Treasury Secretary Yellen says not all uninsured deposits will be protected | Hacker News Reader

Treasury Secretary Yellen says not all uninsured deposits will be protected

msn.com

34 pointslp0_on_fire18 comments

> "I'm concerned you're ... encouraging anyone who has a large deposit at a community bank to say, 'we're not going to make you whole, but if you go to one of our preferred banks, we will make you whole.'"

"That's certainty not something that we're encouraging," Yellen replied.

They’re not encouraging people to act in their own self-interest while knowing full well that’s the reality they just created. I have to wonder where she tells her family and friends to bank?

It's not a "reality" it's a leap so many HNers are making do to goldfish memories and lack of nuance.

Could you explain further? By nuance do you mean the idea that they’re telling a “white lie” to keep smaller banks from overextending and intend to bail them out anyway? I do think that’s part of it, but it’s still going to cause capital flight.

The FDIC stepped in this one time, where's the guarantee they will step in every time to cover uninsured deposits?

The implication of the above is that they will not step in every time, but only when they decide (in what is surely a very transparent, consistent, and fair process) that the failing bank in question is "systemically important."

Frankly they should be, as this is the de facto situation that has been created. Extend the FDIC's scope to all accounts. Create new tiers for larger accounts, with their own funds/levies based on their increased variance. Increase capital requirements on banks, and introduce criminal penalties for bank executives that blow through the capital buffer, lose customer deposits, and end up requiring the government backstop. The industry has created these entities that are too big to fail, it's time they were regulated as such.

In the United States before the mid-1930s, there used to be something called "double liability" where the equity shareholders of a bank could be assessed up to the par value of their stock holdings if the bank failed and needed money to pay depositors. I've always been curious but have never looked into the history of why it was ended at that particular time. Best guess is just that they were desperate to do anything to make it easier for banks to lend money in the 1930s. Or maybe the usefulness of the assessment was called into question when banks failed right after the horrendous liquidation of the Great Depression, and none of the bank shareholders had much of any real assets to assess.

*for future bank failures

missed that bit in the headline there. This makes sense because SVB had a liquidity issue, which is easy enough to clean up without getting your hands too dirty. Other banks may fail differently.

If you increase interest rates so fast, liquidity issue gets systemic, everybody understands it.

If Credit Suisse can go down, any bank can go down.

> If Credit Suisse can go down, any bank can go down.

Credit Suisse has been fucked for over a decade. Their stock has been tanking for 15 years. They're pretty much the poster child of a bank embroiled in scandals and somehow lose money at the same time. It's probably the worst bank to choose to represent a "healthy" bank.

Everything that you say is true, and yet, it is indeed pretty difficult to imagine CS being allowed to "go down" in the sense of not making good on its derivatives obligations or other large debts.

All uninsured depositors are equal, but some uninsured depositors are more equal than others.

For some additional context, here is an excerpt from the hearing:

https://twitter.com/SeidlerCorp/status/1636518949872451584?s...

Here is my question:

Certain individuals have argued on HN that depositors of SVB should be made whole. For the most part, their arguments have not been based on systemic banking risk. Rather, their arguments have been based on the negative impact of employers suffering losses on uninsured deposits.

Would these same people argue that deposits of, say, community banks in Oklahoma be fully insured? Do they disagree with Yellen?

This is how things get handled when it's small Oklahoma farmers and their banks on the hook: https://www.farmprogress.com/marketing/taking-a-look-back-at...

I honestly can’t believe that government agencies can operate in this broad scope without further checks and balances. It is ripe for corruption , favoritism, and elitism. The fed needs checks on its power.

This feels less like a free market and more like a game.

Keep them guessing and let some fail to keep them somewhat honest. Though looks like the right calls from the right people to the right people can make things happen.

Provided the campaign contributions were substantial enough.

It’s a big club, and you ain’t in it.

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