi.com/solutions/depositors/
https://americandeposits.com/how-it-works/
There's no reason for a small business to have any uninsured cash deposits. Is this a corruption story? Are they all just that incompetent?
For hyperoptimistic founders and VC’s, the opportunity for loans where they aren’t otherwise available may have thrown responsible banking practices out the window.
It would fit the character of the startup industry, seems reasonable from a lending standpoint, and explains why VC’s are now acting like they got caught with their pants down, so I’m curious of there’s truth to it.
I have heard through the grapevine that some startups were locked into varying exclusivity deals with SVB.
When people take financial risks (such as holding more than $250K in FDIC insured bank account), why should taxpayers cover their losses?
It doesn’t follow that there will be any losses to cover. The government can take ownership of the assets of the bank and won’t be stuck having to sell them at a loss.
After two years, that bond now has FMV of 1000/(1.02^8) = $853. But then interest rates increase to 4%, so its FMV drops to 1000/(1.04^8) = $731.
If we sold today at the FMV then we'd realize an $89 loss from our purchase price. That's neither better nor worse than holding to maturity, though--that's what makes it the FMV. In the case where we sell, we'd get $731 now, but we could reinvest it at 4%. After the remaining eight years, that would give us 731*(1.04^8) = $1000, exactly the same as if we'd held.
HTM accounting treats the two cases as different, but that's an arbitrary regulatory decision, untethered from any economic reality. It has no meaning outside that narrow compliance purpose. The SVB's decision to treat that accounting fiction as if it were economically meaningful appears to be a major part of how they blew themselves up.
They are indeed trying to shrink their balance sheet, but at the volumes they are working at, the entirety of SVBs assets amount to a few months of the fed’s current volumes.
The FDIC is a modern intervention that protects most personal and small business accounts from needing to consider that risk.
Clearly, some people who grew up in the shadow of that insurance protection failed to learn about this “bizarro” world that they lived in and made uninformed choices when they suddenly came into money.
But the world never changed, just the naiveté of the people making deposits.
You don’t open a savings acct and get told “you could lose this money.”
You’re given a sold-to-you contract from the bank for a specific rate of return for the privilege of them being allowed to hold and work with your money.
If one chooses to dep >250k - that’s on them.
Most likely there are no losses so long as the assets don’t need to be sold in a fire sale. The bank just needs liquidity.
Banks that may be otherwise solvent may become insolvent because of a domino risk of bank runs.
Probably the right thing to do is forced equity dilution of a bank experiencing a run. That is, the Fed buys senior equity in the bank and the injection pays for short term losses.
The equity injection guarantee alone would likely be enough to stop the contagion and calm markets.
I thought "TARP" / equity injections into banks was a "never again" kinda deal. With Dodd-Frank regulations being passed back then to try to stop these things from being regular. We can't just buyout every bank that collapses.
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At a minimum, I want to see major banks (similar to AIG) teetering on the brink before we reach for those tools again. This absolutely should not, and cannot, be our main way forward whenever a banking issue arises.
That to me implies the bank was never solvent in the first place. You could have easily created a bank that is always solvent, see the case of The Narrow Bank, but the Fed wouldn't allow it.
I’d also insist that the govt/fdic must sell their shares on the open market with 30 days, even at a loss.
No bailout for SVB; no bailout for you.
All of the interest SVB depositors were rewarded with was coming from MBS. Heads, I get extra interest, tails, government bails my deposit out.
Another option is to deal directly with the federal government and buy bonds from them (likely through a bank but your money doesn't have to stay there for long). Then only the most catastrophic scenario would see you losing money. You are still subject to inflation and interest rate risk.
But honestly at that point, worry about having guns and knowing how to use them, not where your money is.
One last edit to add that Treasury is making all depositors whole. So, really, all of this is moot... besides the guns :)
It's not the taxpayer's burden to insure >250k worth of your cash in one location.
https://johnhcochrane.blogspot.com/2023/03/silicon-valley-ba...
The CEO pushed to ease regulations, and the lack of regulations led to this over-indexing in risk that was clear as daylight. But no one cared because they helped out startups, everyone knew the CEO personally, the VCs had relationships with the banks, etc.
Saying that "no one could see that coming" was wrong. Now the crybaby VCs THAT ACTUALLY CAUSED THIS PANIC IN THE FIRST PLACE get their way by preserving their investments, but hopefully the stark hypocrisy of Biden, first saying that millionaires "need to pay their fair share" and then immediately turning around and bailing his Silicon Valley VC buddies out, will be brought up time and time again during the election cycle.
I have worked in government, both policy, and political, for 22 years. The only thing that makes the government actually move is money. The majority of the powers that be cannot afford to alienate Silicon Valley campaign cash.
Be thankful for your government, it's the best that money can buy.
Rep and Dem alike - this election season is going to be worse than 2016. Strap in.
Right now, the thing that worries me the most is idiot politicians (redundant) inserting themselves and focusing on tangential things like who got paid a bonus or whatever. These people will - R and D - manage to screw it up.
The only way an SVB can exist is if banks are allowed to take risk.
Equity and bond holders are a totally different group of people, they are investors in that bank. They are explicitly taking risk on the bank as an investment, not as a basic piece of their financial plumbing.
Glad we agree then, that's pretty much all I'm looking for.
* Customers (both individuals and companies) get to generally continue to view banking as a high confidence, high trust activity. Consider the existing cost and friction of KYC and other due diligence measures which are imposed asymmetrically. Reduction to a low-trust environment would seem to double up the friction.
* SBV bought a shit load of longer-term US debt (which is apparently what did them in). Based on current fiscal habits, the US government needs to keep this debt attractive, especially to domestic buyers. There's nothing it can do about the risk of interest rates changing, but the last thing it wants is for depositors to put pressure on banks to avoid long-term US debt.
Nah. They were just a big, dumb crowd doing big dumb things.
Anyone fighting with cops or otherwise rioting deserves whatever charges are appropriate for those actions though.
If a single bank failure were to precipitate the collapse of the US banking system as a whole, this isn't a contagion. It is the reality of the insanely fragile nature of US banking.
You better hope people don't lose confidence on their Bank by Monday.
The government is the same, except they are looking for votes, not sales. They have to convince you that they’re doing big, important things, and that their opponents are commie/nazis who want to kill God/send us back to the stone ages.
Also, there’s a little risk of contagion, so… it isn’t totally wrong to talk about that.
My cynical 2 cents. It explains almost all of the silly behavior I hear about from my more political friends.