That was one of the questions on the call/presentation I was recently on and no one has a clear answer at the moment ( I suppose it is not a surprise since we can't take Yellen at her word ). Some clarity will be needed and sooner rather than later if stated policy and rules are to be believed to be real policy and rules.
FWIW, odds are, just about every bank by now has either reviewed or scrambling to review their exposure.
I do not envy the weight of Yellen's decisions, because from where I sit it is still hard to tell if it was a 'less bad choice' available.
The lesson they learned is to shout global emergency when your regional bank can't meet withdrawals due to poorly managed finances.
Banks will not be more prudent, in the long run. They've just been taught that the government will protect depositors beyond federally insured limits. So now they can make riskier bets.
The people who make the poor decisions absolutely took a hit. The Board and management of the bank all took a hit and lost their jobs.
I don’t see a big problem with depositors being made whole. The bonds that backed their deposits are fully intact.
Right after they cashed out significant amounts of SVB stocks.
I see nothing there about "we will guarantee deposits of any amount over $250k."
The decision to guarantee SVB may wreak havoc on the financial system as banks feel comfortable continuing to make risky bets and thus attracting more customers, knowing that the fed will rescue the customer deposits that backed those bets.
Greg Becker isn't going to jail, and he isn't going to be financially ruined. There are thousands of people willing to fill the role of extracting money from the government. The trick is to not give into their attempts to bend the rules.
0.5: 1
0.5: -1
For the bank the profit before paying interest to depositors:
0.5 * 1 - 0.2 * 0.5 = 0.4
For the insurer the cost is: 0.5 * -1* 0.8 = -0.4
If you want to run a ‘scam’ bank that makes money from looting the FDIC fund then having your capital going to zero sometimes is part of the cost of doing business. This is why it’s important for the insurer to try and control risk and insure there is enough capital so the loot equation does not work.