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.
All it’s assets seized, all shareholders removed, all leadership let go.
The banks customers are saved, the bank is dissolved.
In practice, of course, that will never be allowed to happen. FDIC insurance is now effectively infinite.
That clearly being the case, what does it mean for insurance premiums?
> 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.
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.
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.
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...
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.
Isn’t the market pruning bad banks good? I would be more concerned about the consolidation of small banks into larger ones.
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?
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.
And there aren't any other large banks doing that either. That was a SVB problem.
What would you call it?
“ 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. “
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.
Obviously I'd call it a loan.
That seems unnecessary considering how many jobs were at stake.
Though, planes probably would've ceased to exist eventually, they need continual maintenance.
We the people don't need equity to make money from companies growing, though; we have income taxes.
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.
That's the exact opposite of what's happening. Signature has, in fact, gone under.
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.