Stability is expensive. SVB preferred taxpayers pay for it | Hacker News Reader

Stability is expensive. SVB preferred taxpayers pay for it

sunderji.substack.com

Taxpayers did not pay for the FDIC protections. And shareholders are wiped out, so they didn't gain from this collapse.

Oh yes they did ... the fees that banks collect from depositors are used to fund the FDIC insurance fund.

Since everyone needs a bank account in this country, taxpayers are taking the hit on this one pure and simple.

It's more accurate to say that "bank depositors" are taking the hit, in the form of increased FDIC fees. Which end up reflected in lower interest rates for bank savings accounts. If you only keep a negligible money in bank accounts, then you aren't paying for this.

If you are keeping a lot of money in the bank, then yes, you are paying for this. But you are also gaining, in a sense, from the stability of the banking system.

This is also assuming that the sale of SVB's assets doesn't end up covering the full cost, and that the remaining cost is large enough to result in a meaningfully sized special assessment on FDIC member banks. My understanding is that neither of these outcomes are a given or even likelier than not.

I'd rather the stability come from prison sentences instead.

So to play devil's advocate here, one good thing that does come out of bailing out depositors is that the employees that work for these companies can get paid. Therefore, they can use that money to spend on the economy. They can prevent stress from losing a paycheck. That has to count for something doesn't it?

At what cost? What happens if the next bank run happens before the FDIC fund can be retopped off enough to cover depositor losses, even at the old 250k limit? How are they getting backstopped? If they aren't, why did SVB's depositors get the special treatment? For that matter, who gets to explain to previous losers of money to the FDIC limit why they apparently weren't cool enough to warrant a full backstopping like these people?

No credit for half-answers.

A careful look at SVB's balance sheet shows why deposits were so flighty, and why bankruptcy was in the cards by the end of last year.

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