If a bank is complaining about the overhead, effort, cost, complexity of adhering to risk management protocols...
they're really actually saying "if it wasn't for pesky government, we'd be more than happy to take more risks with -your- money."
The main problem is that the government is too involved; namely that banks can get Congress/Federal Reserve to bail them out, as we see yet again. It really doesn't matter what rules gov sets, if it's always going to panic and dole out printed money at the slightest hint of hardship (and thus potential incumbent demise), you will get bad behavior, and those involved will do something like this again (plus inflation to boot).
If the costs are instead borne by the bank, and depositors of that bank, yes it will suck for many, but also risky investments like the kind SVB engaged in will be shown not to pay off. Depositors will ask many questions on the status of their deposits at other banks, forcing banks to be more transparent/less frivolous with client money.
None of which will happen now; the Fed took care of it after all! Maybe we'll get more emotional banking rules implemented, maybe not. Can definitely kicked down the road though, I'll be expecting another such failure in ~15 years time, if that. It's really getting old, and seemingly happening with more frequency regardless of the number of rules implemented.
You should have finished your post here. Nobody with any exposure to the real world should be suggesting if a bank's highly skilled risk management professionals working full time on assessing the bank's financial position with access to the confidential data can't assess the risk factors of the bank's bond portfolio adequately enough to keep the bank alive to continue paying them massive salaries and nor can any of the bank's wiped-out equity investors, the real problem is that Joe Sixpack just isn't motivated to spot it in the few minutes of his spare time he gets to ponder changing his bank account.
I mean, you're in a minority of people so confident in your knowledge of the banking system you're willing to offer a diagnosis of its "main problem", but I bet you still couldn't tell me what's unusually risky about the composition of SVB's bond portfolio and what implications that has for your own banking arrangements now it's been in the news for a week, never mind last month when people would have needed to know if they wanted to still have a startup.
I mean, I'm not saying people shouldn't learn lessons from bank failures. It's just that the lesson most of us learned is banks failed a lot more when they weren't regulated and insured.
Although this is almost trivially true: any single gov spend inflation effect is 'pretty much zero'. That's not the same as 'free' though. All spend together adds up to at least 2-3% in good times.
... and it just went up by 0.4% last month: https://reason.com/2023/03/14/inflation-isnt-going-away/
yikes
That doesn't mean that the Fed making depositors' bank balances that already existed continue to exist (and mostly continue to stay in the bank) most of which is simply a payout from an insurance fund doesn't add less inflationary pressure per dollar than most other types of spending, that the number of dollars involved isn't an exceptionally tiny fraction of the economy or that a 0.25% rise in the interest rate wouldn't have several orders of magnitude more impact in the opposite direction.
Its probably strongly positive, in that the knock-on effects of letting them burn would be an economic meltdown that would rapidly reduce inflation.
The monetary effects of the additional net spending before considering that os probably minimal, though.
Only the little people, with no connections to the decisions, get hurt when a bank fails. All the leadership gets out, no punishment, and maybe even makes a profit.
If we want to talk about changing rules for FDIC on what's covered, then fine.
What I have a hard time with is this panicked rule change to create a temporary (at least for now, as devs we all know how temporary fixes often go...) system for banks to sell treasuries at par instead of at market. Do the 'little people' get such a deal with what treasuries they may have?
And remember that this is happening because interest rates were hiked very quickly recently, causing treasury market prices to dip, and that happened because of the need to combat high inflation, and that happened due to the excessive bailout spending in the pandemic (more money chasing same/fewer goods), and that happened because of gov heavy-handily shutting down a LOT of the economy (it's okay, it was just the non-essential 'little people' work though...).
I could go on, but it's clearly one blunder fix after another. Maybe this recent FDIC action and halting interest rate hikes will be enough to soften the blow, and won't cause enough side effects to notice much. Who knows? I'm just skeptical.
I guess we'll see in 15 years or so...
It's very temporary - it has a date baked into the law - they must have bought the treasury before the start date of the law to use it as collateral. And they can't "sell" the treasuries, they can borrow against them at the Fed interest rate plus 1%. It's not exactly the great deal you think it is.
It's just to give banks some liquidity, that's all. They certainly won't profit from it - the US government will actually make money from this.
> Do the 'little people' get such a deal with what treasuries they may have?
Yes actually, you too can borrow under this plan if you bought the right treasury type before the start date. It's a really bad deal for you though, the interest payments will cause you to lose money. It's only worth it for you if you absolutely must have cash right now, and you don't care what it costs.
> I guess we'll see in 15 years or so...
It's a 1 year plan, and the effects will be completely minimal.
but do increase operating costs unnecessarily
Such as some random reports banks are required to file to FinCEN. Just creates an infinite loop of paper nobody ever evaluates.
Some mandatory personnel a regulator requires, yet cannot realistic do their adversarial job in an at-will employment world.
There’s more.
FinCEN reports aren't related to bank failures, they're related to money laundering and other financial crimes. FinCEN means "Financial Crimes Enforcement Network." Banks file these reports because a number of financial crimes require the use of bank services.
And most agency personnel would outcompete you in an adversarial at-will employment world. They work for the government, for less pay, because they want to, not because they need to.
Yes the internal auditor of the government released reports of failed government policies, how did you read anything else
We're talking about bank regulations, not every failed government policy. It appears you're just trying to move the goal posts.
These are random documents sent to the government when some transactions over a certain dollar amount are done, ostensibly to help prevent money laundering, in practice just waste everyone’s time.
The Government Accountability Office has reported on this for 30 years. GAO reports are full of other examples too.
And don't most banking systems automatically generate a CTR based on the transaction ledger? It's not like a teller is filling out a form and faxing it.
Getting to that point took a very long time.
But its not that much more efficient on the FinCEN side.
The HSBC thing is also another example of how the rest of AML/KYC is not the best implementation. It is only as strong as its weakest link, while burdening all links in this fairly pointless exercise of whitelisting transactions, instead of tackling the actual regressive behaviors that are illegal.