> No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.
i'm out of touch with how much of this works, can someone explain how this is paid without burden to the taxpayer?
i'm out of touch with how much of this works, can someone explain how this is paid without burden to the taxpayer?
> Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
suggests other banks will effectively pick up the bill?
It's hard not to see how this will be "private the profits, democratise the losses".
https://www.livemint.com/market/stock-market-news/svb-chief-...
This isn't crypto, you can guarantee that these sales will be investigated extensively.
The depositors took risks by lending their money to such a risky bank for better returns in lieu of the risk. It doesnt matter whether SVB gave 0% interest. It provided other amenities, services and opportunities instead - things which other banks could not take the risk to do. Now these banks who played by the rules and the rest of the people and businesses who played it safe, will have to foot the bill for the risk that those depositors took. This literally says "If you are big enough you can take any risk to win big and have the public pay for it if you screw it up". That's something not afforded to a small business owner. So people who say that there is one rule for the ultra rich and another rule for the majority, they are right.
Additionally removing the burden of the deposits from SVB will allow it to recover some of its lost asset value. The state took over its liabilities now.
Yes. They noticed other banks would not take their money, but SVB would. There is a reason SVB was willing to take their money while others would not.
Its not ridiculous. Its how the free market works. Its a choice. There were other banks that were compliant with the regulation that !protects! the bank and its depositors. This bank wasn't one of them. People put their money in this bank anyway. It makes little difference if many startups were forced by their VCs to put their money in that bank - they chose to go with those VCs.
> What was the safe, responsible thing to do? Put it in one of the “too big to fail” banks instead, given that those are guaranteed to be bailed out should they encounter difficulties?
The first thing to do was to put their money in banks that have not lobbied for exemption from the regulations that protect the bank and its depositors' money from exactly what is happening right now.
The second thing would be to put it in multiple banks that are not exempt from that regulation to spread around the risk.
The third thing would be to spread the risk around many investment tools and banks.
It turns out that there ARE startups that did precisely that, and they were not affected by the SVB thing in the slightest manner.
> Let’s not pretend that literally keeping cash in a savings account is irresponsible risk taking.
It is unless it is a state run bank, period. This is the free market, and if the organization that you are putting your money into is a private organization, you are simply taking a risk. If that does not sound good, then it means that all the rhetoric about free market vs government should be revised.
> If you're already bailing the bank out, oust the management, claw back what you can, but don't wipe out share holders or bond holders.
You don’t get it: the bank is bailed out using funds of shareholders and bondholders. Taxpayers aren’t bailing out SVB, you are. If you don’t like it, well, I recommend selling your investments and keeping your money in regular savings accounts: the deal is, at the basic, very simple: if the company you own screwed up, your entire equity may be used to made those whom it screwed up whole, and you should be happy that your liability is limited to your equity only.
That's the bailout part. If the government is stepping in to bail people out via making up for any difference of uninsured deposits from FDIC funds then it's no longer a question of risk/being wrong/luck. The depositors were taking risk just as the shareholders were taking risk. If they didn't like it, well they could have kept the money in their mattresses.
I'm totally with you that everyone has to accept the risks they're taking. This is creating a distortion field here for certain types of risk taking.
Even if we ignore the bailout, I don't think the story is as simple as you put it. There was a run on the bank with VCs telling companies to withdraw their funds. From a stock market perspective this could be considered manipulation.
When I invest in a bank I'm also relying on the government's role as a regulator. If they failed in their role, or the government actions contributed to the failure of the bank, or they had other courses of action, why should I be on the hook for the consequences?
Maybe this course of action was necessary to stabilize the situation and protect against more bank runs. It still doesn't feel right. It feels like something we'll pay for in the future.
Sure, which is why I’m not opposed to depositors taking some haircut. But that’s only more reason to wipe the shareholders to the last penny.
> The depositors were taking risk just as the shareholders were taking risk.
No, they were not, that’s the whole point. They took completely different kinds of risks. Irrespective to what degree the taxpayers are encumbered with extending the bail out loans, shareholders are the ones who are expected to foot any bill first and foremost.
> Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
So banks are going to have to cough up extra money beyond their normal FDIC premiums for this.
But it's not like those costs will be passed on to customers, right? /s
> The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.
https://www.federalreserve.gov/newsevents/pressreleases/mone...
They're basically going to allow banks to post treasuries as collateral in exchange for cash. Making this effectively a form of QE.
To understand better, banks don't hold the cash you give them. They take it and invest it in "safe" assets like treasuries and mortgage backed securities. But because rates have sky rocketed US banks are currently sitting on hundreds of billions in loses on these investments.
That's generally not a huge problem though because so long as the banks can hold these assets to maturity they'll eventually get their money back. Problems only occur when a large number of customers start demanding their deposits back ASAP. If enough customers want their deposits in a short enough window then the bank will be force sell those investments at a loss so they can return cash to customers.
To avoid this scenario the Fed are basically saying, if a bank is ever forced to realise loses, then the Fed will take those loses and "print cash" to make them whole again.
It's probably the right thing to do given the systemic risk, but this is inflationary.
Customer deposits this $100 at a bank.
The bank now has $100, and the customer has $0.
The bank uses the $100 to purchase a treasury bill.
The treasury bill falls in value and is now worth $80 on the open market.
The Fed says, it's cool, just pretend it's worth $100 because it will look bad otherwise.
Customer says, I want my $100 back.
The bank is now forced to sell the treasury bill and admit that it's actually worth $80.
Fed says, it's cool, just give us your $80 treasury and we'll print $100 and give it to you.
There now exist, a $80 treasury (held by the Fed) and $100 in cash which is given to the customer.
Where is this $180 of value coming from?
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Its inflationary in two ways.
Firstly, money in the economy is created via debt, and Fed in this case is creating a debt which increases money supply. Secondly, the Fed is exchanging the bank's assets at an above market price and taking the loss onto its balance sheet.
This is wrong.
Edit: I see. I think you’re missing the full accounting picture. When somebody moves $100 of petty cash into a bank, they don’t have $0. They have $100 of cash. The bank has an asset and a liability. Rinse and repeat with the bank and Fed transactions. There’s not an $80 treasury note anywhere because those aren’t MTM.
I'm guessing what you're getting at here is that bank would technically have a $100 liability with the customer and $100 in cash on its balance sheet.
The point I was trying to make is that there's just $100 of spending power in this hypothetical economy.
The costs aren't borne by "the taxpayer", but an awful lot of taxpayers who had nothing to do with this or even purposely avoided it may be paying higher banking fees as a result.
at least they have to pay lipservice now and not just printing billions and handing them straight to the rich
The thing is that without this decision there would be two problems:
1. deposits would only re-accessable much later, too late for most small Companies to survive
2. depending on law/regulation aspects I don't know much about it also may have been a possibility that Stockholder get payed out first and similar
> Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.