FDIC Establishes Signature Bridge Bank, N.A., As Successor to Signature Bank | Hacker News Reader

FDIC Establishes Signature Bridge Bank, N.A., As Successor to Signature Bank

fdic.gov

152 pointsclessg213 comments

This sounds like it's basically the opposite of a bailout: It's the FDIC stepping in, removing management, likely wiping out shareholders, but otherwise letting the bank operate normally with customers fully protected - instead of letting management continue to run the bank in ways that may lead to losses.

One part of the bailout is depositors over $250k getting a new FDIC guarantee. The other part is the fed reserve promising to accept collateral at par instead of market value via the new BTFP. https://www.federalreserve.gov/newsevents/pressreleases/file...

Absolutely this... how is this not a bailout? Insofar as the amatuer hour banks that didn't buy swaps on the interest rate risk of their unmarked treasuries and mbs will now be saved from going under - for a year at least.

A bailout is when you rescue equity or bond holders. There aren't any specific people being rescued here.

And there aren't any other large banks doing that either. That was a SVB problem.

If a lending facility, only available to banks, at par for assets that are under par is not a bailout…

What would you call it?

It's not allowing the bank to continue to operate under its current owners. Equity holders are likely getting zeroed and debt holders are likely taking a haircut. It's deposit insurance, not a bailout (at least in the sense of how the term is normally used), and where the money is coming from is irrelevant to that.

Those are not the terms of the BTFP. Nowhere does it say that to access this facility you must go under FDIC receivership and wipe out shareholders and bondholders.

It’s not available to banks, only to used-to-be-banks.

False. Check the linked press release in my parent comment - the BTFP is available to all banks and allows them to use their under par assets as collateral for loans at par from the Federal Reserve.

“ Borrower Eligibility: Any U.S. federally insured depository institution (including a bank, savings association, or credit union) or U.S. branch or agency of a foreign bank that is eligible for primary credit (see 12 CFR 201.4(a)) is eligible to borrow under the Program. “

Fair. Thought you were talking about making SVB depositors whole.

I’d call the BTFP a mechanism to stabilize the banking system in the US, given rising interest rates. I guess I don’t care as much about the semantics, though.

It wipes out losses accrued up to March 12, 2023 on eligible securities, for one year. It's taxpayer funded. Terms are super generous: only a 10bp premium. It's at least a bailout for one year. It may or may not get extended.

It also works against the Federal Reserves stated policy of shrinking their balance sheet due to inflation.

I do think it's somewhat clever. It basically lets the private banking sector control the pace of QT. If liquidity dries up somewhere in the system it does a one-year targeted QE.

I'd say it's bailout-y to value collateral above market value, but isn't totally free money and we haven't seen all the terms for it. At least the Fed is safer holding long term bonds than anyone else.

> If a lending facility, only available to banks, at par for assets that are under par is not a bailout… > What would you call it?

Obviously I'd call it a loan.

Depositors are just shareholders with higher priority and an apparently unlimited (previously capped at 250k) insurance policy

Unlimited insurance AND still keeping the profits from the juicy interests.

> Planes wouldn't have stopped to exist, cars wouldn't have stopped to exist. > The entities would have disappeared and new ones would get created.

That seems unnecessary considering how many jobs were at stake.

The airlines got bailouts specifically because they had union contracts that wouldn't have survived otherwise. It was for the workers.

Though, planes probably would've ceased to exist eventually, they need continual maintenance.

Isn't bailing out startups who pay employees a similar position?

Only if unemployment in the startup sector was a big problem and they were unionized.

How about, the government simply take an equity position in these companies. That way, when the inevitable unicorns come along, they can make the VC profit. Instead, the government is simply taking a pure loss... for what? Literally, an equity position is a net win. The loss is capped out at the equity position (which they're already losing now), while the gain is unlimited. Sure, there is every interest in protecting workers. But we're also protecting shareholders in these companies, and eliminating their risk, while not taking any of the reward. When these shareholders make money on the startups, they will be first in line to demand low taxes and lauding the 'free' market. How silly

Taking an equity position in a failing company that needs a bailout is obviously dumb. You want equity in the ones that don't need bailouts, i.e. you want a social wealth fund.

We the people don't need equity to make money from companies growing, though; we have income taxes.

Taking an equity position in all the startups that are banking at SVB is not a failing proposition at all. You misunderstood what I'm saying. I'm saying that the fed is bailing out thousands of companies that have huge upsides. By keeping those companies in business via the fund transfer, the fed is allowing the founders / investors to make a huge upside, while retaining no right to the upside. The fed just eats the loss. I'm saying, in exchange for providing liquidity for employee wages and invention (the supposed social goods we're paying for) the government should take an equity position.

In no way do I think the government should own SVB's assets, which is what is actually happening here, as the government is going to eat the cost of retaining SVB's assets while insuring them at full face value despite that being 15B over market value right now.

> we have income taxes.

Alas the investors and companies being bailed out are not known for being very good at paying those.

How is the bank “saved”?

All it’s assets seized, all shareholders removed, all leadership let go.

The banks customers are saved, the bank is dissolved.

The problem arises when you look past one bank and consider the banking system as a whole. When the next bank fails and its depositors are backstopped by the FDIC at 100%, then again and again, eventually the “fund” should run out. In theory.

In practice, of course, that will never be allowed to happen. FDIC insurance is now effectively infinite.

>FDIC insurance is now effectively infinite.

That clearly being the case, what does it mean for insurance premiums?

This is from the top HN post:

> Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. 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, going forward, are they planning to do a “special assessment” for every failure? Because before banks were paying premiums into the system, just like an insurance.

Yes, the premiums are called assessments.

Ok, that makes sense.

My question was more about mechanics of this. Do they plan to keep FDIC fund and grow it or maybe you wind it down and just assess “as needed”, since the other guy is now completely on the hook.

No insurance premiums will reflect estimated risk of total bank failures going forward.

You've got this backwards. The FDIC's actions are in part designed to limit its losses, since contagion risk will also be borne by the FDIC. By limiting the chance of runs they are limiting their liabilities.

The FDIC always had unlimited resources since it is backed by the US. It always sought to protect the entire banking system without limits. It's doing its job.

Lets just say the FDIC officially covers all losses at all banks. That means that the real danger, bank runs, are eliminated and so is the FDIC's risk in that regard. The risk is reduced to bank mismanagement which can be managed through examination and seizure of banks. That's essentially how too big to fail banks are handled.

I don't think we're in disagreement -- I support the actions of the FDIC, Treasury, and FRB on this issue. A few hours from now, hopefully we will not see runs on other exposed institutions.

The decision was made that if the Deposit Insurance Fund [1] was drained as a consequence of this new mandate to protect all depositors while collecting insurance premiums calibrated to the previous $250k limit, the government will backstop the FDIC ("full faith and credit"). Good.

My contention is that the future of the DIF itself is murky -- I suspect that it's no longer necessary. If it were still relevant, then shouldn't FDIC dramatically increase insurance premiums going forward? Without getting into too much detail, I find that extremely unlikely because FDIC insurance expenses are already quite high. If FDIC won't increase premiums to the level necessary to fund the DIF properly at the new (unlimited) level of protection, Congress should eliminate the requirement for banks to carry this insurance.

> While the DIF is backed by the full faith and credit of the United States government, it has two sources of funds: assessments (insurance premiums) on FDIC-insured institutions and interest earned on funds invested in U.S. government obligations. Revenue from assessments and interest on investments add to the DIF balance (or fund net worth), while losses (primarily from bank failures) and operating expenses reduce the balance.

[1] https://www.fdic.gov/resources/deposit-insurance/deposit-ins...

> this new mandate to protect all depositors

I don't think that exists. They're walking the line between theory (250K max) and reality (want to preserve everyone's deposits in most cases). For smaller banks they routinely sell the failed institutions whole to achieve the later. For larger banks like SVB they may need to get creative.

So making it official would be a problem (congress is unlikely to approve unlimited coverage) but handling it on a case by case basis works out and avoids moral hazard.

If it didn't exist 16 hours ago when you last responded, after today, I'm pretty sure it exists now. Rough day for private banks.

Depositors are backstopped, but shareholders are hosed.

Isn’t the market pruning bad banks good? I would be more concerned about the consolidation of small banks into larger ones.

It's all the other banks with MBS or bonds which they hold for deposits - that have devalued due to interest rate increases. Big banks > 250 billion are required to buy swaps to protect themselves against interest rate risk. But apparently smaller banks are not? Or the regulators just don't bother to check? Either way - this means a tonne of banks like SVB which don't have enough liquid assets to match their deposits 1-1 would likely have folded over the next week as depositors commenced the mother of all runs. Now they can borrow the shortfall for a year. Thus creditors of these banks have been spared. Thus it's a bailout. Commenters here claiming the contrary are straight up wrong.

Furthermore - folks are saying not to worry about the big banks because they do have interest rate swap protection on their hold-to-maturity assets. Cept - cast your mind back to 2008. Who was providing swap protection back then? And what exactly happened to them? How do you spell AIG?

Central bank providing liquidity is not a bailout. It’s a central bank function.

Again - wrong. This is not a liquidity crisis. It's a solvency crisis. These banks have debts (i.e. deposits) that exceed their assets (the mbs and bonds that are now worth less than their hold to maturity value).

Why is it a solvency crisis? The 10 year bonds, if held to maturity, cover the assets, no? It’s that they can’t offload the bonds in the current environment because there are more attractive bonds of the same duration.

All of these assets and accounts have to look extremely attractive to the largest institutions that can absorb them without increasing the risk to their own books.

A ten year wait till maturity is not a short term funding shortfal... lol

> Insofar as the amatuer hour banks [...] will now be saved from going under [...]

That's the exact opposite of what's happening. Signature has, in fact, gone under.

The bank isn’t saved, it’s gone. Shareholders wiped out, anybody like executives paid in stock will have lost millions and soon many will be unemployed. A new bank will be found to buy all of the assets.

It is somewhat of a bailout of depositors, but only in so far as the fed is going to print a little money to buy some securities (er, use them as collateral for loans) somewhat above a firesale market rate.

Banks are still going to lose money but are being protected from a panic collapse at no real cost to taxpayers.

Do most banks hedge that risk? I could imagine that being pretty expensive. Who takes the other side of a bet like that?

> One part of the bailout is depositors over $250k getting a new FDIC guarantee.

Not really. It's not like the FDIC would normally give everyone $250k and then light the bank's remaining money on fire. If there is money left over after depositors all get their $250k, the depositors have a claim on that money too.

Thought experiment: Consider a bank with only one customer. Let's say that customer had a million dollars in an account. The bank fails. That customer gets $250k. The FDIC finds out that another half a million is left over. The customer gets that too. The shareholders get shafted because they don't get anything because the depositors have precedence over the shareholders. Shareholders are the last ones to get paid, if there is anything left.

This is not a bailout. It's the way things normally work.

100% of deposits will be covered now tho, instead of 95%

It always works that way in practice, but I still think announcing the guarantee so early may have been a thing to calm the market. It is likely they just looked at the assets and figured out how to cover it all without dipping into some other gov $$, as part of the sale of the business. And something to do with finding a buyer for the mortgage security that they had (just speculating).

Looking at your thought experiment, the difference is whether that customer gets $500K (all of the bank's assets are sold to make him whole[1]) or $1M - all the banks assets are sold, and also he gets another $500K from the FDIC.

[1] - the $250K insurance is normally only supposed to apply if there are insufficient assets to cover it. Unless I'm misunderstanding your wording and the bank in the thought experiment has $750K in assets.

Your claim appears contradictory to what being reported in financial news though.

[0] https://twitter.com/colbyLsmith/status/1635061613920395264

That's supporting the second part of simple-thoughts's comment. It's unclear to me whether twblalock was arguing against that or not.

To me it seems like it is confirming the quote that he was arguing against.

Also, here is a POTUS tweet taking credit for a literal depositors “bailout”.

[0] https://mobile.twitter.com/POTUS/status/1635080376572956672

The President never used the word “bailout”. And that’s because this is not a bailout. Taxpayers aren’t on the hook for a penny, and the money is going to depositors not the people who caused the problem.

Now, I have no knowledge if Biden himself tweeted that.

But would you retweet something that calls your actions “bailout”? Especially if you don’t want it to be called as such?

The NYTimes tweet also says federal officials closed a bank, when it was state officials who closed the bank. I don’t think the Biden administration is endorsing the NYTimes weekend social media person’s summary.

The article says the Treasury wanted to emphasize that this action is not a bailout.

You would think that there are people around POTUS who would understand PR, but maybe it’s just doesn’t matter anymore?

There’s nobody left on Twitter except bots shouting at each other, so does it really matter?

Are you arguing about against just the first part of simple-thoughts's comment, or against both parts?

The federal reserve purchasing securities at par is money printing/debasement, since those securities have lower fair market values.

The increased insurance on everyone else to cover actual losses to unsecured deposits is just a small tax on every other banking customer

The second part you mention doesn't apply to Signature Bank, or SVB, but it applies to other banks that haven't failed yet.

So it might be accurate to say SVB and Signature Bank weren't bailed out, but other banks are getting bailed out.

"The Department of the Treasury, using the Exchange Stabilization Fund, would provide $25 billion as credit protection to the Federal Reserve Banks in connection with the Program."

Where did the Treasury find this $25 billion?

The ESF is nothing new.

https://en.wikipedia.org/wiki/Exchange_Stabilization_Fund

https://home.treasury.gov/policy-issues/international/exchan...

That wasn't what I was asking. I wanted to know how the ESF is funded. It looks like it is taxpayer money, insofar as it comes from budget appropriations.

I don't think you have a realistic understanding of "taxpayer money".

You know the budget hasn't been balanced in years, right?

Let's guesstimate that over the last 20 years, for each dollar taxed, the government has been spending 5 more.

Those 5 dollars came from private investors and commercial banks. They gave USD money to Treasury, and received an IOU note from the Treasury. So:

1) The money is national debt, not taxpayer dollars.

2) The QE and other "unusual" things done by the Fed in the last decade means many of the Treasury notes are now held directly by the Federal Reserve. Treasury can and will magically convert the notes to USD currency over time, which the Fed disposes of by sending USD back to ... the Treasury.

3) The debt and Fed actions don't necessarily cause inflation. Also, inflation is a form of a "sales tax", which isn't what people consider "taxpayer money" (in the US, there is no general sales tax, only federal income tax)

[1]: https://fred.stlouisfed.org/series/TREAST

[2]: https://www.brookings.edu/blog/up-front/2022/06/01/what-if-t...

[3]: https://stephaniekelton.substack.com/p/how-do-you-solve-a-pr...

I understanding this perfectly well. Every bailout was monetized in this way. Nobody paid a special assessment on the tax form called "bailout". Doesn't change the fact that they will be paying and this is happening again. All you are saying is that it is not only literally taxpayers who pay but also everyone who holds US dollars.

Now what did that pedantry get this conversation?

You're being pedantic, and you didn't read my bullet points, because the money literally disappears. It doesn't get "paid" by anyone.

> Where did the Treasury find this $25 billion?

They used this obscure keyboard shortcut: Ctrl + P

This seems okay. Even at par value the Fed is not at risk for losses. Their Operation Twist is largely responsible for creating the mess in the first place. This is almost like a closet Operation Twist bailout.

There is a persistent misunderstanding here. The equity of the bank itself is not particularly interesting, given its usually a small fraction of deposits managed. No, the bailout part is them covering deposits over $250k, the limit plain to see for anyone that has ever entered a bank.

It's worth remembering that not every "bailout" wipes out equity holders. Citigroup and AIG were both bailed out during the financial crisis and their equity survived (although with heavy losses).

That is why those were bailouts and this is not. Shareholders are not being protected.

Many things can be a bailout. I'm just calling it how I see it: this bank has assets that are likely less than the sum of its deposits. To make them whole despite this is a bailout, and particularly so when it's above the previously agreed on limit.

Maybe you just have an unnatural aversion to the word or something.

The bank is gone, it’s not being bailed out it no longer exists. It has in entirely been taken by the fdic and will be parted up and sold for the benefit of those the former bank owed money to (to wit, those who deposited money with it)

No. The banks are charged for that insurance. They provide the funds. There is no bailout. Using the equity buffer for coverage is _the whole point_.

The premium is set for 250k. Not unlimited. I'd have no problem with unlimited insurance schemes for deposits so long as the premiums are priced to reflect that

The FDIC has not identified any loss assistance required for the “unlimited” guarantee. That is: the equity buffer covered it.

The word "bailout" is a distraction and red herring. For example, FT and Yellen use it as a weasel word here[0].

I notice several articles and threads derailing into conflations of semantic arguments around what a bailout is with specifics of the topic.

This is a trend (and, I suspect, tactic) on other topics and it only serves polarization. Try to not fall into this trap. It can be possible to call it out in a way which does not further derail the conversation.

(Saying it's a trend does not mean it's merely a recent thing BTW)

https://en.wikipedia.org/wiki/Weasel_word

https://en.wikipedia.org/wiki/Equivocation

https://en.wikipedia.org/wiki/Essentially_contested_concept

https://en.wikipedia.org/wiki/Persuasive_definition

Whether the statement "this is a bailout" is true or not is actually irrelevant.

[0]: https://archive.is/Yyu4S

Here’s POTUS being okay with it called a “bailout”. Can we move on to discuss substance?

[0] https://mobile.twitter.com/POTUS/status/1635080376572956672

One could think of it as the FDIC stepping in to solve the prisoners’ dilemma. While depositors may only face theoretically tiny losses, the ones exiting first get paid in full, while the ones staying are left holding the bag. It’s a small cost to the other banks to backstop the bank run through FDIC, compared to potentially costly capital raises they may have to go through if there is a systemic loss of confidence. The downside is the moral hazard: will depositors think they have implicit unlimited insurance from now on?

> The transfer of all the deposits was completed under the systemic risk exception approved earlier today. All depositors of the institution will be made whole.

Signature was #32 by total assets. By other Treasury pronouncements, only #1-#4 were "systemically important". One's head spins ...

https://banks.data.fdic.gov/bankfind-suite/financialreportin...

> No losses will be borne by the taxpayers.

None except those with bank accounts, who can expect higher fees as the balance sheet losses are recovered by what is effectively a systemwide tax on all banks.

> Any losses to the Deposit Insurance Fund (DIF) to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

They can move their accounts to credit unions (which won't get taxed by the FDIC) if they're so upset by these higher fees.

> None except those with bank accounts, who can expect higher fees

I'm not sure what these "fees" are, I've had a bank account my whole life and never paid a cent of fees.

It could be lower interest rate on CDs and/or savings accounts, or a higher rate on loans…

I'll be honest, the interest rate on CDs has always been so low that I might only notice a difference if it was literally negative. :P

Most high yield savings accounts are 3.8%+ with no downsides and CDs are 4%+. Discover, Wealthfront, ally, chase etc.

> No losses will be borne by the taxpayers.

> None except those with bank accounts

So not because they are taxpayers, and not with taxes.

WSJ Editorial Board asserts this is a bailout. It claims Yellen is indulging in semantics.

https://www.wsj.com/articles/the-silicon-valley-bank-bailout...

Why are uninsured depositors being rescued.

https://archive.is/9zBUq

See my comment here. They do the same "mistake".

https://news.ycombinator.com/item?id=35130119

Because the alternative is further spread of the contagion, leading to systemic bank failures. Not to mention the possibility of mass layoffs this week when payroll can't be processed.

Nobody wants any of this. It's a small price to pay for keeping the economy from imploding.

Sure, maybe it is prudent to do. We are bailing out people with extra insurance on money that was not guaranteed to be insured. We are given them free money to make them whole and we are going to let banks sell 75 cents for a dollar to the fed if they really need the cash. If this is the right thing to do lets' talk openly and plainly about it.

This is why we have inflation. The government won’t let wealth destruction occur. Everything is backstopped, even the poor financial decisions.

The taxpayers will pay for this through dollar devaluation and inflation.

Isn't inflation destroying the value of money?

Over levered risk built on cheap money was a huge driver of inflation. They need to let those bets fail to let the money drain out of the system. But they won’t. This would have been a deflationary event.

The Fed has better tools. Financial instability isn’t really a great way to solve this.

There’s no way to solve it without pain. That’s like saying you can go to the gym and get big muscles without getting sore.

Fractional reserve is inherently financially unstable. Investing deposits while simultaneously promising to pay them on demand is inherently financially unstable. There’s over 100 years repeatedly demonstrating this. Like clockwork, this exact scenario gets repeatedly demonstrated.

The bets were allowed to fail. Bank shareholders got nothing.

Money destruction != Value of money destruction

If a thing X goes down in number, the value of X increases.

Yes, because there’s a trade off. Either the growth rate of the money supply has to be reduced, which would impoverish many politically connected actors, or the value of money will fall at a higher rate causing populist unrest. Either way the stock of money’s value is determined by the amount of goods that stock can acquire.

Destruction is different to inflation.

inflation weakens it, waters it down. Destruction is when it fails..

inflation can and probably will lead to destruction. but a bank failing not not being propped up like during the GFC is destruction.

Arguably, they should have let those banks fail. instead this inflation is a direct result of that propping up (plus a bunch of other money printing actions)

The bank did fail. The OP literally is a press release stating that the bank has utterly ceased to exist as a business and that the FDIC has established a temporary one in its place, while they look for another bank to buy the remaining assets. Shareholders are getting precisely jack shit.

So many people here are just imposing their incorrect assumptions about what's happening over the facts of what's actually happening. There's plenty of legitimate anti-government arguing about regulatory-capture to be done in other threads.

This action is causing a negative amount of pressure on the FDIC fund because it increases confidence in the banking system. So as a taxpayer I am happy to pay a negative amount of money.

If you just want to take a random bank and set all its accounts on fire to reduce the money supply, that seems like a bad way to fight inflation.

Dude I want to afford a nice home and retire. The FED has destroyed the housing market and effective wages. Get a grip

That was NIMBYs. Worry about real economic constraints.

You live in one of the richest countries in the world and probably make 4x median income even for the US anyway. Move somewhere else if you want your money to go further.

Nope it’s from cheap money

It takes two: demand provided by cheap money, and supply capped by NIMBY zoning.

Neither alone is enough.

That's why with all this cheap money, computers are more expensive than ever!

Voters in your area who block(ed) all new construction destroyed the housing market. Your blame is misplaced.

House prices are up quite a bit in areas that are rapidly building

That's reverse causation. Proper question is how much they were building the last three decades, and if it's outrunning new household formation* now.

There are places with cheap housing in the US, generally not in the good jobs areas but if you're retiring that's not so much a problem.

* that's when people move out of their parents' house or decide to not have roommates anymore

Well it's voters across the US, especially in urban areas with booming economies. Some places are trying to construct housing but can't cope with the influx of new homebuyers. Since there are no internal immigration restrictions, we have a national housing market with only partial local differentiation.

Lack of government action on housing destroyed the housing market much more than the fed.

I'd much rather pay more for a home than to have my bank account magically go up in smoke for no reason of my own.

> no reason of my own

Other than giving your 97% uninsured money to a place without checking its financial situation and pretending you're not just another creditor.

Unless you have more than 250 k, that was never really a possibility

Thing is, the 3 banks that failed last week are nothing like a random bank.

All 3 are very highly connected with crypto / SPACs / VCs / any financial scam you can imagine during post-Covid bubble.

There are close to 0 'mom and pop' depositors in these banks.

SVB was a relatively normal regional business bank that also had giant VC accounts.

So they also had some things people would think of as "regular" businesses, like local wineries, nonprofits, affordable housing developers etc. who were all in trouble.

(I think of all of those as rich people hobbies, but most people think farmers are salt of the earth working class types for some reason, so they have better images.)

Regional? Isn't it in California and Massachusetts?

What % of deposits are from those local nonprofits, affordable housing developers etc ?

A friend from college has 3 startups for 3 different drug formulations winding themselves through the FDA / research / etc. The money for those from grants, payroll, etc were at SVB. Is that mom & pop? I'd say so. They're still on a postgrad salary so they can fold money back into moving those drugs forward.

Okay? I’m trying to buy my first home, who’s going to give me a home? Another bank is getting a bailout and they have the gaul to call it not-a-bailout bailout?

This is all so silly.

You’ve got the 4 musketeers on twitter sewing fear, begging for the not a bailout bailout all while the rhetoric for student relief is summarized by “ bootstraps, you have em? Personal responsibility, you got it? “

Now they break a bank because they mismatched their maturity dates and risk and they get their bailout not one week later?

Pretty clear who this system serves.

edit:

They are "backstopping" 25B, get this, so far. Jcal is on Twitter spaces right now going over it and there's tons of subtext that people are glossing over.

This is a bailout. Now they're calling it a regulatory failure[1][2].

BTFP, the new TARP. Was TARP a bailout?

Twitter spaces had a bunch of softball questions, not a serious discussion if not to pat himself on the shoulder.

This 25B will be expanded, and we will kick the can down the road like nothing happened. Only this time, inflation is raging and we're adding more of it to the pot.

---

[1]: https://www.theguardian.com/business/2023/mar/11/silicon-val...

[2]: https://theintercept.com/2023/03/11/silicon-valley-bank-used...

It's the customers of the bank that are benefiting from the government action, not the bank. The bank has now ceased to exist.

If you want to rant against the customers of a bad bank getting bailed out, that's fine, but the bank wasn't bailed out, it was wiped out. The new bank is the owner of the old banks assets and responsible for the old banks debts. The owners of the old bank have nothing to do with the operations of the new bank.

No the customers of the bank will also have to deal with the clown-world implications of continued bailouts for poor allocation of resources.

Banks will continue to be able to make horrendous decisions and not have any fractional reserve requirements. Executives will continue to get absurd performance benefits until losses are realized. Depositors won’t have to care that the institution where they dump millions of dollars is run by someone doing their best financial John Wayne Gacy impersonation. And we’ll all suffer because institutionally these horrendous investments are backstopped.

Please just let one of these banks fail. A few more will. Lots more should. And then maybe we’ll see them act with any sort of prudence.

Three banks failed in the last week. But it's not good for depositors to take a haircut because of that. We can work it out without anyone having to pay for it except the banks' executives and shareholders.

The bank did fail?

What the hell else are they supposed to do with the assets that are left in the bank? Giving them to the people the bank owed money makes a lot more sense than lighting them on fire or whatever. Do people think that the FDIC/government funds end up being a significant portion of the money that goes to the depositors or something?

I'm not sure what you imagine FDIC does with the bank's seized assets. But let's say you think they should be vanished some reason, and good for nothing.

Hundreds of thousands of employees from tens of thousands of small businesses aren't getting paid salaries for the last 1-3 weeks. And aren't getting paid this week. And very likely are out of a job. Same for those businesses vendors and subcontractors. Hundreds of thousands left without a health care plan with two weeks notice because premiums will go unpaid and afterall the employer is the true contractor of the plan, if they go out of business because most of their cash deposits were just destroyed. That seems bad.

What sort of influence levers do these depositors have over their bank's investment policies either before of after the fact? It seems pointless.

How about we expect FDIC to sell the assets at market value and then expect companies to take the 30 % cut in assets over 250k.

No one is suggesting anyone burn svbs assets. Only that we do not print more money to make up the difference between the face value and the market value

>How about we expect FDIC to sell the assets at market value and then expect companies to take the 30 % cut in assets over 250k.

Why should a bank's depositors take haircuts before its bondholders and shareholders?

>Only that we do not print more money to make up the difference between the face value and the market value

The difference is made up by FDIC special assessment on banks.

There is no evidence of a “bailout” here or anywhere else in public. Post it when you have it.

"Another bank is getting a bailout"

No they are not. The shareholders and bond holders are getting wiped out. It is only the depositors that are being made whole. This is not like 2008 where they loaned cheap money to banks to keep them afloat but allowed the owners to remain.

Except they are exactly loaning cheap money to all the banks that have not yet failed while claiming moral superiority for letting svb fail

Wall Street — not taxpayers — will pay for the SVB and Signature deposit relief plans

https://www.cnbc.com/2023/03/13/wall-street-not-taxpayers-wi...

They will not. They will pass the cost on to the end consumer. You seem to mosunderstand how finance works. When you're the middleman, you have no problems. Only the consumer does.

Competition between banks reduces prices the same way it always does.

The banks that failed in the last week were closer to monopolies than most banks and it doesn't seem like it helped.

> Pretty clear who this system serves.

A bailout is when they save the bank owners. The SVB owners lost the bank. There's no happy result for them.

If you had your deposit for the home in Silicon Valley Bank, it would be serving you. It would probably suck if you saved that up for retirement or a mortgage, and lost it. In that scenario would you be saying how great it is because it showed the government really served you?

Bank runs are a real thing that could ruin you wherever you're banking. If the large accounts realize that that smart move is to pull their money every time Peter Thiel yells fire, because they are unprotected, other banks can go under too--maybe yours, or maybe the bank where your company's payroll funds are!

> The SVB owners lost the bank. There's no happy result for them.

Some of them did get bonuses that day - of course then they lost their jobs. I'm not sure if there's a mechanism to claw back excess bonuses, but if SVB goes through bankruptcy after this it should be possible.

To many of us, a bailout is whenever the consequences of one's decisions/actions are set aside to avoid the logical negative outcome they would have otherwise experienced. What makes this more galling[1] is the fact that this new platinum FDIC coverage plan doesn't cover everyone at every bank, merely those who are anointed as 'systemic risks' (way to put a new label on 'too big to fail') Then to make it sound like this is all being paid for by all the other benevolent banks is just insulting.[2]

[1] Beyond the group primarily benefiting are exactly the group who should well understand something as basic as FDIC coverage limits and supplemental insurance.

[2] While it is technically true that the taxpayers will not be directly footing the bill, they neglect to mention that as soon as said taxpayers put on their consumer hats, they will in fact be paying for this in the form of increased fees/decreased interest rates on deposits/increased borrowing interest rates, no matter how slight.

but the depositors aren't the ones whose actions caused the consequences... (well, you know what I mean).

The bank (which took actions) faces the consequences of no longer existing.

The customers don't lose their money.

Their decision and action was to deposit in excess of the FDIC insured amount without supplemental insurance that was their responsibility to have or ensure their bank provided. The reality of the situation is that those who did so are now being retroactively granted supplemental deposit insurance after a loss and free of charge. The rest of us are paying for this gift courtesy of the government... again. (sure not as taxpayers, merely as consumers)

If we accept that the purpose of that FDIC insurance in the first place was to prevent bank runs. then, this "gift", is really the gift of stable, reliable banks. In general, this benefits us all.

What we see at these banks is that the large shareholders themselves have enough impact to cause a bank run, and they don't have the security of the FDIC to fall back on. So doesn't this show that the FDIC insurance was never enough to do what it was supposed to? What is being done here is breaking the game-theory payout structure that causes bank runs in the first place. It will prevent the same bank-run contagion individual investors are susceptible to from happening with larger investors. If we accept that the 250k insurance is worthwhile, then this seems good for the same reasons.

If your objection is that depositors were not paying to properly insure themselves, then you should be happy with what is happening--depositors will be forced to pay to insure themselves via the bank, and bank service prices will reflect the cost of being properly insured. Shouldn't we all have been paying the price of properly insured banks all along as consumers, anyway.

Isn't this a move in the right direction?

FDIC insurance was never intended to cover everything, hence the limit. It was designed to ensure that the general public[1] could have confidence that their deposits were safe. Larger players were also covered... up to the same limit. That is fair and reasonable. For those with significant assets supplemental deposit insurance products are a thing, just as home and auto insurance is, and these people/companies opted not to purchase it or otherwise prudently manage their money given the very well known limits of FDIC coverage.

Why should I be happy that the rest of us are now being volunteered to pay for insurance coverage for the group most able to understand the risk they were taking and pay for it themselves? If that weren't bad enough, this new coverage only applies for some banks. This is exactly the socialization of losses that so infuriates the general public. Not only are we paying for it, albeit indirectly, but most of us aren't even eligible for it ourselves.

This is yet another move in the exact wrong direction.

[1] i.e. the majority of individuals and small businesses who tend to be less sophisticated. As a result this quite easily understood system was put into place. I also don't buy any argument that something average Americans understand is just too complex or arcane for a group of largely 'qualified investors' and VCs.

> Why should I be happy that the rest of us are now being volunteered to pay for insurance coverage for the group most able to understand the risk they were taking and pay for it themselves?

Because, now you don't have to worry about all the banks collapsing with run-contagion, which is a problem with large enough scale (collapsing the economy) that it does affect you.

You should be happy in the way an apartment's occupants are happy when the fire department puts out a fire in a different apartment in the building, even though it "didn't affect my apartment."

> You should be happy in the way an apartment's occupants are happy when the fire department puts out a fire in a different apartment in the building, even though it "didn't affect my apartment."

We're being spoon-fed the not-a-bailout rhetoric by a bunch of pyromaniacs. Your analogy would be great were it not the case that this is the nth case of arson. We put arsonists in jail for doing things that put us at risk, why are banks different?

The banks mismanaged their risk and here we are looking to blame lack of regulation and the government because it let an arsonist run amuck.

I see no reason why we shouldn't all open a bank, be imprudent, and ask for a bailout, citing system-risk to the financial system should we not get it.

> I see no reason why we shouldn't all open a bank, be imprudent, and ask for a bailout, citing system-risk to the financial system should we not get it.

How is that a good plan when you would lose the bank? The owners of SVB lost everything!

It literally can't be a bailout [of the bank] if the bank ceases to exist:

>an act of giving financial assistance to a failing business or economy to save it from collapse

It could be called a bailout of the banking system or of the American economy - but it's not bailing out SVB by any measure.

You’re right, they aren’t. They are being used as meat shields for the banks failure. They are used as collateral damage because it is absolutely unfathomable that a bank use deposits to hedge against interest rate sensitive bets.

Yet here we are. Another round of bailouts that this time are rationalized as “not a bailout” because the bag holders, through no fault of their own, depositors, are the ones left holding the bag. A bank run was produced and in the name of financial and systemic risk avoidance, the free market finds itself, yet again, in need of a not-a-bailout backstop.

Other commenters stating that “the banks will pay, not the tax payers” need to get their heads out of the sand.

Except if fdic simply distributed assets, most depositors would not lose everything, just around 25-30 percent.

Not sure why people are acting as If, without government intervention, depositors would lose everything

Svb is insolvent today but they weren't assetless

How about some actual consequences for corporate greed, mismanagement, nepotism, and incompetence? Just let it fail rather than these execs parachuting out on the taxpayers dime (again).

One of the most painful ways to learn is in production, but if that’s what we have to do…

What happened is literally what you're asking to happen, and literally the opposite of what you're saying happened.

You're absolutely correct, but the system will be forced to correct itself no matter how much they try to prevent it. It's inevitable. They're just dragging it out.

not reaaaally one of these outcomes. this actually just streamlines the same outcome that was already going to occur. I would say everyone would have gotten 90% of their deposits back, at some unknown time in the future, regardless. this just makes it faster, predictable, and at 100% of the deposits.

it really just comes down to the bank's portfolio. the bonds that these exposed banks had were US government bonds and held at a loss. A probably 10% loss.

if the Federal Reserve winds up owning those government bonds, it actually is destroying the dollars it receives from the treasury. which is actually the Federal Reserve's entire plan in tackling inflation.

also, wiping out shareholders destroys wealth.

Inflation at this level is fine. Central planners raising interest rates is the problem.

If you want to get money out of the economy, this is the opportunity to tax negative externalities, the very things you want to have less of. But the central planners instead reach for the wrong tool: raising interest rates. They should be flexing their fiscal policy muscle. It should be a tax bonanza on fossil fuels, plastic pollution, overfishing and much much more! You can solve actual environmental issues this way!

Well, when people default on their loans and can't refinance them, they'll default and that money will disappear from the economy. That's on the bank underwriters, and that's when their balance sheets deserve to go lopsided. Not because of central planners raising interest rates.

I far, far prefer a UBI to the Banking System for putting money in people's hands. An underwriter at a bank guesses whether a business will be able to repay a loan with interest over 10 years. A consumer knows whether they want to buy something today with their UBI money. I'd prefer the money enter the system via consumer choices, not underwriters at banks.

People often ask "how can we afford UBI". They don't understand how money is issued and destroyed. The banks currently issue the money with zero reserve requirements, and it's only destroyed when people can't afford to pay the loans. We could equally just ask "how can we afford the banking system?" We can afford either system, it's just a question of who gets the actual money, and I'd rather consumers make that decision. Because then it goes towards things people actually need, as opposed to making fatcats richer.

The problem was that central planners reduced rates to near zero in the face of adversity, instead of using fiscal policy more aggressively as you suggest - except instead of taxing negative externalities, they should have subsidized positive externalities so relying less on rates. Now we need to get rates back to a sensible place (roughly 5%) so that risk/time is correctly priced and we don't have exorbitant asset bubbles.

> The problem was that central planners reduced rates to near zero in the face of adversity, instead of using fiscal policy more aggressively as you suggest

The people who make decisions about interest rates have no authority over fiscal policy, and the people that control fiscal policy (who theoretically could cobtrol monetary policy as well) have segregated themselves from interest rate decisions in large part to avoid fears that they will monetize the debt undermining confidence im the currency.

Indeed, however governments could set the terms of reference for the central banks for rates to be more 'sticky'.

In my opinion, rates near zero and no bank bailouts allow the market to price the actual rates depending on how well a bank is doing.

In fact I'd prefer everything to be on-chain rather than credit rating agencies being months behind. Especially if the Fed is raising rates so quickly!

In fact, I'd prefer UBI to be phased in as an alternative to the banking system, together with corresponding taxes on negative externalities. Like this:

https://en.wikipedia.org/wiki/Carbon_fee_and_dividend

When Andrew Yang ran, I met with his campaign and made https://yang2020.app for them. I really asked them to be a TWO-issue campaign, tying the UBI to carbon taxes, but he never did that. So he didn't have a good answer to "how are we going to pay for it". And to this day, the Forward Party needs to make a good case for it.

I don't believe these kinds of things can be done at the national level, which is why I started Intercoin: https://community.intercoin.app/t/new-ubi-movement-mayors-ci...

I am also a supporter of UBI, however I think much of it should be benefits in kind (universal healthcare, free libraries, decent schools, etc, etc), and perhaps the rest can be structured as a Universal Basic Stake - kindof like a pension scheme that you are already paid into just by being born. Financed by swinging wealth taxes to form a sovereign wealth fund, that is then deployed in the usual capitalistic manner.

>The problem was that central planners reduced rates to near zero in the face of adversity, instead of using fiscal policy more aggressively as you suggest

Why was reducing rates in response to the COVID crisis a "problem"?

>Well, when people default on their loans and can't refinance them, they'll default and that money will disappear from the economy. That's on the bank underwriters, and that's when their balance sheets deserve to go lopsided. Not because of central planners raising interest rates.

This "banks are victims from Fed rate policy" narrative is not accurate. A bond portfolio consisting entirely of 10-30 year hold-to-maturity securities is absolute, pure greed and insanity. Any bond manager not engaging in degenerate activity will hold a mix of bond maturities.

This is the bank equivalent of putting all your clients' money into a single stock ticker, and people are doing incredible mental gymnastics to claim that SVB was a victim of external forces

How is this not wealth destruction?

All shareholders just got reduced to either zero, no? Or at least they only can get something, with whatever remains after the assets are sold off.

This is my thought as well. The deposits and shareholder value were destroyed, then only the deposits were un-destroyed. Seems like net decrease in money supply, which should be deflationary to some extent.

I swear some people see "government" and just assume everything is a big porky wasteful spending bill implemented by clueless populists.

The depositors of these banks, me included through my exposure to USDC, should be the ones who pay the price for the bank's risky lending strategies, not the depositors of other banks.

Otherwise there is no reason for depositors to do due diligence, and we get a less effectively managed economy as a result.

Consumers do much, if not most, of the management of industry, but that's only if consumers are fully exposed to the costs incurred by their choices. It's because consumers bear the costs in cosmetic procedures that such procedures are getting cheaper while healthcare gets more expensive:

https://www.ncpathinktank.org/pdfs/st349.pdf

99% of customers don’t have the financial knowledge to do due diligence on their bank. Just look at the thousands of comments posted today on these various threads for proof. For the average customer, due diligence should begin and end with “is my bank FDIC insured?”

99 percent of consumers have bank balances below 250k

Many businesses need more than $250k in cash to cover payroll, many of which are not large sophisticated institutions that have the expertise to look into the risk management practices of any bank they might be interested in.

Businesses do not have rights to exist or engage in commerce independent of the individuals which constitute them.

That is to say, if business X did not do risk management because it is small and unsophisticated, it is okay to let business X wind down, whereas it is not okay to let a human go hungry because they are unsophisticated. Humans have rights, Businesses do not. I'm as conservative as they come (look at my post history), and I am flabbergasted by people from both sides of the aisle who honestly, truly believe businesses have a right to exist, including welfare for when they are unable to.

When it comes to human life, given by God, we are obligated to spend almost any amount that we can in order to preserve that life. When it comes to business existence, we are not. By all means, welfare programs should immediately be expanded to help the individuals affected (including the business owner) to not go hungry, or be without medical care. By no means should the business continue to operate via welfare magic.

Hopefully, for the business owner, the individual welfare availability will give him/her some time to get back on their feet and potentially start the business again with new capital if needed. But the source of that capital is not a concern of the government. That's for the private market.

You don't need specialized knowledge. You just need to have the motivation to seek out sources that aggregate and distill knowledge.

When people buy TVs, cars, fridges or shop for a laser eye surgery procedure, they seek out credible third party assessors, in the form of Wikipedia articles, Consumer Report magazines, end user ratings, etc to inform their decisions.

The collective intelligence of the consumer market will also increase as more people participate as price and quality conscious consumers.

Actually, this particular bank was tied up in "the means of production". A disruption could lead to increased inflation, not a decrease, because after the businesses fired their employees there would be fewer goods chased by dollars.

Instead, one must destroy value the right way to achieve lower inflation. A surprise insolvency that wipes deposits that never were really considered investments at risk... nah ... not a good destruction of wealth. But take heart, stockholders were zeroed and bondholders maybe not far behind.

The creation and maintenance of moral hazard in our economy is a problem, but it is not a contributor to inflation, the causes of which are fairly clear of you just examine the components of recent increases in inflation.

I suppose the only rationale thing I can do now is look for the banking institutions which offer the best above-market rates. If the bank goes under, the government will prop it up. I could hardly have been expected to do my own diligence on a bank.

That was already the case for the vast majority of people since FDIC insures anything up to 250k.

That can be fine for personal banking. Regulators audit liquidity coverage ratio, tier 1 capital, etc. Investment products have bolded warning that FDIC insurance does not apply. For commercial banking it can be argued that counter-party risk assessment is on the business.

>For commercial banking it can be argued that counter-party risk assessment is on the business.

Except in this case where businesses who used SVB get a Mulligan?

Yes. Blaming bank depositors for this is like blaming people for choosing the wrong airline if a plane crashes.

The good news is that the failure of SBNY is probably what convinced them to pull out the stops and make the FDIC guarantee unlimited.

The bad news, is that if your bank fails this week you would get full coverage. If your bank fails next month the FDIC may choose to let you hang out to dry. At this point, anyone who keeps their money at a small bank is a fool. Only store your cash at a large bank. The US govt only cares about systemically important banks.

One upside of being big is you get a bailout.

Some random regional bank in Kentucky that fails next year won’t get this treatment.

They won’t need to. They’ll be taken over in orderly course and all depositors will be made whole by the normal acquiring institution. Like the 500 or so banks they’ve done that for in the last 20 years.

Depositors don’t typically lose money in FDIC receivership situations no matter what their balance is.

Not true if you have less than $250k at your bank. There is no reason to think FDIC will not honor the $250k insurance limit.

Yeah, unless you're megarich, you as an individual you probably shouldn't have more than that in a bank.

sure you might. like when you buy a home. you could easily have a lot of equity you need to move into a different, also inflated price home. Lets say you bought a 300k house in 2010 and now it's sold for 650k. well now you have at least 400k in cash you need to transfer to your new home somehow. Maybe you stick it in your primary savings account for a few months while you shop. You might not realize you won't have FDIC insurance for those few days or weeks so you get unlucky and lose most of your wealth when your bank fails.

PSA: When you sell a house, you can direct the escrow agent to wire the proceeds to multiple accounts.

Yes, there are rare cases (like, say, <2% of your life) when it would make sense.

> Arbitrary rules teach kids discipline: If every rule made sense, they wouldn't be learning respect for authority, they'd be learning logic.

~ Stephen Colbert

I understand your point but why does this have to keep happening and why must we normalize it? If I'm depositing my money in your bank is it not unreasonable to expect you to act responsibly with it?

They bought treasury bills, is that really irresponsible? Of course on Monday morning everyone says they were obviously being dumb not hedging their rate risk, but how many people were saying that before Friday?

They didn't properly hedge the bonds or they didn't anticipate the much spoken rate hikes. That's the irresponsible part. If that's as easy as buying treasury bonds then everyone can be a fund manager.

Indeed. The government passed out money like candy and printed treasury’s to fund it at interests rates the Fed (who they hire) set at record lows. They then put into their own regulations that these are 0 risk assets and banks bought them to pay for depositors. Then the Fed decided to put rates at the highest level in 20 years.

They had too much MBS with average maturity of 6+ years. T bills by definition mature in a year or less. T bills, if they had any, weren't the problem.

https://www.netinterest.co/p/the-demise-of-silicon-valley-ba...

Treasury bonds are not the same as treasury bills. Please please everyone stop commenting “facts” about stuff you’re not familiar with.

they purchased 10 year treasuries and 15-30 year MBS. This is pretty irresponsible, a normal bond manager not yield chasing would have had a decent component allocated to 1-3 year treasuries.

You can literally call up your 401k/403b provider tomorrow and ask for the bond fund/portfolios/allocations available. See if you can find any bond fund with no short-dated maturities.

It's equivalent of having a 100% tech stock portfolio and not hedging sector risk. Maybe it isn't as irresponsible as going 100% into a single stock ticker, but it's still extremely irreponsible

T-bills are short duration (up to 1 year). If they had stuck with T-bills they'd be in better shape today.

SVB reportedly bought longer-duration US Treasury debt which is more sensitive; one source says their portfolio had an average duration of around 5.7 years, up from 4 years a bit over a year ago: http://twitter.com/MacroAlf/status/1634626136364679168

The issue with longer-term debt is that if you need the money now, you can't force the issuer to redeem it before the bond matures - instead, you have to find someone else to buy the bond it from you. And if it's paying half the interest that a new issue would pay, nobody's going to give you face value.

No don’t talk about the elephant in the room (fractional reserve). That is the sacred dogma.

In case anyone else is also wondering what the letters "N.A." stand for, it actually stands for "National Association" which means it is a bank chartered by the Office of the Comptroller of the Currency ("OCC"), rather than a State.

As a fan of the TV show “Silicon Valley”, if I was the person that got to name these FDIC takeovers I’d just put the word “New” in front.

“New Silicon Valley Bank”

“New Signature Bank”

So they switched economy to manual driving mode. Brakes did not work anymore?

Or rather brakes were so hard that front passengers were thrown away...

Naturally aspirated.

Just want to call out that these bank related threads related to SVB fallout are full of disinformation and some scammers. Be careful and check/ask for sources.

Name and shame? Rather than make a blanket statement on a site like this where there's really not many comments.

I have to admit that I am not fully informed on these topic. BUT, even then, the SVB have an extremely weird feel to them. Far too many blatantly wrong, but good sounding comments. Something that I do not expect on this forum.

I think it’s a mix of smart people talking urgently about things well outside their areas of expertise, folks hoping for a bigger disaster for ideological/personal reasons, and the mean-reversion in quality typical of high-visibility threads. Nonetheless surprising and disappointing to me too.

The moralizing libertarian FAANG employees always come out of the woodwork for these threads.

Most of them just seem wildly uninformed, and a lot of really strange libertarian takes that make little sense.

I thought we were done with "too big to fail".

Let them fail. Otherwise this will keep happening.

Safety-nets in society are to make sure poor don't stave to death or have to sleep in the woods.

They aren't so executives can take massive risks without repercussions and never have to worry about living out of their car or even just selling the vacation house to get by.

So, all the customers should be punished by the execs decisions?

Just renaming the company doesn’t qualify as bail out now?

The previous management was fired and it’s under new management. It wasn’t simply “renamed”.

Remember, it's not a bailout, it's a "backstop".

> The FDIC named Greg D. Carmichael as CEO of Signature Bridge Bank, N.A. Mr. Carmichael recently served as president and CEO of Fifth Third Bancorp.

Thanks for not picking me; I am relieved. I have a terribly busy schedule and couldn’t possibly deal with the inconveniences of such a massive salary and accountability to the American taxpayer.

Reply on news.ycombinator.com