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All bank deposits should be guaranteed by the state.

Just like tap water is guaranteed to be drinkable, ... Bank accounts are the basis of many things.

Its possible. Its called sovereign money. You basically have an account with the central bank just like private banks do (but they dont want anybody else to have)

These accounts pay strictly zero but can never default.

Anybody who wants to get a return can deposit with a private bank but then they need to monitor that bank because if it mismanages risk they are on the hook.

The thing to understand is that private banks are experts at risk free profiteering and passing the buck, not at managing risks which is really hard work

The monetary system is an absurd and unfair anachronism and it lurches from disaster to disaster.

SVB was offering higher returns by taking on more risk than was required. Those customers now lost nothing. The rest of us who went with safer banks offering market rate returns not only received less over that duration, but we have to pickup their tab.

Why should I or a bank ever do diligence again? I can just claim I misjudged the risk.

There are ways, fine the bank owners, claw back the bonuses, etc... Maybe even criminal law.

But the depositor has no fault. A depositor shouldn't have to do diligence, just like it shouldn't test the the food it's buying for toxicity.

> just like it shouldn't test the the food it's buying for toxicity.

Well I may have to if I buy food from a "innovator", "disruptor", "visionary" store that sells steaks at $2/lb and chicken at 99c/lb

What risks were taken by SVB? From what I understood, all the investments were in very safe ones.

They were supposedly safe. Misconceptions exist everywhere in business and finance. Silicon Valley's entire modus operandi is about "disrupting" industries that feel their business models are safe.

They were in fact not safe. The bank no longer exists after failing to cough up depositors' cash.

Maybe banks shouldn't be able to place bets with depositor funds.

They were returning interest to the depositors, so actually the depositors decided to take on the risk. You will never earn interest without risk. If you're told that any form of interest is risk free, it's not true. In the case of treasuries, the risk is not default - it's inflation risk. This is because there is a chance that inflation outpaces the bond yield, meaning you lose money over the life of the bond (as the principal will lose buying power) and the underlying bond will also lose it's value as higher yielding bonds are auctioned by the government.

They aren't. The particular "bet" here, treasury bonds, are considered the safest form of US money, they are considered "risk-free".

See my other reply to the parent comment. Treasuries are not risk free.

Yeah as long as the banks hold actually valuable things- SVB had treasury bonds- no reason the federal government can’t treat those as cash. I mean it’s their own issued assets!

The problem in this particular case is they already sold those treasury bonds, at a loss. But yeah, it would be ridiculous for a bank to go bankrupt because it bought it's own government bonds.

Exactly

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