typically the FDIC only insures the first $250,000 deposited in an account, but in the case of SVB they said they would cover all deposits
All accounts are whole on Monday as usual, the Fed simply backed everything and decided it was safer to figure it out later given concerns over contagion.
Apparently the FDIC funds are not entirely liquid either so the fed extended them a short-term loan to provide the liquidity. At the end of the day the shortfall on the sale got covered by the FDIC funds and the loan from the FED came through on the basis of the FDICs fund and the fact that they then owned all of SVBs assets(they were named the receiver).
The FDIC managed the entire thing, backed all the maneuvers with their 128bn fund, is independent and reports to the POTUS, and is entirely funded by deposit insurance fees on the financial industry. The FED had its own opinions on the whole situation I'm sure, and provided a short-term liquidity loan to the FDIC, but it's a bit misleading IMHO they way their involvement is discussed.
So you are saying that the decision to invoke the systemic risk exception and cover all depositor funds despite the least cost rule was an independent decision of the FDIC and not, as the law requires, a decision made by the Secretary of the Treasury, in consultation with the President, backed by supermajorities of both the Fed board and the FDIC board?
Strange that that’s not what the joint Treasury/FDIC/Fed press release said.
I hadn't seen any reports confirming a Fed loan but that seems like about the only way it could have worked.
I wasn't aware of any of this until a few weeks ago had to research. As a disclaimer and promotion of independent research haha.
The “least-cost rule” is not a self-imposed FDIC rule, its a rule Congress imposed in 1991 after bank failures in the 1980s were felt to have been managed to expensively when the FDIC used funds to allow banks to stay open or otherwise protected uninsured depositors and creditors.
> and given they could just “throw it out” as they see fit.
They can’t. There is an exception available to the least cost rule, but that exception – the systemic risk exception – cannot be invoked by the FDIC, it can be invoked only by the Secretary of the Treasury, in consultation with the President, and with the support of 2/3 of the FDIC Board of Directors and 2/3 of the Federal Reserve Board.