Banking shouldn’t be an investment. The entire economy runs on the idea that banks are fundamentally secure. This is why banks are regulated, and why deposit insurance exists. The extension of it past $250,000 is very good
It is not good. The insurance limits goes hand in hand with regulations. Different higher insurance limit needs to imply higher regulations and more control. This particular bank and these particular VCs lobbied heavily to have the regulations eased up. They won. These particular VCs forced their startups to have money in this bank, because it was good for them.
That is literally structural reason to not bail it all out. It is the "we are risk takers, we take profits from higher risk, but when it fails and cause damages someone else must protect our investments" strategy of VCs.
Complicated, fragile emergencies are precisely the time to consider exceptions to hard rules. After all, if all our rules were perfect, we wouldn’t have an emergency to begin with.
I feel the need to say this in every comment because I don't expect people to read my other comments, but I do support what was done here, assuming the private buyer solution was tried and it failed, I just also think it's bad that things are run this way.
I disagree that this necessarily sets the new rule. Sure, sometimes it creates new precedents, but the necessity for an exception should go on to inform new hard set rules to prevent the necessity for exceptions in the first place. In this case, a return to a more regulated banking sector, hopefully.
This is not dissimilar from highly agile work environments that require frequent process changes to achieve the ultimate goal.
I would make a very large wager with you that in a decade it will be unquestioned that last night was the night US bank deposits of any size became fully government backed. Maybe that's even a good thing! I dunno, I have no idea what all the downstream effects will be. But the banking system now works a different way than it did on Thursday morning, and I think it's reasonable to question the wisdom of a change this huge being made over one random weekend.
We should organize bank runs more often to verify that statement.
Other banks don't have a tight nit group of customers so bank runs don't spread as quick.
Most, maybe all, banks don't have enough funds to cover a full on bank run because almost all treasuries bought over a year ago are worth less than their original value.
But people do like their interest... and in order for banks to take your $100 and give you back $101, well, that $1 has to come from somewhere.
Banks need to make money to cover operating costs at the very least. It's not that people don't accept 0% interest on deposits, it's that consumers would have to pay money to a bank to keep it operating with no risk.
Take that situation and then introduce a new bank that makes loans and therefore can pay depositors x% in interest on their deposits. If enough people decide that's a better deal than paying for total security, they'll take it.
The entire point of a low FDIC policy is to keep the small players safe while forcing the large players to make prudent decisions with their capital. Bailouts introduce moral hazard that says no big players need to scrutinize the risk adjusted returns they're getting. It's free money to those with money whole everyone else pays for it.
Source https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...