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Comment by mixologic | Hacker News Reader

All banks take risks with the money that their customers deposit with them.

Sometimes those risks are bad, and banks cannot fulfill their obligations to their customers, so the FDIC, which is funded by banks (its deposit insurance) steps in and fixes a bank so that customers of that bank do not get screwed by picking a bad bank.

I dont see how any peasants are 'sharing any risk' here.

Everybody who held stock in SVB, just lost literally all of that. They invested in a bank that failed. Just like if they invested in a company that failed. Nobody is bailing those people out.

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Anyone having a bank account will pay for it trough the banks fees/rates etc. Yellen avoided directly using tax money for the bail out, but it just is the next closest thing.

It really isn't though. Sure, at some level of abstraction, someone, somewhere, will have to pay for it, but this is clearly distinct from one's capacity as a taxpayer. All banks, however, benefit from the trust in banking system, so make sense for them to foot the bill. It's unclear how much of that will directly materially affect the average US depositor compared to letting SVB clients lose their shirt and thus erode the trust of the entire banking system.

If in the end the government is needed to (at least temporarily) backstop any deposits anyway, then why have commercial banks for deposits in the first place? Might was well give anyone an account at the Fed or something like that and fund loans and other assets at commercial banks out of bonds, CDs, etc. and never deposits.

> Might was well give anyone an account at the Fed or something like that

That's an interesting proposition, that was simply unfeasible from a practical perspective until very recently.

A consumer bank needed branches, and tills, and vaults, and all sorts of things to serve customers, so it was just unfeasible for most nation-states to eat the costs of all that - while private entities were incentivised to set all of that up so that they could raise money to invest for their own profit.

Now that money is increasingly a purely digital construct, a true National Bank could actually be feasible at low cost, providing a 100% safe deposit system for consumers that will never pay any interest. Private banks would likely still exist, they'd just provide more incentives to depositors (i.e. higher returns). This would make private banks a bit less central to the whole system, and make society a bit more fault-tolerant in this area.

It's an interesting policy proposition, and maybe talking about it would be a bit more productive than the average thread on banks.

Exactly, this seems like such an obvious solution. What is the (non-ideological) catch?

The fed would have to service the entire population of the USA and provide customer support services for all those individuals.

They could put the onus of control of the funds/account into the hands of the depositor and use a CBDC but trust in government is an issue here.

The absolute worst assessment for FDIC insurance for the riskiest banks is ~.042% of [assets - equity]. For every $100 of deposits, the riskiest banks pay 42 cents in FDIC assessments. The safest banks pay about ~.005%. Pick a safe bank. Or don't. The cost doesn't really matter.

Alright, now what about this:

> Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

That sounds a lot like some type of bailout to me. What does "make funding available" mean? Where does that funding come from? It's going directly to banks, not to depositors. How does that work?

I believe that would be the FDIC, which is funded by banks (its deposit insurance), right?

It's the Fed. It literally prints money and loans it out. And it's doing this to replace money erased during a bank run, so no inflation implications.

if the FED prints monney, it creates inflation. If it does not, it does not save SVB depositors.

Inflation occurs when more money is being used to buy things.

The SVB depositors are going to turn around and put their money in a new bank.

Printing money and loaning it out is literally monetary inflation.

Money isn’t erased during a bank run. It’s given back to the owners who always had a right to have it. Fractional reserve banking is what erases money.

where is there any indication that money is being printed for this? if anything trillions have been printed to support the so-called "peasants" (hate that term) that kick-started the avalanche.

Read the parent comment: it states printing money is not inflation. The author either is being disingenuous or doesn’t understand how inflation works.

Printing money is not the same thing as inflation. It could cause inflation, but doesn't have to. And other things can cause inflation too. Inflation is merely the fact that stuff gets more expensive, but that can have many different causes. Excessive money printing is certainly the most notorious cause, but not all money printing is excessive. Sometimes printing money is the prudent thing to do because there's a growing need and therefore demand for money.

The definition of monetary inflation is increasing the monetary supply. That doesn’t need to happen by starting a printing press. It could be someone typing a bunch of zeros on a keyboard somewhere to create new money out of nothing.

I never said inflation was detrimental or harmful (my personal belief is that it is harmful, however), just that adding money to the supply is by definition monetary inflation (the origin of the concept of cost inflation which is what we’re being asked to accept as the true definition). Putting air into a balloon doesn’t mean it will pop; it’s still being inflated. Hey, it’s even more fun for a while ;-)

I was responding to a parent who said printing money isn’t inflation, when it’s the literal definition of, and the origin of the term in monetary theory. It’s not very constructive to conversation to attempt to change meaning of words to make one point or another.

I am sorry and you are correct. I blindly assumed that "inflation" means "price inflation", but you explicitly specified "monetary inflation", which is something completely different (though sometimes related).

My apologies for reading incorrectly. My comment is true only for price inflation.

No one cares about monetary inflation if it doesn't cause price inflation.

M3 is usually the money measure we care about for the real economy and price inflation, not M1.

M3 is erased during a bank run, because the multiplier from M1 to M3 caused by fractional reserves goes away.

It wasn't erased, it's in peoples pockets in the form of cash, a la "bank run."

Only the small percentage that was available in the bank's reserves; the money of all the people who didn't get their money out in time was indeed erased.

I believe the Fed is opening a new program to allow for "systemic risk" loans at typical Govt. interest rates; so there aren't any worries about running out of cash to give to customers having a panic

SVB has a ton of bonds that mature (will be cashable) after ten years, but nobody wants to pay for them today because they can make more money placing their cash in a savings account. For a silly analogy, imagine if you had a bunch of cash locked up in a CD, but also had a surprise medical bill. Our parents could very easily look at your books and say “huh, I can advance you 80% of your CD because there is really no chance the CD won’t pay me back once it matures.” Is this a bailout? I don’t think so. It’s different than paying off our drunk uncle’s gambling debts for the 7th time.

And also we probably don’t want to say “haha silly SVB customers, they can wait ten years to get their money back” because none of us want to live in a world where most Americans, most of whom don’t understand all these complexities, start runs on ALL the banks because they think this is the start of a collapse. It becomes self-fulfilling at that point.

Your analogy is not only silly but naïve. SVB is way closer to your drunk uncle saving in 30yo whiskeys pricy bottles than child savings.

Treasury bonds are wild and irresponsible investments now?

Man, it's probably time to jump ship from the US economy all together.

Treasury bonds are not irresponsible. What is irresponsible is to not hedge your interest rate risk in the form of interest rate swaps. Most other conventional banks do exactly that; they have a portfolio of held-to-maturity (HTM) securities that they hedge with interest rate swaps to avoid bearing that risk. In the financial sector, you only leave unhedged the investments you are _actually_ betting on; if you are to say that they were betting on 10y bonds (until maturity) holding the same value as the day they bought them, without any form of risk management, I would consider that irresponsible.

Its not as clear as treasuries are safe or not. The price function is clearly dependent on term.

long term treasuries are extremely risky assets, by definition and move a lot on interest rates. whereas short term treasuries like less than three momths barely move on fed rates, hence much safer.

Svb bank made the wrong choice of holding super long duration treasuries. They knew what they were getting into, and did it anyway for higher yield at that time. they could have put the money in 3 month expirations and wouldnt have been in this situation.

If you're a bank that can't differentiate/navigate long term vs short term debts while experiencing ballooning deposits, then yes I agree it's time to jump ship and find a new profession.

I don't see how the US economy is to blame for the actions of a greedy monoculture based on "tech line go up". They made a long term bet on bonds with historically low interest rates, doubling down that the party would continue indefinitely. They didn't have a chief risk officer for 9 months! How is that the US economy's fault?

There's a reason they lobbied congress to weaken risk regulations.

I'm hoping people go to jail over this.

I didn't ask about SVB.

In terms of real dollars, those bonds will be worth less in 10 years because of inflation.

You’re correct in highlighting that if they fronted the cash now the bonds would be less, but it is simultaneously true that they will be worth less “2023 dollars” in 10 years.

We are currently working with 2023 dollars.

My understanding is the FDIC reimbursing up to 100K is fine and what you expect, it's just that many customers had balances exceeding that.

Just note that the FDIC provides deposit insurance up to $250k per named individual on the account. So joint accounts with married couples would be $500k. You can add children to increase as well.

Also, holding all of your fiat in a single bank or financial instrument is usually not a great idea. Diversification is important to any relatively stable financial position.

E.g: Fiat over $500k in a single institution is likely not earning as much as it could and runs the risk of loss of access to funds for X amount of time if the bank fails, until reimbursement happens. But $100k each in 2 different banks leaves you with $300k to invest however you see fit and still have enough liquidity to move quickly on opportunities.

Just shows how much I know...you can tell I'm not a rich man, I did not even realize it was increased to 250K in the wake of the financial crisis.

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