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Comment by patientplatypus | Hacker News Reader

I was reading this and came across "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."

What does this "special assessment on banks" mean in practice? Do they just go to all the bulge bracket banks and demand that they buy the outdated Treasuries at a loss? How does this work?

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IIRC banks pay a fee to the FDIC in exchange for providing insurance, and because the FDIC is not funded by taxpayer money, the fee simply goes up when needed.

Right. You do stupid reckless stuff that causes a loss? Fine, your insurance premiums go up. Same as with homes and cars.

The only outcome I'd like to see better are bonus clawbacks for the "removed" senior management.

I don’t know about clawbacks on bonuses, but part of their comp is equity and shareholders are getting wiped, so you’re pretty much getting your wish anyway.

So there is SVB and Signature bank that have both collapsed in terms of $300 billion. If what you are saying is correct, does that mean that the banks are required to pay hire fees across the industry upwards of $300 amortized over a certain amount of years? If that's the case then the taxpayer will most definitely be on the hook. I don't know if spread across all taxpayers this fee would be negligible, and I also don't know how this would affect the CD rate that banks would offer to clients.

Presumably it would force them to lower it, which would be counter to the anti-inflationary moves of the Federal Reserve, but that might not matter given that this is a current issue. It's possible this might also affect banks willingness to raise rates in the future in response to Fed tightening if they thought there was a risk to the banking sector.

Given the size and how quickly the banks are failing I'd hazard a guess (this is not financial advice) that in order for the FDIC to maintain it's own portfolio it would have to raise rates enough to be noticeable to consumers, even given the number of FDIC accounts.

Can someone comment on if this is the case and how much this might affect forward guidance for banks and consumers?

The hole - if any - should be much less than $300bn.

(But sure, there is a huge overlap between taxpaxers and banking clients/shareholders.)

SVB and Signature bank that have both collapsed in terms of $300 billion

This is not correct. SVB, for example, owes depositors ~$150B but they also have assets of almost $150B. The hole that FDIC needs to fill in may be less than $10B; it may even be zero.

This has been repeated ad nauseam but it does not pass the smell test. If SVB were solvent then it would not be in receivership.

It’s a cash flow issue. Cash flow kills plenty of profitable businesses.

It’s a true solvency issue. They could have announced this before the bank collapsed and it still would have collapsed eventually because assets were less than liabilities

The rules was setup that FIDC can take over when they smell something wrong before it is proven true insolvent.

The basic analysis that the costs will ultimately fall on other banks' depositors is correct.

That's why it's a bailout.

A bailout usually means "company kept afloat via direct cash infusion from the government". In this case, the company and its assets are being liquidated to pay its depositors. The special assessment is to replenish any money spent by the FDIC's insurance fund, and as the press release says, that is required by law.

You can have your own private definition if you like, but people talking about financial failures having using the term "bailout" in connection with all sorts of stakeholders for decades.

The word games being played around this are just embarrassing.

Because SVB is not actually bailed out. The company is dead, this just means the depositors don't lose their holdings and we don't watch a whole economic sector melt down while we debate the definition of words.

Then let's call it what it is specifically instead of using such imprecise language: It's the sale of the assets of a bank in order to guarantee depositors' funds. It's not like the way zombie banks were given money to continue to exist in 2008, or the way the GM and Chrysler were given money to continue operating at the same time.

The use of broad-to-the-point-of-meaningless but emotionally charged terms like "bailout" results in stories that distort what's actually going on to fit a particular narrative.

wmf - I can't reply to you. So I'm writing here - you should take a look at this. https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/ins.... The fifth chart has that while SVB has 12% of Tier 1 Capital Ratio, their fire sale price is effectively 0. I haven't looked at the numbers in-depth, but you're right. It's not 150 billion, but on the other hand it's not known who would be willing to buy their assets. It sounds like the government is going to take back the Treasury bonds and then raise FDIC rates. But if that's the case then, given that the current treasury bonds are selling at above the rates of previously sold 10 year bonds, who would buy these bonds? I don't know precisely how much of their assets on hand are treasury bonds, but I doubt any of these would be saleable except at current market rates. So it would be closer to $150 billion * percentage treasuries * (current yield value - past yield value). I still think it would be high.

I believe that SVB and Signature have total depositor liabilities of 300B. They also have assets that are worth a significant portion of that. Only the difference needs to be covered by the FDIC assessment. Depending on what happens in between now and when that assets are sold, it is possible that the assets end up being worth more than liabilities, and no FDIC assessment is needed.

In other words...it's funded by anyone who uses a bank. A quick Google shows that only 6% of Americans are unbanked. If 94% of Americans are going to see higher fees, lower interest rates on accounts, higher interest rates on loans, reduced services in order to make up for increased insurance fees, it's practically paid by tax payers.

> lower interest rates on accounts...

These days, banks need to be competitive with Treasury rates to get large deposits from informed investors. Anyone with a brokerage account can get a 5% interest rate today on short-term Treasury securities (risk-free if held to maturity, and exempt from state/local income tax).

So if banks start lowering rates on deposits, they may have a shortage of money for lending.

If they don’t have required reserves they don’t need any deposits.

Everyone being a taxpayer and everyone having a bank account is a coincidence. This does not equate to bank fees being taxes. I’m not saying you’re wrong, but this argument isn’t strong. It’s the same as saying we’re being taxed for smart phones or cars on the basis that most people buy them. A tax is something the government collects and it’s mandatory. The other massive difference here is that the fees are distributed according to certain kinds of savings and investments, not according to income nor according to any and every bank account. I don’t have bank fees, for example, for my checking account.

To continue your cell phone analogy, this could easily be like the 'number portability' regulation that was simply passed on to consumers as a fee that vastly overpaid for the cost and now represents almost pure profit for carriers.

Banks are too smart to make it that obvious, however. They'll wind those fees in silently.

Better filtered through the open market for banks than paid directly out of your taxes.

It's just easier to hide from voters.

It could be borne by the tax payers who have bank accounts. But it is also possible the banks could bear some or all of the "tax" by lowering their margins.

It seems likely that it'd be proportional to your holdings in banks, though? So it's a bit of a wealth tax? Seems like people can put down their populist pitchforks. This is a pretty good application of an insurance scheme.

Not really...it depends on how it's implemented. I don't pay a minimum account fee because I have enough money. Who does? The poor. If they decide to increase credit card rates, I don't pay credit card interest. Who does? The poor. If they decide to reduce savings interest...I utilize a service called "Max My Interest" where my savings account money is rotated every month to a different bank depending on who has the high interest rate. If the bank tries to reduce interest payments...doesn't impact me. It impacts those who aren't financially savvy.

Is the fee progressive like tax ?

Higher FDIC insurance rates, which get passed on to banking customers.

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